SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): December 22, 1999
APPLE SUITES, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 333-77055 54-1933472
(State of (Commission (IRS Employer
incorporation) File Number) Identification No.)
306 EAST MAIN STREET
RICHMOND, VIRGINIA 23219
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code:
(804) 643-1761
<PAGE>
APPLE SUITES, INC.
FORM 8-K
Index
<TABLE>
<S> <C>
Page No.
Item 2. Acquisition or Disposition of Assets 6
Item 7. Financial Statements and Exhibits
a. Financial Statements
Jackson, Mississippi
1. Property Financial Statements
Independent Auditors Report 18
Balance Sheets - December 31, 1998 and December 31, 1997 19
Statements of Shareholders' Equity - Years ended December 31, 1997
and December 31, 1998 21
Income Statements - Years ended December 31, 1998 and
December 31, 1997 22
Statements of Cash Flows - Years ended December 31, 1998 and December
31, 1997 23
Notes to the Financial Statements - December 31, 1998 and
December 31, 1997 24
* * *
Balance Sheet - August 31, 1999 (unaudited) 27
Statement of Shareholders' Equity - For the Period January 1, 1999
through August 31, 1999 (unaudited) 29
Income Statement - For the Period January 1, 1999 through August 31,
1999 (unaudited) 30
Statement of Cash Flows - For the Period January 1, 1999 through
August 31, 1999 (unaudited) 31
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Notes to the Financial Statements - For the Period January 1, 1999
through August 31, 1999 (unaudited) 32
2. Pro Forma Financial Statements
Apple Suites, Inc.--Pro Forma Condensed Consolidated Balance Sheet as
of September 30, 1999 (unaudited) 35
Apple Suites, Inc.--Pro Forma Condensed Consolidated Statements of
Operations for the Year Ended December 31, 1998 and the
Nine Months Ended September 30, 1999 (unaudited) 37
Apple Suites Management, Inc.--Pro Forma Condensed Consolidated
Statements of Operations for the Year Ended December 31, 1998
and the Nine Months Ended September 30, 1999 (unaudited) 40
</TABLE>
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b. Exhibits
4.1 Note dated December 22, 1999 in the principal amount
of $ 4,384,500 made payable by Apple Suites, Inc. to
the order of Promus Hotels, Inc.
4.2 Fee and Leasehold Deed of Trust, Assignment of Leases
and Rents and Security Agreement dated December 22,
1999 from Apple Suites, Inc. and Apple Suites
Management, Inc. for the benefit of Promus Hotels,
Inc. pertaining to the Jackson, Mississippi hotel.
4.3 Fee and Leasehold Deed to Secure Debt, Assignment of
Leases and Rents and Security Agreement dated
December 22, 1999 from Apple Suites, Inc. and Apple
Suites Management, Inc. for the benefit of Promus
Hotels, Inc., constituting a second lien on the
Atlanta - Peachtree hotel.
4.4 Deed to Secure Debt Modification Agreement dated
December 22, 1999, among Promus Hotels, Inc., Apple
Suites, Inc. and Apple Suites Management, Inc.
pertaining to the Atlanta - Galleria/Cumberland
hotel.
4.5 Fee and Leasehold Mortgage, Assignment of Leases and
Rents and Security Agreement dated December 22, 1999
from Apple Suites, Inc. and Apple Suites Management,
Inc. for the benefit of Promus Hotels, Inc.
constituting a second lien on the
Detroit - Warren hotel.
4.6 Fee and Leasehold Deed of Trust, Assignment of Leases
and Rents and Security Agreement and Fixture Filing
dated December 22, 1999, from Apple Suites, Inc. and
Apple Suites Management, Inc. for the benefit of
Promus Hotels, Inc. constituting a second lien on
the Salt Lake City - Midvale hotel.
4.7 Second Deed of Trust Modification Agreement dated
December 22, 1999, among Promus Hotels, Inc., Apple
Suites REIT Limited Partnership and Apple Suites
Services Limited Partnership pertaining to the North
Dallas - Plano hotel.
4.8 Second Deed of Trust Modification Agreement dated
December 22, 1999, among Promus Hotels, Inc., Apple
Suites REIT Limited Partnership and Apple Suites
Services Limited Partnership pertaining to the Dallas
- Addison and Dallas - Irving/Las Colinas hotels.
10.1 Indemnity dated December 22, 1999 from Apple Suites,
Inc. to Promus Hotels, Inc. pertaining to the
Jackson, Mississippi hotel.
10.2 Schedules 2.1(h), 3.1(a)-8, and 3.1(b)-8 to the
Master Hotel Lease Agreement dated September 20, 1999
between Apple Suites, Inc. (as lessor) and
Apple Suites Management, Inc. (as lessee).
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10.3 Homewood Suites License Agreement dated December 22,
1999 between Promus Hotels, Inc. and Apple Suites
Management, Inc. pertaining to the
Jackson, Mississippi hotel.
10.4 Management Agreement dated December 22, 1999 between
Apple Suites Management, Inc. and Promus Hotels, Inc.
pertaining to the Jackson, Mississippi hotel.
10.5 Letter dated December 22, 1999 interpreting
Management Agreement dated December 22, 1999 among
Apple Suites, Inc., Promus Hotels, Inc., Promus
Hotels Florida, Inc. and Hampton Inns, Inc.
pertaining to the Jackson, Mississippi hotel.
10.6 Comfort Letter dated December 22, 1999 among Promus
Hotels, Inc., Apple Suites, Inc. and Apple Suites
Management, Inc. pertaining to the Jackson,
Mississippi hotel.
10.7 Negative Pledge Agreements dated December 22, 1999
between Apple Suites, Inc. and Promus Hotels, Inc.
10.8 Promissory Note dated December 22, 1999 in the amount
of $ 45,000 made payable by Apple Suites Management,
Inc. to the order of Apple Suites, Inc.
(Hotel Franchise Fees)
10.9 Promissory Note dated December 22, 1999 in the amount
of $ 9,100 made payable by Apple Suites Management,
Inc. to the order of Apple Suites, Inc.
24 Consent of Independent Auditors
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Item 2. Acquisition or Disposition of Assets
We purchased the Jackson-Ridgeland (Mississippi) hotel (described
below), an existing Homewood Suites(R) property, from Promus Hotels, Inc. as of
December 22, 1999. The total purchase price for the hotel was $5,846,000. We
used proceeds from our offering of common shares to pay twenty-five percent of
this total, or $1,461,500, at closing in cash. The balance of 75%, or
$4,384,500, is being financed by Promus Hotels, Inc. as short-term or "bridge
financing," as described below.
We paid a real estate commission on this purchase to Apple Suites
Realty Group, Inc., as our real estate broker. This corporation is owned by
Glade M. Knight, who is our president and chief executive officer. The total
amount of the real estate commission was $116,920, which equals two percent (2%)
of the total purchase price.
GENERAL BACKGROUND
The Jackson-Ridgeland hotel is an extended-stay hotel, and is licensed
to operate as Homewood Suites(R) property. We believe that the majority of the
guests at the hotel during the past 12 months have been business travelers. We
expect that this pattern will continue.
Each suite at a Homewood Suites(R) property consists of a bedroom and a
living room, with an adjacent kitchen area. The basic suite is known as a
"Homewood Suite," which generally has one double or king-size bed. Larger
suites, known as "Master Suites" or "Extended Double Suites" are also available.
These suites have larger rooms, with either one king-size bed or two smaller
beds. The largest suites contain two separate bedrooms. Wheelchair-accessible
suites are available at each hotel.
The suites have many features and amenities in common. Most suites have
ceiling fans and two color televisions (one in the bedroom and one in the living
room). Some suites have fireplaces. Typical living room furniture includes a
sofa (often a fold-out sleeper sofa), coffee table and work/dining table with
chairs. Some living rooms contain a recliner and a videocassette player. The
kitchens vary, but generally have a microwave, refrigerator, dishwasher, coffee
maker and stove, together with basic cookware and utensils.
The hotel is marketed, in part, through the Homewood Suites(R) web site
(http://www.homewood-suites.com), which is generally available 24 hours a day,
seven days a week, around the world. Reservations may be made directly through
the web site. The reservation system and the web site are linked to, and
cross-marketed with, the reservation systems and web sites for other hotel
franchises that are owned and operated by Promus Hotels, Inc. Those other
franchises include Hampton Inns(R), Doubletree Hotels(R) and Embassy Suites(R).
Such cross-marketing may affect occupancy at the Homewood Suites(R) properties
by directing travelers toward, or away from, Homewood Suites(R).
The hotel was actively conducting business at the time of their
acquisition. We believe that the acquisition was conducted without materially
disrupting any of the daily activities at the
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hotel. During the past 12 months, the hotel has been covered with property and
liability insurance, and we have arranged to continue such coverage. We believe
the hotel is adequately covered by insurance.
SPECIFIC FEATURES
The Homewood Suites(R) Jackson - Ridgeland is located on a 3.94 acre
site at 853 Centre Street, Ridgeland, Mississippi 39157. The hotel is
approximately 10 miles from downtown Jackson and 15 miles from the Jackson
Municipal Airport.
The hotel opened in February 1997. It has wood frame construction and
consists of a single building with three stories. The hotel contains 91 suites,
which have a combined area of 41,729 (rentable) square feet. The following types
of suites are available:
Type of Suite Number Available Square Feet Per Suite
------------- ---------------- ---------------------
Master Suite 56 406 to 510
Homewood Suite 29 458 to 557
Two-Bedroom Suite 6 690
The hotel offers a 40-seat breakfast/lounge area, a meeting room that
accommodates 45 to 50 people, and a business center that offers guests the use
of a personal computer, a photocopier and an electric typewriter. Recreational
facilities include an outdoor pool, a whirlpool and an exercise room. The hotel
also contains a guest convenience store and laundry. The hotel has its own
parking lot with 108 spaces. The hotel provides complimentary shuttle service
within a five mile radius (and to airport).
We believe that the hotel has been generally well maintained and is
generally in very good condition. Over the next 12 months, we plan to spend
approximately $333,000 on renovations or improvements. We expect that the
principal renovations and improvements will include carpet replacement,
furniture replacement, bathroom upgrades and parking lot resurfacing and
restriping. We expect to pay for the costs of these renovations and improvements
with proceeds obtained from our ongoing offering of common shares.
During 1999, the average stay at the hotel has been approximately three
nights, and approximately 48.2% of the guests have stayed for five nights or
more. Occupancy at the hotel is not seasonal. The following table shows average
daily occupancy rates, expressed as a percentage, since the opening of the
hotel:
Average Daily Occupancy Rate (calendar year)
1997 1998 1999
---- ---- ----
63.8% 80.6% 78.2%
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For January 1, 1999 through December 28, 1999, the average daily rate
per suite was $81.98, and the average daily net revenue per suite was $63.92. As
explained below, revenue from the hotel's operations will be used to pay
interest due under the promissory note dated December 22, 1999. There can be no
assurance, however, the proceeds of the offering will be sufficient to permit
such payments of principal. Assuming that no principal payments are made until
the maturity of the promissory note, and that the hotel continues to have the
level of net revenue specified above, approximately 17.55% of the hotel's
revenue would be needed to cover its portion of the interest payments.
The hotel's current rate structure is based on length of stay and type
of suite, as summarized below:
Length of Stay
(number of nights) Homewood Master Two Bedroom
------------------ -------- ------ -----------
1 to 4 $92 $92 $149
5 to 11 82 82 119
12 to 28 74 74 119
29 or more 69 69 109
The hotel offers a weekend discount. This discount varies by type of
suite and generally reduces the basic rate by 20 to 33%. The weekend discount is
not available to guests who stay for five nights or more. The hotel also offers
discounts to guests who stay under certain corporate accounts. These discounts
are often negotiated with the corporate customer and vary from account to
account. During the past 12 months, we estimate that approximately 70% of the
hotel's guests received a corporate discount.
The chief corporate accounts (as designated in the hotel's records)
include Fire Victims, Entergy, Copac, Computer Task Group, Mississippi
Diversified, Mississippi Baptist Health Systems, Hydro Ellay Enfield,
Saks/McRaes, International Paper and HMA. From January 1, 1999 through August 2,
1999, the 10 biggest corporate accounts were responsible for approximately 24.5%
of the hotel's occupancy. There can be no assurance, however, that the hotel
will continue to receive significant occupancy, or any occupancy, from the
corporate accounts identified above.
The table below shows the average effective annual rental per square
foot since the opening of the hotel:
1997
(annualized) 1998 1999
------------ ---- ----
$33.32 $50.70 $50.88
The depreciable real property component of the hotel has a currently
estimated Federal tax basis of $5,287,765 and will be depreciated over a life of
39 years (or less, as permitted by the Internal Revenue Code) using the
straight-line method. The basis of the personal property
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component of the hotel will be depreciated in accordance with the modified
accelerated cost recovery system of the Internal Revenue Code.
The following table sets forth the 1999 real estate tax information for
the hotel:
<TABLE>
<CAPTION>
Tax Estimated Value Taxable Portion Tax Amount
Jurisdiction (tax purposes) (15% of Est. Value) Rate of Tax
- ------------ --------------- ------------------- ---- ------
<S> <C> <C> <C> <C>
Madison County $4,044,310 $606,650 0.09917 $60,161.48
</TABLE>
We estimate that the annual property tax on the expected improvements
will be approximately $33,000 or less.
At least six competing hotels are located within seven miles of the
hotel. (The names of the competing franchises, as listed below, may be
registered as service marks or trade names.) One of the competing hotels is
newer than the hotel. The newer competing hotel has a franchise with Townplace
Suites. The other competing hotels have franchises with Residence Inn, Cabot
Lodge, Courtyard by Marriott, Harvey Hotel and Hilton. We believe that the rates
charged by the hotel are generally competitive with the rates charged by these
other hotels. We are aware of ongoing or proposed construction for up to six new
extended-stay hotels within 12 miles of the hotel. We expect these new hotels to
be franchised with Comfort Inn, Hawthorne Suites, Jameson Inn, King Edward
Hotel, Hilton Gardens and Springhill Suites.
HOTEL SUPPLIES AND FRANCHISE FEES
We have provided Apple Suites Management, Inc. with funds for the
purchase of certain hotel supplies, such as sheets, towels and so forth. Apple
Suites Management, Inc. is obligated to repay us under a promissory note made in
the principal amount of $9,100. This promissory note provides for an annual
interest rate of nine percent (9%), which would increase to twelve percent (12%)
if a default occurs, and repayment in sixty-one (61) monthly installments. The
first installment consists of interest only. The due date for the first
installment, subject to a five-day grace period, is January 1, 2000. The
remaining installments consist of principal and interest on an amortized basis.
The final maturity date is January 1, 2005.
We have also provided Apple Suites Management, Inc. with funds for the
payment of hotel franchise fees to Promus Hotels, Inc. Apple Suites Management,
Inc. is obligated to repay us under a promissory note made in the principal
amount of $45,000. This promissory note is substantially similar to the one
described above, but provides for repayment in one hundred twenty-one (121)
monthly installments and has a final maturity date of January 1, 2010.
DESCRIPTION OF FINANCING
As indicated above, Promus Hotels, Inc. financed 75% of the purchase
price of the Jackson-Ridgeland hotel. This financing is substantially similar to
the financing provided by Promus Hotels, Inc. when we purchased our other
hotels. The amounts we owe to Promus Hotels, Inc. are evidenced by the following
promissory notes:
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<TABLE>
<CAPTION>
Original Remaining
Date of Principal Principal as of Annual Rate Date of
Promissory Note Amount January 1, 2000 of Interest Maturity
--------------- ------ --------------- ----------- --------
<S> <C> <C> <C> <C>
September 20, 1999 $26,625,000 $26,625,000 8.5% October 1, 2000
October 5, 1999 $ 7,350,000 $ 7,350,000 8.5% October 1, 2000
November 29, 1999 $30,210,000 $30,210,000 8.5% December 1, 2000
December 22, 1999 $ 4,384,500 $ 4,384,500 8.5% January 1, 2001
</TABLE>
We consider the financing from Promus Hotels, Inc. to be "bridge
financing" because of its short-term nature (that is, each promissory note
reaches maturity within approximately one year of its date of execution).
Despite the temporary use of bridge financing, over the long-term we will seek
to hold our properties on an all-cash basis, as indicated in the prospectus.
The promissory notes have several provisions in common, which include
the following:
o monthly interest payments
o monthly principal payments, to the extent of the net equity
proceeds from our offering of common shares
o our delivery of monthly notices to specify such net equity
proceeds
o our right to prepay the notes, in whole or in part, without
premium or penalty
o a late payment premium of four percent (4%) for any payment not
made within ten (10) days of its due date
Principal payments under the promissory note dated as of December 22,
1999 are not scheduled to start until the other promissory notes have been paid
in full. Assuming those other notes continue to be paid on schedule, principal
under the note dated as of December 22, 1999 will be due in a single installment
on its maturity date.
SOURCE OF PAYMENTS
Revenue from the operation of the hotels will be used to pay interest
under the promissory notes we have made to Promus Hotels, Inc. The "net equity
proceeds" from our offering of common shares will be used to pay principal. The
phrase "net equity proceeds" means the total proceeds from our offering of
common shares, as reduced by selling commissions, a marketing expense allowance,
closing costs, various fees and charges (legal, accounting, and so forth), a
working capital reserve and a reserve for renovations, repairs and replacements
of capital improvements. We were permitted, by an October 1999 letter agreement,
to use our net equity proceeds to pay 25% of the purchase price of the
Jackson-Ridgeland hotel (rather than use such amounts exclusively for payments
under the earlier promissory notes.)
There can be no assurance that the net equity proceeds from our
offering of common shares will be sufficient to pay principal under the
promissory notes on or before the required due dates. The following amounts
would be due on the maturity dates of the promissory notes,
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assuming that interest payments are made on schedule and that no payments of
principal are made before those maturity dates:
<TABLE>
<CAPTION>
Date of Principal Monthly Total Due
Maturity Due Interest Due at Maturity
-------- --- ------------ -----------
<S> <C> <C> <C>
October 1, 2000 $33,975,000 $240,656.25 $34,215,656.25
December 1, 2000 $30,210,000 $213,987.50 $30,423,987.50
January 1, 2001 $ 4,384,500 $ 31,056.88 $ 4,415,556.88
</TABLE>
In the event of a default under the promissory notes, various remedies
are available to Promus Hotels, Inc. under certain deeds of trust, which are
described below.
LICENSING AND MANAGEMENT
We expect that the Jackson-Ridgeland hotel will continue to operate as
Homewood Suites(R) property. To help achieve that result, Promus Hotels, Inc.
has executed a license agreement dated as of January 4, 2000. Promus Hotels,
Inc. is managing the hotel under a management agreement dated as of December 22,
1999. These license and management agreements are among the material contracts
described below.
SUMMARY OF MATERIAL CONTRACTS
DEEDS OF TRUST AND RELATED DOCUMENTS
Each of our hotels, including the Jackson-Ridgeland hotel, is subject
to a mortgage on its real property, a security interest in its personal
property, and an assignment of hotel rents and revenues, all in favor of Promus
Hotels, Inc. (As described above, Promus Hotels, Inc. provided financing for our
hotel purchases). These encumbrances are created by substantially similar
documents. For simplicity, we will refer to each of these documents as a "deed
of trust."
At each closing on our purchase of a hotel or group of hotels, we
further encumbered our other hotels. Those further encumbrances are created by
either additional deeds of trust or negative pledges. These documents are
described below.
Each deed of trust corresponds to one of the promissory notes we made
to Promus Hotels, Inc., and secures the payment of principal and interest under
that promissory note. The encumbrance created by a deed of trust will terminate
when its corresponding promissory note is paid in full.
We are subject to various requirements under the deeds of trust. For
instance, we must maintain adequate insurance on the hotels and we must not
grant any further assignments of rents or leases with respect to the hotels.
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Each deed of trust contains a substantially similar definition of
events of default. In each case, the events of default include (without
limitation) any default that occurs under any of the promissory notes or under
another deed of trust, and any sale of the secured property without the prior
consent of Promus Hotels, Inc. Upon any event of default, various remedies are
available to Promus Hotels, Inc. Those remedies include, for example (1)
declaring the entire principal balance under the promissory notes, and all
accrued and unpaid interest, to be due and payable immediately; (2) taking
possession of the secured property, including the hotels; and (3) collecting
hotel rents and revenues, or foreclosing on the hotels, to satisfy unpaid
amounts under the promissory notes. Each deed of trust requires us to pay any
costs that may be incurred in exercising such remedies.
Negative pledges apply to three of our hotels (Richmond - West End,
Clearwater and Baltimore - BWI Airport). The negative pledges prohibit any
transfer or further encumbrance of the hotels, in whole or in part, without the
prior written consent of Promus Hotels, Inc. Each negative pledge was executed
concurrently with a particular promissory note, and will terminate when its
corresponding promissory note is paid in full.
ENVIRONMENTAL INDEMNITY
An environmental indemnity applies to the Jackson-Ridgeland hotel. This
indemnity protects Promus Hotels, Inc. in the event that we undertake any
corrective work to remove or eliminate hazardous materials from the hotel.
Hazardous materials are defined in the indemnity to include, for example,
asbestos and other toxic materials. We are not aware of any hazardous materials
at the hotel, but there can be no assurance that such materials are not present.
Under the indemnity, we have agreed to indemnify and protect Promus
Hotels, Inc. from any losses that it may incur because of (1) the
nonperformance, or delayed performance and completion, of corrective work; or
(2) the enforcement of the indemnities. Our indemnity generally will terminate
upon payment in full under the promissory note dated as of December 22, 1999.
However, our indemnity will continue with respect to those litigation or
administrative claims, if any, that involve indemnified losses and that are
pending at the date of full payment. In addition, for a period of four years
after the date of such full payment, we will be obligated to pay any enforcement
costs for subsequent litigation or administrative claims.
MASTER HOTEL LEASE AGREEMENT
We have leased the Jackson-Ridgeland hotel to Apple Suites Management,
Inc. Our existing master hotel lease agreement, dated as of September 20, 1999,
has been supplemented to include this hotel as leased properties.
The master hotel lease agreement provides that Apple Suites Management,
Inc. will pay us a base rent, percentage rent and certain additional charges.
Base rent is payable in advance in equal monthly installments. In addition, for
each calendar quarter during the term of the leases, Apple Suites Management,
Inc. will pay percentage rent based on a percentage of gross revenues (less
sales and room taxes), referred to as "suite revenue," derived in connection
with the rental of suites at the hotel. The percentage rent is equal to (a) 17%
of all year-to-date suite revenue,
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up to the applicable quarterly suite revenue breakpoint (as shown below); plus
(b) 55% of the year-to-date suite revenue in excess of the applicable quarterly
suite revenue breakpoint, less both base rents and the percentage rent paid year
to date. The base rent and the quarterly suite revenue breakpoints will be
adjusted each year beginning on January 1, 2001, based on the most recently
published Consumer Price Index.
An annual base rent is $462,750 for both 1999 and 2000. The quarterly
suite revenue breakpoints through 2008, before any adjustment based on the
Consumer Price Index, are described in the table below and in the subsequent
paragraph:
<TABLE>
<CAPTION>
Suite Revenue Breakpoints for the First Quarter
2000 2001 2002 2003 2004 2005 2006 2007 2008
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$150,394 $155,021 $161,963 $166,590 $171,218 $175,845 $180,473 $185,100 $189,728
</TABLE>
In all cases, the suite revenue breakpoints for the second, third and
fourth quarters of the same years are determined by multiplying the breakpoint
for the first quarter (as shown above) by two, three or four, respectively.
HOTEL LICENSE AGREEMENT
The Jackson-Ridgeland hotel is licensed to operate as a Homewood
Suites(R) property. This license was granted by Promus Hotels, Inc. to Apple
Suites Management, Inc. under a license agreement dated as of January 4, 2000.
The license agreement provides that Apple Suites Management, Inc. has
the right to operate the hotel using the Homewood Suites(R) "System." The
"System" includes the service mark "Homewood Suites(R)" and other associated
service marks and similar property rights, access to a reservation system,
distribution of advertising, access to a "Standards Manual," and access to other
training, information, programs and policies comprising the Homewood Suites(R)
hotel business.
In exchange for the license to use the Homewood Suites(R) System, Apple
Suites Management, Inc. has agreed to numerous requirements and restrictions
applicable to its operation of the hotel. Apple Suites Management, Inc. is also
required to pay royalties and other fees, as described below.
Apple Suites Management, Inc. will be subject to various operational
requirements pursuant to the license agreement and a "Standards Manual." The
Standards Manual may be changed at any time by Promus Hotels, Inc. As described
below, Promus Hotels, Inc. will act as the manager of the hotel under a
management agreement. As a practical matter, many of the requirements in the
license agreement and Standards Manual will be the responsibility of Promus
Hotels, Inc. However, certain requirements will remain the practical
responsibility of Apple Suites Management, Inc. Furthermore, the failure of
Promus Hotels, Inc. to comply with the management agreement will not, of itself,
relieve Apple Suites Management, Inc. from the obligations imposed upon it under
the license agreement. In such event, the remedies available
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to Apple Suites Management, Inc. may be limited to monetary damages for breach
of the hotel management agreement.
The hotel must be operated in accordance with the requirements
established by Promus Hotels, Inc. These requirements cover matters such as the
types of services and products that may be offered at the hotel, the style and
type of signage, the appearance and condition of the hotel, the use of the
reservations system for guests, adherence to a 100% Satisfaction Guarantee rule
of operation, required insurance coverage and other requirements. The
requirements are designed to insure that each hotel meets uniform guidelines for
all Homewood Suites(R) Hotels, wherever located.
Under the license agreement, Apple Suites Management, Inc. is granted
the right to use the Homewood Suites(R) System only during the term of the
license agreement, and has no other ownership interest in, or rights to, such
System. The term of the license agreement is 20 years, but the agreement is
subject to early termination for various reasons, including default by Apple
Suites Management, Inc. or its efforts to obtain bankruptcy protection. If the
license agreement is terminated for any reason, the hotel must immediately cease
to identify itself as a Homewood Suites(R) Hotel.
Apple Suites Management, Inc. is required to pay to Promus Hotels, Inc.
the following monthly amounts: (1) A royalty fee equal to 4% of the gross suites
revenues (less sales and room taxes) received from rental of suites at the
hotel; (2) a marketing contribution equal to 4% of gross suites revenues; (3)
any amounts due Promus Hotels, Inc. for goods or services provided by Promus
Hotels, Inc. to Apple Suites Management, Inc.; and (4) the amount of sales,
gross receipts or similar taxes imposed on Promus Hotels, Inc. as a result of
the payments described in clauses (1), (2), and (3) of this sentence.
Apple Suites Management, Inc. is required to prepare and deliver to
Promus Hotels, Inc. daily, monthly and other reports which, among other things,
certify gross revenues from operation of the hotel. The 4% marketing
contribution is subject to change by Promus Hotels, Inc. from time to time.
Furthermore, there is no assurance that the marketing contribution from the
hotel will be used to fund advertising or marketing for the hotel actually
making the contribution.
Under the license agreement, Promus Hotels, Inc. may from time to time
require Apple Suites Management, Inc. to upgrade hotel facilities to meet the
standards then specified in the Standards Manual. We expect to pay the costs of
any such required upgrades from the proceeds of our ongoing offering of common
shares, although there can be no assurance that such proceeds will be sufficient
for this purpose.
HOTEL MANAGEMENT AGREEMENT
The Jackson-Ridgeland hotel is being managed by Promus Hotels, Inc.
under a management agreement dated December 22, 1999 with Apple Suites
Management, Inc. (which is leasing the hotel from us, as discussed above).
14
<PAGE>
The management agreement requires Promus Hotels, Inc. to operate the
hotel in conformity with the hotel license agreement described above. Promus
Hotels, Inc. will be responsible for directing the day-to-day activities of the
hotel and establishing policies and procedures relating to the management and
operation of the hotel.
As part of its responsibilities for directing the day-to-day activities
of the hotel, Promus Hotels, Inc. will hire, supervise and determine the
compensation and terms of employment of all hotel personnel. Promus Hotels, Inc.
also will determine the terms for admittance, room rates and all use of hotel
rooms. Promus Hotels, Inc. will select and purchase all operating equipment and
supplies for the hotel. Promus Hotels, Inc. will be responsible for (1)
advertising and promoting the hotel in coordination with the requirements of the
license agreement described above; and (2) obtaining and maintaining any permits
and licenses required to operate the hotel.
Each year, Promus Hotels, Inc. will submit a proposed operating budget
for the hotel to Apple Suites Management, Inc. for its approval. Each budget
will include a business plan describing the business objectives and strategies
for the hotel for the period covered by the budget. In addition, Promus Hotels,
Inc. will submit a recommended capital budget to Apple Suites Management, Inc.
for its approval. The capital budget will apply to furnishings, equipment and
ordinary hotel capital replacements needed to operate the hotel in accordance
with the hotel license agreement. At a minimum, each year's budget for capital
improvements will provide for capital expenditures that are required to meet the
minimum standards of the hotel license agreement, subject to the following
limits: (1) three percent (3%) of adjusted gross revenues for the first full
year after the commencement of the management agreement; (2) four percent (4%)
of adjusted gross revenues for the second full year after the commencement of
the management agreement; and (3) five percent (5%) of adjusted gross revenues
for each year thereafter.
In exchange for performing the services described above, Promus Hotels,
Inc. will receive a management fee, payable monthly. The management fee will
equal 4% of adjusted gross revenues. Adjusted gross revenues are defined
generally as all revenues derived from the hotel, as reduced by (1) refunds;
(2) sales and other similar taxes; (3) proceeds from the sale or other
disposition of the hotel furnishings and other capital assets; (4) fire and
extended coverage insurance proceeds; (5) credits or refunds made to customers;
(6) condemnation awards; (7) proceeds of financing or refinancing of the hotel;
(8) interest on bank accounts; and (9) gratuities or service charges added to a
customer's bill.
Prior to the second anniversary of the management agreement, a portion
of the management fee equal to 1% of adjusted gross revenues will be
subordinated to payment of a basic return to Apple Suites Management, Inc. The
basic return is generally equal to 11% of the purchase price for the hotel (and
related acquisition costs).
The management agreement has a 15-year term. However, Apple Suites
Management, Inc. may terminate the management agreement after its tenth
anniversary. If it does so, Promus Hotels, Inc. will be entitled to a
termination fee. The termination fee generally is equal to (1) the aggregate
management fees earned during the preceding 24 months, if the termination occurs
after the tenth anniversary but on or before the 14th anniversary of the
effective date of the
15
<PAGE>
management agreement; or (2) the average monthly management fee earned during
the preceding 24 months times the number of full calendar months remaining in
the term, if the termination occurs after the 14th anniversary of the effective
date of the management agreement.
In addition, if the hotel license agreement is terminated, Promus
Hotels, Inc. may terminate the management agreement. If Promus Hotels, Inc.
terminates the management agreement it will be entitled to a termination fee
equal to (a) $449,143 if the termination occurs within two years of the
effective date of the management agreement; (b) 150% of the aggregate monthly
management fees earned during the preceding 24 months, if the termination occurs
after the second anniversary but on or before the tenth anniversary of the
effective date of the management agreement; (c) 75% of the aggregate monthly
management fees earned during the preceding 24 months, if the termination occurs
after the tenth anniversary but on or before the 14th anniversary of the
effective date of the management agreement; or (d) the average monthly
management fee earned during the preceding 24 months times the number of full
calendar months remaining in the term, if the termination occurs after the 14th
anniversary of the effective date of the management agreement.
Beginning in the first full calendar year of operations, Apple Suites
Management, Inc. may terminate the management agreement if Promus Hotels, Inc.
fails to achieve, in any two consecutive calendar years, a gross operating
profit which is at least equal to 85% of the annual budgeted gross operating
profit. Promus Hotels, Inc. can avoid termination by making a cash payment to
Apple Suites Management, Inc. equal to the difference between the gross
operating profits achieved and 85% of the budgeted gross operating profits for
the second such year. Generally, gross operating profit is defined as the amount
by which adjusted gross revenues exceed operating costs.
COMFORT LETTERS
Our decision to lease the Jackson-Ridgeland hotel to Apple Suites
Management, Inc., is based upon certain technical tax considerations that apply
to us as a real estate investment trust (or REIT) for federal income tax
purposes. To address operational complexities and other potential problems that
may arise from using Apple Suites Management, Inc. as the lessee of our hotel
and the party to the license agreement and management agreement, we have entered
into a "Comfort Letter" with Promus Hotels, Inc. dated as of December 22, 1999.
The comfort letter grants us certain rights if problems arise under such
agreements, or if the lease structure is no longer necessary for tax purposes.
The chief provisions of the comfort letter are described below.
First, as long as we are the owner of the hotel and the license
agreement is in effect, Promus Hotels, Inc. has agreed to notify us of any
breach of the license agreement or management agreement by the lessee. We will
have 10 days to cure any monetary default and 30 days to cure any non-monetary
default. There is no opportunity to cure defaults not capable of being cured
(such as bankruptcy of the lessee or a transfer in violation of the license
agreement), but in such situation, a default would occur under the lease and we
would be able to terminate the lease.
16
<PAGE>
Second, if there is a default under the lease and we elect to terminate
the lease, we have the right, which may be exercised within 90 days after giving
notice of termination to Promus Hotels, Inc., to enter into a new lease
agreement with a successor lessee. In general, any such successor lessee must be
majority owned and controlled by us or our affiliates (which includes our
directors and executive officers) and must be a person or entity that has
adequate financial resources to perform under the lease, is not the franchisor
or operator of a competing chain of hotels, and enjoys a favorable reputation
for integrity. If we enter into a new lease, the successor lessee will have a
right to enter into a new license agreement and new management agreement with
Promus Hotels, Inc. for the balance of the original terms of those agreements.
However, if we are unable to provide a qualified successor lessee within such
90-day period, the license agreement may be terminated at the option of Promus
Hotels, Inc. and we will be obligated to pay liquidated damages to Promus
Hotels, Inc. In general, liquidated damages are an amount equal to the total
fees payable under the license agreement for the three years prior to
termination. If the hotel has been open for less than three years, the amount is
equal to the greater of: (1) 36 times the monthly average of fees payable for
the period during which the hotel has been open; or (2) 36 times the amount
payable for the last full month of operation prior to termination. If the hotel
is open but has not been in operation for a full month, liquidated damages equal
$3,000 per suite in the hotel. Other liquidated damage provisions apply in the
case of termination of the license agreement before commencement of construction
of the hotel or if construction is complete but the hotel is not yet opened.
Third, the comfort letter provides that if the income tax rules
applicable to real estate investment trusts are amended to permit us to operate
the hotel directly, we may give notice of such tax change to Promus Hotels, Inc.
and of our election to terminate the lease. We then have the right to enter into
a new license agreement and a new management agreement for a term equal to the
balance of the original terms of such agreements.
17
<PAGE>
<TABLE>
<S> <C> <C> <C>
L.P. MARTIN & COMPANY
A PROFESSIONAL CORPORATION
MEMBERS CERTIFIED PUBLIC ACCOUNTANTS MEMBERS
VIRGINIA SOCIETY OF 4132 INNSLAKE DRIVE AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS GLEN ALLEN, VIRGINIA 23060 CERTIFIED PUBLIC ACCOUNTANTS
LEE P. MARTIN, JR., C.P.A. PHONE: (804) 346-2626 ROBERT C. JOHNSON, C.P.A.
WILLIAM L. GRAHAM, C.P.A. FAX: (804) 346-9311 LEE P. MARTIN, C.P.A. (1948-76)
BERNARD G. KINZIE, C.P.A.
W. BARCLAY BRADSHAW, C.P.A.
</TABLE>
Independent Auditors' Report
Apple Suites, Inc.
Richmond, Virginia
We have audited the accompanying balance sheets of the Homewood Suites
Hotel - Jackson as of December 31, 1998 and 1997, and the related statements of
income, shareholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the management of the hotel. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion. The
accompanying financial statements were prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission as
described in Note 1 to the financial statements and are not intended to be a
complete presentation of the Homewood Suites Hotel - Jackson.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Homewood Suites
Hotel - Jackson as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ L. P. Martin & Co., P. C.
November 7, 1999
18
<PAGE>
HOMEWOOD SUITES HOTEL - JACKSON
BALANCE SHEETS
ASSETS
December 31,
1998 1997
CURRENT ASSETS
Cash $ 34,756 $ 13,970
Accounts Receivable, Net 148,205 104,456
Prepaids and Other 25,350 25,350
--------------- ---------------
TOTAL CURRENT ASSETS 208,311 143,776
--------------- ---------------
INVESTMENT IN HOTEL PROPERTY
Land and Improvements 749,969 749,969
Buildings and Improvements 5,284,823 5,161,652
Furniture, Fixtures and Equipment 1,197,181 1,182,151
--------------- ---------------
TOTAL 7,231,973 7,093,772
Less: Accumulated Depreciation (797,849) (380,298)
--------------- ---------------
NET INVESTMENT IN HOTEL PROPERTY 6,434,124 6,713,474
--------------- ---------------
TOTAL ASSETS $ 6,642,435 $ 6,857,250
=============== ===============
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31,
1998 1997
CURRENT LIABILITIES
Accounts Payable $ 98,225 $ 144,491
Accrued Taxes 87,475 43,165
Accrued Expenses - Other 41,034 39,523
--------------- ---------------
TOTAL CURRENT LIABILITIES 226,734 227,179
--------------- ---------------
SHAREHOLDERS' EQUITY
Contributed Capital 6,046,570 6,734,271
Retained Earnings (Accumulated Deficit) 369,131 (104,200)
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 6,415,701 6,630,071
--------------- ---------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 6,642,435 $ 6,857,250
=============== ===============
20
<PAGE>
HOMEWOOD SUITES HOTEL - JACKSON
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained
Earnings Total
Contributed (Accumulated Shareholders'
Capital Deficit) Equity
<S> <C> <C> <C>
Balances, January 1, 1997 $ 4,638,129 $ (70,003) $ 4,568,126
Net Loss - (34,197) (34,197)
Capital Contributions, Net 2,096,142 - 2,096,142
--------------- --------------- ---------------
Balances, December 31, 1997 6,734,271 (104,200) 6,630,071
Net Income - 473,331 473,331
Capital Distributions, Net (687,701) - (687,701)
--------------- --------------- ---------------
Balances, December 31, 1998 $ 6,046,570 $ 369,131 $ 6,415,701
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
HOMEWOOD SUITES HOTEL - JACKSON
INCOME STATEMENTS
Years Ended December 31,
1998 1997
GROSS OPERATING REVENUE
Suite Revenue $ 2,115,861 $ 1,390,347
Other Customer Revenue 161,811 130,494
--------------- ---------------
TOTAL REVENUE 2,277,672 1,520,841
--------------- ---------------
EXPENSES
Property and Operating 927,878 700,874
General and Administrative 69,009 56,870
Advertising and Promotion 128,067 87,703
Utilities 87,815 73,585
Real Estate and Personal Property Taxes,
and Property Insurance 89,387 43,959
Depreciation Expense 417,551 380,298
Franchise Fees 84,634 -
Pre-Opening Expenses - 211,749
--------------- ---------------
TOTAL EXPENSES 1,804,341 1,555,038
--------------- ---------------
NET INCOME (LOSS) $ 473,331 $ (34,197)
=============== ===============
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
HOMEWOOD SUITES HOTEL - JACKSON
STATEMENTS OF CASH FLOWS
Years Ended December 31,
1998 1997
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
Net Income (Loss) $ 473,331 $ (34,197)
--------------- ---------------
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided by
Operating Activities:
Depreciation 417,551 380,298
Change In:
Accounts Receivable (43,749) (104,456)
Prepaids and Other Current Assets - (25,350)
Accounts Payable (46,266) 7,278
Accrued Taxes 44,310 42,292
Accrued Expenses - Other 1,511 36,532
--------------- ---------------
Net Adjustments 373,357 336,594
--------------- ---------------
NET CASH FLOWS FROM OPERATING
ACTIVITIES 846,688 302,397
CASH FLOWS TO FINANCING ACTIVITIES
Capital Distributions, Net (825,902) (290,927)
--------------- ---------------
NET INCREASE IN CASH 20,786 11,470
CASH, BEGINNING OF YEAR 13,970 2,500
--------------- ---------------
CASH, END OF YEAR $ 34,756 $ 13,970
=============== ===============
SUPPLEMENTAL DISCLOSURES:
NONCASH FINANCING AND INVESTING ACTIVITIES
YEAR ENDED DECEMBER 31, 1998
Investments in hotel properties in the amount of $138,201 were financed
with capital contributions.
YEAR ENDED DECEMBER 31, 1997
Investments in hotel properties in the amount of $7,093,772, were
financed with capital contributions.
Construction in progress in the amount of $5,186,984 was reclassified to
investment in hotel properties.
Accounts payable for construction costs totaling $480,281 was curtailed
with capital contributions.
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
HOMEWOOD SUITES HOTEL - JACKSON
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
The Homewood Suites Hotel - Jackson is a 91 suite hotel, located in Ridgeland,
Mississippi, which opened for business on February 20, 1997. The Hotel
specializes in providing extended stay lodging to business or leisure travelers.
While customers may rent rooms for a night, terms of up to a month or longer are
available. Services offered, which are particularly attractive to the extended
stay traveler, include laundry services, 24 hour on-site convenience stores and
grocery shopping services.
Economic conditions in the area in which the Hotel is located impact revenues
and the ability to collect accounts receivable.
The Hotel has been owned and managed by an affiliate of Promus Hotels, Inc. (the
Owner) throughout the financial statement periods. The Owner has a contract
pending to sell the Hotel to an affiliate of Apple Suites, Inc., a real estate
investment trust established to acquire equity interests in hotel properties.
The statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission for inclusion in a filing by Apple Suites,
Inc.
The corporate owner pays income taxes on taxable income of the company as a
whole and does not allocate income taxes to individual properties. Accordingly,
the financial statements have been presented on a pretax basis.
NOTE 2 - SIGNIFICANT ACCOUNTING POLCIIES
Property - The hotel property is recorded at cost. Depreciation has been
recorded straight-line using the following lives:
Life
Land Improvements 10-15 Years
Buildings and Improvements 15-35 Years
Furniture, Fixtures and Equipment 3-10 Years
(Continued)
24
<PAGE>
HOMEWOOD SUITES HOTEL - JACKSON
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2- SIGNIFICANT ACCOUNTING POLICIES, Continued
Major renewals, betterments and improvements are capitalized, while ongoing
maintenance and repairs are expensed as incurred. Building costs include
interest capitalized during the construction period. Construction in progress
represents Hotel assets under construction. At the point construction is
completed and the Hotel is ready to be placed in service, the costs are
reclassified to investment in Hotel property for financial statement
presentation. Construction in progress totaling $5,186,984 was reclassified to
investment in hotel property during 1997.
Estimates - The preparation of financial statements in accordance with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosures related thereto. Actual results could differ from
those estimates.
Annually, management of the hotel reviews the carrying value and remaining
depreciable lives of the Hotel property and related assets. Management does not
believe there are any current indications of impairment. However, it is possible
that estimates of the remaining useful lives will change in the near term.
Accounts receivable are recorded net of an allowance for doubtful accounts based
on management's historical experience in estimating credit losses. Actual
uncollectible balances written off may be more or less than the allowance
recorded.
Cash - Cash includes all highly liquid investments with a maturity date of three
months or less when purchased.
Advertising - Advertising costs are expensed in the period incurred.
Pre-Opening Expenses - Pre-opening expenses represent operating expenses
incurred prior to initial opening of the Hotel. In 1997, pre-opening expenses of
$211,749, were expensed as incurred.
(Continued)
25
<PAGE>
HOMEWOOD SUITES HOTEL - JACKSON
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES, Continued
Inventories - The Hotel maintains supplies of room linens and food and
beverages. However, due to the ongoing routine replacement of these items and
the difficulty in establishing market values, management has chosen to expense
these items at point of purchase.
NOTE 3 - RELATED PARTY TRANSACTIONS
The Owner allocates a monthly accounting fee of $1,000 to the Hotel. These fees
totaled $12,000 in 1998 and $10,338 in 1997. The Owner also charges the Hotel a
fee for corporate advertising, training and reservations equal to four percent
of net suite revenue. These fees totaled $84,634 in 1998 and $53,614 in 1997. In
1998, the Owner charged a franchise fee of $84,634 to the Hotel, also computed
at four percent of suite revenue. No franchise fee was charged in 1997.
Effective in 1999, the Owner will be charging a "base management fee" of three
percent of suite revenue to the hotel.
The acquisition cost of the property and related furnishings and equipment was
financed by the Owner. The Owner allocated interest to the property on monies
advanced to fund the construction costs. The interest costs have been
capitalized and depreciated in accordance with the Hotel's normal depreciation
policy. Interest capitalized and included in the cost basis of the Hotel totaled
$235,723 in 1997.
On most property and equipment purchases, excluding base hotel construction
contracts, the following fees paid to Promus Hotels, Inc. have been capitalized:
Purchase Fee - 4% of Asset Cost
Project Management Fee - 4.5% and 5.5.% of labor portion of
capitalized asset costs in 1998 and 1997, respectively.
The Hotel maintains a depository bank account into which customer revenues have
been deposited. The bulk of the Hotel's operating expenditures are paid through
the Owner's corporate accounts. Funds are transferred from the Hotel's
depository bank accounts to the Owner periodically. The transfers to the Owner
and expenditures made on behalf of the Hotel by the Owner are accounted for
through various intercompany accounts. No interest has been charged on these
intercompany advances from ongoing operations. There is no intention to repay
any advances to or from the Owner. Accordingly, the net amounts have been
included in shareholders' equity with 1998 and 1997 intercompany/intracompany
transfers being reflected as net capital contributions or distributions.
26
<PAGE>
HOMEWOOD SUITES HOTEL - JACKSON
BALANCE SHEET (unaudited)
AUGUST 31, 1999
ASSETS
CURRENT ASSETS
Cash $ 43,476
Accounts Receivable, Net 227,188
Prepaids and Other 25,350
---------------
TOTAL CURRENT ASSETS 296,014
---------------
INVESTMENT IN HOTEL PROPERTY
Land and Improvements 754,803
Buildings and Improvements 5,278,927
Furniture, Fixtures and Equipment 1,197,295
---------------
TOTAL 7,231,025
Less: Accumulated Depreciation (1,082,506)
---------------
NET INVESTMENT IN HOTEL PROPERTY 6,148,519
---------------
TOTAL ASSETS $ 6,444,533
===============
The accompanying notes are an integral part of this financial statement.
27
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 1,626
Accrued Taxes 69,100
Accrued Expenses - Other 47,842
---------------
TOTAL CURRENT LIABILITIES 118,568
---------------
SHAREHOLDERS' EQUITY
Contributed Capital 5,625,316
Retained Earnings 700,649
---------------
TOTAL SHAREHOLDERS' EQUITY 6,325,965
---------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 6,444,533
===============
28
<PAGE>
HOMEWOOD SUITES HOTEL - JACKSON
STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999
<TABLE>
<CAPTION>
Total
Contributed Retained Shareholders'
Capital Earnings Equity
<S> <C> <C> <C>
Balances, January 1, 1999 $ 6,046,570 $ 369,131 $ 6,415,701
Net Income - 331,518 331,518
Capital Distributions, Net (421,254) - (421,254)
--------------- --------------- ---------------
Balances, August 31, 1999 $ 5,625,316 $ 700,649 $ 6,325,965
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of this financial statement.
29
<PAGE>
HOMEWOOD SUITES HOTEL - JACKSON
INCOME STATEMENT (UNAUDITED)
FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999
GROSS OPERATING REVENUE
Suite Revenue $ 1,487,301
Other Customer Revenue 112,292
---------------
TOTAL REVENUE 1,599,593
---------------
EXPENSES
Property and Operating 636,068
General and Administrative 51,587
Advertising and Promotion 75,268
Utilities 50,426
Real Estate and Personal Property Taxes,
and Property Insurance 62,589
Depreciation Expense 284,657
Franchise and Management Fees 107,480
---------------
TOTAL EXPENSES 1,268,075
---------------
NET INCOME $ 331,518
===============
The accompanying notes are an integral part of this financial statement.
30
<PAGE>
HOMEWOOD SUITES HOTEL - JACKSON
STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
Net Income $ 331,518
---------------
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 284,657
Change in:
Accounts Receivable (78,983)
Accounts Payable (96,599)
Accrued Taxes (18,375)
Accrued Expenses - Other 6,808
---------------
Net Adjustments 97,508
---------------
NET CASH FLOWS FROM OPERATING
ACTIVITIES 429,026
CASH FLOWS FROM INVESTING ACTIVITIES
Net Disposal of Investment in Hotel Property 948
CASH FLOWS TO FINANCING ACTIVITIES
Net Equity Distributions (421,254)
---------------
NET INCREASE IN CASH 8,720
CASH, JANUARY 1, 1999 34,756
---------------
CASH, AUGUST 31, 1999 $ 43,476
===============
The accompanying notes are an integral part of this financial statement.
31
<PAGE>
HOMEWOOD SUITES HOTEL - JACKSON
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
The Homewood Suites Hotel - Jackson is a 91 suite hotel, located in Ridgeland,
Mississippi, which opened in February, 1997. The Hotel specializes in providing
extended stay lodging to business or leisure travelers. While customers may rent
rooms for a night, terms of up to a month or longer are available. Services
offered, which are particularly attractive to the extended stay traveler,
include laundry services, 24 hour on-site convenience stores and grocery
shopping services.
Economic conditions in the area in which the Hotel is located impact revenues
and the ability to collect accounts receivable.
The Hotel has been owned and managed by an affiliate of Promus Hotels, Inc. (the
Owner) throughout the financial statement period. The Owner has a contract
pending to sell the Hotel to an affiliate of Apple Suites, Inc., a real estate
investment trust established to acquire equity interests in hotel properties.
The statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission for inclusion in a filing by Apple Suites,
Inc.
The corporate owner pays income taxes on taxable income of the company as a
whole and does not allocate income taxes to individual properties. Accordingly,
the financial statements have been presented on a pretax basis.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Property - The Hotel property is recorded at cost. Depreciation has been
recorded straight-line using the following lives:
Life
Land Improvements 10-15 Years
Buildings and Improvements 15-35 Years
Furniture, Fixtures and Equipment 3-10 Years
(Continued)
32
<PAGE>
HOMEWOOD SUITES HOTEL - JACKSON
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999
NOTE 2- SIGNIFICANT ACCOUNTING POLICIES, Continued
Major renewals, betterments and improvements are capitalized, while ongoing
maintenance and repairs are expensed as incurred. Building costs include
interest capitalized during the construction period.
Estimates - The preparation of financial statements in accordance with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosures related thereto. Actual results could differ from
those estimates.
Annually, management of the Hotel reviews the carrying value and remaining
depreciable lives of the Hotel property and related assets. Management does not
believe there are any current indications of impairment. However, it is possible
that estimates of the remaining useful lives will change in the near term.
Accounts receivable are recorded net of an allowance for doubtful accounts based
on management's historical experience in estimating credit losses. Actual
uncollectible balances written off may be more or less than the allowance
recorded.
Cash - Cash includes all highly liquid investments with a maturity date of three
months or less when purchased.
Advertising - Advertising costs are expensed in the period incurred.
Inventories - The Hotel maintains supplies of room linens and food and
beverages. However, due to the ongoing routine replacement of these items and
the difficulty in establishing market values, management has chosen to expense
these items at point of purchase.
(Continued)
33
<PAGE>
HOMEWOOD SUITES HOTEL - JACKSON
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999
NOTE 3 - RELATED PARTY TRANSACTIONS
During the period January 1, 1999 through August 31, 1999, the following Owner
related fees were expensed.
Fee Type Basis for Determination Total Expense
Accounting Fees $1,000 per month $ 8,000
Corporate Advertising, Training
and Reservations 4% of net suite revenue 59,492
Franchise Fees 4% of net suite revenue 59,492
Management Fees 3% of net suite revenue 47,988
The acquisition cost of the property and related furnishings and equipment was
financed by the Owner. The Owner allocated interest to the property on monies
advanced to fund the construction costs. The interest costs have been
capitalized and depreciated in accordance with the Hotel's normal depreciation
policy.
On most property and equipment purchases, excluding base hotel construction
contracts, the following fees paid to Promus Hotels, Inc. have been capitalized:
Purchase Fee - 4% of Asset Cost
Project Management Fee - 4.5% of labor portion of capitalized
asset costs
The Hotel maintains a depository bank account into which customer revenues have
been deposited. The bulk of the Hotel's operating expenditures are paid through
the Owner's corporate accounts. Funds are transferred from the Hotel's
depository bank accounts to the Owner periodically. The transfers to the Owner
and expenditures made on behalf of the Hotel by the Owner are accounted for
through various intercompany accounts. No interest has been charged on these
intercompany advances from ongoing operations. There is no intention to repay
any advances to or from the Owner. Accordingly, the net amounts have been
included in shareholders' equity with intercompany/intracompany transfers being
reflected as net capital distributions.
34
<PAGE>
APPLE SUITES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999
(UNAUDITED)
The following unaudited Pro Forma Condensed Consolidated Balance Sheet of Apple
Suites, Inc. (the "Company) is presented as if the acquisition of the seven
Homewood Suites hotels from Promus Hotels, Inc. ("Promus") had occurred on
September 30, 1999. See Note A for individual hotel details. Such information is
based in part upon the consolidated balance sheet of the Company. In
management's opinion, all adjustments necessary to reflect the effects of these
transactions have been made.
The following unaudited Pro Forma Condensed Consolidated Balance Sheet is not
necessarily indicative of what the actual financial position would have been
assuming such transactions had been completed as of September 30, 1999, nor does
it purport to represent the future financial position of the Company.
<TABLE>
<CAPTION>
Homewood Homewood
Historical Suites Suites
Balance Acquisition (AII) Acquisition (AIII) Total
Sheet Adjustments Adjustments Proforma
--------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investment in hotel properties $ 36,292,592 $ 51,081,600 (A) $ 5,962,920(A) $ 93,337,112
Cash and cash equivalents 10,924,786 (10,924,786)(D) -- --
Rent receivable from Apple Suites Management, Inc. 417,306 -- -- 417,306
Due from Apple Suites Management, Inc. 301,636 -- -- 301,636
Prepaid expenses 4,522 -- -- 4,522
Other assets 48,577 -- -- 48,577
----------------------------------------------------------------
Total Assets $ 47,989,419 $ 40,156,814 $ 5,962,920 $ 94,109,153
================================================================
LIABILITIES and SHAREHOLDERS' EQUITY
Liabilities
Notes payable $ 26,625,000 $ 37,560,000 (B) $ 4,384,500 (B) $ 68,569,500
Accounts payable 8,303 -- -- 8,303
Accrued expenses 664,082 -- -- 664,082
----------------------------------------------------------------
Total Liabilities 27,297,385 37,560,000 4,384,500 69,241,885
Shareholders' equity
Common stock, no par value, authorized 200,000,000
shares; issued and outstanding 2,532,147 shares 20,629,326 2,596,814 (C) 1,578,420 (C) 24,804,560
Class B convertible stock, no par value, authorized 240,000
shares; issued and outstanding 240,000 shares 24,000 -- -- 24,000
Net income greater than distributions 38,708 -- -- 38,708
----------------------------------------------------------------
Total Shareholders' Equity 20,692,034 2,596,814 1,578,420 24,867,268
----------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 47,989,419 $ 40,156,814 $ 5,962,920 $ 94,109,153
================================================================
</TABLE>
35
<PAGE>
Notes to Pro Forma Condensed Consolidated Balance Sheet (unaudited)
(A) Increase represents the purchase of 7 hotels, including the 2% acquisition
fee payable to Apple Suites Realty Group, Inc. The hotels acquired are as
follows:
<TABLE>
<CAPTION>
2%
Date Commenced Date Purchase Acquisition Debt
Property Operations Acquired Price Fee Total Incurred
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
II Homewood Suites-Atlanta, GA 1990 October 1, 1999 $ 9,800,000 $ 196,000 $ 9,996,000 $ 7,350,000
II Homewood Suites-Clearwater, FL February 1998 November 24, 1999 10,416,000 208,320 10,624,320 7,812,000
II Homewood Suites-Salt Lake, UT 1996 November 24, 1999 5,153,000 103,060 5,256,060 3,864,750
II Homewood Suites-Atlanta, GA 1990 November 24, 1999 4,033,000 80,660 4,113,660 3,024,750
II Homewood Suites-Detroit, MI 1990 November 24, 1999 4,330,000 86,600 4,416,600 3,247,500
II Homewood Suites-Baltimore, MD March 1998 November 24, 1999 16,348,000 326,960 16,674,960 12,261,000
III Homewood Suites-Jackson, MS February 1997 December 22, 1999 5,846,000 116,920 5,962,920 4,384,500
----------------------------------------------------
Total $55,926,000 $ 1,118,520 $57,044,520 $41,944,500
</TABLE>
(B) Represents the debt incurred at acquisition. The notes bear interest of
8.5% per annum. The maturity date for the note in the amount of $7,350,000
is October 1, 2000,the maturity date for the note in the amount of
$30,210,000 is December 1, 2000 and the maturity date of the note in the
amount of $4,384,500 is January 1, 2001. The Company is required to make
monthly principal payments in the amount of the equity proceeds received
during a month in excess of offering expenses.
(C) Increase to common stock to reflect the net proceeds from the sale of
common stock from the Company's continuous offering used to purchase these
hotels.
(D) Reflects the use of cash on hand to purchase these hotels.
36
<PAGE>
APPLE SUITES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1999 (UNAUDITED)
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations of Apple Suites, Inc. (the "Company") are presented as if the
acquisition of the eleven Homewood Suites hotels from Promus Hotels, Inc.
("Promus") had occurred at the beginning of the periods presented or date placed
into service by Promus if later (See Note A) and all of the hotels had been
leased to Apple Suites Management, Inc. (the "Lessee") pursuant to the
Percentage Leases. Such pro forma information is based in part upon the
Consolidated Statements of Operations of the Company, the Pro Forma Statements
of Operations of the Lessee and the historical Statements of Operations of the
acquired hotels. In management's opinion, all adjustments necessary to reflect
the effects of these transactions have been made.
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations for the periods presented are not necessarily indicative of what
actual results of operations of the Company would have been assuming such
transactions had been completed as of the beginning of the periods presented,
nor does it purport to represent the results of operations for future periods.
The lease agreements between the Company and the Lessee were based on economic
conditions existing at the time of acquisition. Applicaton of these agreements
to periods prior to the acquisition may not be meaningful. The most significant
assumption which may not be indicative of future operations is the amount of
financial leverage employed. These Pro Forma statements assume 75% of the
purchase price was funded with debt for the entire periods presented. The
Company intends to repay this debt with the proceeds from its "best efforts"
offering. This repayment of debt would result in lower interest expense, higher
net income, but lower earnings per share.
For the twelve months ended December 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Pro forma
Adjustments
Historical Homewood Homewood Homewood
Statement of Suites Suites Suites Total
Operations Acquisition (A I) Acquisition (A II) Acquisition (A III) Pro Forma
---------- ----------------- ------------------ ------------------- ---------
<S> <C> <C> <C> <C> <C>
Revenue:
Percentage lease revenue $ -- $6,526,922 (B) $5,241,307 (B) $1,070,700 (B) $12,838,929
Interest income and other income -- -- -- -- --
Expenses:
Taxes and insurance -- 1,040,638 (C) 432,979 (C) 89,387 (C) 1,563,004
General and administrative -- 90,175 (D) 86,477 (D) 65,659 (D) 242,311
Depreciation -- 1,256,071 (E) 1,155,328 (E) 199,487 (E) 2,610,686
Interest expense -- 2,688,125 (F) 2,338,818 (F) 372,683 (F) 5,399,626
-------- ----------- ----------- ---------- -----------
Total expenses -- 5,075,009 4,013,602 727,216 9,815,827
-------- ----------- ----------- ---------- -----------
Net income $ -- $1,451,913 $1,227,705 $ 343,484 $ 3,023,102
======== =========== =========== ========== ===========
Earnings per common share:
Basic and Diluted $ -- $ 1.11
======== ===========
Basic and diluted weighted average
common shares outstanding -- 1,412,531 (G) 1,132,040 (G) 176,360 (G) 2,720,931
======== ============
</TABLE>
37
<PAGE>
For the nine months ended September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Pro forma
Adjustments
Historical Homewood Homewood Homewood
Statement of Suites Suites Suites Total
Operations Acquisition (A I) Acquisition (A II) Acquisition (A III) Pro Forma
---------- ----------------- ----------------- ------------------- ---------
Revenue:
<S> <C> <C> <C> <C> <C>
Percentage lease revenue $ 417,306 $4,510,833(B) $4,853,958(B) $855,420(B) $10,637,517
Interest income and other income 64,370 - - - 64,370
Expenses:
Taxes and insurance 79,729 822,599(C) 529,548(C) 70,413(C) 1,502,289
General and administrative 36,028 67,221(D) 66,676(D) 49,244(D) 219,169
Depreciation 97,510 931,211(E) 953,304(E) 149,615(E) 2,131,640
Interest expense 229,701 1,977,313(F) 1,925,888(F) 279,512(F) 4,412,414
------- ---------- ---------- -------- -----------
Total expenses 442,968 3,798,344 3,475,416 548,784 8,265,511
Net income $ 38,708 $ 712,490 $1,378,542 $306,636 $ 2,436,376
========== ========== ========== ======== ===========
Earnings per common share:
Basic and Diluted $ 0.02 $ 0.83
========== ========== ========== ======== ===========
Basic and diluted weighted average
common shares outstanding 2,286,052 - (G) 461,427(G) 176,360(G) 2,923,838
========== ========== ========== ======== ===========
</TABLE>
38
<PAGE>
Notes to Pro Forma Condensed Consolidated Statements of Operations (unaudited)
(A) Represents results of operations for the eleven hotels acquired on a pro
forma basis as if the eleven hotels were owned by the Company at the
beginning of the periods presented or date placed into service by Promus if
later, see below.
Date Commenced Date
Property Operations Acquired
- --------------------------------------------------------------------------------
I Homewood Suites-Dallas, TX 1990 September 1, 1999
I Homewood Suites-Las Colinas, TX 1990 September 1, 1999
I Homewood Suites-Plano, TX 1997 September 1, 1999
I Homewood Suites-Richmond. VA May 1998 September 1, 1999
I Homewood Suites-Atlanta, GA 1990 October 1, 1999
- --------------------------------------------------------------------------------
II Homewood Suites-Clearwater, FL February 1998 November 24, 1999
II Homewood Suites-Salt Lake, UT 1996 November 24, 1999
II Homewood Suites-Atlanta, GA 1990 November 24, 1999
II Homewood Suites-Detroit, MI 1990 November 24, 1999
II Homewood Suites-Baltimore, MD March 1998 November 24, 1999
- --------------------------------------------------------------------------------
III Homewood Suites-Jackson, MS February 1997 December 22, 1999
Since three of the hotels (Richmond, VA, Clearwater, FL, and Baltimore, MD)
were under construction in 1998 and full operations did not commence until
the respective dates, no pro forma adjustments were made for the periods
prior to completion.
(B) Represents lease payment from the Lessee to the Company calculated on a pro
forma basis by applying the rent provisions in the Percentage Leases to the
historical room revenue of the hotels as if the beginning of the period was
the beginning of the lease year. The base rent and the percentage rent will
be calculated and paid based on the terms of the lease agreement. Refer to
the Master Hotel Lease Agreement section to Report for details.
(C) Represents historical real estate and personal property taxes and insurance
which will be paid by the Company pursuant to the Percentage Lease
agreements. Such amounts are the historical amounts paid by the respective
hotels.
(D) Represents the advisory fee of .25% of accumulated capital contributions
under the "best efforts" offering for the period of time not owned by the
Company and anticipated legal and accounting fees, employee costs, salaries
and other costs of operating as a public company.
(E) Represents the depreciation on the eleven hotels acquired based on the
purchase price, excluding amounts allocated to land, of $37,450,320 for the
first acquisition, $34,954,481 for the second acquisition, and $5,485,886
for the third acquisition, for the period of time not owned by the Company.
The weighted average life of the depreciable assets was 27.5 years. The
estimated useful lives are based on management's knowledge of the
properties and the hotel industry in general. Depreciable assets of
$31,913,270 did not commence depreciation until the respective opening
dates.
(F) Represents the interest expense for the eleven hotel acquisitions for the
period in which the hotels were not owned. Interest was computed using the
interest rates of 8.5% on mortgage debt of $33,975,000 for the first
acquisition, $30,210,000 for the second acquisition and $4,384,500 for the
third acquisition that was incurred at acquisition.
(G) Represents additional common shares assuming the properties were acquired
at the beginning of the periods presented with the net proceeds from the
"best efforts" offering of $9 per share (net $8.06 per share) for the first
$15,000,000 in proceeds and $10 per share (net $8.95 per share) for the
remainder.
39
<PAGE>
APPLE SUITES MANAGEMENT, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1999 (unaudited)
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations of Apple Suites Management, Inc. (the "Lessee") are presented as if
the eleven hotels purchased from Promus Hotels, Inc. ("Promus") had been leased
from Apple Suites, Inc. (the "Company") pursuant to the Percentage Leases from
the beginning of periods presented or date placed into service by Promus (see
Note A). Further, the results of operations reflect the Management Agreement and
License Agreement entered into between Promus and the Lessee or affiliate to
operate the acquired hotels. The lease agreements between the Company and the
Lessee were based on economic conditions existing at the time of of acquisition.
Application of these agreements to periods prior to the acquisition may not be
meaningful. Such pro forma information is based in part upon the Consolidated
Statements of Operations of the Lessee and the Homewood Suites Hotels and should
be read in conjunction with the financials statement contained herein.
In management's opinion, all adjustments necessary to reflect the effects of
these transactions have been made.
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations for the periods are not necessarily indicative of what the actual
results of operations of the Lessee would have been assuming such transactions
had been completed as of the beginning of the periods presented, nor does it
purport to represent the results of operations for the future periods.
For the twelve months ended December 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Historical Homewood Homewood Homewood
Statement of Suites Suites Suites Pro Forma Total
Operations Acquisitions(A I) Acquisitions(A II) Acquisition(A III) Adjustments Pro Forma
---------- ----------------- ------------------ ------------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Suite revenue $ - $ 14,075,852 $ 10,812,372 $ 2,115,861 - $ 27,004,085
Other income - 811,817 733,318 161,811 - 1,706,946
Expenses:
Operating expenses - 5,586,712 4,748,240 927,878 - 11,262,830
General and administrative - 348,088 315,165 69,009 (124,000)(B)
50,000 (C) 658,262
Advertising and promotion - 648,273 502,899 128,067 (1,083,952)(D)
1,080,163 (E) 1,275,450
Utilities - 626,269 543,828 87,815 - 1,257,912
Taxes and insurance - 1,040,638 432,979 89,387 (1,563,004)(F) -
Depreciation expense - 2,394,294 2,214,501 417,551 (5,026,346)(G) -
Franchise fees - 563,035 432,494 84,634 (1,080,163)(H)
1,080,163 (I) 1,080,163
Management fees - - - - 1,273,441 (K) 1,273,441
Rent expense-Apple Suites, Inc. - - - - 12,838,929 (L) 12,838,929
Other - 226,964 349,961 - (576,925)(M) -
------ ----------- ------------ ----------- ----------- ------------
Total expenses - 11,434,273 9,540,067 1,804,341 6,868,307 29,646,988
Income before income tax - 3,453,396 2,005,623 473,331 (6,868,307) (935,957)
Income tax expense - - - - - -
------ ----------- ------------ ----------- ----------- ------------
Net income $ - $ 3,453,396 $ 2,005,623 $ 473,331 $(6,868,307) $ (935,957)
====== =========== ============ ========== ============ ============
</TABLE>
40
<PAGE>
For the nine months ended September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Historical Homewood Homewood Homewood
Statement of Suites Suites Suites Pro Forma Total
Operations Acquisitions (A I) Acquisitions (A II) Acquisition (A III) Adjustments Pro Forma
---------- ------------------ ------------------- ------------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Suite revenue $ 961,604 $ 9,818,797 $ 9,885,579 $ 1,673,214 - $ 22,339,194
Other income 59,548 560,096 580,287 126,329 - 1,326,260
Expenses:
Operating expenses 259,098 3,794,204 3,984,624 715,577 - 8,753,503
General and administrative 85,676 250,317 245,792 58,035 (99,000)(B)
37,500 (C) 578,320
Advertising and promotion 93,237 438,985 475,007 84,677 (855,109)(D)
855,104 (E) 1,091,901
Utilities 26,101 354,113 451,112 56,729 - 888,055
Taxes and insurance - 822,599 529,548 70,413 (1,422,560)(F) -
Depreciation expense - 1,783,021 1,814,014 320,239 (3,917,274)(G) -
Franchise fees 38,464 392,757 395,423 66,929 (855,109)(H)
855,104 (I) 893,568
Management fees 40,769 311,275 313,854 53,987 (679,115)(J)
Rent expense-Apple Suites, Inc. 417,306 - - - 1,000,772 (K) 1,041,542
10,220,211 (L) 10,637,542
Other 15,425 - - - - 15,425
--------- ---------- ----------- ---------- ----------- ----------
Total expenses 976,076 8,147,271 8,209,374 1,426,586 5,140,524 23,899,831
Income before income tax 45,076 2,231,622 2,256,492 372,957 (5,140,524) (234,377)
Income tax expense 18,030 - - - (18,030)(N) -
--------- ----------- ----------- ---------- ----------- ----------
Net income $ 27,046 $ 2,231,622 $ 2,256,492 $ 372,957 $(5,122,495) $ (234,378)
========= =========== =========== ========== =========== ==========
</TABLE>
41
<PAGE>
Notes to Pro Forma Condensed Consolidated Statements of Operations (unaudited)
(A) Represents results of operations for the eleven Homewood Suites hotel
acquisitions on a pro forma basis as if the hotels acquired were leased
and operated by the Lessee at the beginning of the periods presented or
date placed into service by Promus, see below. The hotels acquired are
as follows:
<TABLE>
<CAPTION>
Date Commenced Date
Property Operations Acquired
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
I Homewood Suites-Dallas, TX 1990 September 1, 1999
I Homewood Suites-Las Colinas, TX 1990 September 1, 1999
I Homewood Suites-Plano, TX 1997 September 1, 1999
I Homewood Suites-Richmond. VA May 1998 September 1, 1999
I Homewood Suites-Atlanta, GA 1990 October 1, 1999
- -----------------------------------------------------------------------------------------------------------------------------------
II Homewood Suites-Clearwater, FL February 1998 November 24, 1999
II Homewood Suites-Salt Lake, UT 1996 November 24, 1999
II Homewood Suites-Atlanta, GA 1990 November 24, 1999
II Homewood Suites-Detroit, MI 1990 November 24, 1999
II Homewood Suites-Baltimore, MD March 1998 November 24, 1999
- -----------------------------------------------------------------------------------------------------------------------------------
III Homewood Suites-Jackson, MS February 1997 December 22, 1999
</TABLE>
Since three hotels were under construction in 1998 and full operations
did not commence until the respective dates, no pro forma adjustments
were made prior to the date the hotel commenced operations.
(B) Represents the elimination of the historical accounting fee allocated to
the hotels by the prior owner.
(C) Represents the addition of the anticipated legal and accounting and
other expenses to operate as a stand alone company.
(D) Represents the elimination of the historical advertising, training and
reservation fee allocated to the hotels by the prior owner.
(E) Represents the addition of the marketing fee to be incurred under the
new license agreements. The marketing fee is calculated based on the
terms of the license agreements which is 4% of suite revenue.
(F) Represents the elimination of the taxes and insurance. Under the terms
of the lease these expenses will be incurred by the Company and,
accordingly, are reflected in the Company's Pro Forma Condensed
Consolidated Statement of Operations.
(G) Represents the elimination of the depreciation expense. This expense
will be reflected in the Company's Pro Forma Condensed Consolidated
Statement of Operations.
(H) Represents the elimination of the historical franchise fee allocated to
the hotels by the prior owner.
(I) Represents the addition of franchise fees to be incurred under the new
license agreement. The franchise fees are calculated based on the terms
of the agreement, which is 4% of suite revenue.
(J) Represents the elimination of the historical management fees for the
nine months ended September 30, 1999.
(K) Represents the addition of the management fees of 4% of gross revenue
and the accounting fee $1,000 per hotel per month to be incurred under
the new management agreements for the period presented.
(L) Represents lease payments from the Lessee to the Company calculated on a
pro forma basis by applying the rent provisions in the Percentage Leases
to the historical room revenue of the hotels as if the beginning of the
period was the beginning of the lease year. The base rent and the
percentage rent will be calculated and paid based on the terms of the
lease agreement. Refer to the Master Hotel Lease Agreement section to
Report for details.
(M) Represents the elimination of pre-opening operating expenses not
incurred by the Lessee.
(N) Represents the reduction of estimated tax liability at September 30,
1999 based on net loss for the proforma period.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Apple Suites, Inc.
Date: January 6, 2000 By: /s/ Glade M. Knight
----------------------------
Glade M. Knight,
Chief Executive Officer of
Apple Suites, Inc.
Exhibit 4.1
NOTE
Date of Note: December 22, 1999
Principal Amount: $4,384,500
Maturity Date: January 1, 2001
Interest Rate: 8.5% per annum to be computed on an actual/365-day basis (i.e.,
interest for each day during which any of the Principal Amount is
outstanding shall be computed at the Interest Rate divided by 365).
FOR VALUE RECEIVED, the undersigned ("Maker") does hereby
covenant and promise to pay to the order of PROMUS HOTELS, INC., a Delaware
corporation or its successors or assigns (collectively, "Payee"), at 755
Crossover Lane, Memphis, Tennessee 38117-4900, or at such other place as Payee
may designate to Maker in writing from time to time, the Principal Amount, on
the Maturity Date, together with interest at the Interest Rate on the unpaid
portion of the Principal Amount on the first day of the first month following
the Date of Note and on the first day of each month thereafter until this Note
is paid in full, and with a late payment premium of 4% of any principal or
interest payment made more than ten (10) days after the due date thereof which
shall be due with any such late payment. All payments of principal, interest and
other sums hereunder shall be made in lawful money of the United States and in
immediately available funds.
Pursuant to Section 2(b) of the Purchase Agreement (as
hereinafter defined), in addition to the payment of interest as provided herein,
commencing on the first day of the first month following the repayment in full
of all sums evidenced by (x) the Note made by Maker to Payee dated September 20,
1999 in the principal amount of $26,625,000, (y) the Note made by Maker to Payee
dated October 5, 1999 in the principal amount of $7,350,000 and (z) the Note
made by Maker to Payee dated November 29, 1999 in the principal amount of
$30,210,000 and on the first day of each month thereafter, Maker hereby
covenants and promises to pay a monthly principal amortization payment equal to
the Amortization Amount, as hereinafter defined. Each such principal
amortization payment shall be applied in reduction of the Principal Amount. In
connection with calculating the Amortization Amount, on or before the
twenty-second (22nd) day of each month (or if such 22nd day is not a business
day, the first business day thereafter) between the date hereof and the
repayment in full of amounts evidenced by this Note and secured by the Mortgage
(as hereinafter defined), Maker shall notify Payee (the "Equity Proceeds
Notice") of (1) the total proceeds received in connection with the "best
efforts" public offering of shares in Maker (the "Equity Proceeds") and (2) the
net sum available to Maker from the Equity Proceeds after deduction of offering
<PAGE>
expenses, including, without limitation, accountants' fees, legal fees, printing
expenses, registration fees, NASD filing fees, stock exchange/quotation service
listing fees and transfer agent and escrow charges, selling commissions,
marketing expense allowance, Property (as herein defined) acquisition fees and
expenses and closing costs and a working capital reserve and a reserve for
renovations, repairs and replacements of capital improvements for each Property
(the "Net Equity Proceeds"), all as contemplated in Maker's Form S-11
Registration Statement, filed on August 3, 1999. For the purposes of this Note
(i) the "Amortization Amount" shall mean an amount equal to the excess of the
Net Equity Proceeds set forth in the most recent Equity Proceeds Notice over the
sum of (x) $87,041,500 plus (y) the aggregate of all previous principal
amortization payments applied in reduction of the Principal Amount and (ii)
"Property" shall mean, collectively, the properties sold to Maker as of the date
hereof pursuant to that certain Agreement of Sale dated November 22, 1999
between Hampton Inns, Inc., Promus Hotels Florida, Inc. and Promus Hotels, Inc.,
as sellers, and Maker, as buyer (the "Purchase Agreement"). Notwithstanding the
foregoing, nothing provided herein shall prevent Payee from paying the
Amortization Amount more often than monthly.
This Note is secured by, among other things, mortgages and/or
deeds of trust and/or deeds to secure debt (individually and collectively, the
"Mortgage"), which Mortgage specifies various defaults upon the happening of
which all sums owing on this Note may, at Payee's option, be declared
immediately due and payable.
Maker agrees that it shall be bound by any agreement extending
the time or modifying the above terms of payment, made by Payee and the owner or
owners of the property affected by the Mortgage, whether with or without notice
to Maker, and Maker shall continue liable to pay the amount due hereunder, but
with interest at a rate no greater than the Interest Rate, according to the
terms of any such agreement of extension or modification. This Note may be
prepaid, in whole or in part, without premium or penalty.
This Note may not be changed orally, but only by an agreement
in writing, signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.
Should the indebtedness represented by this Note or any part
thereof be collected at law or in equity, or in bankruptcy, receivership or any
other court proceedings (whether at the trial or appellate level), or should
this Note be placed in the hands of attorneys for collection upon default, Maker
agrees to pay, in addition to the principal, premium and interest due and
payable hereon, all costs of collection or attempting to collect this Note,
including reasonable attorneys' fees and expenses.
All parties to this Note, whether Maker, principal, surety,
guarantor or endorser, hereby waive presentment for payment, demand, protest,
notice of protest and notice of dishonor.
Anything herein to the contrary notwithstanding, the
obligations of Maker under this Note and the Mortgage shall be subject to the
limitation that payments of
2
<PAGE>
interest shall not be required to the extent that receipt of any such payment
by Payee would be contrary to provisions of law applicable to Payee limiting
the maximum rate of interest that may be charged or collected by Payee.
In case of any loss, theft, destruction or mutilation of this
Note, Maker shall, upon its receipt of an affidavit of an officer of Payee as to
such loss, theft, destruction or mutilation and an appropriate indemnification,
execute and deliver a replacement Note to Payee in the same principal amount and
otherwise of like tenor as this Note.
MAKER BY EXECUTION HEREOF, AND PAYEE BY ACCEPTANCE HEREOF,
HEREBY EXPRESSLY AND UNCONDITIONALLY WAIVES, IN CONNECTION WITH ANY SUIT, ACTION
OR PROCEEDING BROUGHT BY PAYEE ON THIS NOTE, ANY AND EVERY RIGHT IT MAY HAVE TO
A TRIAL BY JURY.
This Note and the rights and obligations of the parties
hereunder shall in all respects be governed by, and construed and enforced in
accordance with, the laws of the State of Tennessee (without giving effect to
Tennessee's principles of conflicts of law). Maker hereby irrevocably submits to
the non-exclusive jurisdiction of any Tennessee State or Federal court sitting
in The City of Memphis over any suit, action or proceeding arising out of or
relating to this Note, and Maker hereby agrees and consents that, in addition to
any methods of service of process provided for under applicable law, all service
of process in any such suit, action or proceeding in any Tennessee State or
Federal court sitting in The City of Memphis may be made by certified or
registered mail, return receipt requested, directed to Maker at the address
indicated below, with a copy to counsel at Jenkens & Gilchrist, Fountain Place,
1445 Ross Avenue, Suite 3200, Dallas, Texas 75202, and service so made shall be
complete five (5) days after the same shall have been so mailed.
[Remainder of page intentionally left blank.]
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<PAGE>
IN WITNESS WHEREOF, Maker has executed and delivered this Note
on the day and year first above written.
APPLE SUITES, INC.,
a Virginia corporation
By /s/ Glade M. Knight
---------------------------------
Name: Glade M. Knight
Title: President
Address of Maker:
306 East Main Street
Richmond, Virginia 23219
Attention: Glade M. Knight
This is to certify that this Note was executed in my presence
on the date hereof by the party whose signature appears above in the capacity
indicated.
/s/ Deanna Jost
------------------------------------
Notary Public
My commission expires:
April 8, 2003
------------------------------------
Exhibit 4.2
[Mississippi]
================================================================================
Date: December 22, 1999
FEE AND LEASEHOLD DEED OF TRUST, ASSIGNMENT OF LEASES
AND RENTS AND SECURITY AGREEMENT
("this Deed")
FROM
APPLE SUITES, INC.,
a Virginia corporation
("Fee Owner")
AND
APPLE SUITES MANAGEMENT, INC.,
a Virginia corporation
("Lessee")
Address of Fee Owner and Lessee: 306 East Main Street
Richmond, Virginia 23219
Attention: Glade M. Knight
TO
[LAWYERS TITLE REALTY SERVICES, INC.]
("Trustee")
Address of Trustee:
------------------------------
------------------------------
------------------------------
FOR THE BENEFIT OF
PROMUS HOTELS, INC.,
a Delaware corporation
("Beneficiary")
Address of Beneficiary: 755 Crossover Lane
Memphis, Tennessee 38117
Note Amount: $68,569,500
================================================================================
This instrument prepared by, and after recording please return to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019-6092
Attention: Graham R. Hone, Esq.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
RECITAL.............................................................................................1
CERTAIN DEFINITIONS AND RULES OF CONSTRUCTION.......................................................2
GRANTING CLAUSE.....................................................................................3
Article I COVENANTS OF GRANTOR......................................................5
Section 1.01. (a) Warranty of Title; Power and Authority..............................5
(b) Hazardous Materials.................................................6
(c) Flood Hazard Area...................................................6
Section 1.02. (a) Further Assurances..................................................6
(b) Information Reporting and Back-up Withholding.......................7
Section 1.03. (a) Filing and Recording of Documents...................................7
(b) Filing and Recording Fees and Other Charges.........................7
Section 1.04. Payment and Performance of Loan Documents.................................7
Section 1.05. Maintenance of Existence; Compliance with Laws............................7
Section 1.06. After-Acquired Property...................................................8
Section 1.07. (a) Payment of Taxes and Other Charges..................................8
(b) Payment of Mechanics and Materialmen................................9
(c) Good Faith Contests.................................................9
Section 1.08. Taxes on Trustee or Beneficiary...........................................9
Section 1.09. Insurance.................................................................9
Section 1.10. Protective Advances by Beneficiary.......................................13
Section 1.11. (a) Visitation and Inspection..........................................13
(b) Financial and Other Information....................................13
(c) Estoppel Certificates..............................................13
Section 1.12. Maintenance of Premises and Improvements.................................13
Section 1.13. Condemnation.............................................................14
Section 1.14. Leases...................................................................14
Section 1.15. Premises Documents.......................................................15
Section 1.16. Trust Fund; Lien Laws....................................................15
Section 1.17. Expenses of Trustee......................................................16
Article II EVENTS OF DEFAULT AND REMEDIES...........................................16
Section 2.01. Events of Default and Certain Remedies...................................16
Section 2.02. Other Matters Concerning Sales...........................................20
Section 2.03. Payment of Amounts Due...................................................22
Section 2.04. Actions; Receivers.......................................................23
Section 2.05. Beneficiary's Right to Possession........................................23
Section 2.06. Remedies Cumulative......................................................23
</TABLE>
i
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<TABLE>
<CAPTION>
<S> <C>
Section 2.07. Moratorium Laws; Right of Redemption.....................................23
Section 2.08. Intentionally Omitted....................................................24
Section 2.09. Beneficiary's Rights Concerning Application of Amounts Collected.........24
Article III CONCERNING TRUSTEE.......................................................24
Section 3.01. Trustee's Performance....................................................24
Section 3.02. Resignation by Trustee...................................................24
Section 3.03. Removal of Trustee; Successors...........................................24
Article IV MISCELLANEOUS............................................................25
Section 4.01. Assignment of Rents......................................................25
Section 4.02. Security Agreement.......................................................25
Section 4.03. Application of Certain Payments..........................................26
Section 4.04. Severability.............................................................26
Section 4.05. Modifications and Waivers in Writing.....................................26
Section 4.06. Notices..................................................................26
Section 4.07. Successors and Assigns...................................................26
Section 4.08. Limitation on Interest...................................................26
Section 4.09. Counterparts.............................................................27
Section 4.10. Substitute Deeds.........................................................27
Section 4.11. Beneficiary's Sale of Interests in Loan..................................27
Section 4.12. No Merger of Interests...................................................27
Section 4.13. CERTAIN WAIVERS..........................................................27
Section 4.14. GOVERNING LAW............................................................27
</TABLE>
ii
<PAGE>
RECITAL
Beneficiary, Hampton Inns, Inc. ("Hampton") and Promus Hotels Florida,
Inc. ("Promus Florida"), as sellers, and Fee Owner, as buyer, have heretofore
entered into an Agreement of Sale dated as of August 6, 1999 (as amended, the
"First Agreement of Sale") for the purchase of certain premises more
particularly described therein (the "Initial Premises"). Hampton, as seller, and
Fee Owner, as buyer, have entered into an Agreement of Sale dated as of October
5, 1999 (as amended, the "Second Agreement of Sale") for the purchase of certain
premises more particularly described therein (the "Additional Premises";
together with the Initial Premises, collectively, the "Existing Premises").
Beneficiary, Hampton and Promus Florida, as sellers, and Fee Owner, as buyer,
have entered into an Agreement of Sale dated as of November 22, 1999 (as
amended, the "Third Agreement of Sale"; together with the First Agreement of
Sale and the Second Agreement of Sale, collectively, the "Agreement of Sale")
for the purchase of, among other things, the premises described in SCHEDULE A
attached hereto and made a part hereof. Fee Owner has acquired and is the owner
of the premises described in SCHEDULE A and Lessee is the owner of a leasehold
interest therein. Lessee acknowledges that it will derive substantial benefit
from the making of the loans contemplated in the Agreement of Sale and further
acknowledges that the obligation of Beneficiary to make such loans is
conditioned upon, among other things, the execution and delivery by Lessee of
this Deed. In connection with the purchase of the Existing Premises by Fee Owner
(or its indirect wholly-owned subsidiary) from Beneficiary (or its affiliates)
pursuant to the First Agreement of Sale and the Second Agreement of Sale, Fee
Owner has borrowed (i) the sum of $26,625,000 and has executed and delivered to
Beneficiary its note, dated September 20, 1999, obligating it to pay the sum of
$26,625,000, with interest thereon as therein provided and with final payment
being due on October 1, 2000 (the "First Note") and (ii) the sum of $7,350,000
and has executed and delivered to Beneficiary its note, dated October 5, 1999,
obligating it to pay the sum of $7,350,000, with interest thereon as therein
provided and with final payment being due on October 1, 2000 (the "Second
Note"). Prior to the date hereof, in connection with the purchase of certain
premises described in the Third Agreement of Sale by Fee Owner, Fee Owner has
borrowed the sum of $30,210,000 and has executed and delivered to Beneficiary
its note, dated November 29, 1999, obligating it to pay the sum of $30,210,000,
with interest as therein provided and with final payment being due on December
1, 2000 (the "Third Note"). In connection with the purchase on the date hereof
of the Premises and certain of the other premises described in the Third
Agreement of Sale, Fee Owner will borrow $4,384,500 from Beneficiary and has
executed and delivered to Beneficiary its note, dated the date hereof,
obligating it to pay the sum of $4,384,500, with interest thereon as therein
provided and with final payment being due on January 1, 2001 (the "Fourth Note";
together with the First Note, the Second Note, the Third Note and as any thereof
may hereafter be amended, modified, extended, severed, assigned, renewed,
replaced or restated, hereinafter, the "Note"). In order to secure the payment
of the Note, Fee Owner and Lessee, as grantors, have duly authorized the
execution and delivery of this Deed. For purposes of this Deed, "Grantor" shall
mean Fee Owner and Lessee but only to the extent of their respective interests
in the
<PAGE>
Mortgaged Property (as herein defined) and their respective obligations
under the Note and Ground Lease.
CERTAIN DEFINITIONS AND RULES OF CONSTRUCTION
Grantor, Trustee and Beneficiary agree that, unless the context
otherwise specifies or requires, the following terms shall have the meanings
herein specified.
"Chattels" means all fixtures, furnishings, fittings, appliances,
apparatus, equipment, building materials and components, machinery and articles
of personal property, of whatever kind or nature, including any replacements,
proceeds or products thereof and additions thereto, other than those owned by
lessees, now or at any time hereafter intended to be or actually affixed to,
attached to, placed upon, or used in any way in connection with the complete and
comfortable use, enjoyment, development, occupancy or operation of the Premises,
and whether located on or off the Premises.
"Default Rate" means the rate (or, if more than one, the highest of the
rates) of interest per annum provided in the Note plus 5%, but in no event to
exceed the maximum rate allowed by law.
"Events of Default" means the events and circumstances described as
such in Section 2.01.
"Ground Lease" means the Master Hotel Lease Agreement dated as of
September 20, 1999 between Fee Owner and Lessee covering, among other
properties, the Premises described in SCHEDULE A, as the same may be amended,
supplemented or modified from time to time.
"Hazardous Materials" means any pollutant, effluents, emissions,
contaminants, toxic or hazardous wastes, materials or substances, as any of
those terms are defined from time to time in or for the purposes of any relevant
environmental law, rule, regulation, code, permit, order, notice, demand letter
or other binding determination (hereinafter, "Environmental Laws") including,
without limitation, asbestos fibers and friable asbestos, polychlorinated
biphenyls and any petroleum or hydrocarbon-based products or derivatives, in
each case in amounts in violation of applicable Environmental Laws.
"Improvements" means all structures or buildings, and replacements
thereof, now or hereafter located upon the Premises, including all plant
equipment, apparatus, machinery and fixtures of every kind and nature whatsoever
forming part of said structures or buildings.
"lease" or "leases" means any lease or leases of all or any portion of
the Premises, whether affecting the fee or leasehold portion thereof.
"Loan" means the loan made by Beneficiary to Fee Owner evidenced by the
Note and secured hereby.
2
<PAGE>
"Premises" means the premises described in SCHEDULE A, including the
leasehold interest therein created by the Ground Lease, and including all of the
easements, rights, privileges and appurtenances (including air or development
rights) thereunto belonging or in anywise appertaining, and all of the estate,
right, title, interest, claim or demand whatsoever of Grantor therein and in the
streets and ways adjacent thereto, either in law or in equity, in possession or
expectancy, now or hereafter acquired, and as used herein shall, unless the
context otherwise requires, be deemed to include the Improvements.
"Premises Documents" means all reciprocal easement or operating
agreements, declarations of covenants, conditions or restrictions, declarations
of condominium, developer's or utility agreements with any village, town, county
or other governmental authority, and any similar such agreements or declarations
now or hereafter affecting the Premises or any part thereof.
All terms of this Deed which are not defined above shall have the
meaning set forth elsewhere in this Deed.
Except as expressly indicated otherwise, when used in this Deed (i)
"or" is not exclusive, (ii) "hereunder", "herein", "hereof" and the like refer
to this Deed as a whole, (iii) "Article", "Section" and "Schedule" refer to
Articles, Sections and Schedules of this Deed, (iv) terms defined in the
singular have a correlative meaning when used in the plural and vice versa, (v)
a reference to a law or statute includes any amendment or modification to, or
replacement of, such law or statute and (vi) a reference to an agreement,
instrument or document means such agreement, instrument or document as the same
may be amended, modified or supplemented from time to time in accordance with
its terms and as permitted hereby and by the other documents executed or
delivered to Beneficiary in connection with the Loan. The cover page and all
Schedules hereto are incorporated herein and made a part hereof. Any table of
contents and the headings and captions herein are for convenience only and shall
not affect the interpretation or construction hereof.
GRANTING CLAUSE
NOW, THEREFORE, Grantor, in consideration of the premises and in order
to secure the payment of both the principal of, and the interest and any other
sums payable under, the Note or this Deed and the performance and observance of
all the provisions hereof and of the Note, hereby gives, grants, bargains,
sells, warrants, aliens, remises, releases, conveys, assigns, transfers,
mortgages, hypothecates, deposits, pledges, sets over and confirms unto Trustee,
In Trust, all its estate, right, title and interest in, to and under any and all
of the following described property (hereinafter, the "Mortgaged Property")
whether now owned or held or hereafter acquired:
(i) the Premises;
(ii) the Improvements;
3
<PAGE>
(iii) the Chattels;
(iv) the Premises Documents;
(v) all rents, royalties, issues, profits, revenue, income,
recoveries, reimbursements and other benefits of the Mortgaged Property
(hereinafter, the "Rents") and all leases of the Mortgaged Property or
portions thereof now or hereafter entered into and all right, title and
interest of Grantor thereunder, including, without limitation, cash or
securities deposited thereunder to secure performance by the lessees of
their obligations thereunder, whether such cash or securities are to be
held until the expiration of the terms of such leases or applied to one
or more of the installments of rent coming due immediately prior to the
expiration of such terms, and including any guaranties of such leases
and any lease cancellation, surrender or termination fees in respect
thereof, all subject, however, to the provisions of Section 4.01;
(vi) all (a) development work product prepared in connection
with the Premises, including, but not limited to, engineering,
drainage, traffic, soil and other studies and tests; water, sewer, gas,
electrical and telephone approvals, taps and connections; surveys,
drawings, plans and specifications; and subdivision, zoning and
platting materials; (b) building and other permits, rights, licenses
and approvals relating to the Premises; and (c) contracts and
agreements (including, without limitation, contracts with architects
and engineers, construction contracts and contracts for the maintenance
or management of the Premises), contract rights, logos, trademarks,
trade names, copyrights and other general intangibles used or useful in
connection with the ownership, operation or occupancy of the Premises
or any part thereof;
(vii) all proceeds of the conversion, voluntary or involuntary,
of any of the foregoing into cash or liquidated claims, including,
without limitation, proceeds of insurance and condemnation awards, and
all rights of Grantor to refunds of real estate taxes and assessments;
(viii) all revenue and income received by or on behalf of
Grantor resulting from the operation of the Premises as a hotel,
including all sums (1) paid by customers for the use of hotel rooms
located within the Premises, (2) derived from food and beverage
operations located within the Premises, (3) generated by other hotel
operations, including any parking, convention, sports and recreational
facilities and (4) business interruption insurance proceeds;
(ix) all accounts and accounts receivable, including all
present and future right to payment from any consumer credit or charge
card organization or entity (such as those organizations which
sponsor or administer the American Express, Carte Blanche, Discover
Card, Diners Club, Visa and Master Card) arising out of the leasing
and operation of, or the business conducted at or in relation to, all
or any part of the Premises; and
4
<PAGE>
(x) any deposit, operating or other account including the entire
balance therein (now or hereafter existing) of Grantor containing
proceeds of the operation of the Premises with any banking or financial
institution and all money, instruments, securities, documents, chattel
paper, credits, demands, and any other property, rights, or interests
of Grantor relating to the operation of the Premises which at any time
shall come into the possession, custody or control of any banking or
financial institution.
TO HAVE AND TO HOLD unto Trustee, its successors and assigns forever.
IN TRUST, to secure the payment to Beneficiary of the principal of and
interest on the Note at the maturity thereof and all other sums due hereunder or
under the Note and the performance of all covenants and agreements herein and in
the Note, whereupon this Deed shall cease and be void and the Mortgaged Property
shall be released at the cost of Grantor.
ARTICLE I
COVENANTS OF GRANTOR
Grantor represents, except as known by Beneficiary or its affiliates to
the contrary, or disclosed to Beneficiary in connection with the sale of the
Mortgaged Property to Grantor, and Grantor covenants and agrees as follows:
Section 1.01. (a) Warranty of Title; Power and Authority. Grantor
warrants that, with respect to the fee interest in the Premises, it has a good
and marketable title to an indefeasible fee estate subject to no lien, charge or
encumbrance, that the Ground Lease is subject to no lien, charge or encumbrance
of any kind and is prior to all liens, charges and encumbrances whatsoever on
the fee interest of the landlord thereunder, except in either case such as are
listed as exceptions to title in the title policy insuring the lien hereof; and,
Grantor further warrants that, with respect to the leasehold interest in the
Premises, that it is the owner of a valid and subsisting interest as tenant
under the Ground Lease, that the Ground Lease is in full force and effect, there
are no defaults thereunder and no event has occurred or is occurring which after
notice or passage of time or both will result in such a default; that it owns
the Chattels, all leases and the Rents in respect of the Mortgaged Property and
all other personal property encumbered hereby free and clear of liens and
claims; and Grantor warrants that this Deed is and will remain a valid and
enforceable lien on the Mortgaged Property subject only to the exceptions
referred to above. Grantor has full power and lawful authority to subject the
Mortgaged Property to the lien hereof in the manner and form herein done or
intended hereafter to be done. Grantor will preserve such title, will preserve
such leasehold estate created by the Ground Lease and will forever warrant and
defend the same to Trustee and Beneficiary and will forever warrant and defend
the validity and priority of the lien hereof against the claims of all persons
and parties whomsoever. Grantor will perform or cause to be performed all of the
covenants and conditions required to be performed by it under the Ground Lease,
will do all things necessary to preserve unimpaired its rights thereunder, and
will not (i) enter into any agreement modifying or amending the Ground Lease
that would reduce the
5
<PAGE>
term of the Ground Lease, increase the amount of rent payable thereunder
(except as contemplated by the provisions of the Ground Lease) or have a
material adverse effect on the lien created by this Deed or the rights of
Beneficiary hereunder or (ii) for so long as the Ground Lease is in effect,
release the landlord thereunder from any obligations imposed upon it thereby.
If Grantor receives a notice of default under the Ground Lease, it shall
immediately cause a copy of such notice to be sent by registered United States
mail to Beneficiary.
(b) Hazardous Materials. To the best of Grantor's knowledge, Grantor
represents and warrants that (i) the Premises and the improvements thereon and
the surrounding areas are not currently and have never been subject to Hazardous
Materials or their effects, in each case in amounts in violation of applicable
Environmental Laws, (ii) neither it nor any portion of the Premises or
improvements thereon is in violation of, or subject to any existing, pending or
threatened investigation or proceeding by any governmental authorities under,
any Environmental Law, (iii) there are no claims, litigation, administrative or
other proceedings, whether actual or threatened, or judgments or orders,
concerning Hazardous Materials relating in any way to the Premises or the
improvements thereon and (iv) Grantor is not required by any Environmental Law
to obtain any permits or licenses to construct or use any improvements, fixtures
or equipment with respect to the Premises, or if any such permit or license is
required it has been obtained and is capable of being mortgaged and assigned
hereby. Grantor will comply with all applicable Environmental Laws and will, at
its sole cost and expense, promptly remove, or cause the removal of, any and all
Hazardous Materials or the effects thereof at any time identified as being on,
in, under or affecting the Premises.
(c) Flood Hazard Area. Grantor represents that neither the Premises nor
any part thereof is located in an area identified by the Secretary of the United
States Department of Housing and Urban Development or by any applicable federal
agency as having special flood hazards or, if it is, Grantor has obtained the
insurance required by Section 1.09.
Section 1.02. (a) Further Assurances. Grantor will, at its sole cost
and expense, do, execute, acknowledge and deliver all and every such further
acts, deeds, conveyances, mortgages, assignments, notices of assignment,
transfers and assurances as Trustee or Beneficiary shall from time to time
reasonably require, for the better assuring, conveying, assigning, transferring
and confirming unto Trustee the property and rights hereby conveyed or assigned
or intended now or hereafter so to be, or which Grantor may be or may hereafter
become bound to convey or assign to Trustee, or for carrying out the intention
or facilitating the performance of the terms hereof, or for filing, registering
or recording this Deed and, on demand, will execute and deliver, and hereby
authorizes Trustee or Beneficiary to execute and file in Grantor's name, to the
extent they may lawfully do so, one or more financing statements, chattel
mortgages or comparable security instruments, to evidence or perfect more
effectively Beneficiary's security interest in and the lien hereof upon the
Chattels and other personal property encumbered hereby.
6
<PAGE>
(b) Information Reporting and Back-up Withholding. Grantor will, at its
sole cost and expense, do, execute, acknowledge and deliver all and every such
acts, information reports, returns and withholding of monies as shall be
necessary or appropriate to comply fully, or to cause full compliance, with all
applicable information reporting and back-up withholding requirements of the
Internal Revenue Code of 1986 (including all regulations now or hereafter
promulgated thereunder) in respect of the Premises and all transactions related
to the Premises, and will at all times provide Beneficiary with satisfactory
evidence of such compliance and notify Beneficiary of the information reported
in connection with such compliance.
Section 1.03. (a) Filing and Recording of Documents. Grantor forthwith
upon the execution and delivery hereof, and thereafter from time to time, will
cause this Deed and any security instrument creating a lien or evidencing the
lien hereof upon the Chattels and each instrument of further assurance to be
filed, registered or recorded in such manner and in such places as may be
required by any present or future law in order to publish notice of and fully to
protect the lien hereof upon, and the title of Trustee to, the Mortgaged
Property.
(b) Filing and Recording Fees and Other Charges. Grantor will pay all
filing, registration or recording fees, and all expenses incident to the
execution and acknowledgment hereof, any deed of trust supplemental hereto, any
security instrument with respect to the Chattels, and any instrument of further
assurance, and any reasonable expenses (including attorneys' fees and
disbursements) incurred by Beneficiary in connection with the Loan, and will pay
all federal, state, county and municipal stamp taxes and other taxes, duties,
imposts, assessments and charges arising out of or in connection with the
execution and delivery of the Note, this Deed, any deed of trust supplemental
hereto, any security instrument with respect to the Chattels or any instrument
of further assurance.
Section 1.04. Payment and Performance of Loan Documents. Grantor will
punctually pay the principal and interest and all other sums to become due in
respect hereof and of the Note at the time and place and in the manner specified
therein, according to the true intent and meaning thereof, all in currency of
the United States of America which at the time of such payment shall be legal
tender for the payment of public and private debts. Grantor will duly and timely
comply with and perform all of the terms, provisions, covenants and agreements
contained in said documents and in all other documents or instruments executed
or delivered by Grantor to Beneficiary in connection with the Loan, and will
permit no failures of performance thereunder.
Section 1.05. Maintenance of Existence; Compliance with Laws. Grantor,
if other than a natural person, will, so long as it is owner of all or part of
the Mortgaged Property, do all things necessary to preserve and keep in full
force and effect its existence, franchises, rights and privileges as a business
or stock corporation, partnership, limited liability company, trust or other
entity under the laws of the state of its formation. Grantor will duly and
timely comply with all laws, regulations, rules, statutes, orders and decrees of
any governmental authority or court applicable to it or to the Mortgaged
Property or any part thereof.
7
<PAGE>
Section 1.06. After-Acquired Property. All right, title and interest of
Grantor in and to all extensions, improvements, betterments, renewals,
substitutes and replacements of, and all additions and appurtenances to, the
Mortgaged Property, hereafter acquired by, or released to, Grantor or
constructed, assembled or placed by Grantor on the Premises, and all conversions
of the security constituted thereby, immediately upon such acquisition, release,
construction, assembling, placement or conversion, as the case may be, and in
each such case, without any further deed of trust, conveyance, assignment or
other act by Grantor, shall become subject to the lien hereof as fully and
completely, and with the same effect, as though now owned by Grantor and
specifically described in the Granting Clause hereof, but at any and all times
Grantor will execute and deliver to Trustee or Beneficiary any and all such
further assurances, deeds of trust, conveyances or assignments thereof as
Trustee or Beneficiary may reasonably require for the purpose of expressly and
specifically subjecting the same to the lien hereof.
Section 1.07. (a) Payment of Taxes and Other Charges. Grantor, from
time to time before the same shall become delinquent, will pay and discharge all
taxes of every kind and nature (including real and personal property taxes and
income, franchise, withholding, profits and gross receipts taxes), all general
and special assessments, levies, permits, inspection and license fees, all water
and sewer rents and charges, and all other public charges whether of a like or
different nature, imposed upon or assessed against it or the Mortgaged Property
or any part thereof or upon the revenues, rents, issues, income and profits of
the Mortgaged Property or arising in respect of the occupancy, use or possession
thereof. Grantor will, upon Beneficiary's request, deliver to Beneficiary
receipts evidencing the payment of all such taxes, assessments, levies, fees,
rents and other public charges imposed upon or assessed against it or the
Mortgaged Property or any portion thereof.
Beneficiary may, at its option following the occurrence of an Event of
Default, to be exercised by thirty (30) days' notice to Grantor, require the
deposit by Grantor, at the time of each payment of an installment of interest or
principal under the Note (but no less often than monthly), of an additional
amount sufficient to discharge the obligations under this clause (a) when they
become due. The determination of the amount so payable and of the fractional
part thereof to be deposited with Beneficiary, so that the aggregate of such
deposits shall be sufficient for this purpose, shall be made by Beneficiary in
its sole discretion. Such amounts shall be held by Beneficiary without interest
and applied to the payment of the obligations in respect of which such amounts
were deposited or, at Beneficiary's option, to the payment of said obligations
in such order or priority as Beneficiary shall determine, on or before the
respective dates on which the same or any of them would become delinquent. If
one (1) month prior to the due date of any of the aforementioned obligations the
amounts then on deposit therefor shall be insufficient for the payment of such
obligation in full, Grantor within ten (10) days after demand shall deposit the
amount of the deficiency with Beneficiary. Nothing herein contained shall be
deemed to affect any right or remedy of Beneficiary under any provisions hereof
or of any statute or rule of law to pay any such amount and to add the amount so
paid, together with interest at the Default Rate, to the indebtedness hereby
secured.
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(b) Payment of Mechanics and Materialmen. Grantor will pay, from time
to time when the same shall become due, all lawful claims and demands of
mechanics, materialmen, laborers, and others which, if unpaid, might result in,
or permit the creation of, a lien on the Mortgaged Property or any part thereof,
and in general will do or cause to be done everything necessary so that the lien
hereof shall be fully preserved, at the cost of Grantor and without expense to
Trustee or Beneficiary, other than those liens which Beneficiary or its
affiliates have indemnified Grantor pursuant to the provisions set forth in the
Agreement of Sale.
(c) Good Faith Contests. Nothing in this Section 1.07 shall require the
payment or discharge of any obligation imposed upon Grantor by this Section so
long as Grantor shall in good faith and at its own expense contest the same or
the validity thereof by appropriate legal proceedings which shall operate to
prevent the collection thereof or other realization thereon and the sale or
forfeiture of the Mortgaged Property or any part thereof to satisfy the same;
provided, however, that (i) during such contest Grantor shall set aside reserves
sufficient to discharge Grantor's obligation hereunder and of any additional
charge, penalty or expense arising from or incurred as a result of such contest
and (ii) if at any time payment of any obligation imposed upon Grantor by clause
(a) above shall become necessary to prevent the delivery of a tax deed or other
instrument conveying the Mortgaged Property or any portion thereof because of
non-payment, then Grantor shall pay the same in sufficient time to prevent the
delivery of such tax deed or other instrument.
Section 1.08. Taxes on Trustee or Beneficiary. Grantor will pay any
taxes, except income taxes, imposed on Trustee or Beneficiary by reason of their
ownership of the Note or this Deed, provided that Beneficiary can require
payment of the Note in full within ninety (90) days if it shall be illegal for
Grantor to pay any tax or if the payment of such tax by Grantor would result in
the violation of applicable usury laws.
Section 1.09. Insurance. (a) Grantor will at all times (directly or
indirectly) provide, maintain and keep in force:
(i) policies of insurance insuring the Premises, Improvements
and Chattels against loss or damage by fire and lightning; against loss
or damage by other risks embraced by coverage of the type now known as
All Risk Replacement Cost Insurance with agreed amount endorsement,
including but not limited to riot and civil commotion, vandalism,
malicious mischief and theft; and against such other risks or hazards
as Beneficiary from time to time reasonably may designate in an amount
sufficient to prevent Beneficiary or Grantor from becoming a co-insurer
under the terms of the applicable policies, but in any event in an
amount not less than 100% of the then full replacement cost of the
Improvements (exclusive of the cost of excavations, foundations and
footings below the lowest basement floor) without deduction for
physical depreciation;
(ii) policies of insurance insuring the Premises against the
loss of "rental value" of the buildings which constitute a part of the
Improvements on a "rented or vacant basis" arising out of the perils
insured against pursuant to clause
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(i) above in an amount equal to not less than one (1) year's gross
"rental value" of the Improvements. "Rental value" as used herein is
defined as the sum of (A) the total anticipated gross rental income
from tenant occupancy of such buildings as furnished and equipped, (B)
the amount of all charges which are the legal obligation of tenants and
which would otherwise be the obligation of Grantor and (C) the fair
rental value of any portion of such buildings which is occupied by
Grantor. Grantor hereby assigns the proceeds of such insurance to
Beneficiary, to be applied by Beneficiary in payment of the interest
and principal on the Note, insurance premiums, taxes, assessments and
private impositions until such time as the Improvements shall have been
restored and placed in full operation, at which time, provided Grantor
is not then in default hereunder, the balance of such insurance
proceeds, if any, held by Beneficiary shall be paid over to Grantor;
(iii) if all or part of the Premises are located in an area
identified by the Secretary of the United States Department of Housing
and Urban Development or by any applicable federal agency as a flood
hazard area, flood insurance in an amount at least equal to the maximum
limit of coverage available under the National Flood Insurance Act of
1968, provided, however, that Beneficiary reserves the right to require
flood insurance in excess of said limit if such insurance is
commercially available up to the amount provided in clause (i) above;
(iv) during any period of restoration under this Section 1.09
or Section 1.13, a policy or policies of builder's "all risk"
insurance, written on a Standard Builder's Risk Completed Value Form
(100% non-reporting), in an amount not less than the full insurable
value of the Premises against such risks (including, without
limitation, fire and extended coverage, collapse and earthquake
coverage to agreed limits) as Beneficiary may reasonably request, in
form and substance acceptable to Beneficiary;
(v) a policy or policies of workers' compensation insurance
as required by workers' compensation insurance laws (including
employer's liability insurance, if requested by Beneficiary) covering
all employees of Grantor;
(vi) comprehensive liability insurance on an "occurrence"
basis against claims for "personal injury" liability, including,
without limitation, bodily injury, death or property damage liability,
with a limit of not less than $15,000,000 in the event of "personal
injury" to any number of persons or of damage to property arising out
of one "occurrence". Such policies shall name Beneficiary as additional
insured by an endorsement, and shall contain cross-liability and
severability of interest clauses, all satisfactory to Beneficiary; and
(vii) such other insurance (including, but not limited to,
earthquake insurance), and in such amounts, as may from time to time be
reasonably required by Beneficiary against the same or other insurable
hazards.
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Notwithstanding anything herein to the contrary, for so long as that
certain Management Agreement of even date herewith between Lessee and
Beneficiary with respect to the Premises remains in full force and effect (as
the same may be amended, the "Management Agreement"), the types and amounts of
insurance required by the Management Agreement to the extent inconsistent with
those set forth above shall govern and control Grantor's obligations in respect
thereof.
(b) All policies of insurance required under this Section 1.09 shall be
issued by companies having Best's ratings and being otherwise reasonably
acceptable to Beneficiary, shall be subject to the reasonable approval of
Beneficiary as to amount, content, form and expiration date and, except for the
liability policies described in clauses (a)(v) and (vi) above, shall contain a
Non-Contributory Standard Mortgagee Clause and Lender's Loss Payable
Endorsement, or their equivalents, in favor of Beneficiary, and shall provide
that the proceeds thereof shall be payable to Beneficiary. Beneficiary shall be
furnished with the original of each policy required hereunder, which policies
shall provide that they shall not lapse, nor be modified or cancelled, without
thirty (30) days' written notice to Beneficiary. At least thirty (30) days prior
to expiration of any policy required hereunder, Grantor shall furnish
Beneficiary appropriate proof of issuance of a policy continuing in force the
insurance covered by the policy so expiring. Grantor shall furnish to
Beneficiary, promptly upon request, receipts or other satisfactory evidence of
the payment of the premiums on such insurance policies. In the event that
Grantor does not deposit with Beneficiary a new certificate or policy of
insurance with evidence of payment of premiums thereon at least thirty (30) days
prior to the expiration of any expiring policy, then Beneficiary may, but shall
not be obligated to, procure such insurance and pay the premiums therefor, and
Grantor agrees to repay to Beneficiary the premiums thereon promptly on demand,
together with interest thereon at the Default Rate.
(c) Grantor hereby assigns to Beneficiary all proceeds of any insurance
required to be maintained by this Section 1.09 which Grantor may be entitled to
receive for loss or damage to the Premises, Improvements or Chattels. All such
insurance proceeds shall be payable to Beneficiary, and Grantor hereby
authorizes and directs any affected insurance company to make payment thereof
directly to Beneficiary subject, however, to clause (f) below. Grantor shall
give prompt notice to Beneficiary of any casualty, whether or not of a kind
required to be insured against under the policies to be provided by Grantor
hereunder, such notice to generally describe the nature and cause of such
casualty and the extent of the damage or destruction. Grantor may settle, adjust
or compromise any claims for loss, damage or destruction, regardless of whether
or not there are insurance proceeds available or whether any such insurance
proceeds are sufficient in amount to fully compensate for such loss or damage,
subject to Beneficiary's prior consent. Notwithstanding the foregoing,
Beneficiary shall have the right to join Grantor in settling, adjusting or
compromising any loss of $100,000 or more. Grantor hereby authorizes the
application or release by Beneficiary of any insurance proceeds under any policy
of insurance, subject to the other provisions hereof. The application or release
by Beneficiary of any insurance proceeds shall not cure or waive any default or
notice of default hereunder or invalidate any act done pursuant to such notice.
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(d) In the event of the foreclosure hereof or other transfer of the
title to the Mortgaged Property in extinguishment, in whole or in part, of the
indebtedness secured hereby, all right, title and interest of Grantor in and to
any insurance policy, or premiums or payments in satisfaction of claims or any
other rights thereunder then in force, shall pass to the purchaser or grantee
notwithstanding the amount of any bid at such foreclosure sale. Nothing
contained herein shall prevent the accrual of interest as provided in the Note
on any portion of the principal balance due under the Note until such time as
insurance proceeds are actually received and applied to reduce the principal
balance outstanding.
(e) Grantor shall not take out separate insurance concurrent in form or
contributing in the event of loss with that required to be maintained under this
Section 1.09 unless Beneficiary is included thereon as a named insured with loss
payable to Beneficiary under standard mortgage endorsements of the character and
to the extent above described. Grantor shall promptly notify Beneficiary
whenever any such separate insurance is taken out and shall promptly deliver to
Beneficiary the policy or policies of such insurance.
(f) Any and all monies received as payment which Grantor may be
entitled to receive for loss or damage to the Premises, Improvements or Chattels
under any insurance maintained pursuant to this Section 1.09 (other than
proceeds under the policies required by clause (a)(ii) above) shall be paid over
to Beneficiary and, at Beneficiary's option, either applied to the prepayment of
the Note and all interest and other sums accrued and unpaid in respect thereof
or disbursed from time to time to Grantor in reimbursement of its costs and
expenses incurred in the restoration of the Improvements in accordance with
Beneficiary's standard construction lending practices, terms and conditions, in
either case, less Beneficiary's reasonable expenses for collecting and, if
applicable, disbursing the insurance proceeds, or otherwise incurred in
connection therewith. Notwithstanding the provisions of the immediately
preceding sentence, provided no default exists hereunder, Beneficiary agrees to
apply any such proceeds received by it to the reimbursement of Grantor's costs
of restoring the Improvements. Advances of insurance proceeds shall be made to
Grantor from time to time in accordance with Beneficiary's standard construction
lending practices, terms and conditions; amounts not required for such purposes
shall be applied, at Beneficiary's option, to the prepayment of the Note and to
interest accrued and unpaid thereon in such order and proportions as Beneficiary
may elect. In no event shall Beneficiary be required to advance such proceeds to
Grantor unless Beneficiary shall have (i) received satisfactory evidence that
the funding/expiration dates of the commitment, if any, for the permanent
financing of the Improvements have been extended for such period of time as is
reasonably necessary to complete said restoration and (ii) reasonably determined
that the restoration of the Improvements can be completed by the Maturity Date
of the Note at a cost which does not exceed the amount of available insurance
proceeds or, in the event that such proceeds are reasonably determined by
Beneficiary to be inadequate, Beneficiary shall have received from Grantor a
cash deposit equal to the excess of said estimated cost of restoration over the
amount of said available proceeds. If the conditions for the advance of
insurance proceeds for restoration set forth in clauses (i) and (ii) above are
not satisfied within sixty (60) days of Beneficiary's receipt thereof or if the
actual restoration shall not have been
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commenced within such period, Beneficiary shall have the option at any time
thereafter to apply such insurance proceeds to the payment of the Note and to
interest accrued and unpaid thereon in such order and proportions as Beneficiary
may elect.
Section 1.10. Protective Advances by Beneficiary. If Grantor shall fail
to perform any of the covenants contained herein, Trustee or Beneficiary may
make advances to perform the same on its behalf and all sums so advanced shall
be a lien upon the Mortgaged Property and shall be secured hereby. Grantor will
repay on demand all sums so advanced on its behalf together with interest
thereon at the Default Rate. The provisions of this Section shall not prevent
any default in the observance of any covenant contained herein from constituting
an Event of Default.
Section 1.11. (a) Visitation and Inspection. Grantor will keep adequate
records and books of account in accordance with generally accepted accounting
principles and will permit each of Trustee and Beneficiary, by their agents,
accountants and attorneys, to visit and inspect the Mortgaged Property and
examine its records and books of account and make copies thereof or extracts
therefrom, and to discuss its affairs, finances and accounts with the officers
or general partners, as the case may be, of Grantor, at such reasonable times as
may be requested by Trustee or Beneficiary.
(b) Financial and Other Information. Grantor will deliver to
Beneficiary with reasonable promptness such financial information with respect
to Grantor or the Premises as Beneficiary may reasonably request from time to
time. All financial statements of Grantor shall be prepared in accordance with
generally accepted accounting principles and shall be accompanied by the
certificate of a principal financial or accounting officer or general partner,
as the case may be, of Grantor, dated within five (5) days of the delivery of
such statements to Beneficiary, stating that he or she knows of no Event of
Default, nor of any event which after notice or lapse of time or both would
constitute an Event of Default, which has occurred and is continuing, or, if any
such event or Event of Default has occurred and is continuing, specifying the
nature and period of existence thereof and what action Grantor has taken or
proposes to take with respect thereto, and, except as otherwise specified,
stating that Grantor has fulfilled all of its obligations hereunder and
otherwise in respect of the Loan which are required to be fulfilled on or prior
to the date of such certificate.
(c) Estoppel Certificates. Grantor, within three (3) days upon request
in person or within five (5) days upon request by mail, will furnish a
statement, duly acknowledged, of the amount due whether for principal or
interest on this Deed and whether any offsets, counterclaims or defenses exist
against the indebtedness secured hereby.
Section 1.12. Maintenance of Premises and Improvements. Grantor will
not commit any waste on the Premises or make any change in the use of the
Premises which will in any way increase any ordinary fire or other hazard
arising out of construction or operation. Grantor will, or shall cause its
Lessee to, at all times, maintain the Improvements and Chattels in good
operating order and condition and will promptly make, from time to time, all
repairs, renewals, replacements, additions and improvements
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in connection therewith which are needful or desirable to such end. The
Improvements shall not be demolished or substantially altered, nor shall any
Chattels be removed without Beneficiary's prior consent except where appropriate
replacements free of superior title, liens and claims are immediately made of
value at least equal to the value of the removed Chattels.
Section 1.13. Condemnation. Grantor, immediately upon obtaining
knowledge of the institution or pending institution of any proceedings for the
condemnation of the Premises or any portion thereof, will notify Trustee and
Beneficiary thereof. Trustee and Beneficiary may participate in any such
proceedings and may be represented therein by counsel of Beneficiary's
selection. Grantor from time to time will deliver to Beneficiary all instruments
requested by it to permit or facilitate such participation. In the event of such
condemnation proceedings, the award or compensation payable is hereby assigned
to and shall be paid to Beneficiary. Beneficiary shall be under no obligation to
question the amount of any such award or compensation and may accept the same in
the amount in which the same shall be paid. The proceeds of any award or
compensation so received shall, at Beneficiary's option, either be applied to
the prepayment of the Note and all interest and other sums accrued and unpaid in
respect thereof at the rate of interest provided therein regardless of the rate
of interest payable on the award by the condemning authority, or be disbursed to
Grantor from time to time for restoration of the Improvements in accordance with
Beneficiary's standard construction lending practices, terms and conditions, in
either case, less Beneficiary's reasonable expenses for collecting and, if
applicable, disbursing the award, or otherwise incurred in connection therewith.
Notwithstanding the provisions of the immediately preceding sentence, provided
no monetary or bankruptcy related default or any Event of Default exists
hereunder, Beneficiary agrees to apply any such condemnation award proceeds
received by it to the reimbursement of Grantor's costs of restoring the
Improvements. Advances of condemnation award proceeds shall be made to Grantor
from time to time in accordance with Beneficiary's standard construction lending
practices, terms and conditions; amounts not required for such purposes shall be
applied, at Beneficiary's option, to the prepayment of the Note and to interest
accrued and unpaid thereon (at the rate of interest provided therein regardless
of the rate of interest payable on the award by the condemning authority) in
such order and proportions as Beneficiary may elect.
Section 1.14. Leases. (a) Grantor will not (i) execute an assignment of
the rents or any part thereof from the Premises without Beneficiary's prior
consent, (ii) except where the lessee is in default thereunder, terminate or
consent to the cancellation or surrender of any lease of the Premises or of any
part thereof, now existing or hereafter to be made, having an unexpired term of
one (1) year or more, provided, however, that any lease may be cancelled if
promptly after the cancellation or surrender thereof a new lease is entered into
with a new lessee having a credit standing at least equivalent to that of the
lessee whose lease was cancelled, on substantially the same terms as the
terminated or cancelled lease, (iii) modify any such lease so as to shorten the
unexpired term thereof or so as to decrease, waive or compromise in any manner
the amount of the rents payable thereunder or materially expand the obligations
of the lessor thereunder, (iv) accept prepayments of more than one month of any
installments of rents to become due under such leases, except prepayments in the
nature of security for the performance of the
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lessees thereunder, (v) modify, release or terminate any guaranties of any such
lease or (vi) in any other manner impair the value of the Mortgaged Property or
the security hereof.
(b) Grantor will not execute any lease of all or a substantial portion
of the Premises except for actual occupancy by the lessee thereunder or its
property manager, and will at all times promptly and faithfully perform, or
cause to be performed, all of the covenants, conditions and agreements contained
in all leases of the Premises or portions thereof now or hereafter existing, on
the part of the lessor thereunder to be kept and performed and will at all times
do all things reasonably necessary to compel performance by the lessee under
each lease of all obligations, covenants and agreements by such lessee to be
performed thereunder. If any of such leases provide for the giving by the lessee
of certificates with respect to the status of such leases, Grantor shall
exercise its right to request such certificates within five (5) days of any
demand therefor by Beneficiary and shall deliver copies thereof to Beneficiary
promptly upon receipt.
(c) In the event of the enforcement by Trustee or Beneficiary of the
remedies provided for hereby or by law, the lessee under each of the leases of
the Premise will, upon request of any person succeeding to the interest of
Grantor as a result of such enforcement, automatically become the lessee of said
successor in interest, without change in the terms or other provisions of such
lease, provided, however, that said successor in interest shall not be bound by
(i) any payment of rent or additional rent for more than one (1) month in
advance, except prepayments in the nature of security for the performance by
said lessee of its obligations under said lease or (ii) any amendment or
modification of the lease made without the consent of Beneficiary or such
successor in interest. Each lease shall also provide that, upon request by said
successor in interest, such lessee shall execute and deliver an instrument or
instruments confirming such attornment.
Section 1.15. Premises Documents. Grantor shall (a) do all things
reasonably necessary to cause the due compliance and faithful performance by the
other parties to the Premises Documents with and of all obligations and
agreements by such other parties to be complied with and performed thereunder,
except for any continuing failure of the Premises to comply with the Premises
Documents of the date of the acquisition hereof from Beneficiary or its
affiliate, and (b) deliver promptly to Beneficiary copies of any notices which
it gives or receives under any of the Premises Documents.
Section 1.16. Trust Fund; Lien Laws. Grantor will receive the advances
secured hereby and will hold the right to receive such advances as a trust fund
to be applied first for the purpose of paying the costs of improvements on the
Premises and will apply the same first to the payment of such costs before using
any part of the total of the same for any other purpose. Grantor will indemnify
and hold Trustee and Beneficiary harmless against any loss or liability, cost or
expense, including, without limitation, any judgments, attorney's fees, costs of
appeal bonds and printing costs, arising out of or relating to any proceeding
instituted by any claimant alleging a violation by Grantor of any applicable
lien law.
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Section 1.17. Expenses of Trustee. Grantor shall pay all costs, fees
and expenses of Trustee, its agents and counsel in connection with the
performance of its duties hereunder.
ARTICLE II
EVENTS OF DEFAULT AND REMEDIES
Section 2.01. Events of Default and Certain Remedies. If one or more of
the following Events of Default shall happen, that is to say:
(a) if (i) default shall be made in the payment of any
principal, interest, fees or other sums under the Note, in any such
case, when and as the same shall become due and payable, whether at
maturity or by acceleration or as part of any payment or prepayment or
otherwise, in each case, as herein or in the Note provided, and such
default shall have continued for a period of ten (10) days or (ii)
default shall be made in the payment of any tax or other charge
required by Section 1.07 to be paid and said default shall have
continued for a period of twenty (20) days; or
(b) if default shall be made in the due observance or
performance of any covenant, condition or agreement in the Note, this
Deed or in any other document executed or delivered to Beneficiary in
connection with the Loan, and such default shall have continued for a
period of thirty (30) days after notice thereof shall have been given
to Grantor by Beneficiary, or, in the case of such other documents,
such shorter grace period, if any, as may be provided for therein; or
(c) if any representation or warranty made by Grantor in
Section 1.01 shall be incorrect, or if any other representation or
warranty made to Beneficiary in this Deed, or in any other document,
certificate or statement executed or delivered to Beneficiary in
connection with the Loan shall be incorrect in any material respect
when made or remade; or
(d) if by order of a court of competent jurisdiction, a
trustee, receiver or liquidator of the Mortgaged Property or any part
thereof, or of Grantor shall be appointed and such order shall not be
discharged or dismissed within sixty (60) days after such appointment;
or
(e) if Grantor shall file a petition in bankruptcy or for an
arrangement or for reorganization pursuant to the Federal Bankruptcy
Act or any similar federal or state law, or if, by decree of a court of
competent jurisdiction, Grantor shall be adjudicated a bankrupt, or be
declared insolvent, or shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts
generally as they become due, or shall consent to the appointment of a
receiver or receivers of all or any part of its property; or
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(f) if any of the creditors of Grantor shall file a petition
in bankruptcy against Grantor or for reorganization of Grantor pursuant
to the Federal Bankruptcy Act or any similar federal or state law, and
if such petition shall not be discharged or dismissed within sixty (60)
days after the date on which such petition was filed; or
(g) if final judgment for the payment of money shall be
rendered against Grantor and Grantor shall not discharge the same or
cause it to be discharged within sixty (60) days from the entry
thereof, or shall not appeal therefrom or from the order, decree or
process upon which or pursuant to which said judgment was granted,
based or entered, and secure a stay of execution pending such appeal;
or
(h) (Intentionally Omitted)
(i) if there shall occur a default which is not cured within
the applicable grace period, if any, under any mortgage, deed of trust
or other security instrument covering all or part of the Mortgaged
Property regardless of whether any such mortgage, deed of trust or
other security instrument is prior or subordinate hereto or under any
mortgage, deed of trust or other security instrument now or hereafter
securing the Note; it being further agreed by Grantor that an Event of
Default hereunder shall constitute an Event of Default under any such
mortgage, deed of trust or other security instrument held by or for the
benefit of Beneficiary; or
(j) if there shall occur a default which is not cured within
the applicable grace period, if any, under any of the Premises
Documents, except for any continuing failure of the Premises to comply
with the Premises Documents of the date of the acquisition hereof from
Beneficiary or its affiliate; or if any of the Premises Documents is
amended, modified, supplemented or terminated without Beneficiary's
prior consent; or
(k) if Grantor shall transfer, or agree to transfer (or suffer
or permit the transfer or agreement to transfer), in any manner, either
voluntarily or involuntarily, by operation of law or otherwise, all or
any portion of the Mortgaged Property, or any interest or rights
therein (including air or development rights) without, in any such
case, Beneficiary's prior consent. As used in this clause, "transfer"
shall include, without limitation, any sale, assignment, lease (other
than to Lessee) or conveyance except leases for occupancy subordinate
hereto and to all advances made and to be made hereunder or, in the
event Grantor (or a general partner or co-venturer thereof) is a
partnership, joint venture, limited liability company, trust or
closely-held corporation, the sale, conveyance, transfer or other
disposition of more than 10%, in the aggregate, of any class of the
issued and outstanding capital stock of such closely-held corporation
or of the beneficial interest of such partnership, venture, limited
liability company or trust, or a change of any general partner, joint
venturer, member or beneficiary, as the case may be. In the event
Grantor is a
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limited partnership, and so long as a limited partner has contributed
to (or remains personally liable for) the present and future
partnership capital contributions required of such limited partner by
the partnership agreement, such partner may sell, convey, devise,
transfer or dispose of all or a part of his limited partnership
interest to his spouse, children, grandchildren or a family trust in
which his spouse, children or grandchildren are sole beneficiaries; or
(l) if Grantor shall encumber, or agree to encumber, in any
manner, either voluntarily or involuntarily, by operation of law or
otherwise, all or any portion of the Mortgaged Property, or any
interest or rights therein (including air or development rights)
without, in any such case, Beneficiary's prior consent. As used in this
clause, "encumber" shall include, without limitation, the placing or
permitting the placing of any mortgage, deed of trust, assignment of
rents or other security device. (Beneficiary may grant or deny its
consent under this clause and the immediately preceding clause in its
sole discretion and, if consent should be given, any such transfer or
encumbrance shall be subject hereto and to any other documents which
evidence or secure the Loan, and, if a transfer, any such transferee
shall assume all of Grantor's obligations hereunder and thereunder and
agree to be bound by all provisions and perform all obligations
contained herein and therein; consent to one such transfer or
encumbrance shall not be deemed to be a waiver of the right to require
consent to future or successive transfers or encumbrances);
then and in every such case:
I. During the continuance of any such Event of Default,
Beneficiary, by notice to Grantor, may declare the entire principal of
the Note then outstanding (if not then due and payable), and all
accrued and unpaid interest and other sums in respect thereof, to be
due and payable immediately, and upon any such declaration the
principal of the Note and said accrued and unpaid interest and other
sums shall become and be immediately due and payable, anything herein
or in the Note (other than Section 4.08 hereof, the provisions thereof
limiting interest payable thereunder to the maximum amount permitted by
applicable law) to the contrary notwithstanding.
II. During the continuance of any such Event of Default,
Trustee or Beneficiary personally, or by their agents or attorneys, may
enter into and upon all or any part of the Premises, and each and every
part thereof, and are each hereby given a right and license and
appointed Grantor's attorney-in-fact and exclusive agent to do so, and
may exclude Grantor, its agents and servants wholly therefrom; and
having and holding the same, may use, operate, manage and control the
Premises and conduct the business thereof, either personally or by
their superintendents, managers, agents, servants, attorneys or
receivers; and upon every such entry, Trustee or Beneficiary, at the
expense of the Mortgaged Property, from time to time, either by
purchase, repairs or construction, may maintain and restore the
Mortgaged Property, whereof they shall become possessed as aforesaid;
may complete the construction of the Improvements and
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in the course of such completion may make such changes in the
contemplated Improvements as Beneficiary may deem desirable and may
insure the same; and likewise, from time to time, at the expense of the
Mortgaged Property, Trustee or Beneficiary may make all necessary or
proper repairs, renewals and replacements and such useful alterations,
additions, betterments and improvements thereto and thereon as
Beneficiary may seem advisable; and in every such case Trustee or
Beneficiary shall have the right to manage and operate the Mortgaged
Property and to carry on the business thereof and exercise all rights
and powers of Grantor with respect thereto either in the name of
Grantor or otherwise as Beneficiary shall deem best; and Trustee or
Beneficiary shall be entitled to collect and receive the Rents and
every part thereof, all of which shall for all purposes constitute
property of Grantor; and in furtherance of such right Beneficiary may
collect the rents payable under all leases of the Premises directly
from the lessees thereunder upon notice to each such lessee that an
Event of Default exists hereunder accompanied by a demand on such
lessee for the payment to Beneficiary of all rents due and to become
due under its lease, and Grantor FOR THE BENEFIT OF BENEFICIARY AND
EACH SUCH LESSEE hereby covenants and agrees that the lessee shall be
under no duty to question the accuracy of Beneficiary's statement of
default and shall unequivocally be authorized to pay said rents to
Beneficiary without regard to the truth of Beneficiary's statement of
default and notwithstanding notices from Grantor disputing the
existence of an Event of Default such that the payment of rent by the
lessee to Beneficiary pursuant to such a demand shall constitute
performance in full of the lessee's obligation under the lease for the
payment of rents by the lessee to Grantor; and after deducting the
expenses of conducting the business thereof and of all maintenance,
repairs, renewals, replacements, alterations, additions, betterments
and improvements and amounts necessary to pay for taxes, assessments,
insurance and prior or other proper charges upon the Mortgaged Property
or any part thereof, as well as just and reasonable compensation for
the services of Trustee and Beneficiary and for all attorneys, counsel,
agents, clerks, servants and other employees by them engaged and
employed, Trustee or Beneficiary, as the case may be, shall apply the
moneys arising as aforesaid, first, to the payment of the principal of
the Note and the interest thereon, when and as the same shall become
payable and in such order and proportions as Beneficiary shall elect
and second, to the payment of any other sums required to be paid by
Grantor hereunder.
III. Trustee or Beneficiary, as the case may be, with or
without entry, personally or by their agents or attorneys, insofar as
applicable, may:
(1) sell the Mortgaged Property and all estate, right,
title and interest, claim and demand therein, at public
auction at such time and place, and upon such terms and
conditions as Beneficiary may deem expedient or as may be
required or permitted by applicable law, having first given
such notice prior to the sale of such time, place and terms by
publication in one (1) or more newspapers published or having
a general circulation in the county or counties of the state
in which the Mortgaged Property is located as may be required
or permitted by law and by such
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other methods, if any, as Trustee or Beneficiary may deem
desirable or as may be required or permitted by applicable
law. In the event of any sale of all or part of the Mortgaged
Property under the terms hereof, Grantor shall pay (in
addition to taxable costs) a reasonable fee to Trustee which
shall be in lieu of all other fees and commission permitted by
statute or custom to be paid, reasonable attorneys' fees and
all expenses incurred in obtaining or continuing abstracts of
title for the purpose of any such sale; or
(2) institute proceedings for the complete or partial
foreclosure hereof; or
(3) take such steps to protect and enforce their rights
whether by action, suit or proceeding in equity or at law for
the specific performance of any covenant, condition or
agreement in the Note or herein, or in aid of the execution of
any power herein granted, or for any foreclosure hereunder, or
for the enforcement of any other appropriate legal or
equitable remedy or otherwise as Trustee or Beneficiary shall
elect.
Section 2.02. Other Matters Concerning Sales. (a) Trustee or
Beneficiary may adjourn from time to time any sale by it to be made hereunder or
by virtue hereof by announcement at the time and place appointed for such sale
or for such adjourned sale or sales; and, except as otherwise provided by any
applicable provision of law, Trustee or Beneficiary, as the case may be, without
further notice or publication, may make such sale at the time and place to which
the same shall be so adjourned.
(b) Upon the completion of any sale or sales made by Trustee or
Beneficiary, as the case may be, under or by virtue of this Article II, Trustee,
or an officer of any court empowered to do so, shall execute and deliver to the
accepted purchaser or purchasers a good and sufficient instrument or instruments
conveying, assigning and transferring all estate, right, title and interest in
and to the property and rights sold. Trustee is hereby appointed the true and
lawful attorney irrevocable of Grantor, in its name and stead, to make all
necessary conveyances, assignments, transfers and deliveries of the Mortgaged
Property and rights so sold and for that purpose Trustee may execute all
necessary instruments of conveyance, assignment and transfer, and may substitute
one or more persons with like power, Grantor hereby ratifying and confirming all
that its said attorney or such substitute or substitutes shall lawfully do by
virtue hereof. Nevertheless, Grantor, if requested by Trustee or Beneficiary,
shall ratify and confirm any such sale or sales by executing and delivering to
Trustee or to such purchaser or purchasers all such instruments as may be
advisable, in the judgment of Trustee or Beneficiary, for the purpose, and as
may be designated in such request. Any such sale or sales made under or by
virtue of this Article II, whether made under the power of sale herein granted
or under or by virtue of judicial proceedings or of a judgment or decree of
foreclosure and sale, shall operate to divest all the estate, right, title,
interest, claim and demand whatsoever, whether at law or in equity, of Grantor
in and to the properties and rights so sold, and shall be a perpetual bar both
at law and in equity against Grantor and against any and all
20
<PAGE>
persons claiming or who may claim the same, or any part thereof from, through or
under Grantor.
(c) In the event of any sale or sales made under or by virtue of this
Article II (whether made under the power of sale herein granted or under or by
virtue of judicial proceedings or of a judgment or decree of foreclosure and
sale), the entire principal of, and interest and other sums on, the Note, if not
previously due and payable, and all other sums required to be paid by Grantor
pursuant hereto, immediately thereupon shall, anything in any of said documents
(other than Section 4.08 hereof) to the contrary notwithstanding, become due and
payable.
(d) The purchase money, proceeds or avails of any sale or sales made
under or by virtue of this Article II, together with any other sums which then
may be held by Trustee or Beneficiary hereunder, whether under the provisions of
this Article II or otherwise, shall be applied as follows:
First: To the payment of the costs and expenses of such sale,
including reasonable compensation to Trustee and Beneficiary, their
agents and counsel, and of any judicial proceedings wherein the same
may be made, and of all expenses, liabilities and advances made or
incurred by Trustee hereunder, together with interest at the Default
Rate on all advances made by Trustee, and of all taxes, assessments or
other charges, except any taxes, assessments or other charges subject
to which the Mortgaged Property shall have been sold.
Second: To the payment of the whole amount then due, owing or
unpaid upon the Note for principal and interest, with interest on the
unpaid principal at the Default Rate from and after the happening of
any Event of Default described in clause (a) of Section 2.01 from the
due date of any such payment of principal until the same is paid, in
such order and amounts as Beneficiary may elect.
Third: To the payment of any other sums required to be paid by
Grantor pursuant to any provision hereof or of the Note, including all
expenses, liabilities and advances made or incurred by Beneficiary
hereunder or in connection with the enforcement hereof, together with
interest at the Default Rate on all such advances.
Fourth: To the payment of the surplus, if any, to whomsoever may be
lawfully entitled to receive the same.
(e) Upon any sale or sales made under or by virtue of this Article II,
whether made under the power of sale herein granted or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale,
Beneficiary may bid for and acquire the Mortgaged Property or any part thereof
and in lieu of paying cash therefor may make settlement for the purchase price
by crediting upon the indebtedness secured hereby the net sales price after
deducting therefrom the expenses of the sale and the costs of the action and any
other sums which Trustee or Beneficiary are authorized to deduct hereunder.
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<PAGE>
Section 2.03. Payment of Amounts Due. (a) In case an Event of Default
described in clause (a) of Section 2.01 shall have happened and be continuing,
then, upon demand of Beneficiary, Grantor will pay to Beneficiary the whole
amount which then shall have become due and payable on the Note, for principal
or interest or both, as the case may be, and after the happening of said Event
of Default will also pay to Beneficiary interest at the Default Rate on the then
unpaid principal of the Note, and the sums required to be paid by Grantor
pursuant to any provision hereof, and in addition thereto such further amount as
shall be sufficient to cover the costs and expenses of collection, including
reasonable compensation to Trustee and Beneficiary, their agents and counsel and
any expenses incurred by Trustee or Beneficiary hereunder. In the event Grantor
shall fail forthwith to pay all such amounts upon such demand, Beneficiary shall
be entitled and empowered to institute such action or proceedings at law or in
equity as may be advised by its counsel for the collection of the sums so due
and unpaid, and may prosecute any such action or proceedings to judgment or
final decree, and may enforce any such judgment or final decree against Grantor
and collect, out of the property of Grantor wherever situated, as well as out of
the Mortgaged Property, in any manner provided by law, moneys adjudged or
decreed to be payable.
(b) Beneficiary shall be entitled to recover judgment as aforesaid
either before, after or during the pendency of any proceedings for the
enforcement of the provisions hereof; and the right of Beneficiary to recover
such judgment shall not be affected by any entry or sale hereunder, or by the
exercise of any other right, power or remedy for the enforcement of the
provisions hereof, or the foreclosure of the lien hereof; and in the event of a
sale of the Mortgaged Property, and of the application of the proceeds of sale,
as herein provided, to the payment of the debt hereby secured, Beneficiary shall
be entitled to enforce payment of, and to receive all amounts then remaining due
and unpaid upon, the Note, and to enforce payment of all other charges, payments
and costs due hereunder or otherwise in respect of the Loan, and shall be
entitled to recover judgment for any portion of the debt remaining unpaid, with
interest at the Default Rate. In case of proceedings against Grantor in
insolvency or bankruptcy or any proceedings for its reorganization or involving
the liquidation of its assets, then Beneficiary shall be entitled to prove the
whole amount of principal, interest and other sums due upon the Note to the full
amount thereof, and all other payments, charges and costs due hereunder or
otherwise in respect of the Loan, without deducting therefrom any proceeds
obtained from the sale of the whole or any part of the Mortgaged Property,
provided, however, that in no case shall Beneficiary receive, from the aggregate
amount of the proceeds of the sale of the Mortgaged Property and the
distribution from the estate of Grantor, a greater amount than such principal
and interest and such other payments, charges and costs.
(c) No recovery of any judgment by Beneficiary and no levy of an
execution under any judgment upon the Mortgaged Property or upon any other
property of Grantor shall affect in any manner or to any extent, the lien hereof
upon the Mortgaged Property or any part thereof, or any liens, rights, powers or
remedies of Trustee or Beneficiary hereunder, but such liens, rights, powers and
remedies of Trustee or Beneficiary shall continue unimpaired as before.
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<PAGE>
(d) Any moneys thus collected by Beneficiary under this Section 2.03
shall be applied by Beneficiary in accordance with the provisions of clause (d)
of Section 2.02.
Section 2.04. Actions; Receivers. After the happening of any Event of
Default and immediately upon the commencement of any action, suit or other legal
proceedings by Trustee or Beneficiary to obtain judgment for the principal of,
or interest on, the Note and other sums required to be paid by Grantor pursuant
to any provision hereof, or of any other nature in aid of the enforcement of the
Note or hereof, Grantor will (a) waive the issuance and service of process and
enter its voluntary appearance in such action, suit or proceeding and (b) if
required by Beneficiary, consent to the appointment of a receiver or receivers
of all or part of the Mortgaged Property and of any or all of the Rents in
respect thereof. After the happening of any Event of Default and during its
continuance, or upon the commencement of any proceedings to foreclose this Deed
or to enforce the specific performance hereof or in aid thereof or upon the
commencement of any other judicial proceeding to enforce any right of Trustee or
Beneficiary, Trustee or Beneficiary shall be entitled, as a matter of right, if
they shall so elect, without the giving of notice to any other party and without
regard to the adequacy or inadequacy of any security for the indebtedness
secured hereby, forthwith either before or after declaring the unpaid principal
of the Note to be due and payable, to the appointment of such a receiver or
receivers.
Section 2.05. Beneficiary's Right to Possession. Notwithstanding the
appointment of any receiver, liquidator or trustee of Grantor, or of any of its
property, or of the Mortgaged Property or any part thereof, Trustee and
Beneficiary shall be entitled to retain possession and control of all property
now or hereafter held hereunder.
Section 2.06. Remedies Cumulative. No remedy herein conferred upon or
reserved to Trustee or Beneficiary is intended to be exclusive of any other
remedy or remedies, and each and every such remedy shall be cumulative, and
shall be in addition to every other remedy given hereunder or now or hereafter
existing at law, in equity or by statute. No delay or omission of Trustee or
Beneficiary to exercise any right or power accruing upon any Event of Default
shall impair any such right or power, or shall be construed to be a waiver of
any such Event of Default or any acquiescence therein; and every power and
remedy given hereby to Trustee or Beneficiary may be exercised from time to time
as often as may be deemed by them expedient. Nothing herein or in the Note shall
affect the obligation of Grantor to pay the principal of, and interest and other
sums on, the Note in the manner and at the time and place therein respectively
expressed.
Section 2.07. Moratorium Laws; Right of Redemption. Grantor will not at
any time insist upon, or plead, or in any manner whatever claim or take any
benefit or advantage of any stay or extension or moratorium law, any exemption
from execution or sale of the Mortgaged Property or any part thereof, wherever
enacted, now or at any time hereafter in force, which may affect the covenants
and terms of performance hereof, nor claim, take or insist upon any benefit or
advantage of any law now or hereafter in force providing for the valuation or
appraisal of the Mortgaged Property, or any part thereof, prior to any sale or
sales thereof which may be made pursuant to any provision herein, or pursuant to
the decree, judgment or order of any court of competent jurisdiction; nor,
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<PAGE>
after any such sale or sales, claim or exercise any right under any statute
heretofore or hereafter enacted to redeem the property so sold or any part
thereof and Grantor hereby expressly waives all benefit or advantage of any such
law or laws, and covenants not to hinder, delay or impede the execution of any
power herein granted or delegated to Trustee or Beneficiary, but to suffer and
permit the execution of every power as though no such law or laws had been made
or enacted. Grantor, for itself and all who may claim under it, waives, to the
extent that it lawfully may, all right to have the Mortgaged Property marshaled
upon any foreclosure hereof.
Section 2.08. Intentionally Omitted.
Section 2.09. Beneficiary's Rights Concerning Application of Amounts
Collected. Notwithstanding anything to the contrary contained herein, upon the
occurrence of an Event of Default, Beneficiary may apply, to the extent
permitted by law, any amount collected hereunder to principal, interest or any
other sum due under the Note or otherwise in respect of the Loan in such order
and amounts, and to such obligations, as Beneficiary shall elect in its sole and
absolute discretion.
ARTICLE III
CONCERNING TRUSTEE
Section 3.01. Trustee's Performance. Trustee, by its acceptance hereof,
covenants faithfully to perform and fulfill the trusts herein created, being
liable, however, only for willful negligence or misconduct, and hereby waives
any statutory fee and agrees to accept reasonable compensation, in lieu thereof,
for any services rendered by it in accordance with the terms hereof.
Section 3.02. Resignation by Trustee. Trustee may resign at any time
upon giving thirty (30) days' notice to Grantor and Beneficiary.
Section 3.03. Removal of Trustee; Successors. Beneficiary may remove
Trustee at any time or from time to time and select a successor trustee. In the
event of the death, removal, resignation or refusal or inability to act of
Trustee, or in its sole discretion for any reason whatsoever, Beneficiary may,
without notice and without specifying any reason therefor and without applying
to any court, select and appoint a successor Trustee, and all powers, rights,
duties and authority of Trustee, as aforesaid, shall thereupon become vested in
such successor. In such connection, Beneficiary may, on its and Grantor's
behalf, execute, acknowledge and record an instrument or agreement of such
substitution, and Grantor hereby irrevocably appoints Beneficiary as its
attorney-in-fact, with full power of substitution, to do so. Such substitute
trustee shall not be required to give bond for the faithful performance of its
duties unless required by Beneficiary.
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ARTICLE IV
MISCELLANEOUS
Section 4.01. Assignment of Rents. This Deed is intended to constitute
a present, absolute and irrevocable assignment of all of the Rents now or
hereafter accruing, and Grantor, without limiting the generality of the Granting
Clause hereof, specifically hereby presently, absolutely and irrevocably assigns
all of the Rents now or hereafter accruing to Beneficiary. The aforesaid
assignment shall be effective immediately upon the execution hereof and is not
conditioned upon the occurrence of any Event of Default hereunder or any other
contingency or event, provided, however, that Beneficiary hereby grants to
Grantor the right and license to collect and receive the Rents as they become
due, and not in advance, so long as no Event of Default exists hereunder.
Immediately upon the occurrence of any such Event of Default, the foregoing
right and license shall be automatically terminated and of no further force or
effect. Nothing contained in this Section or elsewhere herein shall be construed
to make Beneficiary a mortgagee in possession unless and until Beneficiary
actually takes possession of the Mortgaged Property, nor to obligate Beneficiary
to take any action or incur any expense or discharge any duty or liability under
or in respect of any leases or other agreements relating to the Mortgaged
Property or any part thereof.
Section 4.02. Security Agreement. This Deed constitutes a security
agreement under the applicable Uniform Commercial Code with respect to the
Chattels and such other of the Mortgaged Property which is personal property. In
addition to the rights and remedies granted to Beneficiary by other applicable
law or hereby, Beneficiary shall have all of the rights and remedies with
respect to the Chattels and such other personal property as are granted to a
secured party under the applicable Uniform Commercial Code. Upon Beneficiary's
request after an Event of Default, Grantor shall promptly and at its expense
assemble the Chattels and such other personal property and make the same
available to Beneficiary at a convenient place acceptable to Beneficiary.
Grantor, after an Event of Default, shall pay to Beneficiary on demand, with
interest at the Default Rate, any and all expenses, including attorneys' fees,
incurred by Beneficiary in protecting its interest in the Chattels and such
other personal property and in enforcing its rights with respect thereto. Any
notice of sale, disposition or other intended action by Beneficiary with respect
to the Chattels and such other personal property sent to Grantor in accordance
with the provisions hereof at least five (5) days prior to such action shall
constitute reasonable notice to Grantor. The proceeds of any such sale or
disposition, or any part thereof, may be applied by Beneficiary to the payment
of the indebtedness secured hereby in such order and proportions as Beneficiary
in its discretion shall deem appropriate. To the extent Grantor may lawfully do
so and without limiting any rights and/or privileges herein granted to
Beneficiary, Grantor agrees that Beneficiary and/or Trustee and any successor
Trustee may dispose of any or all of the Chattels at the same time and place and
after giving the same notices provided in this Deed in connection with a
non-judicial foreclosure sale under the terms and conditions set forth in
Article II, Section 2.01, or III of this Deed. In this connection, Grantor
agrees that the sale may be conducted by Trustee or successor Trustee; that the
sale of the real estate and improvements described in this Deed and the Chattels
or any part thereof, may be sold
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<PAGE>
separately or together; and that in the event the Premises and the Chattels or
any part thereof are sold together, Beneficiary will not be obligated to
allocate the consideration received as between the Premises and the Chattels.
Section 4.03. Application of Certain Payments. In the event that all or
any part of the Mortgaged Property is encumbered by one or more deeds of trust
held by or for the benefit of Beneficiary, Grantor hereby irrevocably authorizes
and directs Beneficiary to apply any payment received by Beneficiary in respect
of any note secured hereby or by any other such deed of trust to the payment of
such of said notes as Beneficiary shall elect in its sole and absolute
discretion, and Beneficiary shall have the right to apply any such payment in
reduction of principal and/or interest and in such order and amounts as
Beneficiary shall elect in its sole and absolute discretion without regard to
the priority of the deed of trust securing the note so repaid or to contrary
directions from Grantor or any other party.
Section 4.04. Severability. In the event any one or more of the
provisions contained herein or in the Note shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof, but this Deed
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein or therein.
Section 4.05. Modifications and Waivers in Writing. No provision hereof
may be changed, waived, discharged or terminated orally or by any other means
except an instrument in writing signed by the party against whom enforcement of
the change, waiver, discharge or termination is sought. Any agreement hereafter
made by Grantor and Beneficiary relating hereto shall be superior to the rights
of the holder of any intervening or subordinate lien or encumbrance.
Section 4.06. Notices. All notices, demands, consents, approvals and
statements required or permitted hereunder shall be in writing and shall be
deemed to have been sufficiently given or served for all purposes when presented
personally, three (3) days after mailing by registered or certified mail,
postage prepaid, or one (1) day after delivery to a nationally recognized
overnight courier service providing evidence of the date of delivery, if to
Grantor at its address stated above, with a copy to Thomas E. Davis, Esq.,
Jenkens & Gilchrist, 1445 Ross Avenue, Suite 3200, Dallas, Texas 75202-2799, and
if to Beneficiary to its address stated above, or at such other address of which
a party shall have notified the party giving such notice in accordance with the
provisions of this Section.
Section 4.07. Successors and Assigns. All of the grants, covenants,
terms, provisions and conditions herein shall run with the land and shall apply
to, bind and inure to the benefit of, the successors and assigns of Grantor, the
successors in trust of Trustee and the endorsees, transferees, successors and
assigns of Beneficiary.
Section 4.08. Limitation on Interest. Anything herein or in the Note to
the contrary notwithstanding, the obligations of Grantor hereunder and under the
Note shall be subject to the limitation that payments of interest shall not be
required to the extent
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<PAGE>
that receipt of any such payment by Beneficiary would be contrary to provisions
of law applicable to Beneficiary limiting the maximum rate of interest that may
be charged or collected by Beneficiary.
Section 4.09. Counterparts. This Deed may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original; and all such counterparts shall together constitute but one and
the same deed.
Section 4.10. Substitute Deeds. Grantor and Beneficiary shall, upon
their mutual agreement to do so, execute such documents as may be necessary in
order to effectuate the modification hereof, including the execution of
substitute deeds of trust, so as to create two (2) or more liens on or security
titles in respect of the Mortgaged Property in such amounts as may be mutually
agreed upon but in no event to exceed, in the aggregate, the unpaid principal
portion of the Note Amount; in such event, Grantor covenants and agrees to pay
the reasonable fees and expenses of Beneficiary and its counsel in connection
with any such modification.
Section 4.11. Beneficiary's Sale of Interests in Loan. Grantor
recognizes that Beneficiary may sell and transfer interests in the Loan to one
or more participants or assignees and that all documentation, financial
statements, appraisals and other data, or copies thereof, relevant to Grantor,
any Guarantor or the Loan, may be exhibited to and retained by any such
participant or assignee or prospective participant or assignee.
Section 4.12. No Merger of Interests. Unless expressly provided
otherwise, in the event that ownership hereof and title to the fee and/or
leasehold estates in the Premises encumbered hereby shall become vested in the
same person or entity, this Deed shall not merge in said title but shall
continue to be and remain a valid and subsisting lien and/or trust deed on said
estates in the Premises for the amount secured hereby.
Section 4.13. CERTAIN WAIVERS. GRANTOR EXPRESSLY AND UNCONDITIONALLY
WAIVES BY EXECUTION HEREOF, AND BENEFICIARY WAIVES BY ACCEPTANCE HEREOF, IN
CONNECTION WITH ANY FORECLOSURE OR SIMILAR ACTION OR PROCEDURE BROUGHT BY
BENEFICIARY ASSERTING AN EVENT OF DEFAULT UNDER CLAUSE (A) OF SECTION 2.01 OF
THIS DEED, ANY AND EVERY RIGHT IT MAY HAVE TO A TRIAL BY JURY.
Section 4.14. GOVERNING LAW. THE PERFORMANCE REQUIRED BY THIS DEED
SHALL, INSOFAR AS IS POSSIBLE, BE RENDERED TO THE BENEFICIARY AT ITS OFFICE IN
TENNESSEE. GRANTOR AND BENEFICIARY INTEND THAT THE VALIDITY AND CONSTRUCTION OF
THE OBLIGATIONS SECURED BY THIS DEED BE GOVERNED BY THE LAWS OF THE STATE OF
TENNESSEE INCLUDING ALL OBLIGATIONS AND LIABILITIES HEREUNDER WITH RESPECT TO
THE PAYMENT OF INTEREST OR ANY OTHER COMPENSATION FOR THE USE, FORBEARANCE OR
DETENTION OF MONEY. THIS DEED SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TENNESSEE, WITHOUT REFERENCE TO THE
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CONFLICTS OF LAW PRINCIPLES OF THAT STATE, EXCEPT ONLY TO THE EXTENT THAT
MISSISSIPPI LAW EXPRESSLY PROVIDES THAT IT GOVERNS AND THAT A CONTRARY AGREEMENT
BY THE PARTIES IS INEFFECTIVE AND EXCEPT THAT THE LAW OF THE STATE OF
MISSISSIPPI SHALL APPLY TO ANY AND ALL ACTS WITH RESPECT TO THE CREATION AND
PRIORITY OF THE LIEN OF THE DEED AND ASSIGNMENT OF LEASES AND RENTS ON THE
MORTGAGED PROPERTY HEREBY EVIDENCED AND FORECLOSURE BY TRUSTEE ON THE MORTGAGED
PROPERTY. GRANTOR, BENEFICIARY AND TRUSTEE COVENANT AND AGREE TO TAKE ANY AND
ALL ACTION WHICH MAY BE NECESSARY UNDER MISSISSIPPI LAW WITH RESPECT TO
FORECLOSURE UNDER THE LAWS OF THE STATE OF MISSISSIPPI. SHOULD ANY OBLIGATION OR
REMEDY UNDER THIS DEED BE INVALID OR UNENFORCEABLE UNDER THE LAWS PROVIDED
HEREIN TO GOVERN, THE LAWS OF ANOTHER STATE WHOSE LAWS CAN VALIDATE AND APPLY TO
THIS DEED SHALL APPLY.
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<PAGE>
IN WITNESS WHEREOF, this Deed has been duly executed and delivered by
Grantor.
APPLE SUITES, INC.,
a Virginia corporation
By /s/ Glade M. Knight [L.S.]
-----------------------------
Name: Glade M. Knight
Title: President
APPLE SUITES MANAGEMENT, INC.,
a Virginia corporation
By /s/ Glade M. Knight [L.S.]
-----------------------------
Name: Glade M. Knight
Title: President
<PAGE>
STATE OF TEXAS
COUNTY OF DALLAS
PERSONALLY appeared before me, the undersigned authority in and for the
said County and State, on this 20th day of December, 1999, within my
jurisdiction, the within named Glade Knight, who acknowledged to me that he/she
executed and delivered the above and foregoing instrument of writing for and on
behalf of said Apple Suites, Inc.
GIVEN UNDER MY HAND AND OFFICIAL SEAL OF OFFICE.
/s/ Deanna Jost
------------------------------------
Notary Public
My commission expires:
April 8, 2003
- -----------------------
<PAGE>
STATE OF TEXAS
COUNTY OF DALLAS
PERSONALLY appeared before me, the undersigned authority in and for the
said County and State, on this 20th day of December, 1999, within my
jurisdiction, the within named Glade Knight, who acknowledged to me that he/she
executed and delivered the above and foregoing instrument of writing for and on
behalf of said Apple Suites Management, Inc.
GIVEN UNDER MY HAND AND OFFICIAL SEAL OF OFFICE.
/s/ Deanna Jost
------------------------------------
Notary Public
My commission expires:
April 8, 2003
- ----------------------
Beneficiary's Address:
c/o Promus Hotels, Inc.
755 Crossover Lane
Memphis, Tennessee 38117-4900
Grantor's Address:
c/o Cornerstone Realty Income Trust, Inc.
306 East Main Street
Richmond, Virginia 23219
Prepared by:
Graham R. Hone, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
212/259-8000
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION OF PREMISES
Being situated in Lots 3 and 4 of Block 34 of Highland Colony, a
subdivision, the map or plat of which is recorded in the Office of the
Chancery Clerk of Madison County at Canton, Mississippi and being more
particularly described by metes and bounds as follows, to wit:
Commence at the Southwest corner of said Lot 3 and run thence North
0(Degree)18'31" East for a distance of 240.48 feet along with West line of
said Lot 3 to the POINT OF BEGINNING for the parcel herein described;
thence North 78(Degree)04'03" East for a distance of 472.795 feet to the
Southwest right-of-way line of Centre Street; thence North 31(Degree)57'26"
West for a distance of 88.98 feet along the Southwesterly edge of a
concrete curb and gutter, being the Southwest right-of-way line of Centre
Street; thence run 445.47 feet along the arc of 440.0 foot radius curve to
the left along the said Southwesterly edge of a concrete curb and gutter,
said arc having a 426.685 foot chord which bears North 60(Degree)57'40"
West; thence North 89(Degree)57'54" West for a distance of 179.25 feet
along the Southerly edge of a concrete curb and gutter, being the Southern
right-of-way line of Centre Street; thence leave said Southern right-of-way
line and run South 00(Degree)18'31" West for a distance of 379.32 feet;
thence South 89(Degree)31'28" East for a distance of 138.86 feet to the
POINT OF BEGINNING.
STATE OF GEORGIA ) Exhibit 4.3
)
COUNTY OF GWINNETT ) [second lien]
================================================================================
Date: December 22, 1999
FEE AND LEASEHOLD DEED TO SECURE DEBT, ASSIGNMENT OF LEASES
AND RENTS AND SECURITY AGREEMENT
("this Deed")
BY AND AMONG
APPLE SUITES, INC.,
a Virginia corporation, as a grantor
("Fee Owner")
AND
APPLE SUITES MANAGEMENT, INC.,
a Virginia corporation, as a grantor
("Lessee")
Address of Fee Owner and Lessee: 306 East Main Street
Richmond, Virginia 23219
Attn: Mr. Glade M. Knight
AND
PROMUS HOTELS, INC.,
a Delaware corporation, as grantee
("Mortgagee")
Address of Mortgagee: 755 Crossover Lane
Memphis, Tennessee 38117
THIS INSTRUMENT IS ALSO TO BE INDEXED IN THE INDEX OF FINANCING STATEMENTS.
THE NAMES OF THE DEBTOR AND SECURED PARTY FROM WHICH INFORMATION CONCERNING THE
SECURITY INTEREST MAY BE OBTAINED, THE MAILING ADDRESS OF THE DEBTOR AND A
STATEMENT INDICATING THE TYPES, OR DESCRIBING THE ITEMS, OF CHATTELS, ARE AS
DESCRIBED IN SECTION 3.05 HEREOF IN COMPLIANCE WITH THE REQUIREMENTS OF THE
OFFICIAL CODE OF GEORGIA ANNOTATED, SECTION 11-9-402.
THIS INSTRUMENT CREATES A "PURCHASE MONEY SECURITY INTEREST" AS CONTEMPLATED BY
SECTION 11-9-107 OF THE OFFICIAL CODE OF GEORGIA ANNOTATED, PART OF THE PROCEEDS
OF WHICH ARE TO ENABLE A DEBTOR TO ACQUIRE RIGHTS IN AND TO COLLATERAL.
================================================================================
This instrument prepared by, and after recording please return to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019-6092
Attention: Graham R. Hone, Esq.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
RECITAL.............................................................................................1
CERTAIN DEFINITIONS AND RULES OF CONSTRUCTION.......................................................1
GRANTING CLAUSE.....................................................................................4
ARTICLE I COVENANTS OF MORTGAGOR....................................................6
Section 1.01. (a) Warranty of Title; Power and Authority..............................6
(b) Hazardous Materials.................................................6
(c) Flood Hazard Area...................................................7
Section 1.02. (a) Further Assurances..................................................7
(b) Information Reporting and Back-up Withholding.......................7
Section 1.03. (a) Filing and Recording of Documents...................................7
(b) Filing and Recording Fees and Other Charges.........................8
Section 1.04. Payment and Performance of Loan Documents.................................8
Section 1.05. Maintenance of Existence; Compliance with Laws............................8
Section 1.06. After-Acquired Property...................................................8
Section 1.07. (a) Payment of Taxes and Other Charges..................................9
(b) Payment of Mechanics and Materialmen................................9
(c) Good Faith Contests.................................................9
Section 1.08. Taxes on Mortgagee.......................................................10
Section 1.09. Insurance................................................................10
Section 1.10. Protective Advances by Mortgagee.........................................13
Section 1.11. (a) Visitation and Inspection..........................................14
(b) Financial and Other Information....................................14
(c) Estoppel Certificates..............................................14
Section 1.12. Maintenance of Premises and Improvements.................................14
Section 1.13. Condemnation.............................................................15
Section 1.14. Leases...................................................................15
Section 1.15. Premises Documents.......................................................16
Section 1.16. Trust Fund; Lien Laws....................................................16
Section 1.17. Assignment of Rents......................................................16
Section 1.18. Assignment of Leases.....................................................17
Section 1.19. New Leases...............................................................17
ARTICLE II EVENTS OF DEFAULT AND REMEDIES...........................................18
Section 2.01. Events of Default and Certain Remedies...................................18
Section 2.02. Other Matters Concerning Sales...........................................23
Section 2.03. Payment of Amounts Due...................................................24
Section 2.04. Actions; Receivers.......................................................25
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
Section 2.05. Mortgagee's Right to Possession..........................................26
Section 2.06. Remedies Cumulative......................................................26
Section 2.07. Moratorium Laws; Right of Redemption.....................................26
Section 2.08. Intentionally Omitted....................................................26
Section 2.09. Mortgagee's Rights Concerning Application of Amounts Collected...........26
ARTICLE III SECURITY AGREEMENT.......................................................27
Section 3.01. Scope and Intent.........................................................27
Section 3.02. Security Agreement.......................................................27
Section 3.03. Warranties and Covenants.................................................27
Section 3.04. Nature of Interest.......................................................27
Section 3.05. Financing Statement......................................................28
ARTICLE IV MISCELLANEOUS............................................................28
Section 4.01. Intentionally Omitted....................................................28
Section 4.02. Intentionally Omitted....................................................28
Section 4.03. Application of Certain Payments..........................................28
Section 4.04. Severability.............................................................28
Section 4.05. Modifications and Waivers in Writing.....................................28
Section 4.06. Notices..................................................................29
Section 4.07. Successors and Assigns...................................................29
Section 4.08. Limitation on Interest...................................................29
Section 4.09. Counterparts.............................................................29
Section 4.10. Substitute Mortgages.....................................................29
Section 4.11. Cancellation.............................................................29
Section 4.12. Subrogation..............................................................29
Section 4.13. Georgia Code Title 44....................................................30
Section 4.14. Mortgagee's Sale of Interests in Loan....................................30
Section 4.15. No Merger of Interests...................................................30
Section 4.16. CERTAIN WAIVERS..........................................................30
Section 4.17. GOVERNING LAW............................................................30
</TABLE>
(ii)
<PAGE>
THE AMOUNT OF THIS MORTGAGE IS $4,384,500.
RECITAL
Mortgagee, Hampton Inns, Inc. and Promus Hotels Florida, Inc., as
sellers, and Fee Owner, as buyer, have heretofore entered into an Agreement of
Sale dated as of November 22, 1999 (as amended, the "Agreement of Sale") for the
purchase by Fee Owner on the date hereof of certain premises described therein
(the "New Premises"). Fee Owner has acquired and is the owner of the premises
described in SCHEDULE A attached hereto and made a part hereof and Lessee is the
owner of a leasehold interest therein. Lessee acknowledges that it will derive
substantial benefit from the making of the loan contemplated herein and further
acknowledges that the obligation of Mortgagee to make such loan is conditioned
upon, among other things, the execution and delivery by Lessee of this Mortgage.
In connection with the purchase of the New Premises by Fee Owner from Mortgagee
(or its affiliates) pursuant to the Agreement of Sale, Fee Owner will borrow
$4,384,500 from Mortgagee and has executed and delivered to Mortgagee its note,
dated the date hereof, obligating it to pay the sum of $4,384,500, with interest
thereon as therein provided and with final payment being due on January 1, 2001,
which note is by this reference made a part hereof (said note, as the same may
hereafter be amended, modified, extended, severed, assigned, renewed, replaced
or restated, hereinafter, the "Note"). In order to secure the payment of the
Note, Fee Owner and Lessee, as grantors, have duly authorized the execution and
delivery of this Mortgage. For purposes of this Mortgage, "Mortgagor" shall mean
Fee Owner and Lessee but only to the extent of their respective interests in the
Mortgaged Property (as herein defined) and their respective obligations under
the Note and Ground Lease.
CERTAIN DEFINITIONS AND RULES OF CONSTRUCTION
Mortgagor and Mortgagee agree that, unless the context otherwise
specifies or requires, the following terms shall have the meanings herein
specified.
"Chattels" means all fixtures, furnishings, fittings, appliances,
apparatus, equipment, building materials and components, machinery and articles
of personal property, of whatever kind or nature, including any replacements,
proceeds or products thereof and additions thereto, other than those owned by
lessees, now or at any time hereafter intended to be or actually affixed to,
attached to, placed upon, or used in any way in connection with the complete and
comfortable use, enjoyment, development, occupancy or operation of the Premises,
and whether located on or off the Premises, including, but not by way of
limitation, all gas and electric fixtures, radiators, heaters, engines and
machinery, boilers, ranges, ovens, elevators and motors, bathtubs, sinks, water
closets, basins, pipes, faucets and other air-conditioning, plumbing and heating
fixtures, mirrors, mantles, refrigerating plant, refrigerators, iceboxes,
dishwashers,
<PAGE>
carpeting, furniture, laundry equipment, cooking apparatus and appurtenances,
and all building material and equipment now or hereafter delivered to the
Premises and intended to be installed therein, fire extinguishers and any other
safety equipment required by governmental regulations, books and records; such
other goods, equipment, chattels and personal property as are usually furnished
by landlords in letting premises of the character hereby conveyed; all the
right, title and interest of Mortgagor in any of the foregoing property which is
subject to or covered by any prior security agreement, conditional sales
contract, chattel mortgage or similar lien or claim, together with the benefit
of any deposits or payments now or hereafter made by Mortgagee on behalf of
Mortgagor; all trade names, trademarks, service marks, logos and good will
related thereto which in any way now or hereafter belong, relate or appertain to
the Premises or any part thereof; all renewals or replacements thereof or
articles in substitution thereof and all of the estate, right, title and
interest of Mortgagor in and to all property of any nature whatsoever, now or
hereafter situated on the Premises or intended to be used in connection with the
operation thereof; and all inventory, accounts, chattel paper, documents,
equipment, fixtures, farm products, consumer goods, general intangibles and
personal property of every kind and nature whatsoever constituting proceeds
acquired with cash proceeds of any of the property described hereinabove. All of
the estate, right, title and interest of Mortgagor in and to all the foregoing
property are hereby declared and shall be deemed to be fixtures and accessions
to the freehold and a part of the Premises as between Mortgagor and Mortgagee
and all persons claiming by, through or under them or either of them, and which
shall be deemed to be a portion of the security for the indebtedness herein
described and to be secured by this Mortgage. The location of the Chattels is
Cobb County, Georgia, which is also the location of the Premises.
"Default Rate" means the rate (or, if more than one, the highest of the
rates) of interest per annum provided in the Note plus 5%, but in no event to
exceed the maximum rate allowed by law.
"Events of Default" means the events and circumstances described as
such in Section 2.01.
"Ground Lease" means the Master Hotel Lease Agreement dated as of
September 20, 1999 between Fee Owner and Lessee covering, among other
properties, the Premises described in SCHEDULE A, as the same may be amended,
supplemented or modified from time to time.
"Hazardous Materials" means any pollutant, effluents, emissions,
contaminants, toxic or hazardous wastes, materials or substances, as any of
those terms are defined from time to time in or for the purposes of any relevant
environmental law, rule, regulation, code, permit, order, notice, demand letter
or other binding determination (hereinafter, "Environmental Laws") including,
without limitation, asbestos fibers and friable asbestos, polychlorinated
biphenyls and any petroleum or hydrocarbon-based products or derivatives, in
each case in amounts in violation of applicable Environmental Laws.
"Improvements" means all structures or buildings, and replacements
thereof, now or hereafter located upon the Premises, including all plant
equipment, apparatus,
2
<PAGE>
machinery and fixtures of every kind and nature whatsoever forming part of said
structures or buildings.
"lease" or "leases" means any lease or leases of all or any portion of
the Premises, whether affecting the fee or leasehold portion thereof.
"The lien hereof", "first lien", and "lien of this Mortgage", and
similar phrases, mean the security title to the Mortgaged Property hereby
conveyed.
"Loan" means the loan made by Mortgagee to Fee Owner evidenced by the
Note and secured hereby.
"Mortgage" or "this Mortgage" means this Fee and Leasehold Deed To
Secure Debt, Assignment of Leases and Rents And Security Agreement, which shall
constitute a security agreement as defined by the Uniform Commercial Code as
enacted in the State of Georgia and which shall operate and is to be construed
as a deed passing legal title to the Mortgaged Property and is made under those
provisions of the existing laws of the State of Georgia relating to deeds to
secure debt, and not as a mortgage.
"Mortgage Amount" means and shall equal the sum of Four Million Three
Hundred Eighty-Four Thousand Five Hundred and 00/100 Dollars ($4,384,500).
"Premises" means the premises described in SCHEDULE A, including the
leasehold interest therein created by the Ground Lease, and including all of the
easements, rights, privileges and appurtenances (including air or development
rights) thereunto belonging or in anywise appertaining, and all of the estate,
right, title, interest, claim or demand whatsoever of Mortgagor therein and in
the streets and ways adjacent thereto, either in law or in equity, in possession
or expectancy, now or hereafter acquired, and as used herein shall, unless the
context otherwise requires, be deemed to include the Improvements.
"Premises Documents" means all reciprocal easement or operating
agreements, declarations of covenants, conditions or restrictions, declarations
of condominium, developer's or utility agreements with any village, town, county
or other governmental authority, and any similar such agreements or declarations
now or hereafter affecting the Premises or any part thereof.
All terms of this Mortgage which are not defined above shall have the
meaning set forth elsewhere in this Mortgage.
Except as expressly indicated otherwise, when used in this Mortgage (i)
"or" is not exclusive, (ii) "hereunder", "herein", "hereof" and the like refer
to this Mortgage as a whole, (iii) "Article", "Section" and "Schedule" refer to
Articles, Sections and Schedules of this Mortgage, (iv) terms defined in the
singular have a correlative meaning when used in the plural and vice versa, (v)
a reference to a law or statute includes any amendment or modification to, or
replacement of, such law or statute and (vi) a reference to an agreement,
instrument or document means such agreement, instrument or document as the same
may be amended, modified or supplemented from time to time in accordance
3
<PAGE>
with its terms and as permitted hereby and by the other documents executed or
delivered to Mortgagee in connection with the Loan. The cover page and all
Schedules hereto are incorporated herein and made a part hereof. Any table of
contents and the headings and captions herein are for convenience only and shall
not affect the interpretation or construction hereof.
GRANTING CLAUSE
NOW, THEREFORE, Mortgagor, in consideration of the premises and in
order to secure the payment of both the principal of, and the interest and any
other sums payable under, the Note or this Mortgage (together with any and all
other purchase money indebtedness now or hereafter owing by Mortgagor to
Mortgagee, however incurred, but not including sums owed by Mortgagor to
Mortgagee in respect of franchise fees, management fees or any other sums
payable under the License Agreement or the Management Agreement (as hereinafter
defined)) and the performance and observance of all the provisions hereof and of
the Note, including the payment of any sums advanced by Mortgagee to pay taxes,
assessments, insurance premiums, or the costs of repairing, maintaining or
preserving the Premises to the extent the aggregate of such sums and any other
sums expended pursuant hereto exceed the sum of the Mortgage Amount, hereby
gives, grants, bargains, sells, warrants, aliens, remises, releases, conveys,
assigns, transfers, sets over and confirms unto Mortgagee, all its estate,
right, title and interest in, to and under any and all of the following
described property (hereinafter, the "Mortgaged Property") whether now owned or
held or hereafter acquired:
(i) the Premises;
(ii) the Improvements;
(iii) the Chattels;
(iv) the Premises Documents;
(v) all rents, royalties, issues, profits, revenue,
income, recoveries, reimbursements and other benefits of the Mortgaged
Property (hereinafter, the "Rents") and all leases of the Mortgaged
Property or portions thereof now or hereafter entered into and all
right, title and interest of Mortgagor thereunder, including, without
limitation, cash or securities deposited thereunder to secure
performance by the lessees of their obligations thereunder, whether
such cash or securities are to be held until the expiration of the
terms of such leases or applied to one or more of the installments of
rent coming due immediately prior to the expiration of such terms, and
including any guaranties of such leases and any lease cancellation,
surrender or termination fees in respect thereof, all subject, however,
to the provisions of Section 4.01;
(vi) all (a) development work product prepared in
connection with the Premises, including, but not limited to,
engineering, drainage, traffic, soil and other studies and tests;
water, sewer, gas, electrical and telephone approvals, taps
4
<PAGE>
and connections; surveys, drawings, plans and specifications; and
subdivision, zoning and platting materials; (b) building and other
permits, rights, licenses and approvals relating to the Premises; and
(c) contracts and agreements (including, without limitation, contracts
with architects and engineers, construction contracts and contracts for
the maintenance or management of the Premises), contract rights, logos,
trademarks, trade names, copyrights and other general intangibles used
or useful in connection with the ownership, operation or occupancy of
the Premises or any part thereof;
(vii) all proceeds of the conversion, voluntary or
involuntary, of any of the foregoing into cash or liquidated claims,
including, without limitation, proceeds of insurance and condemnation
awards, and all rights of Mortgagor to refunds of real estate taxes and
assessments;
(viii) all revenue and income received by or on behalf of
Mortgagor resulting from the operation of the Premises as a hotel,
including all sums (1) paid by customers for the use of hotel rooms
located within the Premises, (2) derived from food and beverage
operations located within the Premises, (3) generated by other hotel
operations, including any parking, convention, sports and recreational
facilities and (4) business interruption insurance proceeds;
(ix) all accounts and accounts receivable, including all
present and future right to payment from any consumer credit or charge
card organization or entity (such as those organizations which sponsor
or administer the American Express, Carte Blanche, Discover Card,
Diners Club, Visa and Master Card) arising out of the leasing and
operation of, or the business conducted at or in relation to, all or
any part of the Premises; and
(x) any deposit, operating or other account including the
entire balance therein (now or hereafter existing) of Mortgagor
containing proceeds of the operation of the Premises with any banking
or financial institution and all money, instruments, securities,
documents, chattel paper, credits, demands, and any other property,
rights, or interests of Mortgagor relating to the operation of the
Premises which at any time shall come into the possession, custody or
control of any banking or financial institution.
TO HAVE AND TO HOLD the Mortgaged Property with all and singular the
parts, rights, members and appurtenances thereto now or hereafter belonging,
relating or appertaining, to the use, benefit and behalf of Mortgagee, its
successors and assigns forever.
5
<PAGE>
ARTICLE I
COVENANTS OF MORTGAGOR
Mortgagor represents, except as known by Mortgagee or its affiliates to
the contrary, or disclosed to Mortgagee in connection with the sale of the
Mortgaged Property to Mortgagor, and Mortgagor covenants and agrees as follows:
Section 1.01. (a) Warranty of Title; Power and Authority. Mortgagor
warrants that, with respect to the fee interest in the Premises, it has a good
and marketable title to an indefeasible fee estate subject to no lien, charge or
encumbrance, that the Ground Lease is subject to no lien, charge or encumbrance
of any kind and is prior to all liens, charges and encumbrances whatsoever on
the fee interest of the landlord thereunder, except in either case such as are
listed as exceptions to title in the title policy insuring the lien hereof; and,
Mortgagor further warrants that, with respect to the leasehold interest in the
Premises, that it is the owner of a valid and subsisting interest as tenant
under the Ground Lease, that the Ground Lease is in full force and effect, there
are no defaults thereunder and no event has occurred or is occurring which after
notice or passage of time or both will result in such a default; that it owns
the Chattels, all leases and the Rents in respect of the Mortgaged Property and
all other personal property encumbered hereby free and clear of liens and
claims; and Mortgagor warrants that this Mortgage is and will remain a valid and
enforceable lien on the Mortgaged Property subject only to the exceptions
referred to above. Mortgagor has full power and lawful authority to subject the
Mortgaged Property to the lien hereof in the manner and form herein done or
intended hereafter to be done. Mortgagor will preserve such title, will preserve
such leasehold estate created by the Ground Lease and will forever warrant and
defend the same to Mortgagee and Mortgagee and will forever warrant and defend
the validity and priority of the lien hereof against the claims of all persons
and parties whomsoever. Mortgagor will perform or cause to be performed all of
the covenants and conditions required to be performed by it under the Ground
Lease, will do all things necessary to preserve unimpaired its rights
thereunder, and will not (i) enter into any agreement modifying or amending the
Ground Lease that would reduce the term of the Ground Lease, increase the amount
of rent payable thereunder (except as contemplated by the provisions of the
Ground Lease) or have a material adverse effect on the lien created by this
Mortgage or the rights of Mortgagee hereunder or (ii) for so long as the Ground
Lease is in effect, release the landlord thereunder from any obligations imposed
upon it thereby. If Mortgagor receives a notice of default under the Ground
Lease, it shall immediately cause a copy of such notice to be sent by registered
United States mail to Mortgagee.
(b) Hazardous Materials. To the best of Mortgagor's knowledge,
Mortgagor represents and warrants that (i) the Premises and the improvements
thereon and the surrounding areas are not currently and have never been subject
to Hazardous Materials or their effects, in each case in amounts in violation of
applicable Environmental Laws, (ii) neither it nor any portion of the Premises
or improvements thereon is in violation of, or subject to any existing, pending
or threatened investigation or proceeding by any governmental authorities under,
any Environmental Law, (iii) there are no claims,
6
<PAGE>
litigation, administrative or other proceedings, whether actual or threatened,
or judgments or orders, concerning Hazardous Materials relating in any way to
the Premises or the improvements thereon and (iv) Mortgagor is not required by
any Environmental Law to obtain any permits or licenses to construct or use any
improvements, fixtures or equipment with respect to the Premises, or if any such
permit or license is required it has been obtained and is capable of being
mortgaged and assigned hereby. Mortgagor will comply with all applicable
Environmental Laws and will, at its sole cost and expense, promptly remove, or
cause the removal of, any and all Hazardous Materials or the effects thereof at
any time identified as being on, in, under or affecting the Premises.
(c) Flood Hazard Area. Mortgagor represents that neither the Premises
nor any part thereof is located in an area identified by the Secretary of the
United States Department of Housing and Urban Development or by any applicable
federal agency as having special flood hazards or, if it is, Mortgagor has
obtained the insurance required by Section 1.09.
Section 1.02. (a) Further Assurances. Mortgagor will, at its sole cost
and expense, do, execute, acknowledge and deliver all and every such further
acts, deeds, conveyances, mortgages, assignments, notices of assignment,
transfers and assurances as Mortgagee shall from time to time reasonably
require, for the better assuring, conveying, assigning, transferring and
confirming unto Mortgagee the property and rights hereby conveyed or assigned or
intended now or hereafter so to be, or which Mortgagor may be or may hereafter
become bound to convey or assign to Mortgagee, or for carrying out the intention
or facilitating the performance of the terms hereof, or for filing, registering
or recording this Mortgage and, on demand, will execute and deliver, and hereby
authorizes Mortgagee to execute and file in Mortgagor's name, to the extent they
may lawfully do so, one or more financing statements, chattel mortgages or
comparable security instruments, to evidence or perfect more effectively
Mortgagee's security interest in and the lien hereof upon the Chattels and other
personal property encumbered hereby.
(b) Information Reporting and Back-up Withholding. Mortgagor will, at
its sole cost and expense, do, execute, acknowledge and deliver all and every
such acts, information reports, returns and withholding of monies as shall be
necessary or appropriate to comply fully, or to cause full compliance, with all
applicable information reporting and back-up withholding requirements of the
Internal Revenue Code of 1986 (including all regulations now or hereafter
promulgated thereunder) in respect of the Premises and all transactions related
to the Premises, and will at all times provide Mortgagee with satisfactory
evidence of such compliance and notify Mortgagee of the information reported in
connection with such compliance.
Section 1.03. (a) Filing and Recording of Documents. Mortgagor
forthwith upon the execution and delivery hereof, and thereafter from time to
time, will cause this Mortgage and any security instrument creating a lien or
evidencing the lien hereof upon the Chattels and each instrument of further
assurance to be filed, registered or recorded in such manner and in such places
as may be required by any present or future law in order to publish notice of
and fully to protect the lien hereof upon, and the interest of Mortgagee in, the
Mortgaged Property.
7
<PAGE>
(b) Filing and Recording Fees and Other Charges. Mortgagor will pay all
filing, registration or recording fees, and all expenses incident to the
execution and acknowledgment hereof, any mortgage supplemental hereto, any
security instrument with respect to the Chattels, and any instrument of further
assurance, and any reasonable expenses (including attorneys' fees and
disbursements) incurred by Mortgagee in connection with the Loan, and will pay
all federal, state, county and municipal stamp taxes and other taxes, duties,
imposts, assessments and charges arising out of or in connection with the
execution and delivery of the Note, this Mortgage, any mortgage supplemental
hereto, any security instrument with respect to the Chattels or any instrument
of further assurance.
Section 1.04. Payment and Performance of Loan Documents. Mortgagor will
punctually pay the principal and interest and all other sums to become due in
respect hereof and of the Note at the time and place and in the manner specified
therein, according to the true intent and meaning thereof, all in currency of
the United States of America which at the time of such payment shall be legal
tender for the payment of public and private debts. Mortgagor will duly and
timely comply with and perform all of the terms, provisions, covenants and
agreements contained in said documents and in all other documents or instruments
executed or delivered by Mortgagor to Mortgagee in connection with the Loan, and
will permit no failures of performance thereunder.
Section 1.05. Maintenance of Existence; Compliance with Laws.
Mortgagor, if other than a natural person, will, so long as it is owner of all
or part of the Mortgaged Property, do all things necessary to preserve and keep
in full force and effect its existence, franchises, rights and privileges as a
business or stock corporation, partnership, limited liability company, trust or
other entity under the laws of the state of its formation. Mortgagor will duly
and timely comply with all laws, regulations, rules, statutes, orders and
decrees of any governmental authority or court applicable to it or to the
Mortgaged Property or any part thereof.
Section 1.06. After-Acquired Property. All right, title and interest of
Mortgagor in and to all extensions, improvements, betterments, renewals,
substitutes and replacements of, and all additions and appurtenances to, the
Mortgaged Property, hereafter acquired by, or released to, Mortgagor or
constructed, assembled or placed by Mortgagor on the Premises, and all
conversions of the security constituted thereby, immediately upon such
acquisition, release, construction, assembling, placement or conversion, as the
case may be, and in each such case, without any further mortgage, conveyance,
assignment or other act by Mortgagor, shall become subject to the lien hereof as
fully and completely, and with the same effect, as though now owned by Mortgagor
and specifically described in the Granting Clause hereof, but at any and all
times Mortgagor will execute and deliver to Mortgagee any and all such further
assurances, mortgages, conveyances or assignments thereof as Mortgagee may
reasonably require for the purpose of expressly and specifically subjecting the
same to the lien hereof.
Section 1.07. (a) Payment of Taxes and Other Charges. Mortgagor, from
time to time before the same shall become delinquent, will pay and discharge all
taxes of every
8
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kind and nature (including real and personal property taxes and income,
franchise, withholding, profits and gross receipts taxes), all general and
special assessments, levies, permits, inspection and license fees, all water and
sewer rents and charges, and all other public charges whether of a like or
different nature, imposed upon or assessed against it or the Mortgaged Property
or any part thereof or upon the revenues, rents, issues, income and profits of
the Mortgaged Property or arising in respect of the occupancy, use or possession
thereof. Mortgagor will, upon Mortgagee's request, deliver to Mortgagee receipts
evidencing the payment of all such taxes, assessments, levies, fees, rents and
other public charges imposed upon or assessed against it or the Mortgaged
Property or any portion thereof.
Mortgagee may, at its option following the occurrence of an Event of
Default, to be exercised by thirty (30) days' notice to Mortgagor, require the
deposit by Mortgagor, at the time of each payment of an installment of interest
or principal under the Note (but no less often than monthly), of an additional
amount sufficient to discharge the obligations under this clause (a) when they
become due. The determination of the amount so payable and of the fractional
part thereof to be deposited with Mortgagee, so that the aggregate of such
deposits shall be sufficient for this purpose, shall be made by Mortgagee in its
sole discretion. Such amounts shall be held by Mortgagee without interest and
applied to the payment of the obligations in respect of which such amounts were
deposited or, at Mortgagee's option, to the payment of said obligations in such
order or priority as Mortgagee shall determine, on or before the respective
dates on which the same or any of them would become delinquent. If one (1) month
prior to the due date of any of the aforementioned obligations the amounts then
on deposit therefor shall be insufficient for the payment of such obligation in
full, Mortgagor within ten (10) days after demand shall deposit the amount of
the deficiency with Mortgagee. Nothing herein contained shall be deemed to
affect any right or remedy of Mortgagee under any provisions hereof or of any
statute or rule of law to pay any such amount and to add the amount so paid,
together with interest at the Default Rate, to the indebtedness hereby secured.
(b) Payment of Mechanics and Materialmen. Mortgagor will pay, from time
to time when the same shall become due, all lawful claims and demands of
mechanics, materialmen, laborers, and others which, if unpaid, might result in,
or permit the creation of, a lien on the Mortgaged Property or any part thereof,
and in general will do or cause to be done everything necessary so that the lien
hereof shall be fully preserved, at the cost of Mortgagor and without expense to
Mortgagee, other than those liens which Mortgagee or its affiliates have
indemnified Mortgagor pursuant to the provisions set forth in the Agreement of
Sale.
(c) Good Faith Contests. Nothing in this Section 1.07 shall require the
payment or discharge of any obligation imposed upon Mortgagor by this Section so
long as Mortgagor shall in good faith and at its own expense contest the same or
the validity thereof by appropriate legal proceedings which shall operate to
prevent the collection thereof or other realization thereon and the sale or
forfeiture of the Mortgaged Property or any part thereof to satisfy the same;
provided, however, that (i) during such contest Mortgagor shall set aside
reserves sufficient to discharge Mortgagor's obligation
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hereunder and of any additional charge, penalty or expense arising from or
incurred as a result of such contest and (ii) if at any time payment of any
obligation imposed upon Mortgagor by clause (a) above shall become necessary to
prevent the delivery of a tax deed or other instrument conveying the Mortgaged
Property or any portion thereof because of non-payment, then Mortgagor shall pay
the same in sufficient time to prevent the delivery of such tax deed or other
instrument.
Section 1.08. Taxes on Mortgagee. Mortgagor will pay any taxes, except
income taxes, imposed on Mortgagee by reason of their ownership of the Note or
this Mortgage, provided that Mortgagee can require payment of the Note in full
within ninety (90) days if it shall be illegal for Mortgagor to pay any tax or
if the payment of such tax by Mortgagor would result in the violation of
applicable usury laws .
Section 1.09. Insurance. (a) Mortgagor will at all times (directly or
indirectly) provide, maintain and keep in force:
(i) policies of insurance insuring the Premises,
Improvements and Chattels against loss or damage by fire and lightning;
against loss or damage by other risks embraced by coverage of the type
now known as All Risk Replacement Cost Insurance with agreed amount
endorsement, including but not limited to riot and civil commotion,
vandalism, malicious mischief and theft; and against such other risks
or hazards as Mortgagee from time to time reasonably may designate in
an amount sufficient to prevent Mortgagee or Mortgagor from becoming a
co-insurer under the terms of the applicable policies, but in any event
in an amount not less than 100% of the then full replacement cost of
the Improvements (exclusive of the cost of excavations, foundations and
footings below the lowest basement floor) without deduction for
physical depreciation;
(ii) policies of insurance insuring the Premises against
the loss of "rental value" of the buildings which constitute a part of
the Improvements on a "rented or vacant basis" arising out of the
perils insured against pursuant to clause (i) above in an amount equal
to not less than one (1) year's gross "rental value" of the
Improvements. "Rental value" as used herein is defined as the sum of
(A) the total anticipated gross rental income from tenant occupancy of
such buildings as furnished and equipped, (B) the amount of all charges
which are the legal obligation of tenants and which would otherwise be
the obligation of Mortgagor and (C) the fair rental value of any
portion of such buildings which is occupied by Mortgagor. Mortgagor
hereby assigns the proceeds of such insurance to Mortgagee, to be
applied by Mortgagee in payment of the interest and principal on the
Note, insurance premiums, taxes, assessments and private impositions
until such time as the Improvements shall have been restored and placed
in full operation, at which time, provided Mortgagor is not then in
default hereunder, the balance of such insurance proceeds, if any, held
by Mortgagee shall be paid over to Mortgagor;
(iii) if all or part of the Premises are located in an area
identified by the Secretary of the United States Department of Housing
and Urban Development or
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by any applicable federal agency as a flood hazard area, flood
insurance in an amount at least equal to the maximum limit of coverage
available under the National Flood Insurance Act of 1968, provided,
however, that Mortgagee reserves the right to require flood insurance
in excess of said limit if such insurance is commercially available up
to the amount provided in clause (i) above;
(iv) during any period of restoration under this Section
1.09 or Section 1.13, a policy or policies of builder's "all risk"
insurance, written on a Standard Builder's Risk Completed Value Form
(100% non-reporting), in an amount not less than the full insurable
value of the Premises against such risks (including, without
limitation, fire and extended coverage, collapse and earthquake
coverage to agreed limits) as Mortgagee may reasonably request, in form
and substance acceptable to Mortgagee;
(v) a policy or policies of workers' compensation
insurance as required by workers' compensation insurance laws
(including employer's liability insurance, if requested by Mortgagee)
covering all employees of Mortgagor;
(vi) comprehensive liability insurance on an "occurrence"
basis against claims for "personal injury" liability, including,
without limitation, bodily injury, death or property damage liability,
with a limit of not less than $15,000,000 in the event of "personal
injury" to any number of persons or of damage to property arising out
of one "occurrence". Such policies shall name Mortgagee as additional
insured by an endorsement, and shall contain cross-liability and
severability of interest clauses, all satisfactory to Mortgagee; and
(vii) such other insurance (including, but not limited to,
earthquake insurance), and in such amounts, as may from time to time be
reasonably required by Mortgagee against the same or other insurable
hazards.
Notwithstanding anything herein to the contrary, for so long as that
certain Management Agreement of even date herewith between Lessee and Mortgagee
with respect to the Premises remains in full force and effect (as the same may
be amended, the "Management Agreement"), the types and amounts of insurance
required by the Management Agreement to the extent inconsistent with those set
forth above shall govern and control Mortgagor's obligations in respect thereof.
(b) All policies of insurance required under this Section 1.09 shall be
issued by companies having Best's ratings and being otherwise reasonably
acceptable to Mortgagee, shall be subject to the reasonable approval of
Mortgagee as to amount, content, form and expiration date and, except for the
liability policies described in clauses (a)(v) and (vi) above, shall contain a
Non-Contributory Standard Mortgagee Clause and Lender's Loss Payable
Endorsement, or their equivalents, in favor of Mortgagee, and shall provide that
the proceeds thereof shall be payable to Mortgagee. Mortgagee shall be furnished
with the original of each policy required hereunder, which policies shall
provide that they shall not lapse, nor be modified or cancelled, without thirty
(30) days'
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written notice to Mortgagee. At least thirty (30) days prior to expiration of
any policy required hereunder, Mortgagor shall furnish Mortgagee appropriate
proof of issuance of a policy continuing in force the insurance covered by the
policy so expiring. Mortgagor shall furnish to Mortgagee, promptly upon request,
receipts or other satisfactory evidence of the payment of the premiums on such
insurance policies. In the event that Mortgagor does not deposit with Mortgagee
a new certificate or policy of insurance with evidence of payment of premiums
thereon at least thirty (30) days prior to the expiration of any expiring
policy, then Mortgagee may, but shall not be obligated to, procure such
insurance and pay the premiums therefor, and Mortgagor agrees to repay to
Mortgagee the premiums thereon promptly on demand, together with interest
thereon at the Default Rate.
(c) Mortgagor hereby assigns to Mortgagee all proceeds of any insurance
required to be maintained by this Section 1.09 which Mortgagor may be entitled
to receive for loss or damage to the Premises, Improvements or Chattels. All
such insurance proceeds shall be payable to Mortgagee, and Mortgagor hereby
authorizes and directs any affected insurance company to make payment thereof
directly to Mortgagee subject, however, to clause (f) below. Mortgagor shall
give prompt notice to Mortgagee of any casualty, whether or not of a kind
required to be insured against under the policies to be provided by Mortgagor
hereunder, such notice to generally describe the nature and cause of such
casualty and the extent of the damage or destruction. Mortgagor may settle,
adjust or compromise any claims for loss, damage or destruction, regardless of
whether or not there are insurance proceeds available or whether any such
insurance proceeds are sufficient in amount to fully compensate for such loss or
damage, subject to Mortgagee's prior consent. Notwithstanding the foregoing,
Mortgagee shall have the right to join Mortgagor in settling, adjusting or
compromising any loss of $100,000 or more. Mortgagor hereby authorizes the
application or release by Mortgagee of any insurance proceeds under any policy
of insurance, subject to the other provisions hereof. The application or release
by Mortgagee of any insurance proceeds shall not cure or waive any default or
notice of default hereunder or invalidate any act done pursuant to such notice.
(d) In the event of the foreclosure hereof or other transfer of the
title to the Mortgaged Property in extinguishment, in whole or in part, of the
indebtedness secured hereby, all right, title and interest of Mortgagor in and
to any insurance policy, or premiums or payments in satisfaction of claims or
any other rights thereunder then in force, shall pass to the purchaser or
grantee notwithstanding the amount of any bid at such foreclosure sale. Nothing
contained herein shall prevent the accrual of interest as provided in the Note
on any portion of the principal balance due under the Note until such time as
insurance proceeds are actually received and applied to reduce the principal
balance outstanding.
(e) Mortgagor shall not take out separate insurance concurrent in form
or contributing in the event of loss with that required to be maintained under
this Section 1.09 unless Mortgagee is included thereon as a named insured with
loss payable to Mortgagee under standard mortgage endorsements of the character
and to the extent above described. Mortgagor shall promptly notify Mortgagee
whenever any such
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separate insurance is taken out and shall promptly deliver to Mortgagee the
policy or policies of such insurance.
(f) Any and all monies received as payment which Mortgagor may be
entitled to receive for loss or damage to the Premises, Improvements or Chattels
under any insurance maintained pursuant to this Section 1.09 (other than
proceeds under the policies required by clause (a)(ii) above) shall be paid over
to Mortgagee and, at Mortgagee's option, either applied to the prepayment of the
Note and all interest and other sums accrued and unpaid in respect thereof or
disbursed from time to time to Mortgagor in reimbursement of its costs and
expenses incurred in the restoration of the Improvements in accordance with
Mortgagee's standard construction lending practices, terms and conditions, in
either case, less Mortgagee's reasonable expenses for collecting and, if
applicable, disbursing the insurance proceeds, or otherwise incurred in
connection therewith. Notwithstanding the provisions of the immediately
preceding sentence, provided no default exists hereunder, Mortgagee agrees to
apply any such proceeds received by it to the reimbursement of Mortgagor's costs
of restoring the Improvements. Advances of insurance proceeds shall be made to
Mortgagor from time to time in accordance with Mortgagee's standard construction
lending practices, terms and conditions; amounts not required for such purposes
shall be applied, at Mortgagee's option, to the prepayment of the Note and to
interest accrued and unpaid thereon in such order and proportions as Mortgagee
may elect. In no event shall Mortgagee be required to advance such proceeds to
Mortgagor unless Mortgagee shall have (i) received satisfactory evidence that
the funding/expiration dates of the commitment, if any, for the permanent
financing of the Improvements have been extended for such period of time as is
reasonably necessary to complete said restoration and (ii) reasonably determined
that the restoration of the Improvements can be completed by the Maturity Date
of the Note at a cost which does not exceed the amount of available insurance
proceeds or, in the event that such proceeds are reasonably determined by
Mortgagee to be inadequate, Mortgagee shall have received from Mortgagor a cash
deposit equal to the excess of said estimated cost of restoration over the
amount of said available proceeds. If the conditions for the advance of
insurance proceeds for restoration set forth in clauses (i) and (ii) above are
not satisfied within sixty (60) days of Mortgagee's receipt thereof or if the
actual restoration shall not have been commenced within such period, Mortgagee
shall have the option at any time thereafter to apply such insurance proceeds to
the payment of the Note and to interest accrued and unpaid thereon in such order
and proportions as Mortgagee may elect.
Section 1.10. Protective Advances by Mortgagee. If Mortgagor shall fail
to perform any of the covenants contained herein, Mortgagee may make advances to
perform the same on its behalf and all sums so advanced shall be a lien upon the
Mortgaged Property and shall be secured hereby. Mortgagor will repay on demand
all sums so advanced on its behalf together with interest thereon at the Default
Rate. The provisions of this Section shall not prevent any default in the
observance of any covenant contained herein from constituting an Event of
Default.
Section 1.11. (a) Visitation and Inspection. Mortgagor will keep
adequate records and books of account in accordance with generally accepted
accounting
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principles and will permit Mortgagee, by their agents, accountants and
attorneys, to visit and inspect the Mortgaged Property and examine its records
and books of account and make copies thereof or extracts therefrom, and to
discuss its affairs, finances and accounts with the officers or general
partners, as the case may be, of Mortgagor, at such reasonable times as may be
requested by Mortgagee.
(b) Financial and Other Information. Mortgagor will deliver to
Mortgagee with reasonable promptness such financial information with respect to
Mortgagor or the Premises as Mortgagee may reasonably request from time to time.
All financial statements of Mortgagor shall be prepared in accordance with
generally accepted accounting principles and shall be accompanied by the
certificate of a principal financial or accounting officer or general partner,
as the case may be, of Mortgagor, dated within five (5) days of the delivery of
such statements to Mortgagee, stating that he or she knows of no Event of
Default, nor of any event which after notice or lapse of time or both would
constitute an Event of Default, which has occurred and is continuing, or, if any
such event or Event of Default has occurred and is continuing, specifying the
nature and period of existence thereof and what action Mortgagor has taken or
proposes to take with respect thereto, and, except as otherwise specified,
stating that Mortgagor has fulfilled all of its obligations hereunder and
otherwise in respect of the Loan which are required to be fulfilled on or prior
to the date of such certificate.
(c) Estoppel Certificates. Mortgagor, within three (3) days upon
request in person or within five (5) days upon request by mail, will furnish a
statement, duly acknowledged, of the amount due whether for principal or
interest on this Mortgage and whether any offsets, counterclaims or defenses
exist against the indebtedness secured hereby.
Section 1.12. Maintenance of Premises and Improvements. Mortgagor will
not commit any waste on the Premises or make any change in the use of the
Premises which will in any way increase any ordinary fire or other hazard
arising out of construction or operation. Mortgagor will, or shall cause its
Lessee to, at all times, maintain the Improvements and Chattels in good
operating order and condition and will promptly make, from time to time, all
repairs, renewals, replacements, additions and improvements in connection
therewith which are needful or desirable to such end. The Improvements shall not
be demolished or substantially altered, nor shall any Chattels be removed
without Mortgagee's prior consent except where appropriate replacements free of
superior title, liens and claims are immediately made of value at least equal to
the value of the removed Chattels.
Section 1.13. Condemnation. Mortgagor, immediately upon obtaining
knowledge of the institution or pending institution of any proceedings for the
condemnation of the Premises or any portion thereof, will notify Mortgagee
thereof. Mortgagee may participate in any such proceedings and may be
represented therein by counsel of Mortgagee's selection. Mortgagor from time to
time will deliver to Mortgagee all instruments requested by it to permit or
facilitate such participation. In the event of such condemnation proceedings,
the award or compensation payable is hereby assigned to and shall be paid to
Mortgagee. Mortgagee shall be under no obligation to question
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the amount of any such award or compensation and may accept the same in the
amount in which the same shall be paid. The proceeds of any award or
compensation so received shall, at Mortgagee's option, either be applied to the
prepayment of the Note and all interest and other sums accrued and unpaid in
respect thereof at the rate of interest provided therein regardless of the rate
of interest payable on the award by the condemning authority, or be disbursed to
Mortgagor from time to time for restoration of the Improvements in accordance
with Mortgagee's standard construction lending practices, terms and conditions,
in either case, less Mortgagee's reasonable expenses for collecting and, if
applicable, disbursing the award, or otherwise incurred in connection therewith.
Notwithstanding the provisions of the immediately preceding sentence, provided
no monetary or bankruptcy related default or any Event of Default exists
hereunder, Mortgagee agrees to apply any such condemnation award proceeds
received by it to the reimbursement of Mortgagor's costs of restoring the
Improvements. Advances of condemnation award proceeds shall be made to Mortgagor
from time to time in accordance with Mortgagee's standard construction lending
practices, terms and conditions; amounts not required for such purposes shall be
applied, at Mortgagee's option, to the prepayment of the Note and to interest
accrued and unpaid thereon (at the rate of interest provided therein regardless
of the rate of interest payable on the award by the condemning authority) in
such order and proportions as Mortgagee may elect.
Section 1.14. Leases. (a) Mortgagor will not (i) execute an assignment
of the rents or any part thereof from the Premises without Mortgagee's prior
consent, (ii) except where the lessee is in default thereunder, terminate or
consent to the cancellation or surrender of any lease of the Premises or of any
part thereof, now existing or hereafter to be made, having an unexpired term of
one (1) year or more, provided, however, that any lease may be cancelled if
promptly after the cancellation or surrender thereof a new lease is entered into
with a new lessee having a credit standing at least equivalent to that of the
lessee whose lease was cancelled, on substantially the same terms as the
terminated or cancelled lease, (iii) modify any such lease so as to shorten the
unexpired term thereof or so as to decrease, waive or compromise in any manner
the amount of the rents payable thereunder or materially expand the obligations
of the lessor thereunder, (iv) accept prepayments of more than one month of any
installments of rents to become due under such leases, except prepayments in the
nature of security for the performance of the lessees thereunder, (v) modify,
release or terminate any guaranties of any such lease or (vi) in any other
manner impair the value of the Mortgaged Property or the security hereof.
(b) Mortgagor will not execute any lease of all or a substantial
portion of the Premises except for actual occupancy by the lessee thereunder or
its property manager, and will at all times promptly and faithfully perform, or
cause to be performed, all of the covenants, conditions and agreements contained
in all leases of the Premises or portions thereof now or hereafter existing, on
the part of the lessor thereunder to be kept and performed and will at all times
do all things reasonably necessary to compel performance by the lessee under
each lease of all obligations, covenants and agreements by such lessee to be
performed thereunder. If any of such leases provide for the giving by the lessee
of certificates with respect to the status of such leases, Mortgagor shall
exercise its right to
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request such certificates within five (5) days of any demand therefor by
Mortgagee and shall deliver copies thereof to Mortgagee promptly upon receipt.
(c) In the event of the enforcement by Mortgagee of the remedies
provided for hereby or by law, the lessee under each of the leases of the
Premise will, upon request of any person succeeding to the interest of Mortgagor
as a result of such enforcement, automatically become the lessee of said
successor in interest, without change in the terms or other provisions of such
lease, provided, however, that said successor in interest shall not be bound by
(i) any payment of rent or additional rent for more than one (1) month in
advance, except prepayments in the nature of security for the performance by
said lessee of its obligations under said lease or (ii) any amendment or
modification of the lease made without the consent of Mortgagee or such
successor in interest. Each lease shall also provide that, upon request by said
successor in interest, such lessee shall execute and deliver an instrument or
instruments confirming such attornment.
Section 1.15. Premises Documents. Mortgagor shall (a) do all things
reasonably necessary to cause the due compliance and faithful performance by the
other parties to the Premises Documents with and of all obligations and
agreements by such other parties to be complied with and performed thereunder,
except for any continuing failure of the Premises to comply with the Premises
Documents of the date of the acquisition hereof from Mortgagee or its affiliate,
and (b) deliver promptly to Mortgagee copies of any notices which it gives or
receives under any of the Premises Documents.
Section 1.16. Trust Fund; Lien Laws. Mortgagor will receive the
advances secured hereby and will hold the right to receive such advances as a
trust fund to be applied first for the purpose of paying the costs of
improvements on the Premises and will apply the same first to the payment of
such costs before using any part of the total of the same for any other purpose.
Mortgagor will indemnify and hold Mortgagee harmless against any loss or
liability, cost or expense, including, without limitation, any judgments,
attorney's fees, costs of appeal bonds and printing costs, arising out of or
relating to any proceeding instituted by any claimant alleging a violation by
Mortgagor of any applicable lien law.
Section 1.17. Assignment of Rents. As further security for the debt
hereby secured Mortgagor sells, assigns, sets over and transfers to Mortgagee,
presently, absolutely and irrevocably, all of the Rents now or hereafter
accruing, reserving only the right and license to collect the Rents as long as
an Event of Default has not occurred. The aforesaid assignment shall be
effective immediately upon the execution of this Mortgage and is not conditioned
upon the occurrence of any Event of Default hereunder or any other contingency
or event. Upon the occurrence of an Event of Default said right and license of
Mortgagor shall be automatically terminated and of no further force or effect
and Mortgagee may enter upon the Mortgaged Property and collect the Rents.
Mortgagee is hereby constituted and appointed as the exclusive agent and
attorney-in-fact of Mortgagor to collect the Rents by any appropriate proceeding
and Mortgagee is authorized to pay a rental or real estate agent 10% commission
for collecting the Rents. The net amount of the Rents so collected shall be
applied towards the debt hereby secured. Nothing in this Mortgage shall be
construed to obligate Mortgagee to discharge
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or perform the duties of a landlord to a tenant or to impose any liability as a
result of the exercise of the option to collect rents hereunder by virtue of the
occurrence of an Event of Default, and it is agreed that the collection or
participation therein by Mortgagee shall be as agent only for Mortgagor.
Section 1.18. Assignment of Leases. Mortgagor hereby covenants and
agrees that it will assign to Mortgagee, as security for the debt secured
hereby, the lessor's interest in any and all leases covering the Mortgaged
Property, or any part thereof, and Mortgagor's interest in all agreements,
contracts, licenses and permits affecting the Mortgaged Property, such
assignments to be made by instruments in form satisfactory to Mortgagee. No such
assignment shall be construed as a consent by Mortgagee to any lease, agreement,
contract, license or permit so assigned, or to impose upon Mortgagee any
obligation with respect thereto.
Section 1.19. New Leases. Notwithstanding any other provisions of this
Article I, Mortgagor may not, except as otherwise provided in the Comfort Letter
of even date herewith from Mortgagee to Fee Owner, enter into any lease or
rental contract of the Premises, or any part thereof, except on the following
conditions: (a) each such lease or contract shall contain a provision that the
rights of such lessee or tenant thereunder are expressly subordinate to all of
the rights and title of Mortgagee under this Mortgage; (b) any such lease or
contract shall contain an express provision whereby the lessee or tenant
thereunder expressly recognizes and agrees that, notwithstanding such
subordination, Mortgagee, its successors or assigns, or other holder of this
Mortgage and the Note, may sell the Mortgaged Property, or any part thereof, in
the manner provided in Part IV of Section 2.01 hereof, and thereby, at the
option of Mortgagee, its successors or assigns or other holder of this Mortgage
and the Note, sell the same subject to the lease or tenant contract of such
lessee or tenant; and (c) at or prior to the time of execution of any such lease
or contract by any such lessee or tenant, Mortgagor shall, as a condition to
such execution, procure from such lessee or tenant an agreement in favor of
Mortgagee, or other holder of this Mortgage and the Note, in form and substance
satisfactory to Mortgagee or such holder, whereunder such lessee or tenant
agrees to be bound by the provisions of Part IV of Section 2.01 hereof regarding
the manner in which Mortgagee or such holder may exercise its power of sale
under said Part IV.
ARTICLE II
EVENTS OF DEFAULT AND REMEDIES
Section 2.01. Events of Default and Certain Remedies. If one or more of
the following Events of Default shall happen, that is to say:
(a) if (i) default shall be made in the payment of any
principal, interest, fees or other sums under the Note, in any such
case, when and as the same shall become due and payable, whether at
maturity or by acceleration or as part of any payment or prepayment or
otherwise, in each case, as herein or in the Note provided, and such
default shall have continued for a period of ten (10) days or (ii)
default shall be made in the payment of any tax or other charge
required by
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Section 1.07 to be paid and said default shall have continued for a
period of twenty (20) days; or
(b) if default shall be made in the due observance or
performance of any covenant, condition or agreement in the Note, this
Mortgage or in any other document executed or delivered to Mortgagee in
connection with the Loan, and such default shall have continued for a
period of thirty (30) days after notice thereof shall have been given
to Mortgagor by Mortgagee, or, in the case of such other documents,
such shorter grace period, if any, as may be provided for therein; or
(c) if any representation or warranty made by Mortgagor in
Section 1.01 shall be incorrect, or if any other representation or
warranty made to Mortgagee in this Mortgage, or in any other document,
certificate or statement executed or delivered to Mortgagee in
connection with the Loan shall be incorrect in any material respect
when made or remade; or
(d) if by order of a court of competent jurisdiction, a
trustee, receiver or liquidator of the Mortgaged Property or any part
thereof, or of Mortgagor shall be appointed and such order shall not be
discharged or dismissed within sixty (60) days after such appointment;
or
(e) if Mortgagor shall file a petition in bankruptcy or for an
arrangement or for reorganization pursuant to the Federal Bankruptcy
Act or any similar federal or state law, or if, by decree of a court of
competent jurisdiction, Mortgagor shall be adjudicated a bankrupt, or
be declared insolvent, or shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts
generally as they become due, or shall consent to the appointment of a
receiver or receivers of all or any part of its property; or
(f) if any of the creditors of Mortgagor shall file a petition
in bankruptcy against Mortgagor or for reorganization of Mortgagor
pursuant to the Federal Bankruptcy Act or any similar federal or state
law, and if such petition shall not be discharged or dismissed within
sixty (60) days after the date on which such petition was filed; or
(g) if final judgment for the payment of money shall be
rendered against Mortgagor and Mortgagor shall not discharge the same
or cause it to be discharged within sixty (60) days from the entry
thereof, or shall not appeal therefrom or from the order, decree or
process upon which or pursuant to which said judgment was granted,
based or entered, and secure a stay of execution pending such appeal;
or
(h) Intentionally Omitted;
(i) if there shall occur a default which is not cured within
the applicable grace period, if any, under any mortgage, deed of trust
or other security instrument covering all or part of the Mortgaged
Property regardless of whether
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any such mortgage, deed of trust or other security instrument is prior
or subordinate hereto or under any mortgage, deed of trust or other
security instrument now or hereafter securing the Note or any other
note of Fee Owner to Mortgagee; it being further agreed by Mortgagor
that an Event of Default hereunder shall constitute an Event of Default
under any such mortgage, deed of trust or other security instrument
held by or for the benefit of Mortgagee; or
(j) if there shall occur a default which is not cured within
the applicable grace period, if any, under any of the Premises
Documents, except for any continuing failure of the Premises to comply
with the Premises Documents of the date of the acquisition hereof from
Mortgagee or its affiliate; or if any of the Premises Documents is
amended, modified, supplemented or terminated without Mortgagee's prior
consent; or
(k) if Mortgagor shall transfer, or agree to transfer (or
suffer or permit the transfer or agreement to transfer), in any manner,
either voluntarily or involuntarily, by operation of law or otherwise,
all or any portion of the Mortgaged Property, or any interest or rights
therein (including air or development rights) without, in any such
case, Mortgagee's prior consent. As used in this clause, "transfer"
shall include, without limitation, any sale, assignment, lease (other
than to Lessee) or conveyance except leases for occupancy subordinate
hereto and to all advances made and to be made hereunder or, in the
event Mortgagor (or a general partner or co-venturer thereof) is a
partnership, joint venture, limited liability company, trust or
closely-held corporation, the sale, conveyance, transfer or other
disposition of more than 10%, in the aggregate, of any class of the
issued and outstanding capital stock of such closely-held corporation
or of the beneficial interest of such partnership, venture, limited
liability company or trust, or a change of any general partner, joint
venturer, member or beneficiary, as the case may be. In the event
Mortgagor is a limited partnership, and so long as a limited partner
has contributed to (or remains personally liable for) the present and
future partnership capital contributions required of such limited
partner by the partnership agreement, such partner may sell, convey,
devise, transfer or dispose of all or a part of his limited partnership
interest to his spouse, children, grandchildren or a family trust in
which his spouse, children or grandchildren are sole beneficiaries; or
(l) if Mortgagor shall encumber, or agree to encumber, in any
manner, either voluntarily or involuntarily, by operation of law or
otherwise, all or any portion of the Mortgaged Property, or any
interest or rights therein (including air or development rights)
without, in any such case, Mortgagee's prior consent. As used in this
clause, "encumber" shall include, without limitation, the placing or
permitting the placing of any mortgage, deed of trust, assignment of
rents or other security device. (Mortgagee may grant or deny its
consent under this clause and the immediately preceding clause in its
sole discretion and, if consent should be given, any such transfer or
encumbrance shall be subject hereto and to any other documents which
evidence or secure the Loan, and, if a transfer, any such transferee
shall assume all of Mortgagor's obligations hereunder and thereunder
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and agree to be bound by all provisions and perform all obligations
contained herein and therein; consent to one such transfer or
encumbrance shall not be deemed to be a waiver of the right to require
consent to future or successive transfers or encumbrances);
then and in every such case:
I. During the continuance of any such Event of Default,
Mortgagee, by notice to Mortgagor, may declare the entire principal of
the Note then outstanding (if not then due and payable), and all
accrued and unpaid interest and other sums in respect thereof, to be
due and payable immediately, and upon any such declaration the
principal of the Note and said accrued and unpaid interest and other
sums shall become and be immediately due and payable, anything herein
or in the Note (other than Section 4.08 hereof, the provisions thereof
limiting interest payable thereunder to the maximum amount permitted by
applicable law) to the contrary notwithstanding.
II. During the continuance of any such Event of Default,
Mortgagee personally, or by its agents or attorneys, may enter into and
upon all or any part of the Premises, and each and every part thereof,
and are each hereby given a right and license and appointed Mortgagor's
attorney-in-fact and exclusive agent to do so, and may exclude
Mortgagor, its agents and servants wholly therefrom; and having and
holding the same, may use, operate, manage and control the Premises and
conduct the business thereof, either personally or by its
superintendents, managers, agents, servants, attorneys or receivers;
and upon every such entry, Mortgagee, at the expense of the Mortgaged
Property, from time to time, either by purchase, repairs or
construction, may maintain and restore the Mortgaged Property, whereof
it shall become possessed as aforesaid; may complete the construction
of the Improvements and in the course of such completion may make such
changes in the contemplated Improvements as Mortgagee may deem
desirable and may insure the same; and likewise, from time to time, at
the expense of the Mortgaged Property, Mortgagee may make all necessary
or proper repairs, renewals and replacements and such useful
alterations, additions, betterments and improvements thereto and
thereon as Mortgagee may seem advisable; and in every such case
Mortgagee shall have the right to manage and operate the Mortgaged
Property and to carry on the business thereof and exercise all rights
and powers of Mortgagor with respect thereto either in the name of
Mortgagor or otherwise as Mortgagee shall deem best; and Mortgagee
shall be entitled to collect and receive the Rents and every part
thereof, all of which shall for all purposes constitute property of
Mortgagor; and in furtherance of such right Mortgagee may collect the
rents payable under all leases of the Premises directly from the
lessees thereunder upon notice to each such lessee that an Event of
Default exists hereunder accompanied by a demand on such lessee for the
payment to Mortgagee of all rents due and to become due under its
lease, and Mortgagor FOR THE BENEFIT OF MORTGAGEE AND EACH SUCH LESSEE
hereby covenants and agrees that the lessee shall be under no duty to
question the accuracy of Mortgagee's statement of default and shall
unequivocally
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be authorized to pay said rents to Mortgagee without regard to the
truth of Mortgagee's statement of default and notwithstanding notices
from Mortgagor disputing the existence of an Event of Default such that
the payment of rent by the lessee to Mortgagee pursuant to such a
demand shall constitute performance in full of the lessee's obligation
under the lease for the payment of rents by the lessee to Mortgagor;
and after deducting the expenses of conducting the business thereof and
of all maintenance, repairs, renewals, replacements, alterations,
additions, betterments and improvements and amounts necessary to pay
for taxes, assessments, insurance and prior or other proper charges
upon the Mortgaged Property or any part thereof, as well as just and
reasonable compensation for the services of Mortgagee and for all
attorneys, counsel, agents, clerks, servants and other employees by it
engaged and employed, Mortgagee shall apply the moneys arising as
aforesaid, first, to the payment of the principal of the Note and the
interest thereon, when and as the same shall become payable and in such
order and proportions as Mortgagee shall elect and second, to the
payment of any other sums required to be paid by Mortgagor hereunder.
III. Mortgagee with or without entry, personally or by its
agents or attorneys, insofar as applicable, may:
(1) sell the Mortgaged Property to the extent
permitted and pursuant to the procedures provided by law and
all estate, right, title and interest, claim and demand
therein, and right of redemption thereof, at one or more sales
as an entity or in parcels or parts, and at such time and
place, and upon such terms and conditions after such notice
thereof as may be required or permitted by applicable law; or
(2) institute proceedings for the complete or partial
foreclosure hereof; or
(3) take such steps to protect and enforce its rights
whether by action, suit or proceeding in equity or at law for
the specific performance of any covenant, condition or
agreement in the Note or herein, or in aid of the execution of
any power herein granted, or for any foreclosure hereunder, or
for the enforcement of any other appropriate legal or
equitable remedy or otherwise as Mortgagee shall elect.
IV. Mortgagor hereby grants to Mortgagee, and to the lawful
holder of the Note, the following irrevocable power of attorney, to be
exercised at its option, in lieu of or additional to any remedy at law
or in equity which might be pursued or any other remedy herein
provided, viz:
During the continuance of any such Event of Default,
Mortgagee, or the holder of said Note, may at its option,
without notice to Mortgagor, sell the Mortgaged Property, or
part thereof, at auction, at the usual place for conducting
sales at the courthouse in the County where the Premises or
any part thereof lies, to the highest bidder for cash, after
advertising the
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time, terms and place of such sale once a week for 4 weeks
immediately preceding such sale (but without regard to the
number of days) in a newspaper published in the County where
the Premises lies, or in the paper in which the Sheriff's
advertisements for such County are then being published, all
other notice being hereby waived by Mortgagor. Mortgagee shall
execute and deliver to the purchaser or purchasers of said
property a deed conveying the Mortgaged Property, or part
thereof, in fee simple, which deed shall contain recitals as
to the Event of Default upon which the power of sale herein
granted is exercised, and Mortgagor hereby constitutes and
appoints Mortgagee the agent and attorney-in-fact of Mortgagor
to execute such deed and make such recitals, and hereby
covenants and agrees that the recitals so made by Mortgagee
shall be binding and conclusive upon Mortgagor. Mortgagor
agrees that the conveyance to be made by Mortgagee shall be
binding and conclusive upon Mortgagor and shall be effective
to bar all equity of redemption of Mortgagor and others in and
to the Mortgaged Property and Mortgagee shall collect the
proceeds of such sale and apply the same as provided in clause
(d) of Section 2.02 hereof. All of the provisions of this
Article II, to the extent not contradictory to the power of
sale granted in this Part IV, shall be applicable hereto. The
power and the agency hereby granted are coupled with an
interest, are irrevocable, and are granted as cumulative to
the remedies for collection and foreclosure as provided by law
and in this Mortgage.
It is expressly understood and agreed that in
exercising its power of sale pursuant to the provisions of
this Part IV, Mortgagee may, at its option, sell the Mortgaged
Property, or part thereof, at such sale subject to such
leases, tenant and rental contracts of lessees and tenants in
possession of the Premises as shall be specifically designated
in the advertisements of sale required under the provisions of
this Part IV.
In the case of a sale pursuant to the foregoing power of sale,
Mortgagor, or any person in possession under Mortgagor, as to whose
interest such sale was not made subject, shall, at the option of
Mortgagee, then become and be tenants holding over and shall forthwith
deliver possession to the purchaser at such sale, or be summarily
dispossessed in accordance with the provisions of law applicable to
tenants holding over.
Section 2.02. Other Matters Concerning Sales. (a) Mortgagee may adjourn
from time to time any sale by it to be made hereunder or by virtue hereof by
announcement at the time and place appointed for such sale or for such adjourned
sale or sales; and, except as otherwise provided by any applicable provision of
law, Mortgagee, without further notice or publication, may make such sale at the
time and place to which the same shall be so adjourned.
(b) Upon the completion of any sale or sales made by Mortgagee under or
by virtue of this Article II, Mortgagee, or an officer of any court empowered to
do so, shall
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execute and deliver to the accepted purchaser or purchasers a good and
sufficient instrument or instruments conveying, assigning and transferring all
estate, right, title and interest in and to the property and rights sold.
Mortgagee is hereby appointed the true and lawful attorney irrevocable of
Mortgagor, in its name and stead, to make all necessary conveyances,
assignments, transfers and deliveries of the Mortgaged Property and rights so
sold and for that purpose Mortgagee may execute all necessary instruments of
conveyance, assignment and transfer, and may substitute one or more persons with
like power, Mortgagor hereby ratifying and confirming all that its said attorney
or such substitute or substitutes shall lawfully do by virtue hereof.
Nevertheless, Mortgagor, if requested by Mortgagee, shall ratify and confirm any
such sale or sales by executing and delivering to Mortgagee or to such purchaser
or purchasers all such instruments as may be advisable, in the judgment of
Mortgagee, for the purpose, and as may be designated in such request. Any such
sale or sales made under or by virtue of this Article II, whether made under the
power of sale herein granted or under or by virtue of judicial proceedings or of
a judgment or decree of foreclosure and sale, shall operate to divest all the
estate, right, title, interest, claim and demand whatsoever, whether at law or
in equity, of Mortgagor in and to the properties and rights so sold, and shall
be a perpetual bar both at law and in equity against Mortgagor and against any
and all persons claiming or who may claim the same, or any part thereof from,
through or under Mortgagor.
(c) In the event of any sale or sales made under or by virtue of this
Article II (whether made under the power of sale herein granted or under or by
virtue of judicial proceedings or of a judgment or decree of foreclosure and
sale), the entire principal of, and interest and other sums on, the Note, if not
previously due and payable, and all other sums required to be paid by Mortgagor
pursuant hereto, immediately thereupon shall, anything in any of said documents
(other than Section 4.08 hereof) to the contrary notwithstanding, become due and
payable.
(d) The purchase money, proceeds or avails of any sale or sales made
under or by virtue of this Article II, together with any other sums which then
may be held by Mortgagee hereunder, whether under the provisions of this Article
II or otherwise, shall be applied as follows:
First: To the payment of the costs and expenses of such sale,
including reasonable compensation to Mortgagee, its agents and counsel,
and of any judicial proceedings wherein the same may be made, and of
all expenses, liabilities and advances made or incurred by Mortgagee
hereunder, together with interest at the Default Rate on all advances
made by Mortgagee, and of all taxes, assessments or other charges,
except any taxes, assessments or other charges subject to which the
Mortgaged Property shall have been sold.
Second: To the payment of the whole amount then due, owing or
unpaid upon the Note for principal and interest, with interest on the
unpaid principal at the Default Rate from and after the happening of
any Event of Default described in clause (a) of Section 2.01 from the
due date of any such payment of principal until the same is paid, in
such order and amounts as Mortgagee may elect.
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Third: To the payment of any other sums required to be paid by
Mortgagor pursuant to any provision hereof or of the Note, including
all expenses, liabilities and advances made or incurred by Mortgagee
hereunder or in connection with the enforcement hereof, together with
interest at the Default Rate on all such advances.
Fourth: To the payment of the surplus, if any, to whomsoever
may be lawfully entitled to receive the same.
(e) Upon any sale or sales made under or by virtue of this Article II,
whether made under the power of sale herein granted or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale,
Mortgagee may bid for and acquire the Mortgaged Property or any part thereof and
in lieu of paying cash therefor may make settlement for the purchase price by
crediting upon the indebtedness secured hereby the net sales price after
deducting therefrom the expenses of the sale and the costs of the action and any
other sums which Mortgagee is authorized to deduct hereunder.
Section 2.03. Payment of Amounts Due. (a) In case an Event of Default
described in clause (a) of Section 2.01 shall have happened and be continuing,
then, upon demand of Mortgagee, Mortgagor will pay to Mortgagee the whole amount
which then shall have become due and payable on the Note, for principal or
interest or both, as the case may be, and after the happening of said Event of
Default will also pay to Mortgagee interest at the Default Rate on the then
unpaid principal of the Note, and the sums required to be paid by Mortgagor
pursuant to any provision hereof, and in addition thereto such further amount as
shall be sufficient to cover the costs and expenses of collection, including
reasonable compensation to Mortgagee, its agents and counsel and any expenses
incurred by Mortgagee hereunder. In the event Mortgagor shall fail forthwith to
pay all such amounts upon such demand, Mortgagee shall be entitled and empowered
to institute such action or proceedings at law or in equity as may be advised by
its counsel for the collection of the sums so due and unpaid, and may prosecute
any such action or proceedings to judgment or final decree, and may enforce any
such judgment or final decree against Mortgagor and collect, out of the property
of Mortgagor wherever situated, as well as out of the Mortgaged Property, in any
manner provided by law, moneys adjudged or decreed to be payable.
(b) Mortgagee shall be entitled to recover judgment as aforesaid either
before, after or during the pendency of any proceedings for the enforcement of
the provisions hereof; and the right of Mortgagee to recover such judgment shall
not be affected by any entry or sale hereunder, or by the exercise of any other
right, power or remedy for the enforcement of the provisions hereof, or the
foreclosure of the lien hereof; and in the event of a sale of the Mortgaged
Property, and of the application of the proceeds of sale, as herein provided, to
the payment of the debt hereby secured, Mortgagee shall be entitled to enforce
payment of, and to receive all amounts then remaining due and unpaid upon, the
Note, and to enforce payment of all other charges, payments and costs due
hereunder or otherwise in respect of the Loan, and shall be entitled to recover
judgment for any portion of the debt remaining unpaid, with interest at the
Default Rate. In case of proceedings against Mortgagor in insolvency or
bankruptcy or any proceedings for its
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reorganization or involving the liquidation of its assets, then Mortgagee shall
be entitled to prove the whole amount of principal, interest and other sums due
upon the Note to the full amount thereof, and all other payments, charges and
costs due hereunder or otherwise in respect of the Loan, without deducting
therefrom any proceeds obtained from the sale of the whole or any part of the
Mortgaged Property, provided, however, that in no case shall Mortgagee receive,
from the aggregate amount of the proceeds of the sale of the Mortgaged Property
and the distribution from the estate of Mortgagor, a greater amount than such
principal and interest and such other payments, charges and costs.
(c) No recovery of any judgment by Mortgagee and no levy of an
execution under any judgment upon the Mortgaged Property or upon any other
property of Mortgagor shall affect in any manner or to any extent, the lien
hereof upon the Mortgaged Property or any part thereof, or any liens, rights,
powers or remedies of Mortgagee hereunder, but such liens, rights, powers and
remedies of Mortgagee shall continue unimpaired as before.
(d) Any moneys thus collected by Mortgagee under this Section 2.03
shall be applied by Mortgagee in accordance with the provisions of clause (d) of
Section 2.02.
Section 2.04. Actions; Receivers. After the happening of any Event of
Default and immediately upon the commencement of any action, suit or other legal
proceedings by Mortgagee to obtain judgment for the principal of, or interest
on, the Note and other sums required to be paid by Mortgagor pursuant to any
provision hereof, or of any other nature in aid of the enforcement of the Note
or hereof, Mortgagor will (a) waive the issuance and service of process and
enter its voluntary appearance in such action, suit or proceeding and (b) if
required by Mortgagee, consent to the appointment of a receiver or receivers of
all or part of the Mortgaged Property and of any or all of the Rents in respect
thereof. After the happening of any Event of Default and during its continuance,
or upon the commencement of any proceedings to foreclose this Mortgage or to
enforce the specific performance hereof or in aid thereof or upon the
commencement of any other judicial proceeding to enforce any right of Mortgagee,
Mortgagee shall be entitled, as a matter of right, if it shall so elect, without
the giving of notice to any other party and without regard to the adequacy or
inadequacy of any security for the indebtedness secured hereby, forthwith either
before or after declaring the unpaid principal of the Note to be due and
payable, to the appointment of such a receiver or receivers.
Section 2.05. Mortgagee's Right to Possession. Notwithstanding the
appointment of any receiver, liquidator or trustee of Mortgagor, or of any of
its property, or of the Mortgaged Property or any part thereof, Mortgagee shall
be entitled to retain possession and control of all property now or hereafter
held hereunder.
Section 2.06. Remedies Cumulative. No remedy herein conferred upon or
reserved to Mortgagee is intended to be exclusive of any other remedy or
remedies, and each and every such remedy shall be cumulative, and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law, in equity or by statute. No delay or omission of Mortgagee to exercise any
right or power accruing upon any Event of Default shall impair any such right or
power, or shall be construed to be a waiver of
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any such Event of Default or any acquiescence therein; and every power and
remedy given hereby to Mortgagee may be exercised from time to time as often as
may be deemed by them expedient. Nothing herein or in the Note shall affect the
obligation of Mortgagor to pay the principal of, and interest and other sums on,
the Note in the manner and at the time and place therein respectively expressed.
Section 2.07. Moratorium Laws; Right of Redemption. Mortgagor will not
at any time insist upon, or plead, or in any manner whatever claim or take any
benefit or advantage of any stay or extension or moratorium law, any exemption
from execution or sale of the Mortgaged Property or any part thereof, wherever
enacted, now or at any time hereafter in force, which may affect the covenants
and terms of performance hereof, nor claim, take or insist upon any benefit or
advantage of any law now or hereafter in force providing for the valuation or
appraisal of the Mortgaged Property, or any part thereof, prior to any sale or
sales thereof which may be made pursuant to any provision herein, or pursuant to
the decree, judgment or order of any court of competent jurisdiction; nor, after
any such sale or sales, claim or exercise any right under any statute heretofore
or hereafter enacted to redeem the property so sold or any part thereof and
Mortgagor hereby expressly waives all benefit or advantage of any such law or
laws, and covenants not to hinder, delay or impede the execution of any power
herein granted or delegated to Mortgagee, but to suffer and permit the execution
of every power as though no such law or laws had been made or enacted.
Mortgagor, for itself and all who may claim under it, waives, to the extent that
it lawfully may, all right to have the Mortgaged Property marshaled upon any
foreclosure hereof.
Section 2.08. Intentionally Omitted.
Section 2.09. Mortgagee's Rights Concerning Application of Amounts
Collected. Notwithstanding anything to the contrary contained herein, upon the
occurrence of an Event of Default, Mortgagee may apply, to the extent permitted
by law, any amount collected hereunder to principal, interest or any other sum
due under the Note or otherwise in respect of the Loan in such order and
amounts, and to such obligations, as Mortgagee shall elect in its sole and
absolute discretion.
ARTICLE III
SECURITY AGREEMENT
Section 3.01. Scope and Intent. In the event that Mortgagor and
Mortgagee shall respectively become the "Debtor" and the "Secured Party" in any
one or more Uniform Commercial Code financing statements affecting property
either referred to or described herein, or in any way connected with the use and
enjoyment of the Premises, Mortgagor warrants, covenants and agrees, and
Mortgagee, by acceptance hereof, agrees, as provided in this Article III.
Section 3.02. Security Agreement. This Mortgage shall be deemed a
security agreement as defined in the Uniform Commercial Code as enacted in the
State of Georgia, the rights of Mortgagee and Mortgagor in and to the Chattels
shall be as
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provided in this Mortgage and the remedies for any violation of the covenants,
terms and conditions of the agreements herein contained shall be (i) as
prescribed herein, or (ii) by general law, or (iii) as to such part of the
security which is also reflected in any such financing statement, by the
specific statutory consequences now or hereafter enacted and specified in said
Uniform Commercial Code, all at Mortgagee's sole election.
Section 3.03. Warranties and Covenants. Mortgagor warrants that (i)
Mortgagor's (that is, "Debtor's") name, identity or corporate structure, and
residence or principal place of business is as set forth in Section 3.05 hereof;
(ii) Mortgagor (that is, "Debtor") has been using or operating under said name,
identity or corporate structure without change for the time period set forth in
said Section and (iii) the location of the Chattels is as set forth in said
Section. Mortgagor covenants and agrees that Mortgagor will furnish Mortgagee
with notice of any change in (i) or (iii) of this Section within thirty (30)
days of the effective date of any such change and Mortgagor will promptly
execute any financing statements or other instruments deemed reasonably
necessary by Mortgagee to prevent any filed financing statement from becoming
seriously misleading or losing its perfected status. In addition to Mortgagee's
other remedies hereunder, Mortgagor shall be liable to Mortgagee for any loss,
damage or impairment of Mortgagee's security interest in the Chattels suffered
by Mortgagee resulting or arising from any breach of warranty or covenant
contained in this Section.
Section 3.04. Nature of Interest. The filing of any such financing
statement in the records normally having to do with personal property shall
never be construed as in anywise derogating from or impairing this declaration
and hereby stated intention of Mortgagor and Mortgagee that everything used in
connection with the production of income from the Premises (including, without
limitation, all Chattels) and/or adapted for use therein and/or which is
described or reflected in this Mortgage, is, and at all times and for all
purposes and in all proceedings both legal and equitable shall be, regarded as
part of the real estate irrespective of whether (i) any item of collateral is
physically attached to the improvements, (ii) serial numbers are used for the
better identification of certain items of collateral capable of being thus
identified in a recital contained herein or in any list filed with Mortgagee, or
(iii) any item of collateral is referred to or reflected in any such financing
statement so filed at any time. Similarly, the mention in any such financing
statement of (i) the rights in or to the proceeds of any fire and/or hazard
insurance policy, or (ii) any award in eminent domain proceedings for a taking
or for loss of value, or (iii) Mortgagor's (that is, "Debtor's") interest as
lessor in any present or future lease or rights to income growing out of the use
and/or occupancy of the Premises, whether pursuant to lease or otherwise, shall
never be construed as in anywise altering any of the rights of Mortgagee as
determined by this Mortgage or impugning the priority of Mortgagee's security
title and lien granted hereby or by any other recorded document, but such
mention in any such financing statement is declared to be for the protection of
Mortgagee in the event any court or judicial authority shall at any time hold
with respect to any matter mentioned in clauses (i), (ii) or (iii) of this
sentence that notice of Mortgagee's priority of interest to be effective against
a particular class of persons, including but not limited to, the Federal
government and any subdivision or entity of the Federal government, must be
filed in the Uniform Commercial Code records.
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Section 3.05. Financing Statement. The names of the "Debtor" and the
"Secured Party", the identity or corporate structure and residence or principal
place of business of "Debtor", and the time period for which "Debtor" has been
using or operating under said name and identity or corporate structure without
change, are with respect to Fee Owner as set forth in Part 1 of SCHEDULE B-1
attached hereto and by reference made a part hereof and are with respect to
Lessee as set forth in Part 1 of said SCHEDULE B-2 attached hereto and made a
part hereof. The mailing address of the "Secured Party" from which information
concerning the security interest may be obtained, and the mailing address of
"Debtor", are with respect to Fee Owner as set forth in Part 2 of said SCHEDULE
B-1 and are with respect to Lessee as set forth in Part 2 of said SCHEDULE B-2.
A statement indicating the types, or describing the items of Chattels is set
forth in the "Certain Definitions" provided hereinabove. The information
contained in this Section 3.05 is provided in order that this Mortgage shall
comply with the requirements of the Uniform Commercial Code, as enacted in the
State of Georgia, for instruments to be filed as financing statements.
ARTICLE IV
MISCELLANEOUS
Section 4.01. Intentionally Omitted.
Section 4.02. Intentionally Omitted.
Section 4.03. Application of Certain Payments. In the event that all or
any part of the Mortgaged Property is encumbered by one or more mortgages held
by or for the benefit of Mortgagee, Mortgagor hereby irrevocably authorizes and
directs Mortgagee to apply any payment received by Mortgagee in respect of any
note secured hereby or by any other such mortgage to the payment of such of said
notes as Mortgagee shall elect in its sole and absolute discretion, and
Mortgagee shall have the right to apply any such payment in reduction of
principal and/or interest and in such order and amounts as Mortgagee shall elect
in its sole and absolute discretion without regard to the priority of the
mortgage securing the note so repaid or to contrary directions from Mortgagor or
any other party.
Section 4.04. Severability. In the event any one or more of the
provisions contained herein or in the Note shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof, but this Mortgage
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein or therein.
Section 4.05. Modifications and Waivers in Writing. No provision hereof
may be changed, waived, discharged or terminated orally or by any other means
except an instrument in writing signed by the party against whom enforcement of
the change, waiver, discharge or termination is sought. Any agreement hereafter
made by Mortgagor and Mortgagee relating hereto shall be superior to the rights
of the holder of any intervening or subordinate lien or encumbrance.
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Section 4.06. Notices. All notices, demands, consents, approvals and
statements required or permitted hereunder shall be in writing and shall be
deemed to have been sufficiently given or served for all purposes when presented
personally, three (3) days after mailing by registered or certified mail,
postage prepaid, or one (1) day after delivery to a nationally recognized
overnight courier service providing evidence of the date of delivery, if to
Mortgagor at its address stated above, with a copy to Thomas E. Davis, Esq.,
Jenkens & Gilchrist, 1445 Ross Avenue, Suite 3200, Dallas, Texas 75202-2799, and
if to Mortgagee to its address stated above, or at such other address of which a
party shall have notified the party giving such notice in accordance with the
provisions of this Section.
Section 4.07. Successors and Assigns. All of the grants, covenants,
terms, provisions and conditions herein shall run with the land and shall apply
to, bind and inure to the benefit of, the successors and assigns of Mortgagor,
the successors in trust of Mortgagee and the endorsees, transferees, successors
and assigns of Mortgagee.
Section 4.08. Limitation on Interest. Anything herein or in the Note to
the contrary notwithstanding, the obligations of Mortgagor hereunder and under
the Note shall be subject to the limitation that payments of interest shall not
be required to the extent that receipt of any such payment by Mortgagee would be
contrary to provisions of law applicable to Mortgagee limiting the maximum rate
of interest that may be charged or collected by Mortgagee.
Section 4.09. Counterparts. This Mortgage may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original; and all such counterparts shall together constitute but one
and the same mortgage.
Section 4.10. Substitute Mortgages. Mortgagor and Mortgagee shall, upon
their mutual agreement to do so, execute such documents as may be necessary in
order to effectuate the modification hereof, including the execution of
substitute mortgages, so as to create two (2) or more liens on or security
titles in respect of the Mortgaged Property in such amounts as may be mutually
agreed upon but in no event to exceed, in the aggregate, the unpaid principal
portion of the Note Amount; in such event, Mortgagor covenants and agrees to pay
the reasonable fees and expenses of Mortgagee and its counsel in connection with
any such modification.
Section 4.11. Cancellation. Should the indebtedness hereby secured be
paid according to the tenor and effect thereof when the same shall become due
and payable, and should Mortgagor perform all covenants contained herein, then
this Mortgage shall be cancelled and surrendered, it being the intention of the
parties hereto that this instrument shall operate as a deed, and not as a
mortgage.
Section 4.12. Subrogation. Mortgagee shall be subrogated to all right,
title, lien, or equity of all persons to whom it may have paid moneys, either
directly or indirectly, in settlement or discharge of liens, charges, or in
acquisition of title of or for its benefit
29
<PAGE>
hereunder, or for the benefit and account of Mortgagor at the time of making the
loan secured hereby, or subsequently under any of the provisions hereof.
Section 4.13. Georgia Code Title 44. This Mortgage is executed to
conform to Title 44, Chapter 14 of the Official Code of Georgia Annotated, as
amended.
Section 4.14. Mortgagee's Sale of Interests in Loan. Mortgagor
recognizes that Mortgagee may sell and transfer interests in the Loan to one or
more participants or assignees and that all documentation, financial statements,
appraisals and other data, or copies thereof, relevant to Mortgagor, any
Guarantor or the Loan, may be exhibited to and retained by any such participant
or assignee or prospective participant or assignee.
Section 4.15. No Merger of Interests. Unless expressly provided
otherwise, in the event that ownership hereof and title to the fee and/or
leasehold estates in the Premises encumbered hereby shall become vested in the
same person or entity, this Mortgage shall not merge in said title but shall
continue to be and remain a valid and subsisting lien and/or trust deed on said
estates in the Premises for the amount secured hereby.
Section 4.16. CERTAIN WAIVERS. MORTGAGOR EXPRESSLY AND UNCONDITIONALLY
WAIVES BY EXECUTION HEREOF, AND MORTGAGEE WAIVES BY ACCEPTANCE HEREOF, IN
CONNECTION WITH ANY FORECLOSURE OR SIMILAR ACTION OR PROCEDURE BROUGHT BY
MORTGAGEE ASSERTING AN EVENT OF DEFAULT UNDER CLAUSE (A) OF SECTION 2.01 OF THIS
MORTGAGE, ANY AND EVERY RIGHT IT MAY HAVE TO A TRIAL BY JURY.
Section 4.17. GOVERNING LAW. THE PERFORMANCE REQUIRED BY THIS MORTGAGE
SHALL, INSOFAR AS IS POSSIBLE, BE RENDERED TO THE MORTGAGEE AT ITS OFFICE IN
TENNESSEE. MORTGAGOR AND MORTGAGEE INTEND THAT THE VALIDITY AND CONSTRUCTION OF
THE OBLIGATIONS SECURED BY THIS MORTGAGE BE GOVERNED BY THE LAWS OF THE STATE OF
TENNESSEE INCLUDING ALL OBLIGATIONS AND LIABILITIES HEREUNDER WITH RESPECT TO
THE PAYMENT OF INTEREST OR ANY OTHER COMPENSATION FOR THE USE, FORBEARANCE OR
DETENTION OF MONEY. THIS MORTGAGE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TENNESSEE, WITHOUT REFERENCE TO THE CONFLICTS OF
LAW PRINCIPLES OF THAT STATE, EXCEPT ONLY TO THE EXTENT THAT GEORGIA LAW
EXPRESSLY PROVIDES THAT IT GOVERNS AND THAT A CONTRARY AGREEMENT BY THE PARTIES
IS INEFFECTIVE AND EXCEPT THAT THE LAW OF THE STATE OF GEORGIA SHALL APPLY TO
ANY AND ALL ACTS WITH RESPECT TO THE CREATION AND PRIORITY OF THE LIEN OF THE
MORTGAGE AND ASSIGNMENT OF LEASES AND RENTS ON THE MORTGAGED PROPERTY HEREBY
EVIDENCED AND SALE BY MORTGAGEE ON THE MORTGAGED PROPERTY. MORTGAGOR AND
MORTGAGEE COVENANT AND AGREE TO TAKE ANY AND ALL ACTION WHICH MAY BE
30
<PAGE>
NECESSARY UNDER GEORGIA LAW WITH RESPECT TO SALE CONTEMPLATED HEREUNDER UNDER
THE LAWS OF THE STATE OF GEORGIA. SHOULD ANY OBLIGATION OR REMEDY UNDER THIS
MORTGAGE BE INVALID OR UNENFORCEABLE UNDER THE LAWS PROVIDED HEREIN TO GOVERN,
THE LAWS OF ANOTHER STATE WHOSE LAWS CAN VALIDATE AND APPLY TO THIS MORTGAGE
SHALL APPLY.
31
<PAGE>
IN WITNESS WHEREOF, this Mortgage has been duly executed and delivered
by Mortgagor.
APPLE SUITES, INC.,
Attest: a Virginia corporation
/s/ Michelle Fuller By /s/ Glade M. Knight [SEAL]
- ---------------------------- -------------------------------
Name: Name: Glade M. Knight
Title: President
Signed, sealed and delivered this
20th day of December,
1999 in the presence of:
/s/ Tina R. Hansen
- ----------------------------
Unofficial Witness
/s/ Deanna Jost
- ----------------------------
Notary Public
[Notarial Seal]
[Notarial Stamp]
APPLE SUITES MANAGEMENT, INC.,
Attest: a Virginia corporation
/s/ Michelle Fuller By /s/ Glade M. Knight [SEAL]
- ---------------------------- -------------------------------
Name: Name: Glade M. Knight
Title: President
Signed, sealed and delivered this
20th day of December,
1999 in the presence of:
/s/ Tina R. Hansen
- ----------------------------
Unofficial Witness
/s/ Deanna Jost
- ----------------------------
Notary Public
[Notarial Seal]
[Notarial Stamp]
<PAGE>
SCHEDULE A
ALL THAT TRACT OR PARCEL OF LAND situated, lying and being in Land Lot 284, 6th
District, Gwinnett County, Georgia, being Lot 2, Block "B", Unit One, Westland,
more particularly described as follows:
BEGINNING at the intersection of the land lot line separating Land Lots 283 and
284 with the most southeasterly right-of-way line of Georgia Highway No. 141
(a/k/a Peachtree Parkway); thence running North 22 11' 17" East along the
aforesaid right-of-way line 68.35 feet; thence running northeasterly long the
aforesaid right-of-way line and following a clockwise curve, subtended by a
chord of North 29 02' 26" East 107.19 feet, with a radius of 5579.578 feet; an
arc of 107.19 feet to the intersection of the aforesaid right-of-way line with
the miter formed by the intersection of the aforesaid right-of-way line with the
most southwesterly right-of-way line of Technology Parkway; thence running
northeasterly, along the aforesaid miter, and following a clockwise curve,
subtended by a chord of North 75 02' 43" East 17.10 feet, with a radius of
12,000 feet, an arc of 19.04 feet to the intersection of the aforesaid miter
with the most southwesterly right-of-way line of Technology Parkway; thence
running South 59 30' 00" East along the aforesaid right-of-way line of
Technology Parkway 145.35 feet; thence running southeasterly along the aforesaid
right-of-way line and following a counterclockwise curve, subtended by a chord
of South 73 49' 02" East 334.64 feet, with a radius of 676,620 feet, an arc of
338.15 feet; thence running South 10 52' 00" West 167.90 feet; thence running
South 57 55' 00" West 340.99 feet to the land lot line separating Land Lots 283
and 284; thence running North 32 04' 54" West along the aforesaid land lot line
415.01 feet TO THE TRUE POINT OF BEGINNING.
AFORESAID tract or parcel of land containing 3.4500 acres and being more
particularly described and shown on that certain plat of Unit One Westland by
Hannon, Meeks & Bagwell, Surveyors & Engineers, Inc., dated August 18, 1987,
last revised November 10, 1988, bearing the seal and certification of Miles H.
Hannon, Georgia Registered Land Surveyor No. 1528, said survey being recorded in
Plat Book 47, page 11, Gwinnett County, Georgia, records and incorporated herein
by this reference.
<PAGE>
SCHEDULE B-1
------------
Part 1
------
Name of Debtor: Apple Suites, Inc.
Name of Secured Party: Promus Hotels, Inc.
Identity or corporate
structure of Debtor: Virginia corporation
Residence or principal
place of business of Debtor: 306 East Main Street
Richmond, Virginia 23219
Attn: Mr. Glade M. Knight
Time period Debtor is using, or operating under, its current name or corporate
structure without change: Less than one (1) year
Part 2
------
Mailing address of Secured Party:
Promus Hotels, Inc.
755 Crossover Lane
Memphis, Tennessee 38117-4900
Mailing address of Debtor:
306 East Main Street
Richmond, Virginia 23219
Attn: Mr. Glade M. Knight
<PAGE>
SCHEDULE B-2
------------
Part 1
------
Name of Debtor: Apple Suites Management, Inc.
Name of Secured Party: Promus Hotels, Inc.
Identity or corporate
structure of Debtor: Virginia corporation
Residence or principal
place of business of Debtor: 306 East Main Street
Richmond, Virginia 23219
Attn: Mr. Glade M. Knight
Time period Debtor is using, or operating under, its current name or corporate
structure without change: Less than one (1) year
Part 2
Mailing address of Secured Party:
Promus Hotels, Inc.
755 Crossover Lane
Memphis, Tennessee 38117-4900
Mailing address of Debtor:
306 East Main Street
Richmond, Virginia 23219
Attn: Mr. Glade M. Knight
Exhibit 4.4
DEED TO SECURE DEBT MODIFICATION AGREEMENT
DEED TO SECURE DEBT MODIFICATION AGREEMENT (this "Agreement") made this
22nd day of December, 1999, among PROMUS HOTELS, INC., a Delaware corporation,
having an office at 755 Crossover Lane, Memphis, Tennessee 38117-4900
("Mortgagee"), and APPLE SUITES, INC., a Virginia corporation ("Fee Owner"),
APPLE SUITES MANAGEMENT, INC., a Virginia corporation ("Lessee"; together with
Fee Owner, collectively, "Mortgagor"), each of Fee Owner and Lessee having an
office at 306 East Main Street, Richmond, Virginia 23219.
Preliminary Statement
Mortgagee is the lawful owner and holder of the obligations secured by
the Fee and Leasehold Deed To Secure Debt dated November 29, 1999, from
Mortgagor to Mortgagee, recorded in the Records of Cobb County, Georgia in Deed
Book ______, Page ______ (the "Deed To Secure Debt"). The Deed To Secure Debt
secures a $30,210,000 note (the "Original Note") of Fee Owner dated November 29,
1999, which evidences a purchase money loan (the "Loan") in that amount from
Mortgagee to Fee Owner.
Pursuant to the Agreement of Sale (as defined in the Mortgage), Fee
Owner is to acquire certain additional premises described therein and in
connection therewith, Fee Owner will borrow $4,384,500 from Mortgagee and has
executed and delivered to Mortgagee its note, dated the date hereof, obligating
it to pay the sum of $4,384,500 (the "New Note"), with interest thereon as
therein provided and with final payment being due on January 1, 2001. The New
Note by this reference is made a part hereof and of the Deed To Secure Debt.
<PAGE>
In consideration of such additional loan by Mortgagee to Fee Owner,
Mortgagee and Mortgagor have agreed to modify the Deed To Secure Debt to secure
the New Note and thereby increase the amount secured by the Deed To Secure Debt,
all in the manner hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto covenant and agree as follows:
1. The Deed To Secure Debt is modified as follows: The term "Note"
shall mean, collectively, the Original Note and the New Note, as the same may
hereafter be amended, modified, extended, severed, assigned, renewed or
restated, from time to time, such that the Deed To Secure Debt shall be in the
amount of $34,594,500.
2. Mortgagor warrants and represents that there are no defenses,
offsets or counterclaims with respect to its obligations under the Deed To
Secure Debt, as modified hereby, including, without limitation, its obligation
for the payment of the Note.
3. Except as modified in the manner set forth above, the Deed To Secure
Debt shall remain unmodified and in full force and effect.
4. This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and any party
hereto may execute this Agreement by signing any such counterpart.
2
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by each of the parties hereto as of the date first above written.
PROMUS HOTELS, INC.,
Attest: a Delaware corporation
/s/ Glenda Long By /s/ Joseph P. Pidkowciz [SEAL]
- -------------------------- ------------------------------
Name: Glenda Long Joseph P. Pidkowicz
Vice President
Signed, sealed and delivered this
16th day of December,
1999 in the presence of:
/s/ [Illegible]
- --------------------------
Unofficial Witness
/s/ Julia A. Hill
- --------------------------
Notary Public
[Notarial Seal]
[Notarial Stamp]
APPLE SUITES, INC.,
Attest: a Virginia corporation
/s/ Michelle Fuller By /s/ Glade M. Knight [SEAL]
- -------------------------- ---------------------------
Name: Name:
Title:
Signed, sealed and delivered this
20th day of December,
1999 in the presence of:
/s/ [Illegible]
- --------------------------
Unofficial Witness
/s/ Deanna Jost
- --------------------------
Notary Public
[Notarial Seal]
[Notarial Stamp]
<PAGE>
APPLE SUITES MANAGEMENT, INC.,
Attest: a Virginia corporation
/s/ Michelle Fuller By /s/ Glade M. Knight [SEAL]
- -------------------------- --------------------------------
Name: Name:
Title:
Signed, sealed and delivered this
20th day of December,
1999 in the presence of:
/s/ [Illegible]
- --------------------------
Unofficial Witness
/s/ Deanna Jost
- --------------------------
Notary Public
[Notarial Seal]
[Notarial Stamp]
Exhibit 4.5
[Michigan]
[second lien]
================================================================================
Date: December 22, 1999
FEE AND LEASEHOLD MORTGAGE, ASSIGNMENT OF LEASES
AND RENTS AND SECURITY AGREEMENT
("this Mortgage")
FROM
APPLE SUITES, INC.,
a Virginia corporation
("Fee Owner")
AND
APPLE SUITES MANAGEMENT, INC.,
a Virginia corporation
("Lessee")
Address of Fee Owner and Lessee: 306 East Main Street
Richmond, Virginia 23219
Attention: Glade M. Knight
TO
PROMUS HOTELS, INC.,
a Delaware corporation
("Mortgagee")
Address of Mortgagee: 755 Crossover Lane
Memphis, Tennessee 38117
Mortgage Amount: $4,384,500
================================================================================
This instrument prepared by, and after recording please return to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019-6092
Attention: Graham R. Hone, Esq.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITAL.............................................................................................1
CERTAIN DEFINITIONS AND RULES OF CONSTRUCTION.......................................................1
GRANTING CLAUSE.....................................................................................3
ARTICLE I COVENANTS OF MORTGAGOR....................................................4
Section 1.01. (a) Warranty of Title; Power and Authority..............................4
(b) Hazardous Materials.................................................5
(c) Flood Hazard Area...................................................5
Section 1.02. (a) Further Assurances..................................................6
(b) Information Reporting and Back-up Withholding.......................6
Section 1.03. (a) Filing and Recording of Documents...................................6
(b) Filing and Recording Fees and Other Charges.........................6
Section 1.04. Payment and Performance of Loan Documents.................................6
Section 1.05. Maintenance of Existence; Compliance with Laws............................7
Section 1.06. After-Acquired Property...................................................7
Section 1.07. (a) Payment of Taxes and Other Charges..................................7
(b) Payment of Mechanics and Materialmen................................8
(c) Good Faith Contests.................................................8
Section 1.08. Taxes on Mortgagee........................................................8
Section 1.09. Insurance.................................................................8
Section 1.10. Protective Advances by Mortgagee.........................................12
Section 1.11. (a) Visitation and Inspection..........................................12
(b) Financial and Other Information....................................12
(c) Estoppel Certificates..............................................13
Section 1.12. Maintenance of Premises and Improvements.................................13
Section 1.13. Condemnation.............................................................13
Section 1.14. Leases...................................................................14
Section 1.15. Premises Documents.......................................................14
Section 1.16. Trust Fund; Lien Laws....................................................15
ARTICLE II EVENTS OF DEFAULT AND REMEDIES...........................................15
Section 2.01. Events of Default and Certain Remedies...................................15
Section 2.02. Other Matters Concerning Sales...........................................19
Section 2.03. Payment of Amounts Due...................................................21
Section 2.04. Actions; Receivers.......................................................22
Section 2.05. Mortgagee's Right to Possession..........................................23
Section 2.06. Remedies Cumulative......................................................23
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 2.07. Moratorium Laws; Right of Redemption.....................................23
Section 2.08. Regarding Defenses.......................................................24
Section 2.09. Expenses as Indebtedness.................................................24
Section 2.10. Mortgagee's Rights Concerning Application of Amounts Collected...........24
ARTICLE III MISCELLANEOUS............................................................24
Section 3.01. Assignment of Rents......................................................24
Section 3.02. Security Agreement.......................................................25
Section 3.03. Application of Certain Payments..........................................25
Section 3.04. Severability.............................................................25
Section 3.05. Modifications and Waivers in Writing.....................................25
Section 3.06. Notices..................................................................26
Section 3.07. Successors and Assigns...................................................26
Section 3.08. Limitation on Interest...................................................26
Section 3.09. Counterparts.............................................................26
Section 3.10. Substitute Mortgages.....................................................26
Section 3.11. Mortgagee's Sale of Interests in Loan....................................26
Section 3.12. No Merger of Interests...................................................26
Section 3.13. No Credit For Taxes......................................................27
Section 3.14. No Consent to Contracts..................................................27
Section 3.15. Business Loan............................................................27
Section 3.16. CERTAIN WAIVERS..........................................................27
Section 3.17. GOVERNING LAW............................................................27
</TABLE>
(ii)
<PAGE>
THE AMOUNT OF THIS MORTGAGE IS $4,384,500.
RECITAL
Mortgagee, Hampton Inns, Inc. and Promus Hotels Florida, Inc., as
sellers, and Fee Owner, as buyer, have heretofore entered into an Agreement of
Sale dated as of November 22, 1999 (as amended, the "Agreement of Sale") for the
purchase by Fee Owner on the date hereof of certain premises described therein
(the "New Premises"). Fee Owner has acquired and is the owner of the premises
described in SCHEDULE A attached hereto and made a part hereof and Lessee is the
owner of a leasehold interest therein. Lessee acknowledges that it will derive
substantial benefit from the making of the loan contemplated herein and further
acknowledges that the obligation of Mortgagee to make such loan is conditioned
upon, among other things, the execution and delivery by Lessee of this Mortgage.
In connection with the purchase of the New Premises by Fee Owner from Mortgagee
(or its affiliates) pursuant to the Agreement of Sale, Fee Owner will borrow
$4,384,500 from Mortgagee and has executed and delivered to Mortgagee its note,
dated the date hereof, obligating it to pay the sum of $4,384,500, with interest
thereon as therein provided (said note, as the same may hereafter be amended,
modified, extended, severed, assigned, renewed, replaced or restated,
hereinafter, the "Note"). In order to secure the payment of the Note, Fee Owner
and Lessee, as grantors, have duly authorized the execution and delivery of this
Mortgage. For purposes of this Mortgage, "Mortgagor" shall mean Fee Owner and
Lessee but only to the extent of their respective interests in the Mortgaged
Property (as herein defined) and their respective obligations under the Note and
Ground Lease.
CERTAIN DEFINITIONS AND RULES OF CONSTRUCTION
Mortgagor and Mortgagee agree that, unless the context otherwise
specifies or requires, the following terms shall have the meanings herein
specified.
"Chattels" means all fixtures, furnishings, fittings, appliances,
apparatus, equipment, building materials and components, machinery and articles
of personal property, of whatever kind or nature, including any replacements,
proceeds or products thereof and additions thereto, other than those owned by
lessees, now or at any time hereafter intended to be or actually affixed to,
attached to, placed upon, or used in any way in connection with the complete and
comfortable use, enjoyment, development, occupancy or operation of the Premises,
and whether located on or off the Premises.
"Default Rate" means the rate (or, if more than one, the highest of the
rates) of interest per annum provided in the Note plus 5%, but in no event to
exceed the maximum rate allowed by law.
"Events of Default" means the events and circumstances described as
such in Section 2.01.
"Ground Lease" means the Master Hotel Lease Agreement dated as of
September 20, 1999 between Fee Owner and Lessee covering, among other premises,
the
<PAGE>
premises described in SCHEDULE A, as the same may be amended, supplemented or
modified from time to time.
"Hazardous Materials" means any pollutant, effluents, emissions,
contaminants, toxic or hazardous wastes, materials or substances, as any of
those terms are defined from time to time in or for the purposes of any relevant
environmental law, rule, regulation, code, permit, order, notice, demand letter
or other binding determination (hereinafter, "Environmental Laws") including,
without limitation, asbestos fibers and friable asbestos, polychlorinated
biphenyls and any petroleum or hydrocarbon-based products or derivatives, in
each case in amounts in violation of applicable Environmental Laws.
"Improvements" means all structures or buildings, and replacements
thereof, now or hereafter located upon the Premises, including all plant
equipment, apparatus, machinery and fixtures of every kind and nature whatsoever
forming part of said structures or buildings.
"lease" or "leases" means any lease or leases of all or any portion of
the Premises, whether affecting the fee or leasehold portion thereof.
"Loan" means the loan made by Mortgagee to Mortgagor evidenced by the
Note and secured hereby.
"Premises" means the premises described in SCHEDULE A, including the
leasehold interest therein created by the Ground Lease, and including all of the
easements, rights, privileges and appurtenances (including air or development
rights) thereunto belonging or in anywise appertaining, and all of the estate,
right, title, interest, claim or demand whatsoever of Mortgagor therein and in
the streets and ways adjacent thereto, either in law or in equity, in possession
or expectancy, now or hereafter acquired, and as used herein shall, unless the
context otherwise requires, be deemed to include the Improvements.
"Premises Documents" means all reciprocal easement or operating
agreements, declarations of covenants, conditions or restrictions, declarations
of condominium, developer's or utility agreements with any village, town, county
or other governmental authority, and any similar such agreements or declarations
now or hereafter affecting the Premises or any part thereof.
All terms of this Mortgage which are not defined above shall have the
meaning set forth elsewhere in this Mortgage.
Except as expressly indicated otherwise, when used in this Mortgage (i)
"or" is not exclusive, (ii) "hereunder", "herein", "hereof" and the like refer
to this Mortgage as a whole, (iii) "Article", "Section" and "Schedule" refer to
Articles, Sections and Schedules of this Mortgage, (iv) terms defined in the
singular have a correlative meaning when used in the plural and vice versa, (v)
a reference to a law or statute includes any amendment or modification to, or
replacement of, such law or statute and (vi) a reference to an agreement,
instrument or document means such agreement, instrument or document as the same
may be amended, modified or supplemented from time to time in accordance
2
<PAGE>
with its terms and as permitted hereby and by the other documents executed or
delivered to Mortgagee in connection with the Loan. The cover page and all
Schedules hereto are incorporated herein and made a part hereof. Any table of
contents and the headings and captions herein are for convenience only and shall
not affect the interpretation or construction hereof.
GRANTING CLAUSE
NOW, THEREFORE, Mortgagor, in consideration of the premises and in
order to secure the payment of both the principal of, and the interest and any
other sums payable under, the Note or this Mortgage and the performance and
observance of all the provisions hereof and of the Note, hereby gives, grants,
bargains, sells, warrants, aliens, remises, releases, conveys, assigns,
transfers, mortgages, hypothecates, deposits, pledges, sets over and confirms
unto Mortgagee, all its estate, right, title and interest in, to and under any
and all of the following described property (hereinafter, the "Mortgaged
Property") whether now owned or held or hereafter acquired:
(i) the Premises;
(ii) the Improvements;
(iii) the Chattels;
(iv) the Premises Documents;
(v) all rents, royalties, issues, profits, revenue,
income, recoveries, reimbursements and other benefits of the Mortgaged
Property (hereinafter, the "Rents") and all leases of the Mortgaged
Property or portions thereof now or hereafter entered into and all
right, title and interest of Mortgagor thereunder, including, without
limitation, cash or securities deposited thereunder to secure
performance by the lessees of their obligations thereunder, whether
such cash or securities are to be held until the expiration of the
terms of such leases or applied to one or more of the installments of
rent coming due immediately prior to the expiration of such terms, and
including any guaranties of such leases and any lease cancellation,
surrender or termination fees in respect thereof, all subject, however,
to the provisions of Section 3.01;
(vi) all (a) development work product prepared in
connection with the Premises, including, but not limited to,
engineering, drainage, traffic, soil and other studies and tests;
water, sewer, gas, electrical and telephone approvals, taps and
connections; surveys, drawings, plans and specifications; and
subdivision, zoning and platting materials; (b) building and other
permits, rights, licenses and approvals relating to the Premises; and
(c) contracts and agreements (including, without limitation, contracts
with architects and engineers, construction contracts and contracts for
the maintenance or management of the Premises), contract rights, logos,
trademarks, trade names, copyrights and other general intangibles
3
<PAGE>
used or useful in connection with the ownership, operation or occupancy
of the Premises or any part thereof;
(vii) all proceeds of the conversion, voluntary or
involuntary, of any of the foregoing into cash or liquidated claims,
including, without limitation, proceeds of insurance and condemnation
awards, and all rights of Mortgagor to refunds of real estate taxes and
assessments;
(viii) all revenue and income received by or on behalf of
Mortgagor resulting from the operation of the Premises as a hotel,
including all sums (1) paid by customers for the use of hotel rooms
located within the Premises, (2) derived from food and beverage
operations located within the Premises, (3) generated by other hotel
operations, including any parking, convention, sports and recreational
facilities and (4) business interruption insurance proceeds;
(ix) all accounts and accounts receivable, including all
present and future right to payment from any consumer credit or charge
card organization or entity (such as those organizations which sponsor
or administer the American Express, Carte Blanche, Discover Card,
Diners Club, Visa and Master Card) arising out of the leasing and
operation of, or the business conducted at or in relation to, all or
any part of the Premises; and
(x) any deposit, operating or other account including
the entire balance therein (now or hereafter existing) of Mortgagor
containing proceeds of the operation of the Premises with any banking
or financial institution and all money, instruments, securities,
documents, chattel paper, credits, demands, and any other property,
rights, or interests of Mortgagor relating to the operation of the
Premises which at any time shall come into the possession, custody or
control of any banking or financial institution.
TO HAVE AND TO HOLD unto Mortgagee, its successors and assigns forever.
ARTICLE I
COVENANTS OF MORTGAGOR
Mortgagor represents, except as known by Mortgagee or its affiliates to
the contrary, or disclosed to Mortgagee in connection with the sale of the
Mortgaged Property to Mortgagor, and Mortgagor covenants and agrees as follows:
Section 1.01. (a) Warranty of Title; Power and Authority. Mortgagor
warrants that, with respect to the fee interest in the Premises, it has a good
and marketable title to an indefeasible fee estate subject to no lien, charge or
encumbrance, that the Ground Lease is subject to no lien, charge or encumbrance
of any kind and is prior to all liens, charges and encumbrances whatsoever on
the fee interest of the landlord thereunder, except in either case such as are
listed as exceptions to title in the title policy insuring the lien hereof; and,
Mortgagor further warrants that, with respect to the
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leasehold interest in the Premises, that it is the owner of a valid and
subsisting interest as tenant under the Ground Lease, that the Ground Lease is
in full force and effect, there are no defaults thereunder and no event has
occurred or is occurring which after notice or passage of time or both will
result in such a default; that it owns the Chattels, all leases and the Rents in
respect of the Mortgaged Property and all other personal property encumbered
hereby free and clear of liens and claims; and Mortgagor warrants that this
Mortgage is and will remain a valid and enforceable lien on the Mortgaged
Property subject only to the exceptions referred to above. Mortgagor has full
power and lawful authority to mortgage the Mortgaged Property in the manner and
form herein done or intended hereafter to be done. Mortgagor will preserve such
title, will preserve such leasehold estate created by the Ground Lease and will
forever warrant and defend the same to Mortgagee and will forever warrant and
defend the validity and priority of the lien hereof against the claims of all
persons and parties whomsoever. Mortgagor will perform or cause to be performed
all of the covenants and conditions required to be performed by it under the
Ground Lease, will do all things necessary to preserve unimpaired its rights
thereunder, and will not (i) enter into any agreement modifying or amending the
Ground Lease that would reduce the term of the Ground Lease, increase the amount
of rent payable thereunder (except as contemplated by the provisions of the
Ground Lease) or have a material adverse effect on the lien created by this
Mortgage or the rights of Mortgagee hereunder or (ii) for so long as the Ground
Lease is in effect, release the landlord thereunder from any obligations imposed
upon it thereby. If Mortgagor receives a notice of default under the Ground
Lease, it shall immediately cause a copy of such notice to be sent by registered
United States mail to Mortgagee.
(b) Hazardous Materials. To the best of Mortgagor's knowledge,
Mortgagor represents and warrants that (i) the Premises and the improvements
thereon and the surrounding areas are not currently and have never been subject
to Hazardous Materials or their effects, in each case in amounts in violation of
applicable Environmental Laws, (ii) neither it nor any portion of the Premises
or improvements thereon is in violation of, or subject to any existing, pending
or threatened investigation or proceeding by any governmental authorities under,
any Environmental Law, (iii) there are no claims, litigation, administrative or
other proceedings, whether actual or threatened, or judgments or orders,
concerning Hazardous Materials relating in any way to the Premises or the
improvements thereon and (iv) Mortgagor is not required by any Environmental Law
to obtain any permits or licenses to construct or use any improvements, fixtures
or equipment with respect to the Premises, or if any such permit or license is
required it has been obtained and is capable of being mortgaged and assigned
hereby. Mortgagor will comply with all applicable Environmental Laws and will,
at its sole cost and expense, promptly remove, or cause the removal of, any and
all Hazardous Materials or the effects thereof at any time identified as being
on, in, under or affecting the Premises.
(c) Flood Hazard Area. Mortgagor represents that neither the Premises
nor any part thereof is located in an area identified by the Secretary of the
United States Department of Housing and Urban Development or by any applicable
federal agency as having special flood hazards or, if it is, Mortgagor has
obtained the insurance required by Section 1.09.
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Section 1.02. (a) Further Assurances. Mortgagor will, at its sole cost
and expense, do, execute, acknowledge and deliver all and every such further
acts, deeds, conveyances, mortgages, assignments, notices of assignment,
transfers and assurances as Mortgagee shall from time to time reasonably
require, for the better assuring, conveying, assigning, transferring and
confirming unto Mortgagee the property and rights hereby conveyed or assigned or
intended now or hereafter so to be, or which Mortgagor may be or may hereafter
become bound to convey or assign to Mortgagee, or for carrying out the intention
or facilitating the performance of the terms hereof, or for filing, registering
or recording this Mortgage and, on demand, will execute and deliver, and hereby
authorizes Mortgagee to execute and file in Mortgagor's name, to the extent it
may lawfully do so, one or more financing statements, chattel mortgages or
comparable security instruments, to evidence or perfect more effectively
Mortgagee's security interest in and the lien hereof upon the Chattels and other
personal property encumbered hereby.
(b) Information Reporting and Back-up Withholding. Mortgagor will, at
its sole cost and expense, do, execute, acknowledge and deliver all and every
such acts, information reports, returns and withholding of monies as shall be
necessary or appropriate to comply fully, or to cause full compliance, with all
applicable information reporting and back-up withholding requirements of the
Internal Revenue Code of 1986 (including all regulations now or hereafter
promulgated thereunder) in respect of the Premises and all transactions related
to the Premises, and will at all times provide Mortgagee with satisfactory
evidence of such compliance and notify Mortgagee of the information reported in
connection with such compliance.
Section 1.03. (a) Filing and Recording of Documents. Mortgagor
forthwith upon the execution and delivery hereof, and thereafter from time to
time, will cause this Mortgage and any security instrument creating a lien or
evidencing the lien hereof upon the Chattels and each instrument of further
assurance to be filed, registered or recorded in such manner and in such places
as may be required by any present or future law in order to publish notice of
and fully to protect the lien hereof upon, and the interest of Mortgagee in, the
Mortgaged Property.
(b) Filing and Recording Fees and Other Charges. Mortgagor will pay all
filing, registration or recording fees, and all expenses incident to the
execution and acknowledgment hereof, any mortgage supplemental hereto, any
security instrument with respect to the Chattels, and any instrument of further
assurance, and any reasonable expenses (including attorneys' fees and
disbursements) incurred by Mortgagee in connection with the Loan, and will pay
all federal, state, county and municipal stamp taxes and other taxes, duties,
imposts, assessments and charges arising out of or in connection with the
execution and delivery of the Note, this Mortgage, any mortgage supplemental
hereto, any security instrument with respect to the Chattels or any instrument
of further assurance.
Section 1.04. Payment and Performance of Loan Documents. Mortgagor will
punctually pay the principal and interest and all other sums to become due in
respect hereof and of the Note at the time and place and in the manner specified
therein, according to the true intent and meaning thereof, all in currency of
the United States of
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America which at the time of such payment shall be legal tender for the payment
of public and private debts. Mortgagor will duly and timely comply with and
perform all of the terms, provisions, covenants and agreements contained in said
documents and in all other documents or instruments executed or delivered by
Mortgagor to Mortgagee in connection with the Loan, and will permit no failures
of performance thereunder.
Section 1.05. Maintenance of Existence; Compliance with Laws.
Mortgagor, if other than a natural person, will, so long as it is owner of all
or part of the Mortgaged Property, do all things necessary to preserve and keep
in full force and effect its existence, franchises, rights and privileges as a
business or stock corporation, partnership, limited liability company, trust or
other entity under the laws of the state of its formation. Mortgagor will duly
and timely comply with all laws, regulations, rules, statutes, orders and
decrees of any governmental authority or court applicable to it or to the
Mortgaged Property or any part thereof.
Section 1.06. After-Acquired Property. All right, title and interest of
Mortgagor in and to all extensions, improvements, betterments, renewals,
substitutes and replacements of, and all additions and appurtenances to, the
Mortgaged Property, hereafter acquired by, or released to, Mortgagor or
constructed, assembled or placed by Mortgagor on the Premises, and all
conversions of the security constituted thereby, immediately upon such
acquisition, release, construction, assembling, placement or conversion, as the
case may be, and in each such case, without any further mortgage, conveyance,
assignment or other act by Mortgagor, shall become subject to the lien hereof as
fully and completely, and with the same effect, as though now owned by Mortgagor
and specifically described in the Granting Clause hereof, but at any and all
times Mortgagor will execute and deliver to Mortgagee any and all such further
assurances, mortgages, conveyances or assignments thereof as Mortgagee may
reasonably require for the purpose of expressly and specifically subjecting the
same to the lien hereof.
Section 1.07. (a) Payment of Taxes and Other Charges. Mortgagor, from
time to time before the same shall become delinquent, will pay and discharge all
taxes of every kind and nature (including real and personal property taxes and
income, franchise, withholding, profits and gross receipts taxes), all general
and special assessments, levies, permits, inspection and license fees, all water
and sewer rents and charges, and all other public charges whether of a like or
different nature, imposed upon or assessed against it or the Mortgaged Property
or any part thereof or upon the revenues, rents, issues, income and profits of
the Mortgaged Property or arising in respect of the occupancy, use or possession
thereof. Mortgagor will, upon Mortgagee's request, deliver to Mortgagee receipts
evidencing the payment of all such taxes, assessments, levies, fees, rents and
other public charges imposed upon or assessed against it or the Mortgaged
Property or any portion thereof.
Mortgagee may, at its option following the occurrence of an Event of
Default, to be exercised by thirty (30) days' notice to Mortgagor, require the
deposit by Mortgagor, at the time of each payment of an installment of interest
or principal under the Note (but no less often than monthly), of an additional
amount sufficient to discharge the
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obligations under this clause (a) when they become due. The determination of the
amount so payable and of the fractional part thereof to be deposited with
Mortgagee, so that the aggregate of such deposits shall be sufficient for this
purpose, shall be made by Mortgagee in its sole discretion. Such amounts shall
be held by Mortgagee without interest and applied to the payment of the
obligations in respect of which such amounts were deposited or, at Mortgagee's
option, to the payment of said obligations in such order or priority as
Mortgagee shall determine, on or before the respective dates on which the same
or any of them would become delinquent. If one (1) month prior to the due date
of any of the aforementioned obligations the amounts then on deposit therefor
shall be insufficient for the payment of such obligation in full, Mortgagor
within ten (10) days after demand shall deposit the amount of the deficiency
with Mortgagee. Nothing herein contained shall be deemed to affect any right or
remedy of Mortgagee under any provisions hereof or of any statute or rule of law
to pay any such amount and to add the amount so paid, together with interest at
the Default Rate, to the indebtedness hereby secured.
(b) Payment of Mechanics and Materialmen. Mortgagor will pay, from time
to time when the same shall become due, all lawful claims and demands of
mechanics, materialmen, laborers, and others which, if unpaid, might result in,
or permit the creation of, a lien on the Mortgaged Property or any part thereof,
and in general will do or cause to be done everything necessary so that the lien
hereof shall be fully preserved, at the cost of Mortgagor and without expense to
Mortgagee, other than those liens which Mortgagee or its affiliates have
indemnified Mortgagor pursuant to the provisions set forth in the Agreement of
Sale.
(c) Good Faith Contests. Nothing in this Section 1.07 shall require the
payment or discharge of any obligation imposed upon Mortgagor by this Section so
long as Mortgagor shall in good faith and at its own expense contest the same or
the validity thereof by appropriate legal proceedings which shall operate to
prevent the collection thereof or other realization thereon and the sale or
forfeiture of the Mortgaged Property or any part thereof to satisfy the same;
provided, however, that (i) during such contest Mortgagor shall set aside
reserves sufficient to discharge Mortgagor's obligation hereunder and of any
additional charge, penalty or expense arising from or incurred as a result of
such contest and (ii) if at any time payment of any obligation imposed upon
Mortgagor by clause (a) above shall become necessary to prevent the delivery of
a tax deed or other instrument conveying the Mortgaged Property or any portion
thereof because of non-payment, then Mortgagor shall pay the same in sufficient
time to prevent the delivery of such tax deed or other instrument.
Section 1.08. Taxes on Mortgagee. Mortgagor will pay any taxes, except
income taxes, imposed on Mortgagee by reason of its ownership of the Note or
this Mortgage, provided that Mortgagee can require payment of the Note in full
within ninety (90) days if it shall be illegal for Mortgagor to pay any tax or
if the payment of such tax by Mortgagor would result in the violation of
applicable usury laws.
Section 1.09. Insurance. (a) Mortgagor will at all times provide,
maintain and keep in force:
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(i) policies of insurance insuring the Premises, Improvements
and Chattels against loss or damage by fire and lightning; against loss
or damage by other risks embraced by coverage of the type now known as
All Risk Replacement Cost Insurance with agreed amount endorsement,
including but not limited to riot and civil commotion, vandalism,
malicious mischief and theft; and against such other risks or hazards
as Mortgagee from time to time reasonably may designate in an amount
sufficient to prevent Mortgagee or Mortgagor from becoming a co-insurer
under the terms of the applicable policies, but in any event in an
amount not less than 100% of the then full replacement cost of the
Improvements (exclusive of the cost of excavations, foundations and
footings below the lowest basement floor) without deduction for
physical depreciation;
(ii) policies of insurance insuring the Premises against the loss
of "rental value" of the buildings which constitute a part of the
Improvements on a "rented or vacant basis" arising out of the perils
insured against pursuant to clause (i) above in an amount equal to not
less than one (1) year's gross "rental value" of the Improvements.
"Rental value" as used herein is defined as the sum of (A) the total
anticipated gross rental income from tenant occupancy of such buildings
as furnished and equipped, (B) the amount of all charges which are the
legal obligation of tenants and which would otherwise be the obligation
of Mortgagor and (C) the fair rental value of any portion of such
buildings which is occupied by Mortgagor. Mortgagor hereby assigns the
proceeds of such insurance to Mortgagee, to be applied by Mortgagee in
payment of the interest and principal on the Note, insurance premiums,
taxes, assessments and private impositions until such time as the
Improvements shall have been restored and placed in full operation, at
which time, provided Mortgagor is not then in default hereunder, the
balance of such insurance proceeds, if any, held by Mortgagee shall be
paid over to Mortgagor;
(iii) if all or part of the Premises are located in an area
identified by the Secretary of the United States Department of Housing
and Urban Development or by any applicable federal agency as a flood
hazard area, flood insurance in an amount at least equal to the maximum
limit of coverage available under the National Flood Insurance Act of
1968, provided, however, that Mortgagee reserves the right to require
flood insurance in excess of said limit if such insurance is
commercially available up to the amount provided in clause (i) above;
(iv) during any period of restoration under this Section 1.09
or Section 1.13, a policy or policies of builder's "all risk"
insurance, written on a Standard Builder's Risk Completed Value Form
(100% non-reporting), in an amount not less than the full insurable
value of the Premises against such risks (including, without
limitation, fire and extended coverage, collapse and earthquake
coverage to agreed limits) as Mortgagee may reasonably request, in form
and substance acceptable to Mortgagee;
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(v) a policy or policies of workers' compensation insurance as
required by workers' compensation insurance laws (including employer's
liability insurance, if requested by Mortgagee) covering all employees
of Mortgagor;
(vi) comprehensive liability insurance on an "occurrence" basis
against claims for "personal injury" liability, including, without
limitation, bodily injury, death or property damage liability, with a
limit of not less than $15,000,000 in the event of "personal injury" to
any number of persons or of damage to property arising out of one
"occurrence". Such policies shall name Mortgagee as additional insured
by an endorsement, and shall contain cross-liability and severability
of interest clauses, all satisfactory to Mortgagee; and
(vii) such other insurance (including, but not limited to,
earthquake insurance), and in such amounts, as may from time to time be
reasonably required by Mortgagee against the same or other insurable
hazards.
Notwithstanding anything herein to the contrary, for so long as that
certain Management Agreement of even date herewith between Lessee and Mortgagee
with respect to the Premises remains in full force and effect (as the same may
be amended, the "Management Agreement"), the types and amounts of insurance
required by the Management Agreement to the extent inconsistent with those set
forth above shall govern and control Mortgagor's obligations in respect thereof.
(b) All policies of insurance required under this Section 1.09 shall be
issued by companies having Best's ratings and being otherwise reasonably
acceptable to Mortgagee, shall be subject to the reasonable approval of
Mortgagee as to amount, content, form and expiration date and, except for the
liability policies described in clauses (a)(v) and (vi) above, shall contain a
Non-Contributory Standard Mortgagee Clause and Lender's Loss Payable
Endorsement, or their equivalents, in favor of Mortgagee, and shall provide that
the proceeds thereof shall be payable to Mortgagee. Mortgagee shall be furnished
with the original of each policy required hereunder, which policies shall
provide that they shall not lapse, nor be modified or cancelled, without thirty
(30) days' written notice to Mortgagee. At least thirty (30) days prior to
expiration of any policy required hereunder, Mortgagor shall furnish Mortgagee
appropriate proof of issuance of a policy continuing in force the insurance
covered by the policy so expiring. Mortgagor shall furnish to Mortgagee,
promptly upon request, receipts or other satisfactory evidence of the payment of
the premiums on such insurance policies. In the event that Mortgagor does not
deposit with Mortgagee a new certificate or policy of insurance with evidence of
payment of premiums thereon at least thirty (30) days prior to the expiration of
any expiring policy, then Mortgagee may, but shall not be obligated to, procure
such insurance and pay the premiums therefor, and Mortgagor agrees to repay to
Mortgagee the premiums thereon promptly on demand, together with interest
thereon at the Default Rate.
(c) Mortgagor hereby assigns to Mortgagee all proceeds of any insurance
required to be maintained by this Section 1.09 which Mortgagor may be entitled
to receive for loss or damage to the Premises, Improvements or Chattels. All
such insurance
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proceeds shall be payable to Mortgagee, and Mortgagor hereby authorizes and
directs any affected insurance company to make payment thereof directly to
Mortgagee subject, however, to clause (f) below. Mortgagor shall give prompt
notice to Mortgagee of any casualty, whether or not of a kind required to be
insured against under the policies to be provided by Mortgagor hereunder, such
notice to generally describe the nature and cause of such casualty and the
extent of the damage or destruction. Mortgagor may settle, adjust or compromise
any claims for loss, damage or destruction, regardless of whether or not there
are insurance proceeds available or whether any such insurance proceeds are
sufficient in amount to fully compensate for such loss or damage, subject to
Mortgagee's prior consent. Notwithstanding the foregoing, Mortgagee shall have
the right to join Mortgagor in settling, adjusting or compromising any loss of
$100,000 or more. Mortgagor hereby authorizes the application or release by
Mortgagee of any insurance proceeds under any policy of insurance, subject to
the other provisions hereof. The application or release by Mortgagee of any
insurance proceeds shall not cure or waive any default or notice of default
hereunder or invalidate any act done pursuant to such notice.
(d) In the event of the foreclosure hereof or other transfer of the
title to the Mortgaged Property in extinguishment, in whole or in part, of the
indebtedness secured hereby, all right, title and interest of Mortgagor in and
to any insurance policy, or premiums or payments in satisfaction of claims or
any other rights thereunder then in force, shall pass to the purchaser or
grantee notwithstanding the amount of any bid at such foreclosure sale. Nothing
contained herein shall prevent the accrual of interest as provided in the Note
on any portion of the principal balance due under the Note until such time as
insurance proceeds are actually received and applied to reduce the principal
balance outstanding.
(e) Mortgagor shall not take out separate insurance concurrent in form
or contributing in the event of loss with that required to be maintained under
this Section 1.09 unless Mortgagee is included thereon as a named insured with
loss payable to Mortgagee under standard mortgage endorsements of the character
and to the extent above described. Mortgagor shall promptly notify Mortgagee
whenever any such separate insurance is taken out and shall promptly deliver to
Mortgagee the policy or policies of such insurance.
(f) Any and all monies received as payment which Mortgagor may be
entitled to receive for loss or damage to the Premises, Improvements or Chattels
under any insurance maintained pursuant to this Section 1.09 (other than
proceeds under the policies required by clause (a)(ii) above) shall be paid over
to Mortgagee and, at Mortgagee's option, either applied to the prepayment of the
Note and all interest and other sums accrued and unpaid in respect thereof or
disbursed from time to time to Mortgagor in reimbursement of its costs and
expenses incurred in the restoration of the Improvements in accordance with
Mortgagee's standard construction lending practices, terms and conditions, in
either case, less Mortgagee's reasonable expenses for collecting and, if
applicable, disbursing the insurance proceeds, or otherwise incurred in
connection therewith. Notwithstanding the provisions of the immediately
preceding sentence, provided no default exists hereunder, Mortgagee agrees to
apply any such proceeds
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received by it to the reimbursement of Mortgagor's costs of restoring the
Improvements. Advances of insurance proceeds shall be made to Mortgagor from
time to time in accordance with Mortgagee's standard construction lending
practices, terms and conditions; amounts not required for such purposes shall be
applied, at Mortgagee's option, to the prepayment of the Note and to interest
accrued and unpaid thereon in such order and proportions as Mortgagee may elect.
In no event shall Mortgagee be required to advance such proceeds to Mortgagor
unless Mortgagee shall have (i) received satisfactory evidence that the
funding/expiration dates of the commitment, if any, for the permanent financing
of the Improvements have been extended for such period of time as is reasonably
necessary to complete said restoration and (ii) reasonably determined that the
restoration of the Improvements can be completed by the Maturity Date of the
Note at a cost which does not exceed the amount of available insurance proceeds
or, in the event that such proceeds are reasonably determined by Mortgagee to be
inadequate, Mortgagee shall have received from Mortgagor a cash deposit equal to
the excess of said estimated cost of restoration over the amount of said
available proceeds. If the conditions for the advance of insurance proceeds for
restoration set forth in clauses (i) and (ii) above are not satisfied within
sixty (60) days of Mortgagee's receipt thereof or if the actual restoration
shall not have been commenced within such period, Mortgagee shall have the
option at any time thereafter to apply such insurance proceeds to the payment of
the Note and to interest accrued and unpaid thereon in such order and
proportions as Mortgagee may elect.
Section 1.10. Protective Advances by Mortgagee. If Mortgagor shall fail
to perform any of the covenants contained herein, Mortgagee may make advances to
perform the same on its behalf and all sums so advanced shall be a lien upon the
Mortgaged Property and shall be secured hereby. Mortgagor will repay on demand
all sums so advanced on its behalf together with interest thereon at the Default
Rate. The provisions of this Section shall not prevent any default in the
observance of any covenant contained herein from constituting an Event of
Default.
Section 1.11. (a) Visitation and Inspection. Mortgagor will keep
adequate records and books of account in accordance with generally accepted
accounting principles and will permit Mortgagee, by its agents, accountants and
attorneys, to visit and inspect the Mortgaged Property and examine its records
and books of account and make copies thereof or extracts therefrom, and to
discuss its affairs, finances and accounts with the officers or general
partners, as the case may be, of Mortgagor, at such reasonable times as may be
requested by Mortgagee.
(b) Financial and Other Information. Mortgagor will deliver to
Mortgagee with reasonable promptness such financial information with respect to
Mortgagor or the Premises as Mortgagee may reasonably request from time to time.
All financial statements of Mortgagor shall be prepared in accordance with
generally accepted accounting principles and shall be accompanied by the
certificate of a principal financial or accounting officer or general partner,
as the case may be, of Mortgagor, dated within five (5) days of the delivery of
such statements to Mortgagee, stating that he or she knows of no Event of
Default, nor of any event which after notice or lapse of time or both would
constitute an Event of Default, which has occurred and is continuing, or, if any
such event or Event of Default has occurred and is continuing, specifying the
nature and
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period of existence thereof and what action Mortgagor has taken or proposes to
take with respect thereto, and, except as otherwise specified, stating that
Mortgagor has fulfilled all of its obligations hereunder and otherwise in
respect of the Loan which are required to be fulfilled on or prior to the date
of such certificate.
(c) Estoppel Certificates. Mortgagor, within three (3) days upon
request in person or within five (5) days upon request by mail, will furnish a
statement, duly acknowledged, of the amount due whether for principal or
interest on this Mortgage and whether any offsets, counterclaims or defenses
exist against the indebtedness secured hereby.
Section 1.12. Maintenance of Premises and Improvements. Mortgagor will
not commit any waste on the Premises or make any change in the use of the
Premises which will in any way increase any ordinary fire or other hazard
arising out of construction or operation. Mortgagor will, or shall cause its
Lessee to, at all times, maintain the Improvements and Chattels in good
operating order and condition and will promptly make, from time to time, all
repairs, renewals, replacements, additions and improvements in connection
therewith which are needful or desirable to such end. The Improvements shall not
be demolished or substantially altered, nor shall any Chattels be removed
without Mortgagee's prior consent except where appropriate replacements free of
superior title, liens and claims are immediately made of value at least equal to
the value of the removed Chattels.
Section 1.13. Condemnation. Mortgagor, immediately upon obtaining
knowledge of the institution or pending institution of any proceedings for the
condemnation of the Premises or any portion thereof, will notify Mortgagee
thereof. Mortgagee may participate in any such proceedings and may be
represented therein by counsel of its selection. Mortgagor from time to time
will deliver to Mortgagee all instruments requested by it to permit or
facilitate such participation. In the event of such condemnation proceedings,
the award or compensation payable is hereby assigned to and shall be paid to
Mortgagee. Mortgagee shall be under no obligation to question the amount of any
such award or compensation and may accept the same in the amount in which the
same shall be paid. The proceeds of any award or compensation so received shall,
at Mortgagee's option, either be applied to the prepayment of the Note and all
interest and other sums accrued and unpaid in respect thereof at the rate of
interest provided therein regardless of the rate of interest payable on the
award by the condemning authority, or be disbursed to Mortgagor from time to
time for restoration of the Improvements in accordance with Mortgagee's standard
construction lending practices, terms and conditions, in either case, less
Mortgagee's reasonable expenses for collecting and, if applicable, disbursing
the award, or otherwise incurred in connection therewith. Notwithstanding the
provisions of the immediately preceding sentence, provided no monetary or
bankruptcy related default or any Event of Default exists hereunder, Mortgagee
agrees to apply any such condemnation award proceeds received by it to the
reimbursement of Mortgagor's costs of restoring the Improvements. Advances of
condemnation award proceeds shall be made to Mortgagor from time to time in
accordance with Mortgagee's standard construction lending practices, terms and
conditions; amounts not required for such purposes shall be applied, at
Mortgagee's option, to the prepayment of
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the Note and to interest accrued and unpaid thereon (at the rate of interest
provided therein regardless of the rate of interest payable on the award by the
condemning authority) in such order and proportions as Mortgagee may elect.
Section 1.14. Leases. (a) Mortgagor will not (i) execute an assignment
of the rents or any part thereof from the Premises without Mortgagee's prior
consent, (ii) except where the lessee is in default thereunder, terminate or
consent to the cancellation or surrender of any lease of the Premises or of any
part thereof, now existing or hereafter to be made, having an unexpired term of
one (1) year or more, provided, however, that any lease may be cancelled if
promptly after the cancellation thereof a new lease is entered into with a new
lessee having a credit standing at least equivalent to that of the lessee whose
lease was cancelled, on substantially the same terms as the terminated or
cancelled lease, (iii) modify any such lease so as to shorten the unexpired term
thereof or so as to decrease, waive or compromise in any manner the amount of
the rents payable thereunder or materially expand the obligations of the lessor
thereunder, (iv) accept prepayments of more than one month of any installments
of rents to become due under such leases, except prepayments in the nature of
security for the performance of the lessees thereunder, (v) modify, release or
terminate any guaranties of any such lease or (vi) in any other manner impair
the value of the Mortgaged Property or the security hereof.
(b) Mortgagor will not execute any lease of all or a substantial
portion of the Premises except for actual occupancy by the lessee thereunder or
its property manager, and will at all times promptly and faithfully perform, or
cause to be performed, all of the covenants, conditions and agreements contained
in all leases of the Premises or portions thereof now or hereafter existing, on
the part of the lessor thereunder to be kept and performed and will at all times
do all things reasonably necessary to compel performance by the lessee under
each lease of all obligations, covenants and agreements by such lessee to be
performed thereunder. If any of such leases provide for the giving by the lessee
of certificates with respect to the status of such leases, Mortgagor shall
exercise its right to request such certificates within five (5) days of any
demand therefor by Mortgagee and shall deliver copies thereof to Mortgagee
promptly upon receipt.
(c) In the event of the enforcement by Mortgagee of the remedies
provided for hereby or by law, the lessee under each of the leases of the
Premises will, upon request of any person succeeding to the interest of
Mortgagor as a result of such enforcement, automatically become the lessee of
said successor in interest, without change in the terms or other provisions of
such lease, provided, however, that said successor in interest shall not be
bound by (i) any payment of rent or additional rent for more than one (1) month
in advance, except prepayments in the nature of security for the performance by
said lessee of its obligations under said lease or (ii) any amendment or
modification of the lease made without the consent of Mortgagee or such
successor in interest. Each lease shall also provide that, upon request by said
successor in interest, such lessee shall execute and deliver an instrument or
instruments confirming such attornment.
Section 1.15. Premises Documents. Mortgagor shall (a) do all things
reasonably necessary to cause the due compliance and faithful performance by the
other
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parties to the Premises Documents with and of all obligations and agreements by
such other parties to be complied with and performed thereunder, except for any
continuing failure of the Premises to comply with the Premises Documents of the
date of the acquisition hereof from Mortgagee or its affiliate, and (b) deliver
promptly to Mortgagee copies of any notices which it gives or receives under any
of the Premises Documents.
Section 1.16. Trust Fund; Lien Laws. Mortgagor will receive the
advances secured hereby and will hold the right to receive such advances as a
trust fund to be applied first for the purpose of paying the costs of
improvements on the Premises and will apply the same first to the payment of
such costs before using any part of the total of the same for any other purpose.
Mortgagor will indemnify and hold Mortgagee harmless against any loss or
liability, cost or expense, including, without limitation, any judgments,
attorney's fees, costs of appeal bonds and printing costs, arising out of or
relating to any proceeding instituted by any claimant alleging a violation by
Mortgagor of any applicable lien law.
ARTICLE II
EVENTS OF DEFAULT AND REMEDIES
Section 2.01. Events of Default and Certain Remedies. If one or more of
the following Events of Default shall happen, that is to say:
(a) if (i) default shall be made in the payment of any principal,
interest, fees or other sums under the Note, in any such case, when and
as the same shall become due and payable, whether at maturity or by
acceleration or as part of any payment or prepayment or otherwise, in
each case, as herein or in the Note provided, and such default shall
have continued for a period of ten (10) days or (ii) default shall be
made in the payment of any tax or other charge required by Section 1.07
to be paid and said default shall have continued for a period of twenty
(20) days; or
(b) if default shall be made in the due observance or performance
of any covenant, condition or agreement in the Note, this Mortgage or
in any other document executed or delivered to Mortgagee in connection
with the Loan, and such default shall have continued for a period of
thirty (30) days after notice thereof shall have been given to
Mortgagor by Mortgagee, or, in the case of such other documents, such
shorter grace period, if any, as may be provided for therein; or
(c) if any representation or warranty made by Mortgagor in
Section 1.01 shall be incorrect, or if any other representation or
warranty made to Mortgagee in this Mortgage, or in any other document,
certificate or statement executed or delivered to Mortgagee in
connection with the Loan shall be incorrect in any material respect
when made or remade; or
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(d) if by order of a court of competent jurisdiction, a trustee,
receiver or liquidator of the Mortgaged Property or any part thereof,
or of Mortgagor shall be appointed and such order shall not be
discharged or dismissed within sixty (60) days after such appointment;
or
(e) if Mortgagor shall file a petition in bankruptcy or for an
arrangement or for reorganization pursuant to the Federal Bankruptcy
Act or any similar federal or state law, or if, by decree of a court of
competent jurisdiction, Mortgagor shall be adjudicated a bankrupt, or
be declared insolvent, or shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts
generally as they become due, or shall consent to the appointment of a
receiver or receivers of all or any part of its property; or
(f) if any of the creditors of Mortgagor shall file a petition in
bankruptcy against Mortgagor or for reorganization of Mortgagor
pursuant to the Federal Bankruptcy Act or any similar federal or state
law, and if such petition shall not be discharged or dismissed within
sixty (60) days after the date on which such petition was filed; or
(g) if final judgment for the payment of money shall be rendered
against Mortgagor and Mortgagor shall not discharge the same or cause
it to be discharged within sixty (60) days from the entry thereof, or
shall not appeal therefrom or from the order, decree or process upon
which or pursuant to which said judgment was granted, based or entered,
and secure a stay of execution pending such appeal; or
(h) [Intentionally Omitted]; or
(i) if there shall occur a default which is not cured within the
applicable grace period, if any, under any mortgage, deed of trust or
other security instrument covering all or part of the Mortgaged
Property regardless of whether any such mortgage, deed of trust or
other security instrument is prior or subordinate hereto or under any
mortgage, deed of trust or other security instrument now or hereafter
securing the Note or any other note of Fee Owner to Mortgagee; it being
further agreed by Mortgagor that an Event of Default hereunder shall
constitute an Event of Default under any such mortgage, deed of trust
or other security instrument held by Mortgagee; or
(j) if there shall occur a default which is not cured within the
applicable grace period, if any, under any of the Premises Documents,
except for any continuing failure of the Premises to comply with the
Premises Documents of the date of the acquisition hereof from Mortgagee
or its affiliate; or if any of the Premises Documents is amended,
modified, supplemented or terminated without Mortgagee's prior consent;
or
(k) if Mortgagor shall transfer, or agree to transfer (or suffer
or permit the transfer or agreement to transfer), in any manner, either
voluntarily or
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involuntarily, by operation of law or otherwise, all or any portion of
the Mortgaged Property, or any interest or rights therein (including
air or development rights) without, in any such case, Mortgagee's prior
consent. As used in this clause, "transfer" shall include, without
limitation, any sale, assignment, lease (other than to Lessee) or
conveyance except leases for occupancy subordinate hereto and to all
advances made and to be made hereunder or, in the event Mortgagor (or a
general partner or co-venturer thereof) is a partnership, joint
venture, limited liability company, trust or closely-held corporation,
the sale, conveyance, transfer or other disposition of more than 10%,
in the aggregate, of any class of the issued and outstanding capital
stock of such closely-held corporation or of the beneficial interest of
such partnership, venture, limited liability company or trust, or a
change of any general partner, joint venturer, member or beneficiary,
as the case may be. In the event Mortgagor is a limited partnership,
and so long as a limited partner has contributed to (or remains
personally liable for) the present and future partnership capital
contributions required of such limited partner by the partnership
agreement, such partner may sell, convey, devise, transfer or dispose
of all or a part of his limited partnership interest to his spouse,
children, grandchildren or a family trust in which his spouse, children
or grandchildren are sole beneficiaries; or
(l) if Mortgagor shall encumber, or agree to encumber, in any
manner, either voluntarily or involuntarily, by operation of law or
otherwise, all or any portion of the Mortgaged Property, or any
interest or rights therein (including air or development rights)
without, in any such case, Mortgagee's prior consent. As used in this
clause, "encumber" shall include, without limitation, the placing or
permitting the placing of any mortgage, deed of trust, assignment of
rents or other security device. (Mortgagee may grant or deny its
consent under this clause and the immediately preceding clause in its
sole discretion and, if consent should be given, any such transfer or
encumbrance shall be subject hereto and to any other documents which
evidence or secure the Loan, and, if a transfer, any such transferee
shall assume all of Mortgagor's obligations hereunder and thereunder
and agree to be bound by all provisions and perform all obligations
contained herein and therein; consent to one such transfer or
encumbrance shall not be deemed to be a waiver of the right to require
consent to future or successive transfers or encumbrances);
then and in every such case:
I. During the continuance of any such Event of Default,
Mortgagee, by notice to Mortgagor, may declare the entire principal of
the Note then outstanding (if not then due and payable), and all
accrued and unpaid interest and other sums in respect thereof, to be
due and payable immediately, and upon any such declaration the
principal of the Note and said accrued and unpaid interest and other
sums shall become and be immediately due and payable, anything herein
or in the Note (other than Section 3.08 hereof, the provisions thereof
limiting interest payable thereunder to the maximum amount permitted by
applicable law) to the contrary notwithstanding.
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II. During the continuance of any such Event of Default,
Mortgagee personally, or by its agents or attorneys, may enter into and
upon all or any part of the Premises, and each and every part thereof,
and is hereby given a right and license and appointed Mortgagor's
attorney-in-fact and exclusive agent to do so, and may exclude
Mortgagor, its agents and servants wholly therefrom; and having and
holding the same, may use, operate, manage and control the Premises and
conduct the business thereof, either personally or by its
superintendents, managers, agents, servants, attorneys or receivers;
and upon every such entry, Mortgagee, at the expense of the Mortgaged
Property, from time to time, either by purchase, repairs or
construction, may maintain and restore the Mortgaged Property, whereof
it shall become possessed as aforesaid; may complete the construction
of the Improvements and in the course of such completion may make such
changes in the contemplated Improvements as Mortgagee may deem
desirable and may insure the same; and likewise, from time to time, at
the expense of the Mortgaged Property, Mortgagee may make all necessary
or proper repairs, renewals and replacements and such useful
alterations, additions, betterments and improvements thereto and
thereon as to it may seem advisable; and in every such case Mortgagee
shall have the right to manage and operate the Mortgaged Property and
to carry on the business thereof and exercise all rights and powers of
Mortgagor with respect thereto either in the name of Mortgagor or
otherwise as it shall deem best; and Mortgagee shall be entitled to
collect and receive the Rents and every part thereof, all of which
shall for all purposes constitute property of Mortgagor; and in
furtherance of such right Mortgagee may collect the rents payable under
all leases of the Premises directly from the lessees thereunder upon
notice to each such lessee that an Event of Default exists hereunder
accompanied by a demand on such lessee for the payment to Mortgagee of
all rents due and to become due under its lease, and Mortgagor FOR THE
BENEFIT OF MORTGAGEE AND EACH SUCH LESSEE hereby covenants and agrees
that the lessee shall be under no duty to question the accuracy of
Mortgagee's statement of default and shall unequivocally be authorized
to pay said rents to Mortgagee without regard to the truth of
Mortgagee's statement of default and notwithstanding notices from
Mortgagor disputing the existence of an Event of Default such that the
payment of rent by the lessee to Mortgagee pursuant to such a demand
shall constitute performance in full of the lessee's obligation under
the lease for the payment of rents by the lessee to Mortgagor; and
after deducting the expenses of conducting the business thereof and of
all maintenance, repairs, renewals, replacements, alterations,
additions, betterments and improvements and amounts necessary to pay
for taxes, assessments, insurance and prior or other proper charges
upon the Mortgaged Property or any part thereof, as well as just and
reasonable compensation for the services of Mortgagee and for all
attorneys, counsel, agents, clerks, servants and other employees by it
engaged and employed, Mortgagee shall apply the moneys arising as
aforesaid, first, to the payment of the principal of the Note and the
interest thereon, when and as the same shall become payable and in such
order and proportions as Mortgagee shall elect and second, to the
payment of any other sums required to be paid by Mortgagor hereunder.
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III. Mortgagee, with or without entry, personally or by its
agents or attorneys, insofar as applicable, may:
(1) sell the Mortgaged Property to the extent permitted and
pursuant to the procedures provided by law, and all estate,
right, title and interest, claim and demand therein, and right of
redemption thereof, at one (1) or more sales as an entity or in
parcels or parts, and at such time and place upon such terms and
after such notice thereof as may be required or permitted by law;
or
(2) institute proceedings for the complete or partial
foreclosure hereof; or
(3) take such steps to protect and enforce its rights
whether by action, suit or proceeding in equity or at law for the
specific performance of any covenant, condition or agreement in
the Note or herein, or in aid of the execution of any power
herein granted, or for any foreclosure hereunder, or for the
enforcement of any other appropriate legal or equitable remedy or
otherwise as Mortgagee shall elect.
Section 2.02. Other Matters Concerning Sales. (a) Mortgagee may adjourn
from time to time any sale by it to be made hereunder or by virtue hereof by
announcement at the time and place appointed for such sale or for such adjourned
sale or sales; and, except as otherwise provided by any applicable provision of
law, Mortgagee, without further notice or publication, may make such sale at the
time and place to which the same shall be so adjourned.
(b) Upon the completion of any sale or sales made by Mortgagee under or
by virtue of this Article II, Mortgagee, or an officer of any court empowered to
do so, shall execute and deliver to the accepted purchaser or purchasers a good
and sufficient instrument or instruments conveying, assigning and transferring
all estate, right, title and interest in and to the property and rights sold.
Mortgagee is hereby appointed the true and lawful attorney irrevocable of
Mortgagor, in its name and stead, to make all necessary conveyances,
assignments, transfers and deliveries of the Mortgaged Property and rights so
sold and for that purpose Mortgagee may execute all necessary instruments of
conveyance, assignment and transfer, and may substitute one or more persons with
like power, Mortgagor hereby ratifying and confirming all that its said attorney
or such substitute or substitutes shall lawfully do by virtue hereof.
Nevertheless, Mortgagor, if requested by Mortgagee, shall ratify and confirm any
such sale or sales by executing and delivering to Mortgagee or to such purchaser
or purchasers all such instruments as may be advisable, in the judgment of
Mortgagee, for the purpose, and as may be designated in such request. Any such
sale or sales made under or by virtue of this Article II, whether made under the
power of sale herein granted or under or by virtue of judicial proceedings or of
a judgment or decree of foreclosure and sale, shall operate to divest all the
estate, right, title, interest, claim and demand whatsoever, whether at law or
in equity, of Mortgagor in and to the properties and rights so sold, and shall
be a perpetual bar both at
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law and in equity against Mortgagor and against any and all persons claiming or
who may claim the same, or any part thereof from, through or under Mortgagor.
(c) In the event of any sale or sales made under or by virtue of this
Article II (whether made under the power of sale herein granted or under or by
virtue of judicial proceedings or of a judgment or decree of foreclosure and
sale), the entire principal of, and interest and other sums on, the Note, if not
previously due and payable, and all other sums required to be paid by Mortgagor
pursuant hereto, immediately thereupon shall, anything in any of said documents
(other than Section 3.08 hereof) to the contrary notwithstanding, become due and
payable.
(d) The purchase money, proceeds or avails of any sale or sales made
under or by virtue of this Article II, together with any other sums which then
may be held by Mortgagee hereunder, whether under the provisions of this Article
II or otherwise, shall be applied as follows:
First: To the payment of the costs and expenses of such sale,
including reasonable compensation to Mortgagee, its agents and counsel,
and of any judicial proceedings wherein the same may be made, and of
all expenses, liabilities and advances made or incurred by Mortgagee
hereunder, together with interest at the Default Rate on all advances
made by Mortgagee, and of all taxes, assessments or other charges,
except any taxes, assessments or other charges subject to which the
Mortgaged Property shall have been sold.
Second: To the payment of the whole amount then due, owing or
unpaid upon the Note for principal and interest, with interest on the
unpaid principal at the Default Rate from and after the happening of
any Event of Default described in clause (a) of Section 2.01 from the
due date of any such payment of principal until the same is paid, in
such order and amounts as Mortgagee may elect.
Third: To the payment of any other sums required to be paid
by Mortgagor pursuant to any provision hereof or of the Note, including
all expenses, liabilities and advances made or incurred by Mortgagee
hereunder or in connection with the enforcement hereof, together with
interest at the Default Rate on all such advances.
Fourth: To the payment of the surplus, if any, to whomsoever
may be lawfully entitled to receive the same.
(e) Upon any sale or sales made under or by virtue of this Article II,
whether made under the power of sale herein granted or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale,
Mortgagee may bid for and acquire the Mortgaged Property or any part thereof and
in lieu of paying cash therefor may make settlement for the purchase price by
crediting upon the indebtedness secured hereby the net sales price after
deducting therefrom the expenses of the sale and the costs of the action and any
other sums which Mortgagee is authorized to deduct hereunder.
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Section 2.03. Payment of Amounts Due. (a) In case an Event of Default
described in clause (a) of Section 2.01 shall have happened and be continuing,
then, upon demand of Mortgagee, Mortgagor will pay to Mortgagee the whole amount
which then shall have become due and payable on the Note, for principal or
interest or both, as the case may be, and after the happening of said Event of
Default will also pay to Mortgagee interest at the Default Rate on the then
unpaid principal of the Note, and the sums required to be paid by Mortgagor
pursuant to any provision hereof, and in addition thereto such further amount as
shall be sufficient to cover the costs and expenses of collection, including
reasonable compensation to Mortgagee, its agents and counsel and any expenses
incurred by Mortgagee hereunder. In the event Mortgagor shall fail forthwith to
pay all such amounts upon such demand, Mortgagee shall be entitled and empowered
to institute such action or proceedings at law or in equity as may be advised by
its counsel for the collection of the sums so due and unpaid, and may prosecute
any such action or proceedings to judgment or final decree, and may enforce any
such judgment or final decree against Mortgagor and collect, out of the property
of Mortgagor wherever situated, as well as out of the Mortgaged Property, in any
manner provided by law, moneys adjudged or decreed to be payable.
(b) Mortgagee shall be entitled to recover judgment as aforesaid either
before, after or during the pendency of any proceedings for the enforcement of
the provisions hereof; and the right of Mortgagee to recover such judgment shall
not be affected by any entry or sale hereunder, or by the exercise of any other
right, power or remedy for the enforcement of the provisions hereof, or the
foreclosure of the lien hereof; and in the event of a sale of the Mortgaged
Property, and of the application of the proceeds of sale, as herein provided, to
the payment of the debt hereby secured, Mortgagee shall be entitled to enforce
payment of, and to receive all amounts then remaining due and unpaid upon, the
Note, and to enforce payment of all other charges, payments and costs due
hereunder or otherwise in respect of the Loan, and shall be entitled to recover
judgment for any portion of the debt remaining unpaid, with interest at the
Default Rate. In case of proceedings against Mortgagor in insolvency or
bankruptcy or any proceedings for its reorganization or involving the
liquidation of its assets, then Mortgagee shall be entitled to prove the whole
amount of principal, interest and other sums due upon the Note to the full
amount thereof, and all other payments, charges and costs due hereunder or
otherwise in respect of the Loan, without deducting therefrom any proceeds
obtained from the sale of the whole or any part of the Mortgaged Property,
provided, however, that in no case shall Mortgagee receive, from the aggregate
amount of the proceeds of the sale of the Mortgaged Property and the
distribution from the estate of Mortgagor, a greater amount than such principal
and interest and such other payments, charges and costs.
(c) No recovery of any judgment by Mortgagee and no levy of an
execution under any judgment upon the Mortgaged Property or upon any other
property of Mortgagor shall affect in any manner or to any extent, the lien
hereof upon the Mortgaged Property or any part thereof, or any liens, rights,
powers or remedies of Mortgagee hereunder, but such liens, rights, powers and
remedies of Mortgagee shall continue unimpaired as before.
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(d) Any moneys thus collected by Mortgagee under this Section 2.03
shall be applied by Mortgagee in accordance with the provisions of clause (d) of
Section 2.02.
Section 2.04. Actions; Receivers. After the happening of any Event of
Default and immediately upon the commencement of any action, suit or other legal
proceedings by Mortgagee to obtain judgment for the principal of, or interest
on, the Note and other sums required to be paid by Mortgagor pursuant to any
provision hereof, or of any other nature in aid of the enforcement of the Note
or hereof, Mortgagor will (a) waive the issuance and service of process and
enter its voluntary appearance in such action, suit or proceeding and (b) if
required by Mortgagee, consent to the appointment of a receiver or receivers of
all or part of the Mortgaged Property and of any or all of the Rents in respect
thereof. After the happening of any Event of Default and during its continuance,
or upon the commencement of any proceedings to foreclose this Mortgage or to
enforce the specific performance hereof or in aid thereof or upon the
commencement of any other judicial proceeding to enforce any right of Mortgagee,
Mortgagee shall be entitled, as a matter of right, if it shall so elect, without
the giving of notice to any other party and without regard to the adequacy or
inadequacy of any security for the indebtedness secured hereby, forthwith either
before or after declaring the unpaid principal of the Note to be due and
payable, to the appointment of such a receiver or receivers. Such appointment
may be made either before or after any foreclosure sale without regard to the
solvency or insolvency of Mortgagor at the time of application for such receiver
and without regard to the then value of the Premises or whether the same shall
be then occupied as a homestead or not and Mortgagee may be appointed as such
receiver. Such receiver shall have (i) power to collect the rents, issues and
profits of the Premises and, in case of a foreclosure sale and a deficiency,
during the full statutory period of redemption, whether there be redemption or
not, as well as during any further times when Mortgagor, except for the
intervention of such receiver, would be entitled to collect such rents, issues
and profits, (ii) power to extend or modify any then existing leases and to make
new leases, which extensions, modifications and new lease may provide for terms
to expire, or for options to lessees to extend or renew terms to expire, beyond
the maturity date of the indebtedness secured hereby and beyond the date of the
issuance of a deed or deeds to a purchaser or purchasers at a foreclosure sale,
it being understood and agreed that any such leases, and the options or other
such provisions to be contained therein, shall be binding upon Mortgagor and all
persons whose interest in the Mortgaged Property are subject to the lien hereof
and upon the purchaser or purchasers at any foreclosure sale, notwithstanding
any redemption from sale, discharge of the indebtedness secured hereby,
satisfaction of any foreclosure decree, or issuance of any certificate of sale
or deed to any purchaser and (iii) all other powers which may be necessary or
are usual in such cases for the protection, possession, control, management and
operation of the Mortgaged Property during the whole of said period. The court
from time to time may authorize the receiver to apply the net income in his
hands in payment in whole or in part of: (x) the indebtedness secured hereby, or
by any decree foreclosing this Mortgage, or any tax, special assessment or other
lien which may be or become superior to the lien hereof or of such decree,
provided such application is made prior to foreclosure sale and (y) the
deficiency in case of a foreclosure sale and deficiency.
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In connection with the foregoing it is understood and agreed that
Mortgagor's failure to pay taxes and/or assessments against the Premises, or any
installment thereof, or any insurance premiums upon the policies required by
this Mortgage, shall constitute waste as provided by Act 236 of the Public Acts
of 1961 of Michigan (Revised Judicature Act), Section 600.2927, as and if
amended from time to time, or any successor statute; and Mortgagor agrees to and
hereby consents to the appointment of a receiver under said statute should
Mortgagee elect to resort to its remedies thereunder.
Section 2.05. Mortgagee's Right to Possession. Notwithstanding the
appointment of any receiver, liquidator or trustee of Mortgagor, or of any of
its property, or of the Mortgaged Property or any part thereof, Mortgagee shall
be entitled to retain possession and control of all property now or hereafter
held hereunder.
Section 2.06. Remedies Cumulative. No remedy herein conferred upon or
reserved to Mortgagee is intended to be exclusive of any other remedy or
remedies, and each and every such remedy shall be cumulative, and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law, in equity or by statute. No delay or omission of Mortgagee to exercise any
right or power accruing upon any Event of Default shall impair any such right or
power, or shall be construed to be a waiver of any such Event of Default or any
acquiescence therein; and every power and remedy given hereby to Mortgagee may
be exercised from time to time as often as may be deemed expedient by Mortgagee.
Nothing herein or in the Note shall affect the obligation of Mortgagor to pay
the principal of, and interest and other sums on, the Note in the manner and at
the time and place therein respectively expressed.
Section 2.07. Moratorium Laws; Right of Redemption. Mortgagor will not
at any time insist upon, or plead, or in any manner whatever claim or take any
benefit or advantage of any stay or extension or moratorium law, any exemption
from execution or sale of the Mortgaged Property or any part thereof, wherever
enacted, now or at any time hereafter in force, which may affect the covenants
and terms of performance hereof, nor claim, take or insist upon any benefit or
advantage of any law now or hereafter in force providing for the valuation or
appraisal of the Mortgaged Property, or any part thereof, prior to any sale or
sales thereof which may be made pursuant to any provision herein, or pursuant to
any decree, judgment or order of any court of competent jurisdiction; nor, after
any such sale or sales, claim or exercise any right under any statute heretofore
or hereafter enacted to redeem the property so sold or any part thereof and
Mortgagor hereby expressly waives all benefit or advantage of any such law or
laws, and covenants not to hinder, delay or impede the execution of any power
herein granted or delegated to Mortgagee, but to suffer and permit the execution
of every power as though no such law or laws had been made or enacted.
Mortgagor, for itself and all who may claim under it, waives, to the extent that
it lawfully may, all right to have the Mortgaged Property marshaled upon any
foreclosure hereof. Mortgagor hereby waives any and all rights of redemption
from sale under any order or decree of foreclosure of this Mortgage on behalf of
Mortgagor and all persons beneficially interested therein, and each and every
person except decree or judgment creditors of Mortgagor in its representative
capacity acquiring any interest in or title to the Premises subsequent to the
date of this Mortgage.
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Section 2.08. Regarding Defenses. No action for the enforcement of the
lien or any provision hereof shall be subject to any defense which would not be
good and available to the party interposing the same in an action at law upon
the Note.
Section 2.09. Expenses as Indebtedness. In any suit to foreclose the
lien hereof (including any partial foreclosure) or to enforce any other remedy
of Mortgagee under this Mortgage or the Note or other Loan documents or
otherwise in respect of the Loan, there shall be allowed and included as
additional indebtedness in the decree for sale or other judgment or decree all
expenditures and expenses which may be paid or incurred by or on behalf of
Mortgagee for attorneys' fees, appraiser's fees, outlays for documentary and
expert evidence, stenographer's charges, publication costs, and costs (which may
be estimated as to items to be expended after entry of the decree) of procuring
all such abstracts of title, title searches and examinations, title insurance
policies, Torrens certificates, and similar data and assurances with respect to
title and value as Mortgagee may deem reasonably necessary either to prosecute
such suit or to evidence to bidders at any sale which may be had pursuant to
such decree the true condition of the title to or the value of the Premises.
Section 2.10. Mortgagee's Rights Concerning Application of Amounts
Collected. Notwithstanding anything to the contrary contained herein, upon the
occurrence of an Event of Default, Mortgagee may apply, to the extent permitted
by law, any amount collected hereunder to principal, interest or any other sum
due under the Note or otherwise in respect of the Loan in such order and
amounts, and to such obligations, as Mortgagee shall elect in its sole and
absolute discretion.
ARTICLE III
MISCELLANEOUS
Section 3.01. Assignment of Rents. This Mortgage is intended to
constitute a present, absolute and irrevocable assignment of all of the Rents
now or hereafter accruing, and Mortgagor, without limiting the generality of the
Granting Clause hereof, specifically hereby presently, absolutely and
irrevocably assigns all of the Rents now or hereafter accruing to Mortgagee. The
aforesaid assignment shall be effective immediately upon the execution hereof
and is not conditioned upon the occurrence of any Event of Default hereunder or
any other contingency or event, provided, however, that Mortgagee hereby grants
to Mortgagor the right and license to collect and receive the Rents as they
become due, and not in advance, so long as no Event of Default exists hereunder.
Immediately upon the occurrence of any such Event of Default, the foregoing
right and license shall be automatically terminated and of no further force or
effect. Nothing contained in this Section or elsewhere herein shall be construed
to make Mortgagee a mortgagee in possession unless and until Mortgagee actually
takes possession of the Mortgaged Property, nor to obligate Mortgagee to take
any action or incur any expense or discharge any duty or liability under or in
respect of any leases or other agreements relating to the Mortgaged Property or
any part thereof. The foregoing provisions of this Section and Mortgagee's
rights under this Mortgage generally, including, without limitation, under
clauses (v) or (viii) of the Granting Clause, are in
24
<PAGE>
addition to and not in lieu of Mortgagee's rights and benefits under Act 210 of
the Public Acts of Michigan of 1953, as amended, and under Act 228 of the Public
Acts of Michigan of 1925, as amended.
Section 3.02. Security Agreement. This Mortgage constitutes a security
agreement under the applicable Uniform Commercial Code with respect to the
Chattels and such other of the Mortgaged Property which is personal property. In
addition to the rights and remedies granted to Mortgagee by other applicable law
or hereby, Mortgagee shall have all of the rights and remedies with respect to
the Chattels and such other personal property as are granted to a secured party
under the applicable Uniform Commercial Code. Upon Mortgagee's request after an
Event of Default, Mortgagor shall promptly and at its expense assemble the
Chattels and such other personal property and make the same available to
Mortgagee at a convenient place acceptable to Mortgagee. Mortgagor, after an
Event of Default, shall pay to Mortgagee on demand, with interest at the Default
Rate, any and all expenses, including attorneys' fees, incurred by Mortgagee in
protecting its interest in the Chattels and such other personal property and in
enforcing its rights with respect thereto. Any notice of sale, disposition or
other intended action by Mortgagee with respect to the Chattels and such other
personal property sent to Mortgagor in accordance with the provisions hereof at
least five (5) days prior to such action shall constitute reasonable notice to
Mortgagor. The proceeds of any such sale or disposition, or any part thereof,
may be applied by Mortgagee to the payment of the indebtedness secured hereby in
such order and proportions as Mortgagee in its discretion shall deem
appropriate.
Section 3.03. Application of Certain Payments. In the event that all or
any part of the Mortgaged Property is encumbered by one or more mortgages held
by Mortgagee, Mortgagor hereby irrevocably authorizes and directs Mortgagee to
apply any payment received by Mortgagee in respect of any note secured hereby or
by any other such mortgage to the payment of such of said notes as Mortgagee
shall elect in its sole and absolute discretion, and Mortgagee shall have the
right to apply any such payment in reduction of principal and/or interest and in
such order and amounts as Mortgagee shall elect in its sole and absolute
discretion without regard to the priority of the mortgage securing the note so
repaid or to contrary directions from Mortgagor or any other party.
Section 3.04. Severability. In the event any one or more of the
provisions contained herein or in the Note shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof, but this Mortgage
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein or therein.
Section 3.05. Modifications and Waivers in Writing. No provision hereof
may be changed, waived, discharged or terminated orally or by any other means
except an instrument in writing signed by the party against whom enforcement of
the change, waiver, discharge or termination is sought. Any agreement hereafter
made by Mortgagor and Mortgagee relating hereto shall be superior to the rights
of the holder of any intervening or subordinate lien or encumbrance.
25
<PAGE>
Section 3.06. Notices. All notices, demands, consents, approvals and
statements required or permitted hereunder shall be in writing and shall be
deemed to have been sufficiently given or served for all purposes when presented
personally, three (3) days after mailing by registered or certified mail,
postage prepaid, or one (1) day after delivery to a nationally recognized
overnight courier service providing evidence of the date of delivery, if to
Mortgagor at its address stated above, , with a copy to Thomas E. Davis, Esq.,
Jenkens & Gilchrist, 1445 Ross Avenue, Suite 3200, Dallas, Texas 75202-2799, and
if to Mortgagee to its address stated above, or at such other address of which a
party shall have notified the party giving such notice in accordance with the
provisions of this Section.
Section 3.07. Successors and Assigns. All of the grants, covenants,
terms, provisions and conditions herein shall run with the land and shall apply
to, bind and inure to the benefit of, the respective successors and assigns of
Mortgagor and Mortgagee.
Section 3.08. Limitation on Interest. Anything herein or in the Note to
the contrary notwithstanding, the obligations of Mortgagor hereunder and under
the Note shall be subject to the limitation that payments of interest shall not
be required to the extent that receipt of any such payment by Mortgagee would be
contrary to provisions of law applicable to Mortgagee limiting the maximum rate
of interest that may be charged or collected by Mortgagee.
Section 3.09. Counterparts. This Mortgage may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original; and all such counterparts shall together constitute but one
and the same mortgage.
Section 3.10. Substitute Mortgages. Mortgagor and Mortgagee shall, upon
their mutual agreement to do so, execute such documents as may be necessary in
order to effectuate the modification hereof, including the execution of
substitute mortgages, so as to create two (2) or more liens on the Mortgaged
Property in such amounts as may be mutually agreed upon but in no event to
exceed, in the aggregate, the unpaid principal portion of the Mortgage Amount;
in such event, Mortgagor covenants and agrees to pay the reasonable fees and
expenses of Mortgagee and its counsel in connection with any such modification.
Section 3.11. Mortgagee's Sale of Interests in Loan. Mortgagor
recognizes that Mortgagee may sell and transfer interests in the Loan to one or
more participants or assignees and that all documentation, financial statements,
appraisals and other data, or copies thereof, relevant to Mortgagor or the Loan,
may be exhibited to and retained by any such participant or assignee or
prospective participant or assignee.
Section 3.12. No Merger of Interests. Unless expressly provided
otherwise, in the event that ownership hereof and title to the fee and/or
leasehold estates in the Premises encumbered hereby shall become vested in the
same person or entity, this Mortgage shall not merge in said title but shall
continue to be and remain a valid and subsisting lien on said estates in the
Premises for the amount secured hereby.
26
<PAGE>
Section 3.13. No Credit For Taxes. Mortgagor shall not claim or demand
or be entitled to receive any credit or credits on the principal indebtedness to
be secured by this Mortgage, or on the interest payable thereon, for any part of
the taxes assessed against the Premises and no deduction shall be made or
claimed from the taxable value of the Premises by reason of this Mortgage.
Section 3.14. No Consent to Contracts. Mortgagee does not consent to
any contract for labor or materials, and all contracts for labor or materials
that will be let by Mortgagor shall at all times be subordinate to the lien of
this Mortgage.
Section 3.15. Business Loan. Mortgagor represents and agrees that the
obligations secured hereby: (a) constitute a business loan and (b) are exempted
transactions under the federal Truth-in-Lending Act (15 U.S.C. Section 1601, et
seq.). None of the forgoing is intended, however, to vitiate or in any way
detract from the intention of Mortgagor and Mortgagee to have the laws of the
State of Tennessee apply in all respects to the construction and enforcement of
the Note, as said intention is expressly set forth therein.
Section 3.16. CERTAIN WAIVERS. MORTGAGOR EXPRESSLY AND UNCONDITIONALLY
WAIVES BY EXECUTION HEREOF, AND MORTGAGEE WAIVES BY ACCEPTANCE HEREOF, IN
CONNECTION WITH ANY FORECLOSURE OR SIMILAR ACTION OR PROCEDURE BROUGHT BY
MORTGAGEE ASSERTING AN EVENT OF DEFAULT UNDER CLAUSE (a) OF SECTION 2.01 OF THIS
MORTGAGE, ANY AND EVERY RIGHT IT MAY HAVE TO A TRIAL BY JURY.
Section 3.17. GOVERNING LAW. THE PERFORMANCE REQUIRED BY THIS MORTGAGE
SHALL, INSOFAR AS IS POSSIBLE, BE RENDERED TO THE MORTGAGEE AT ITS OFFICE IN
TENNESSEE. MORTGAGOR AND MORTGAGEE INTEND THAT THE VALIDITY AND CONSTRUCTION OF
THE OBLIGATIONS SECURED BY THIS MORTGAGE BE GOVERNED BY THE LAWS OF THE STATE OF
TENNESSEE INCLUDING ALL OBLIGATIONS AND LIABILITIES HEREUNDER WITH RESPECT TO
THE PAYMENT OF INTEREST OR ANY OTHER COMPENSATION FOR THE USE, FORBEARANCE OR
DETENTION OF MONEY. THIS MORTGAGE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TENNESSEE, WITHOUT REFERENCE TO THE CONFLICTS OF
LAW PRINCIPLES OF THAT STATE, EXCEPT ONLY TO THE EXTENT THAT MICHIGAN LAW
EXPRESSLY PROVIDES THAT IT GOVERNS AND THAT A CONTRARY AGREEMENT BY THE PARTIES
IS INEFFECTIVE AND EXCEPT THAT THE LAW OF THE STATE OF MICHIGAN SHALL APPLY TO
ANY AND ALL ACTS WITH RESPECT TO THE CREATION AND PRIORITY OF THE LIEN OF THIS
MORTGAGE AND ASSIGNMENT OF LEASES AND RENTS ON THE MORTGAGED PROPERTY HEREBY
EVIDENCED AND ON THE MORTGAGED PROPERTY. MORTGAGOR AND MORTGAGEE COVENANT AND
AGREE TO TAKE ANY AND ALL ACTION WHICH MAY BE NECESSARY UNDER MICHIGAN LAW WITH
RESPECT TO FORECLOSURE UNDER THE LAWS OF
27
<PAGE>
THE STATE OF MICHIGAN. SHOULD ANY OBLIGATION OR REMEDY UNDER THIS MORTGAGE BE
INVALID OR UNENFORCEABLE UNDER THE LAWS PROVIDED HEREIN TO GOVERN, THE LAWS OF
ANOTHER STATE WHOSE LAWS CAN VALIDATE AND APPLY TO THIS MORTGAGE SHALL APPLY.
28
<PAGE>
IN WITNESS WHEREOF, this Mortgage has been duly executed and delivered
by Mortgagor.
APPLE SUITES, INC.,
Witness: a Virginia corporation
/s/ Deanna Jost By /s/ Glade M. Knight [L.S.]
- --------------------------- ----------------------------
Name: Name: Glade M. Knight
Title: President
/s/ Tina R. Hansen
- ---------------------------
Name:
APPLE SUITES MANAGEMENT, INC.,
Witness: a Virginia corporation
/s/ Deanna Jost By /s/ Glade M. Knight [L.S.]
- --------------------------- ----------------------------
Name: Name: Glade M. Knight
Title: President
/s/ Tina R. Hansen
- ---------------------------
Name:
<PAGE>
STATE OF TEXAS
COUNTY OF DALLAS
THIS INSTRUMENT was acknowledged before me on the 20th day of
December, 1999, by Glade M. Knight, President of Apple Suites, Inc., a Virginia
corporation, on behalf of said Apple Suites, Inc.
/s/ Deanna Jost
---------------------------------------------------
Notary Public, State of Texas
Printed Name: Deanna Jost
Commission Expires: April 8, 2003
STATE OF TEXAS
COUNTY OF DALLAS
THIS INSTRUMENT was acknowledged before me on the 20th day of
December, 1999, by Glade M. Knight, President of Apple Suites Management, Inc.,
a Virginia corporation, on behalf of said Apple Suites Management, Inc.
/s/ Deanna Jost
------------------------------------------------------
Notary Public, State of Texas
Printed Name: Deanna Jost
Commission Expires: April 8, 2003
<PAGE>
[Detroit/Warren]
SCHEDULE A
LEGAL DESCRIPTION OF PREMISES
LAND IN THE CITY OF WARREN, MACOMB COUNTY, MICHIGAN, DESCRIBED AS: Part of the
Northwest 1/4 of Section 10, Town 1 North, Range 12 East, City of Warren, Macomb
County, Michigan being more particularly described as: Beginning at a point on
the east line of Civic Center Blvd., said point located north 89 degrees 39
minutes 10 seconds east along the east and west 1/4 line of said Section 10, a
distance of 1024.74 feet and north 00 degrees 33 minutes east along said east
line 280.14 feet and on a curve to the left (radius = 281.49 feet long chord
bears north 19 degrees 50 minutes 55 seconds west 196.22 feet) a distance of
200.43 feet from the west 1/4 corner of said Section 10; thence continuing on a
curve to the left (radius = 281.49 FEET LONG CHORD BEARS NORTH 42 DEGREES 29
MINUTES 09 SECONDS WEST 21.99 feet) a distance of 22.0 feet; thence north 45
degrees 16 minutes 30 seconds east 118.52 feet; thence north 03 degrees 25
minutes 47 seconds east 106.51 feet thence north 00 degrees 33 minutes east
310.00 feet; thence south 89 degrees 27 minutes east 176.39 feet; thence south
23 degrees 33 minutes west 97.22 feet; thence on a curve to the right (radius =
225.0 FEET, LONG CHORD BEARS SOUTH 38 DEGREES 40 MINUTES 08 SECONDS EAST 285.13
feet) a distance of 308.80 feet; thence South 00 degrees 38 minutes 58 seconds
west 144.40 feet; thence North 89 degrees 21 minutes 02 seconds West 286.44
feet; thence on a curve to the left (radius = 105.0 feet long chord bears South
67 degrees 57 minutes 44 seconds West 80.99 feet) a distance of 83.14 feet;
thence south 45 degrees 16 minutes 30 seconds west 44.0 feet to the point of
beginning.
Parcel Indent. # (Part of) 13-10-151-014
Exhibit 4.6
[Utah]
[second lien]
================================================================================
Date: December 22, 1999
FEE AND LEASEHOLD DEED OF TRUST, ASSIGNMENT OF LEASES
AND RENTS AND SECURITY AGREEMENT AND FIXTURE FILING
("this Deed")
FROM
APPLE SUITES, INC.,
a Virginia corporation
("Fee Owner")
AND
APPLE SUITES MANAGEMENT, INC.,
a Virginia corporation
("Lessee")
Address of Fee Owner and Lessee: 306 East Main Street
Richmond, Virginia 23219
Attention: Glade M. Knight
TO
[LAWYERS TITLE REALTY SERVICES, INC.]
("Trustee")
Address of Trustee:
-------------------------
-------------------------
-------------------------
FOR THE BENEFIT OF
PROMUS HOTELS, INC.,
a Delaware corporation
("Beneficiary")
Address of Beneficiary: 755 Crossover Lane
Memphis, Tennessee 38117
Note Amount: $4,384,500
================================================================================
This instrument prepared by, and after recording please return to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019-6092
Attention: Graham R. Hone, Esq.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITAL.............................................................................................i
CERTAIN DEFINITIONS AND RULES OF CONSTRUCTION.......................................................1
GRANTING CLAUSE.....................................................................................3
ARTICLE I COVENANTS OF GRANTOR......................................................4
Section 1.01. (a) Warranty of Title; Power and Authority..............................4
(b) Hazardous Materials.................................................5
(c) Flood Hazard Area...................................................5
Section 1.02. (a) Further Assurances..................................................6
(b) Information Reporting and Back-up Withholding.......................6
Section 1.03. (a) Filing and Recording of Documents...................................6
(b) Filing and Recording Fees and Other Charges.........................6
Section 1.04. Payment and Performance of Loan Documents.................................7
Section 1.05. Maintenance of Existence; Compliance with Laws............................7
Section 1.06. After-Acquired Property...................................................7
Section 1.07. (a) Payment of Taxes and Other Charges..................................7
(b) Payment of Mechanics and Materialmen................................8
(c) Good Faith Contests.................................................8
Section 1.08. Taxes on Trustee or Beneficiary...........................................8
Section 1.09. Insurance.................................................................9
Section 1.10. Protective Advances by Beneficiary.......................................12
Section 1.11. (a) Visitation and Inspection..........................................12
(b) Financial and Other Information....................................12
(c) Estoppel Certificates..............................................13
Section 1.12. Maintenance of Premises and Improvements.................................13
Section 1.13. Condemnation.............................................................13
Section 1.14. Leases...................................................................14
Section 1.15. Premises Documents.......................................................14
Section 1.16. Trust Fund; Lien Laws....................................................15
Section 1.17. Expenses of Trustee......................................................15
ARTICLE II EVENTS OF DEFAULT AND REMEDIES...........................................15
Section 2.01. Events of Default and Certain Remedies...................................15
Section 2.02. Other Matters Concerning Sales...........................................19
Section 2.03. Payment of Amounts Due...................................................21
Section 2.04. Actions; Receivers.......................................................22
Section 2.05. Beneficiary's Right to Possession........................................22
Section 2.06. Remedies Cumulative......................................................22
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
Section 2.07. Moratorium Laws; Right of Redemption.....................................23
Section 2.08. Intentionally Omitted....................................................23
Section 2.09. Beneficiary's Rights Concerning Application of Amounts Collected.........23
ARTICLE III CONCERNING TRUSTEE.......................................................23
Section 3.01. Trustee's Performance....................................................23
Section 3.02. Resignation by Trustee...................................................23
Section 3.03. Removal of Trustee; Successors...........................................24
ARTICLE IV MISCELLANEOUS............................................................24
Section 4.01. Assignment of Rents......................................................24
Section 4.02. Security Agreement and Fixture Filing....................................24
Section 4.03. Application of Certain Payments..........................................25
Section 4.04. Severability.............................................................25
Section 4.05. Modifications and Waivers in Writing.....................................25
Section 4.06. Notices..................................................................26
Section 4.07. Successors and Assigns...................................................26
Section 4.08. Limitation on Interest...................................................26
Section 4.09. Counterparts.............................................................26
Section 4.10. Substitute Deeds.........................................................26
Section 4.11. Beneficiary's Sale of Interests in Loan..................................26
Section 4.12. No Merger of Interests...................................................27
Section 4.13. CERTAIN WAIVERS..........................................................27
Section 4.14. GOVERNING LAW............................................................27
</TABLE>
(ii)
<PAGE>
RECITAL
Beneficiary, Hampton Inns, Inc. and Promus Hotels Florida, Inc., as
sellers, and Fee Owner, as buyer, have heretofore entered into an Agreement of
Sale dated as of November 22, 1999 (as amended, the "Agreement of Sale") for the
purchase by Fee Owner on the date hereof of certain premises described therein
(the "New Premises"). Fee Owner has acquired and is the owner of the premises
described in SCHEDULE A attached hereto and made a part hereof and Lessee is the
owner of a leasehold interest therein. Lessee acknowledges that it will derive
substantial benefit from the making of the loan contemplated herein and further
acknowledges that the obligation of Beneficiary to make such loan is conditioned
upon, among other things, the execution and delivery by Lessee of this Mortgage.
In connection with the purchase of the New Premises by Fee Owner from
Beneficiary (or its affiliates) pursuant to the Agreement of Sale, Fee Owner
will borrow $4,384,500 from Beneficiary and has executed and delivered to
Beneficiary its note, dated the date hereof, obligating it to pay the sum of
$4,384,500, with interest thereon as therein provided (said note, as the same
may hereafter be amended, modified, extended, severed, assigned, renewed,
replaced or restated, hereinafter, the "Note"). In order to secure the payment
of the Note, Fee Owner and Lessee, as grantors, have duly authorized the
execution and delivery of this Deed. For purposes of this Deed, "Grantor" shall
mean Fee Owner and Lessee but only to the extent of their respective interests
in the Mortgaged Property (as herein defined) and their respective obligations
under the Note and Ground Lease.
CERTAIN DEFINITIONS AND RULES OF CONSTRUCTION
Grantor, Trustee and Beneficiary agree that, unless the context
otherwise specifies or requires, the following terms shall have the meanings
herein specified.
"Chattels" means all fixtures, furnishings, fittings, appliances,
apparatus, equipment, building materials and components, machinery and articles
of personal property, of whatever kind or nature, including any replacements,
proceeds or products thereof and additions thereto, other than those owned by
lessees, now or at any time hereafter intended to be or actually affixed to,
attached to, placed upon, or used in any way in connection with the complete and
comfortable use, enjoyment, development, occupancy or operation of the Premises,
and whether located on or off the Premises.
"Default Rate" means the rate (or, if more than one, the highest of the
rates) of interest per annum provided in the Note plus 5%, but in no event to
exceed the maximum rate allowed by law.
"Events of Default" means the events and circumstances described as
such in Section 2.01.
"Ground Lease" means the Master Hotel Lease Agreement dated as of
September 20, 1999 between Fee Owner and Lessee covering, among other
properties, the Premises described in SCHEDULE A, as the same may be amended,
supplemented or modified from time to time.
<PAGE>
"Hazardous Materials" means any pollutant, effluents, emissions,
contaminants, toxic or hazardous wastes, materials or substances, as any of
those terms are defined from time to time in or for the purposes of any relevant
environmental law, rule, regulation, code, permit, order, notice, demand letter
or other binding determination (hereinafter, "Environmental Laws") including,
without limitation, asbestos fibers and friable asbestos, polychlorinated
biphenyls and any petroleum or hydrocarbon-based products or derivatives, in
each case in amounts in violation of applicable Environmental Laws.
"Improvements" means all structures or buildings, and replacements
thereof, now or hereafter located upon the Premises, including all plant
equipment, apparatus, machinery and fixtures of every kind and nature whatsoever
forming part of said structures or buildings.
"lease" or "leases" means any lease or leases of all or any portion of
the Premises, whether affecting the fee or leasehold portion thereof.
"Loan" means the loan made by Beneficiary to Fee Owner evidenced by the
Note and secured hereby.
"Premises" means the premises described in SCHEDULE A, including the
leasehold interest therein created by the Ground Lease, and including all of the
easements, rights, privileges and appurtenances (including air or development
rights) thereunto belonging or in anywise appertaining, and all of the estate,
right, title, interest, claim or demand whatsoever of Grantor therein and in the
streets and ways adjacent thereto, either in law or in equity, in possession or
expectancy, now or hereafter acquired, and as used herein shall, unless the
context otherwise requires, be deemed to include the Improvements.
"Premises Documents" means all reciprocal easement or operating
agreements, declarations of covenants, conditions or restrictions, declarations
of condominium, developer's or utility agreements with any village, town, county
or other governmental authority, and any similar such agreements or declarations
now or hereafter affecting the Premises or any part thereof.
All terms of this Deed which are not defined above shall have the
meaning set forth elsewhere in this Deed.
Except as expressly indicated otherwise, when used in this Deed (i)
"or" is not exclusive, (ii) "hereunder", "herein", "hereof" and the like refer
to this Deed as a whole, (iii) "Article", "Section" and "Schedule" refer to
Articles, Sections and Schedules of this Deed, (iv) terms defined in the
singular have a correlative meaning when used in the plural and vice versa, (v)
a reference to a law or statute includes any amendment or modification to, or
replacement of, such law or statute and (vi) a reference to an agreement,
instrument or document means such agreement, instrument or document as the same
may be amended, modified or supplemented from time to time in accordance with
its terms and as permitted hereby and by the other documents executed or
delivered to Beneficiary in connection with the Loan. The cover page and all
Schedules hereto are
2
<PAGE>
incorporated herein and made a part hereof. Any table of contents and the
headings and captions herein are for convenience only and shall not affect the
interpretation or construction hereof.
GRANTING CLAUSE
NOW, THEREFORE, Grantor, in consideration of the premises and in order
to secure the payment of both the principal of, and the interest and any other
sums payable under, the Note or this Deed and the performance and observance of
all the provisions hereof and of the Note, hereby gives, grants, bargains,
sells, warrants, aliens, remises, releases, conveys, assigns, transfers,
mortgages, hypothecates, deposits, pledges, sets over and confirms unto Trustee,
all its estate, right, title and interest in, to and under any and all of the
following described property (hereinafter, the "Mortgaged Property") whether now
owned or held or hereafter acquired:
(i) the Premises;
(ii) the Improvements;
(iii) the Chattels;
(iv) the Premises Documents;
(v) all rents, royalties, issues, profits, revenue, income,
recoveries, reimbursements and other benefits of the Mortgaged Property
(hereinafter, the "Rents") and all leases of the Mortgaged Property or
portions thereof now or hereafter entered into and all right, title and
interest of Grantor thereunder, including, without limitation, cash or
securities deposited thereunder to secure performance by the lessees of
their obligations thereunder, whether such cash or securities are to be
held until the expiration of the terms of such leases or applied to one
or more of the installments of rent coming due immediately prior to the
expiration of such terms, and including any guaranties of such leases
and any lease cancellation, surrender or termination fees in respect
thereof, all subject, however, to the provisions of Section 4.01;
(vi) all (a) development work product prepared in connection
with the Premises, including, but not limited to, engineering,
drainage, traffic, soil and other studies and tests; water, sewer, gas,
electrical and telephone approvals, taps and connections; surveys,
drawings, plans and specifications; and subdivision, zoning and
platting materials; (b) building and other permits, rights, licenses
and approvals relating to the Premises; and (c) contracts and
agreements (including, without limitation, contracts with architects
and engineers, construction contracts and contracts for the maintenance
or management of the Premises), contract rights, logos, trademarks,
trade names, copyrights and other general intangibles used or useful in
connection with the ownership, operation or occupancy of the Premises
or any part thereof;
3
<PAGE>
(vii) all proceeds of the conversion, voluntary or
involuntary, of any of the foregoing into cash or liquidated claims,
including, without limitation, proceeds of insurance and condemnation
awards, and all rights of Grantor to refunds of real estate taxes and
assessments;
(viii) all revenue and income received by or on behalf of
Grantor resulting from the operation of the Premises as a hotel,
including all sums (1) paid by customers for the use of hotel rooms
located within the Premises, (2) derived from food and beverage
operations located within the Premises, (3) generated by other hotel
operations, including any parking, convention, sports and recreational
facilities and (4) business interruption insurance proceeds;
(ix) all accounts and accounts receivable, including all
present and future right to payment from any consumer credit or charge
card organization or entity (such as those organizations which sponsor
or administer the American Express, Carte Blanche, Discover Card,
Diners Club, Visa and Master Card) arising out of the leasing and
operation of, or the business conducted at or in relation to, all or
any part of the Premises; and
(x) any deposit, operating or other account including the
entire balance therein (now or hereafter existing) of Grantor
containing proceeds of the operation of the Premises with any banking
or financial institution and all money, instruments, securities,
documents, chattel paper, credits, demands, and any other property,
rights, or interests of Grantor relating to the operation of the
Premises which at any time shall come into the possession, custody or
control of any banking or financial institution.
TO HAVE AND TO HOLD unto Trustee, its successors and assigns forever.
IN TRUST, to secure the payment to Beneficiary of the principal of and
interest on the Note at the maturity thereof and all other sums due hereunder or
under the Note and the performance of all covenants and agreements herein and in
the Note, whereupon this Deed shall cease and be void and the Mortgaged Property
shall be released at the cost of Grantor.
ARTICLE I
COVENANTS OF GRANTOR
Grantor represents, except as known by Beneficiary or its affiliates to
the contrary, or disclosed to Beneficiary in connection with the sale of the
Mortgaged Property to Grantor, and Grantor covenants and agrees as follows:
Section 1.01. (a) Warranty of Title; Power and Authority. Grantor
warrants that, with respect to the fee interest in the Premises, it has a good
and marketable title to an indefeasible fee estate subject to no lien, charge or
encumbrance, that the Ground Lease is subject to no lien, charge or encumbrance
of any kind and is prior to all liens,
4
<PAGE>
charges and encumbrances whatsoever on the fee interest of the landlord
thereunder, except in either case such as are listed as exceptions to title in
the title policy insuring the lien hereof; and, Grantor further warrants that,
with respect to the leasehold interest in the Premises, that it is the owner of
a valid and subsisting interest as tenant under the Ground Lease, that the
Ground Lease is in full force and effect, there are no defaults thereunder and
no event has occurred or is occurring which after notice or passage of time or
both will result in such a default; that it owns the Chattels, all leases and
the Rents in respect of the Mortgaged Property and all other personal property
encumbered hereby free and clear of liens and claims; and Grantor warrants that
this Deed is and will remain a valid and enforceable lien on the Mortgaged
Property subject only to the exceptions referred to above. Grantor has full
power and lawful authority to subject the Mortgaged Property to the lien hereof
in the manner and form herein done or intended hereafter to be done. Grantor
will preserve such title, will preserve such leasehold estate created by the
Ground Lease and will forever warrant and defend the same to Trustee and
Beneficiary and will forever warrant and defend the validity and priority of the
lien hereof against the claims of all persons and parties whomsoever. Grantor
will perform or cause to be performed all of the covenants and conditions
required to be performed by it under the Ground Lease, will do all things
necessary to preserve unimpaired its rights thereunder, and will not (i) enter
into any agreement modifying or amending the Ground Lease that would reduce the
term of the Ground Lease, increase the amount of rent payable thereunder (except
as contemplated by the provisions of the Ground Lease) or have a material
adverse effect on the lien created by this Deed or the rights of Beneficiary
hereunder or (ii) for so long as the Ground Lease is in effect, release the
landlord thereunder from any obligations imposed upon it thereby. If Grantor
receives a notice of default under the Ground Lease, it shall immediately cause
a copy of such notice to be sent by registered United States mail to
Beneficiary.
(b) Hazardous Materials. To the best of Grantor's knowledge, Grantor
represents and warrants that (i) the Premises and the improvements thereon and
the surrounding areas are not currently and have never been subject to Hazardous
Materials or their effects, in each case in amounts in violation of applicable
Environmental Laws, (ii) neither it nor any portion of the Premises or
improvements thereon is in violation of, or subject to any existing, pending or
threatened investigation or proceeding by any governmental authorities under,
any Environmental Law, (iii) there are no claims, litigation, administrative or
other proceedings, whether actual or threatened, or judgments or orders,
concerning Hazardous Materials relating in any way to the Premises or the
improvements thereon and (iv) Grantor is not required by any Environmental Law
to obtain any permits or licenses to construct or use any improvements, fixtures
or equipment with respect to the Premises, or if any such permit or license is
required it has been obtained and is capable of being mortgaged and assigned
hereby. Grantor will comply with all applicable Environmental Laws and will, at
its sole cost and expense, promptly remove, or cause the removal of, any and all
Hazardous Materials or the effects thereof at any time identified as being on,
in, under or affecting the Premises.
(c) Flood Hazard Area. Grantor represents that neither the Premises nor
any part thereof is located in an area identified by the Secretary of the United
States Department of Housing and Urban Development or by any applicable federal
agency as
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having special flood hazards or, if it is, Grantor has obtained the insurance
required by Section 1.09.
Section 1.02. (a) Further Assurances. Grantor will, at its sole cost
and expense, do, execute, acknowledge and deliver all and every such further
acts, deeds, conveyances, mortgages, assignments, notices of assignment,
transfers and assurances as Trustee or Beneficiary shall from time to time
reasonably require, for the better assuring, conveying, assigning, transferring
and confirming unto Trustee the property and rights hereby conveyed or assigned
or intended now or hereafter so to be, or which Grantor may be or may hereafter
become bound to convey or assign to Trustee, or for carrying out the intention
or facilitating the performance of the terms hereof, or for filing, registering
or recording this Deed and, on demand, will execute and deliver, and hereby
authorizes Trustee or Beneficiary to execute and file in Grantor's name, to the
extent they may lawfully do so, one or more financing statements, chattel
mortgages or comparable security instruments, to evidence or perfect more
effectively Beneficiary's security interest in and the lien hereof upon the
Chattels and other personal property encumbered hereby.
(b) Information Reporting and Back-up Withholding. Grantor will, at its
sole cost and expense, do, execute, acknowledge and deliver all and every such
acts, information reports, returns and withholding of monies as shall be
necessary or appropriate to comply fully, or to cause full compliance, with all
applicable information reporting and back-up withholding requirements of the
Internal Revenue Code of 1986 (including all regulations now or hereafter
promulgated thereunder) in respect of the Premises and all transactions related
to the Premises, and will at all times provide Beneficiary with satisfactory
evidence of such compliance and notify Beneficiary of the information reported
in connection with such compliance.
Section 1.03. (a) Filing and Recording of Documents. Grantor forthwith
upon the execution and delivery hereof, and thereafter from time to time, will
cause this Deed and any security instrument creating a lien or evidencing the
lien hereof upon the Chattels and each instrument of further assurance to be
filed, registered or recorded in such manner and in such places as may be
required by any present or future law in order to publish notice of and fully to
protect the lien hereof upon, and the title of Trustee to, the Mortgaged
Property.
(b) Filing and Recording Fees and Other Charges. Grantor will pay all
filing, registration or recording fees, and all expenses incident to the
execution and acknowledgment hereof, any deed of trust supplemental hereto, any
security instrument with respect to the Chattels, and any instrument of further
assurance, and any reasonable expenses (including attorneys' fees and
disbursements) incurred by Beneficiary in connection with the Loan, and will pay
all federal, state, county and municipal stamp taxes and other taxes, duties,
imposts, assessments and charges arising out of or in connection with the
execution and delivery of the Note, this Deed, any deed of trust supplemental
hereto, any security instrument with respect to the Chattels or any instrument
of further assurance.
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Section 1.04. Payment and Performance of Loan Documents. Grantor will
punctually pay the principal and interest and all other sums to become due in
respect hereof and of the Note at the time and place and in the manner specified
therein, according to the true intent and meaning thereof, all in currency of
the United States of America which at the time of such payment shall be legal
tender for the payment of public and private debts. Grantor will duly and timely
comply with and perform all of the terms, provisions, covenants and agreements
contained in said documents and in all other documents or instruments executed
or delivered by Grantor to Beneficiary in connection with the Loan, and will
permit no failures of performance thereunder.
Section 1.05. Maintenance of Existence; Compliance with Laws. Grantor,
if other than a natural person, will, so long as it is owner of all or part of
the Mortgaged Property, do all things necessary to preserve and keep in full
force and effect its existence, franchises, rights and privileges as a business
or stock corporation, partnership, limited liability company, trust or other
entity under the laws of the state of its formation. Grantor will duly and
timely comply with all laws, regulations, rules, statutes, orders and decrees of
any governmental authority or court applicable to it or to the Mortgaged
Property or any part thereof.
Section 1.06. After-Acquired Property. All right, title and interest of
Grantor in and to all extensions, improvements, betterments, renewals,
substitutes and replacements of, and all additions and appurtenances to, the
Mortgaged Property, hereafter acquired by, or released to, Grantor or
constructed, assembled or placed by Grantor on the Premises, and all conversions
of the security constituted thereby, immediately upon such acquisition, release,
construction, assembling, placement or conversion, as the case may be, and in
each such case, without any further deed of trust, conveyance, assignment or
other act by Grantor, shall become subject to the lien hereof as fully and
completely, and with the same effect, as though now owned by Grantor and
specifically described in the Granting Clause hereof, but at any and all times
Grantor will execute and deliver to Trustee or Beneficiary any and all such
further assurances, deeds of trust, conveyances or assignments thereof as
Trustee or Beneficiary may reasonably require for the purpose of expressly and
specifically subjecting the same to the lien hereof.
Section 1.07. (a) Payment of Taxes and Other Charges. Grantor, from
time to time before the same shall become delinquent, will pay and discharge all
taxes of every kind and nature (including real and personal property taxes and
income, franchise, withholding, profits and gross receipts taxes), all general
and special assessments, levies, permits, inspection and license fees, all water
and sewer rents and charges, and all other public charges whether of a like or
different nature, imposed upon or assessed against it or the Mortgaged Property
or any part thereof or upon the revenues, rents, issues, income and profits of
the Mortgaged Property or arising in respect of the occupancy, use or possession
thereof. Grantor will, upon Beneficiary's request, deliver to Beneficiary
receipts evidencing the payment of all such taxes, assessments, levies, fees,
rents and other public charges imposed upon or assessed against it or the
Mortgaged Property or any portion thereof.
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Beneficiary may, at its option following the occurrence of an Event of
Default, to be exercised by thirty (30) days' notice to Grantor, require the
deposit by Grantor, at the time of each payment of an installment of interest or
principal under the Note (but no less often than monthly), of an additional
amount sufficient to discharge the obligations under this clause (a) when they
become due. The determination of the amount so payable and of the fractional
part thereof to be deposited with Beneficiary, so that the aggregate of such
deposits shall be sufficient for this purpose, shall be made by Beneficiary in
its sole discretion. Such amounts shall be held by Beneficiary without interest
and applied to the payment of the obligations in respect of which such amounts
were deposited or, at Beneficiary's option, to the payment of said obligations
in such order or priority as Beneficiary shall determine, on or before the
respective dates on which the same or any of them would become delinquent. If
one (1) month prior to the due date of any of the aforementioned obligations the
amounts then on deposit therefor shall be insufficient for the payment of such
obligation in full, Grantor within ten (10) days after demand shall deposit the
amount of the deficiency with Beneficiary. Nothing herein contained shall be
deemed to affect any right or remedy of Beneficiary under any provisions hereof
or of any statute or rule of law to pay any such amount and to add the amount so
paid, together with interest at the Default Rate, to the indebtedness hereby
secured.
(b) Payment of Mechanics and Materialmen. Grantor will pay, from time
to time when the same shall become due, all lawful claims and demands of
mechanics, materialmen, laborers, and others which, if unpaid, might result in,
or permit the creation of, a lien on the Mortgaged Property or any part thereof,
and in general will do or cause to be done everything necessary so that the lien
hereof shall be fully preserved, at the cost of Grantor and without expense to
Trustee or Beneficiary, other than those liens which Beneficiary or its
affiliates have indemnified Grantor pursuant to the provisions set forth in the
Agreement of Sale.
(c) Good Faith Contests. Nothing in this Section 1.07 shall require the
payment or discharge of any obligation imposed upon Grantor by this Section so
long as Grantor shall in good faith and at its own expense contest the same or
the validity thereof by appropriate legal proceedings which shall operate to
prevent the collection thereof or other realization thereon and the sale or
forfeiture of the Mortgaged Property or any part thereof to satisfy the same;
provided, however, that (i) during such contest Grantor shall set aside reserves
sufficient to discharge Grantor's obligation hereunder and of any additional
charge, penalty or expense arising from or incurred as a result of such contest
and (ii) if at any time payment of any obligation imposed upon Grantor by clause
(a) above shall become necessary to prevent the delivery of a tax deed or other
instrument conveying the Mortgaged Property or any portion thereof because of
non-payment, then Grantor shall pay the same in sufficient time to prevent the
delivery of such tax deed or other instrument.
Section 1.08. Taxes on Trustee or Beneficiary. Grantor will pay any
taxes, except income taxes, imposed on Trustee or Beneficiary by reason of their
ownership of the Note or this Deed, provided that Beneficiary can require
payment of the Note in full within ninety (90) days if it shall be illegal for
Grantor to pay any tax or if the payment of such tax by Grantor would result in
the violation of applicable usury laws.
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Section 1.09. Insurance. (a) Grantor will at all times (directly or
indirectly) provide, maintain and keep in force:
(i) policies of insurance insuring the Premises, Improvements
and Chattels against loss or damage by fire and lightning; against loss
or damage by other risks embraced by coverage of the type now known as
All Risk Replacement Cost Insurance with agreed amount endorsement,
including but not limited to riot and civil commotion, vandalism,
malicious mischief and theft; and against such other risks or hazards
as Beneficiary from time to time reasonably may designate in an amount
sufficient to prevent Beneficiary or Grantor from becoming a co-insurer
under the terms of the applicable policies, but in any event in an
amount not less than 100% of the then full replacement cost of the
Improvements (exclusive of the cost of excavations, foundations and
footings below the lowest basement floor) without deduction for
physical depreciation;
(ii) policies of insurance insuring the Premises against the
loss of "rental value" of the buildings which constitute a part of the
Improvements on a "rented or vacant basis" arising out of the perils
insured against pursuant to clause (i) above in an amount equal to not
less than one (1) year's gross "rental value" of the Improvements.
"Rental value" as used herein is defined as the sum of (A) the total
anticipated gross rental income from tenant occupancy of such buildings
as furnished and equipped, (B) the amount of all charges which are the
legal obligation of tenants and which would otherwise be the obligation
of Grantor and (C) the fair rental value of any portion of such
buildings which is occupied by Grantor. Grantor hereby assigns the
proceeds of such insurance to Beneficiary, to be applied by Beneficiary
in payment of the interest and principal on the Note, insurance
premiums, taxes, assessments and private impositions until such time as
the Improvements shall have been restored and placed in full operation,
at which time, provided Grantor is not then in default hereunder, the
balance of such insurance proceeds, if any, held by Beneficiary shall
be paid over to Grantor;
(iii) if all or part of the Premises are located in an area
identified by the Secretary of the United States Department of Housing
and Urban Development or by any applicable federal agency as a flood
hazard area, flood insurance in an amount at least equal to the maximum
limit of coverage available under the National Flood Insurance Act of
1968, provided, however, that Beneficiary reserves the right to require
flood insurance in excess of said limit if such insurance is
commercially available up to the amount provided in clause (i) above;
(iv) during any period of restoration under this Section 1.09
or Section 1.13, a policy or policies of builder's "all risk"
insurance, written on a Standard Builder's Risk Completed Value Form
(100% non-reporting), in an amount not less than the full insurable
value of the Premises against such risks (including, without
limitation, fire and extended coverage, collapse and earthquake
coverage to agreed limits) as Beneficiary may reasonably request, in
form and substance acceptable to Beneficiary;
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(v) a policy or policies of workers' compensation insurance
as required by workers' compensation insurance laws (including
employer's liability insurance, if requested by Beneficiary) covering
all employees of Grantor;
(vi) comprehensive liability insurance on an "occurrence"
basis against claims for "personal injury" liability, including,
without limitation, bodily injury, death or property damage liability,
with a limit of not less than $15,000,000 in the event of "personal
injury" to any number of persons or of damage to property arising out
of one "occurrence". Such policies shall name Beneficiary as additional
insured by an endorsement, and shall contain cross-liability and
severability of interest clauses, all satisfactory to Beneficiary; and
(vii) such other insurance (including, but not limited to,
earthquake insurance), and in such amounts, as may from time to time be
reasonably required by Beneficiary against the same or other insurable
hazards.
Notwithstanding anything herein to the contrary, for so long as that
certain Management Agreement of even date herewith between Lessee and
Beneficiary with respect to the Premises remains in full force and effect (as
the same may be amended, the "Management Agreement"), the types and amounts of
insurance required by the Management Agreement to the extent inconsistent with
those set forth above shall govern and control Grantor's obligations in respect
thereof.
(b) All policies of insurance required under this Section 1.09 shall be
issued by companies having Best's ratings and being otherwise reasonably
acceptable to Beneficiary, shall be subject to the reasonable approval of
Beneficiary as to amount, content, form and expiration date and, except for the
liability policies described in clauses (a)(v) and (vi) above, shall contain a
Non-Contributory Standard Mortgagee Clause and Lender's Loss Payable
Endorsement, or their equivalents, in favor of Beneficiary, and shall provide
that the proceeds thereof shall be payable to Beneficiary. Beneficiary shall be
furnished with the original of each policy required hereunder, which policies
shall provide that they shall not lapse, nor be modified or cancelled, without
thirty (30) days' written notice to Beneficiary. At least thirty (30) days prior
to expiration of any policy required hereunder, Grantor shall furnish
Beneficiary appropriate proof of issuance of a policy continuing in force the
insurance covered by the policy so expiring. Grantor shall furnish to
Beneficiary, promptly upon request, receipts or other satisfactory evidence of
the payment of the premiums on such insurance policies. In the event that
Grantor does not deposit with Beneficiary a new certificate or policy of
insurance with evidence of payment of premiums thereon at least thirty (30) days
prior to the expiration of any expiring policy, then Beneficiary may, but shall
not be obligated to, procure such insurance and pay the premiums therefor, and
Grantor agrees to repay to Beneficiary the premiums thereon promptly on demand,
together with interest thereon at the Default Rate.
(c) Grantor hereby assigns to Beneficiary all proceeds of any insurance
required to be maintained by this Section 1.09 which Grantor may be entitled to
receive for loss or damage to the Premises, Improvements or Chattels. All such
insurance
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proceeds shall be payable to Beneficiary, and Grantor hereby authorizes and
directs any affected insurance company to make payment thereof directly to
Beneficiary subject, however, to clause (f) below. Grantor shall give prompt
notice to Beneficiary of any casualty, whether or not of a kind required to be
insured against under the policies to be provided by Grantor hereunder, such
notice to generally describe the nature and cause of such casualty and the
extent of the damage or destruction. Grantor may settle, adjust or compromise
any claims for loss, damage or destruction, regardless of whether or not there
are insurance proceeds available or whether any such insurance proceeds are
sufficient in amount to fully compensate for such loss or damage, subject to
Beneficiary's prior consent. Notwithstanding the foregoing, Beneficiary shall
have the right to join Grantor in settling, adjusting or compromising any loss
of $100,000 or more. Grantor hereby authorizes the application or release by
Beneficiary of any insurance proceeds under any policy of insurance, subject to
the other provisions hereof. The application or release by Beneficiary of any
insurance proceeds shall not cure or waive any default or notice of default
hereunder or invalidate any act done pursuant to such notice.
(d) In the event of the foreclosure hereof or other transfer of the
title to the Mortgaged Property in extinguishment, in whole or in part, of the
indebtedness secured hereby, all right, title and interest of Grantor in and to
any insurance policy, or premiums or payments in satisfaction of claims or any
other rights thereunder then in force, shall pass to the purchaser or grantee
notwithstanding the amount of any bid at such foreclosure sale. Nothing
contained herein shall prevent the accrual of interest as provided in the Note
on any portion of the principal balance due under the Note until such time as
insurance proceeds are actually received and applied to reduce the principal
balance outstanding.
(e) Grantor shall not take out separate insurance concurrent in form or
contributing in the event of loss with that required to be maintained under this
Section 1.09 unless Beneficiary is included thereon as a named insured with loss
payable to Beneficiary under standard mortgage endorsements of the character and
to the extent above described. Grantor shall promptly notify Beneficiary
whenever any such separate insurance is taken out and shall promptly deliver to
Beneficiary the policy or policies of such insurance.
(f) Any and all monies received as payment which Grantor may be
entitled to receive for loss or damage to the Premises, Improvements or Chattels
under any insurance maintained pursuant to this Section 1.09 (other than
proceeds under the policies required by clause (a)(ii) above) shall be paid over
to Beneficiary and, at Beneficiary's option, either applied to the prepayment of
the Note and all interest and other sums accrued and unpaid in respect thereof
or disbursed from time to time to Grantor in reimbursement of its costs and
expenses incurred in the restoration of the Improvements in accordance with
Beneficiary's standard construction lending practices, terms and conditions, in
either case, less Beneficiary's reasonable expenses for collecting and, if
applicable, disbursing the insurance proceeds, or otherwise incurred in
connection therewith. Notwithstanding the provisions of the immediately
preceding sentence, provided no default exists hereunder, Beneficiary agrees to
apply any such proceeds received by it to the reimbursement of Grantor's costs
of restoring the Improvements. Advances of
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insurance proceeds shall be made to Grantor from time to time in accordance with
Beneficiary's standard construction lending practices, terms and conditions;
amounts not required for such purposes shall be applied, at Beneficiary's
option, to the prepayment of the Note and to interest accrued and unpaid thereon
in such order and proportions as Beneficiary may elect. In no event shall
Beneficiary be required to advance such proceeds to Grantor unless Beneficiary
shall have (i) received satisfactory evidence that the funding/expiration dates
of the commitment, if any, for the permanent financing of the Improvements have
been extended for such period of time as is reasonably necessary to complete
said restoration and (ii) reasonably determined that the restoration of the
Improvements can be completed by the Maturity Date of the Note at a cost which
does not exceed the amount of available insurance proceeds or, in the event that
such proceeds are reasonably determined by Beneficiary to be inadequate,
Beneficiary shall have received from Grantor a cash deposit equal to the excess
of said estimated cost of restoration over the amount of said available
proceeds. If the conditions for the advance of insurance proceeds for
restoration set forth in clauses (i) and (ii) above are not satisfied within
sixty (60) days of Beneficiary's receipt thereof or if the actual restoration
shall not have been commenced within such period, Beneficiary shall have the
option at any time thereafter to apply such insurance proceeds to the payment of
the Note and to interest accrued and unpaid thereon in such order and
proportions as Beneficiary may elect.
Section 1.10. Protective Advances by Beneficiary. If Grantor shall fail
to perform any of the covenants contained herein, Trustee or Beneficiary may
make advances to perform the same on its behalf and all sums so advanced shall
be a lien upon the Mortgaged Property and shall be secured hereby. Grantor will
repay on demand all sums so advanced on its behalf together with interest
thereon at the Default Rate. The provisions of this Section shall not prevent
any default in the observance of any covenant contained herein from constituting
an Event of Default.
Section 1.11. (a) Visitation and Inspection. Grantor will keep adequate
records and books of account in accordance with generally accepted accounting
principles and will permit each of Trustee and Beneficiary, by their agents,
accountants and attorneys, to visit and inspect the Mortgaged Property and
examine its records and books of account and make copies thereof or extracts
therefrom, and to discuss its affairs, finances and accounts with the officers
or general partners, as the case may be, of Grantor, at such reasonable times as
may be requested by Trustee or Beneficiary.
(b) Financial and Other Information. Grantor will deliver to
Beneficiary with reasonable promptness such financial information with respect
to Grantor or the Premises as Beneficiary may reasonably request from time to
time. All financial statements of Grantor shall be prepared in accordance with
generally accepted accounting principles and shall be accompanied by the
certificate of a principal financial or accounting officer or general partner,
as the case may be, of Grantor, dated within five (5) days of the delivery of
such statements to Beneficiary, stating that he or she knows of no Event of
Default, nor of any event which after notice or lapse of time or both would
constitute an Event of Default, which has occurred and is continuing, or, if any
such event or Event of Default has occurred and is continuing, specifying the
nature and period of existence thereof and what action Grantor has taken or
proposes to take with respect thereto, and,
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except as otherwise specified, stating that Grantor has fulfilled all of its
obligations hereunder and otherwise in respect of the Loan which are required to
be fulfilled on or prior to the date of such certificate.
(c) Estoppel Certificates. Grantor, within three (3) days upon request
in person or within five (5) days upon request by mail, will furnish a
statement, duly acknowledged, of the amount due whether for principal or
interest on this Deed and whether any offsets, counterclaims or defenses exist
against the indebtedness secured hereby.
Section 1.12. Maintenance of Premises and Improvements. Grantor will
not commit any waste on the Premises or make any change in the use of the
Premises which will in any way increase any ordinary fire or other hazard
arising out of construction or operation. Grantor will, or shall cause its
Lessee to, at all times, maintain the Improvements and Chattels in good
operating order and condition and will promptly make, from time to time, all
repairs, renewals, replacements, additions and improvements in connection
therewith which are needful or desirable to such end. The Improvements shall not
be demolished or substantially altered, nor shall any Chattels be removed
without Beneficiary's prior consent except where appropriate replacements free
of superior title, liens and claims are immediately made of value at least equal
to the value of the removed Chattels.
Section 1.13. Condemnation. Grantor, immediately upon obtaining
knowledge of the institution or pending institution of any proceedings for the
condemnation of the Premises or any portion thereof, will notify Trustee and
Beneficiary thereof. Trustee and Beneficiary may participate in any such
proceedings and may be represented therein by counsel of Beneficiary's
selection. Grantor from time to time will deliver to Beneficiary all instruments
requested by it to permit or facilitate such participation. In the event of such
condemnation proceedings, the award or compensation payable is hereby assigned
to and shall be paid to Beneficiary. Beneficiary shall be under no obligation to
question the amount of any such award or compensation and may accept the same in
the amount in which the same shall be paid. The proceeds of any award or
compensation so received shall, at Beneficiary's option, either be applied to
the prepayment of the Note and all interest and other sums accrued and unpaid in
respect thereof at the rate of interest provided therein regardless of the rate
of interest payable on the award by the condemning authority, or be disbursed to
Grantor from time to time for restoration of the Improvements in accordance with
Beneficiary's standard construction lending practices, terms and conditions, in
either case, less Beneficiary's reasonable expenses for collecting and, if
applicable, disbursing the award, or otherwise incurred in connection therewith.
Notwithstanding the provisions of the immediately preceding sentence, provided
no monetary or bankruptcy related default or any Event of Default exists
hereunder, Beneficiary agrees to apply any such condemnation award proceeds
received by it to the reimbursement of Grantor's costs of restoring the
Improvements. Advances of condemnation award proceeds shall be made to Grantor
from time to time in accordance with Beneficiary's standard construction lending
practices, terms and conditions; amounts not required for such purposes shall be
applied, at Beneficiary's option, to the prepayment of the Note and to interest
accrued and unpaid thereon (at the rate of interest provided
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therein regardless of the rate of interest payable on the award by the
condemning authority) in such order and proportions as Beneficiary may elect.
Section 1.14. Leases. (a) Grantor will not (i) execute an assignment of
the rents or any part thereof from the Premises without Beneficiary's prior
consent, (ii) except where the lessee is in default thereunder, terminate or
consent to the cancellation or surrender of any lease of the Premises or of any
part thereof, now existing or hereafter to be made, having an unexpired term of
one (1) year or more, provided, however, that any lease may be cancelled if
promptly after the cancellation or surrender thereof a new lease is entered into
with a new lessee having a credit standing at least equivalent to that of the
lessee whose lease was cancelled, on substantially the same terms as the
terminated or cancelled lease, (iii) modify any such lease so as to shorten the
unexpired term thereof or so as to decrease, waive or compromise in any manner
the amount of the rents payable thereunder or materially expand the obligations
of the lessor thereunder, (iv) accept prepayments of more than one month of any
installments of rents to become due under such leases, except prepayments in the
nature of security for the performance of the lessees thereunder, (v) modify,
release or terminate any guaranties of any such lease or (vi) in any other
manner impair the value of the Mortgaged Property or the security hereof.
(b) Grantor will not execute any lease of all or a substantial portion
of the Premises except for actual occupancy by the lessee thereunder or its
property manager, and will at all times promptly and faithfully perform, or
cause to be performed, all of the covenants, conditions and agreements contained
in all leases of the Premises or portions thereof now or hereafter existing, on
the part of the lessor thereunder to be kept and performed and will at all times
do all things reasonably necessary to compel performance by the lessee under
each lease of all obligations, covenants and agreements by such lessee to be
performed thereunder. If any of such leases provide for the giving by the lessee
of certificates with respect to the status of such leases, Grantor shall
exercise its right to request such certificates within five (5) days of any
demand therefor by Beneficiary and shall deliver copies thereof to Beneficiary
promptly upon receipt.
(c) In the event of the enforcement by Trustee or Beneficiary of the
remedies provided for hereby or by law, the lessee under each of the leases of
the Premise will, upon request of any person succeeding to the interest of
Grantor as a result of such enforcement, automatically become the lessee of said
successor in interest, without change in the terms or other provisions of such
lease, provided, however, that said successor in interest shall not be bound by
(i) any payment of rent or additional rent for more than one (1) month in
advance, except prepayments in the nature of security for the performance by
said lessee of its obligations under said lease or (ii) any amendment or
modification of the lease made without the consent of Beneficiary or such
successor in interest. Each lease shall also provide that, upon request by said
successor in interest, such lessee shall execute and deliver an instrument or
instruments confirming such attornment.
Section 1.15. Premises Documents. Grantor shall (a) do all things
reasonably necessary to cause the due compliance and faithful performance by the
other parties to
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the Premises Documents with and of all obligations and agreements by such other
parties to be complied with and performed thereunder, except for any continuing
failure of the Premises to comply with the Premises Documents of the date of the
acquisition hereof from Beneficiary or its affiliate, and (b) deliver promptly
to Beneficiary copies of any notices which it gives or receives under any of the
Premises Documents.
Section 1.16. Trust Fund; Lien Laws. Grantor will receive the advances
secured hereby and will hold the right to receive such advances as a trust fund
to be applied first for the purpose of paying the costs of improvements on the
Premises and will apply the same first to the payment of such costs before using
any part of the total of the same for any other purpose. Grantor will indemnify
and hold Trustee and Beneficiary harmless against any loss or liability, cost or
expense, including, without limitation, any judgments, attorney's fees, costs of
appeal bonds and printing costs, arising out of or relating to any proceeding
instituted by any claimant alleging a violation by Grantor of any applicable
lien law.
Section 1.17. Expenses of Trustee. Grantor shall pay all costs, fees
and expenses of Trustee, its agents and counsel in connection with the
performance of its duties hereunder.
ARTICLE II
EVENTS OF DEFAULT AND REMEDIES
Section 2.01. Events of Default and Certain Remedies. If one or more of
the following Events of Default shall happen, that is to say:
(a) if (i) default shall be made in the payment of any
principal, interest, fees or other sums under the Note, in any such
case, when and as the same shall become due and payable, whether at
maturity or by acceleration or as part of any payment or prepayment or
otherwise, in each case, as herein or in the Note provided, and such
default shall have continued for a period of ten (10) days or (ii)
default shall be made in the payment of any tax or other charge
required by Section 1.07 to be paid and said default shall have
continued for a period of twenty (20) days; or
(b) if default shall be made in the due observance or
performance of any covenant, condition or agreement in the Note, this
Deed or in any other document executed or delivered to Beneficiary in
connection with the Loan, and such default shall have continued for a
period of thirty (30) days after notice thereof shall have been given
to Grantor by Beneficiary, or, in the case of such other documents,
such shorter grace period, if any, as may be provided for therein; or
(c) if any representation or warranty made by Grantor in
Section 1.01 shall be incorrect, or if any other representation or
warranty made to Beneficiary in this Deed, or in any other document,
certificate or statement executed or
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delivered to Beneficiary in connection with the Loan shall be incorrect
in any material respect when made or remade; or
(d) if by order of a court of competent jurisdiction, a
trustee, receiver or liquidator of the Mortgaged Property or any part
thereof, or of Grantor shall be appointed and such order shall not be
discharged or dismissed within sixty (60) days after such appointment;
or
(e) if Grantor shall file a petition in bankruptcy or for an
arrangement or for reorganization pursuant to the Federal Bankruptcy
Act or any similar federal or state law, or if, by decree of a court of
competent jurisdiction, Grantor shall be adjudicated a bankrupt, or be
declared insolvent, or shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts
generally as they become due, or shall consent to the appointment of a
receiver or receivers of all or any part of its property; or
(f) if any of the creditors of Grantor shall file a petition
in bankruptcy against Grantor or for reorganization of Grantor pursuant
to the Federal Bankruptcy Act or any similar federal or state law, and
if such petition shall not be discharged or dismissed within sixty (60)
days after the date on which such petition was filed; or
(g) if final judgment for the payment of money shall be
rendered against Grantor and Grantor shall not discharge the same or
cause it to be discharged within sixty (60) days from the entry
thereof, or shall not appeal therefrom or from the order, decree or
process upon which or pursuant to which said judgment was granted,
based or entered, and secure a stay of execution pending such appeal;
or
(h) (Intentionally Omitted)
(i) if there shall occur a default which is not cured within
the applicable grace period, if any, under any mortgage, deed of trust
or other security instrument covering all or part of the Mortgaged
Property regardless of whether any such mortgage, deed of trust or
other security instrument is prior or subordinate hereto or under any
mortgage, deed of trust or other security instrument now or hereafter
securing the Note or any other note of Fee Owner to Beneficiary; it
being further agreed by Grantor that an Event of Default hereunder
shall constitute an Event of Default under any such mortgage, deed of
trust or other security instrument held by or for the benefit of
Beneficiary; or
(j) if there shall occur a default which is not cured within
the applicable grace period, if any, under any of the Premises
Documents, except for any continuing failure of the Premises to comply
with the Premises Documents of the date of the acquisition hereof from
Beneficiary or its affiliate; or if any of the Premises Documents is
amended, modified, supplemented or terminated without Beneficiary's
prior consent; or
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(k) if Grantor shall transfer, or agree to transfer (or suffer
or permit the transfer or agreement to transfer), in any manner, either
voluntarily or involuntarily, by operation of law or otherwise, all or
any portion of the Mortgaged Property, or any interest or rights
therein (including air or development rights) without, in any such
case, Beneficiary's prior consent. As used in this clause, "transfer"
shall include, without limitation, any sale, assignment, lease (other
than to Lessee) or conveyance except leases for occupancy subordinate
hereto and to all advances made and to be made hereunder or, in the
event Grantor (or a general partner or co-venturer thereof) is a
partnership, joint venture, limited liability company, trust or
closely-held corporation, the sale, conveyance, transfer or other
disposition of more than 10%, in the aggregate, of any class of the
issued and outstanding capital stock of such closely-held corporation
or of the beneficial interest of such partnership, venture, limited
liability company or trust, or a change of any general partner, joint
venturer, member or beneficiary, as the case may be. In the event
Grantor is a limited partnership, and so long as a limited partner has
contributed to (or remains personally liable for) the present and
future partnership capital contributions required of such limited
partner by the partnership agreement, such partner may sell, convey,
devise, transfer or dispose of all or a part of his limited partnership
interest to his spouse, children, grandchildren or a family trust in
which his spouse, children or grandchildren are sole beneficiaries; or
(l) if Grantor shall encumber, or agree to encumber, in any
manner, either voluntarily or involuntarily, by operation of law or
otherwise, all or any portion of the Mortgaged Property, or any
interest or rights therein (including air or development rights)
without, in any such case, Beneficiary's prior consent. As used in this
clause, "encumber" shall include, without limitation, the placing or
permitting the placing of any mortgage, deed of trust, assignment of
rents or other security device. (Beneficiary may grant or deny its
consent under this clause and the immediately preceding clause in its
sole discretion and, if consent should be given, any such transfer or
encumbrance shall be subject hereto and to any other documents which
evidence or secure the Loan, and, if a transfer, any such transferee
shall assume all of Grantor's obligations hereunder and thereunder and
agree to be bound by all provisions and perform all obligations
contained herein and therein; consent to one such transfer or
encumbrance shall not be deemed to be a waiver of the right to require
consent to future or successive transfers or encumbrances);
then and in every such case:
I. During the continuance of any such Event of Default,
Beneficiary, by notice to Grantor, may declare the entire principal of
the Note then outstanding (if not then due and payable), and all
accrued and unpaid interest and other sums in respect thereof, to be
due and payable immediately, and upon any such declaration the
principal of the Note and said accrued and unpaid interest and other
sums shall become and be immediately due and payable, anything herein
or in the Note (other than Section 4.08 hereof, the provisions thereof
limiting interest
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payable thereunder to the maximum amount permitted by applicable law)
to the contrary notwithstanding.
II. During the continuance of any such Event of Default,
Trustee or Beneficiary personally, or by their agents or attorneys, may
enter into and upon all or any part of the Premises, and each and every
part thereof, and are each hereby given a right and license and
appointed Grantor's attorney-in-fact and exclusive agent to do so, and
may exclude Grantor, its agents and servants wholly therefrom; and
having and holding the same, may use, operate, manage and control the
Premises and conduct the business thereof, either personally or by
their superintendents, managers, agents, servants, attorneys or
receivers; and upon every such entry, Trustee or Beneficiary, at the
expense of the Mortgaged Property, from time to time, either by
purchase, repairs or construction, may maintain and restore the
Mortgaged Property, whereof they shall become possessed as aforesaid;
may complete the construction of the Improvements and in the course of
such completion may make such changes in the contemplated Improvements
as Beneficiary may deem desirable and may insure the same; and
likewise, from time to time, at the expense of the Mortgaged Property,
Trustee or Beneficiary may make all necessary or proper repairs,
renewals and replacements and such useful alterations, additions,
betterments and improvements thereto and thereon as Beneficiary may
seem advisable; and in every such case Trustee or Beneficiary shall
have the right to manage and operate the Mortgaged Property and to
carry on the business thereof and exercise all rights and powers of
Grantor with respect thereto either in the name of Grantor or otherwise
as Beneficiary shall deem best; and Trustee or Beneficiary shall be
entitled to collect and receive the Rents and every part thereof, all
of which shall for all purposes constitute property of Grantor; and in
furtherance of such right Beneficiary may collect the rents payable
under all leases of the Premises directly from the lessees thereunder
upon notice to each such lessee that an Event of Default exists
hereunder accompanied by a demand on such lessee for the payment to
Beneficiary of all rents due and to become due under its lease, and
Grantor FOR THE BENEFIT OF BENEFICIARY AND EACH SUCH LESSEE hereby
covenants and agrees that the lessee shall be under no duty to question
the accuracy of Beneficiary's statement of default and shall
unequivocally be authorized to pay said rents to Beneficiary without
regard to the truth of Beneficiary's statement of default and
notwithstanding notices from Grantor disputing the existence of an
Event of Default such that the payment of rent by the lessee to
Beneficiary pursuant to such a demand shall constitute performance in
full of the lessee's obligation under the lease for the payment of
rents by the lessee to Grantor; and after deducting the expenses of
conducting the business thereof and of all maintenance, repairs,
renewals, replacements, alterations, additions, betterments and
improvements and amounts necessary to pay for taxes, assessments,
insurance and prior or other proper charges upon the Mortgaged Property
or any part thereof, as well as just and reasonable compensation for
the services of Trustee and Beneficiary and for all attorneys, counsel,
agents, clerks, servants and other employees by them engaged and
employed, Trustee or Beneficiary, as the case may be, shall apply the
moneys arising as aforesaid, first, to the payment of the principal of
the Note and
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the interest thereon, when and as the same shall become payable and in
such order and proportions as Beneficiary shall elect and second, to
the payment of any other sums required to be paid by Grantor hereunder.
III. Trustee or Beneficiary, as the case may be, with or
without entry, personally or by their agents or attorneys, insofar as
applicable, may:
(1) sell the Mortgaged Property and all estate,
right, title and interest, claim and demand therein, at public
auction at such time and place, and upon such terms and
conditions as Beneficiary may deem expedient or as may be
required or permitted by applicable law, having first given
such notice prior to the sale of such time, place and terms by
publication in one (1) or more newspapers published or having
a general circulation in the county or counties of the state
in which the Mortgaged Property is located as may be required
or permitted by law and by such other methods, if any, as
Trustee or Beneficiary may deem desirable or as may be
required or permitted by applicable law. In the event of any
sale of all or part of the Mortgaged Property under the terms
hereof, Grantor shall pay (in addition to taxable costs) a
reasonable fee to Trustee which shall be in lieu of all other
fees and commission permitted by statute or custom to be paid,
reasonable attorneys' fees and all expenses incurred in
obtaining or continuing abstracts of title for the purpose of
any such sale; or
(2) institute proceedings for the complete or partial
foreclosure hereof; or
(3) take such steps to protect and enforce their
rights whether by action, suit or proceeding in equity or at
law for the specific performance of any covenant, condition or
agreement in the Note or herein, or in aid of the execution of
any power herein granted, or for any foreclosure hereunder, or
for the enforcement of any other appropriate legal or
equitable remedy or otherwise as Trustee or Beneficiary shall
elect.
Section 2.02. Other Matters Concerning Sales. (a) Trustee or
Beneficiary may adjourn from time to time any sale by it to be made hereunder or
by virtue hereof by announcement at the time and place appointed for such sale
or for such adjourned sale or sales; and, except as otherwise provided by any
applicable provision of law, Trustee or Beneficiary, as the case may be, without
further notice or publication, may make such sale at the time and place to which
the same shall be so adjourned.
(b) Upon the completion of any sale or sales made by Trustee or
Beneficiary, as the case may be, under or by virtue of this Article II, Trustee,
or an officer of any court empowered to do so, shall execute and deliver to the
accepted purchaser or purchasers a good and sufficient instrument or instruments
conveying, assigning and transferring all estate, right, title and interest in
and to the property and rights sold. Trustee is hereby appointed the true and
lawful attorney irrevocable of Grantor, in its name and stead, to
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make all necessary conveyances, assignments, transfers and deliveries of the
Mortgaged Property and rights so sold and for that purpose Trustee may execute
all necessary instruments of conveyance, assignment and transfer, and may
substitute one or more persons with like power, Grantor hereby ratifying and
confirming all that its said attorney or such substitute or substitutes shall
lawfully do by virtue hereof. Nevertheless, Grantor, if requested by Trustee or
Beneficiary, shall ratify and confirm any such sale or sales by executing and
delivering to Trustee or to such purchaser or purchasers all such instruments as
may be advisable, in the judgment of Trustee or Beneficiary, for the purpose,
and as may be designated in such request. Any such sale or sales made under or
by virtue of this Article II, whether made under the power of sale herein
granted or under or by virtue of judicial proceedings or of a judgment or decree
of foreclosure and sale, shall operate to divest all the estate, right, title,
interest, claim and demand whatsoever, whether at law or in equity, of Grantor
in and to the properties and rights so sold, and shall be a perpetual bar both
at law and in equity against Grantor and against any and all persons claiming or
who may claim the same, or any part thereof from, through or under Grantor.
(c) In the event of any sale or sales made under or by virtue of this
Article II (whether made under the power of sale herein granted or under or by
virtue of judicial proceedings or of a judgment or decree of foreclosure and
sale), the entire principal of, and interest and other sums on, the Note, if not
previously due and payable, and all other sums required to be paid by Grantor
pursuant hereto, immediately thereupon shall, anything in any of said documents
(other than Section 4.08 hereof) to the contrary notwithstanding, become due and
payable.
(d) The purchase money, proceeds or avails of any sale or sales made
under or by virtue of this Article II, together with any other sums which then
may be held by Trustee or Beneficiary hereunder, whether under the provisions of
this Article II or otherwise, shall be applied as follows:
First: To the payment of the costs and expenses of such sale,
including reasonable compensation to Trustee and Beneficiary, their
agents and counsel, and of any judicial proceedings wherein the same
may be made, and of all expenses, liabilities and advances made or
incurred by Trustee hereunder, together with interest at the Default
Rate on all advances made by Trustee, and of all taxes, assessments or
other charges, except any taxes, assessments or other charges subject
to which the Mortgaged Property shall have been sold.
Second: To the payment of the whole amount then due, owing or
unpaid upon the Note for principal and interest, with interest on the
unpaid principal at the Default Rate from and after the happening of
any Event of Default described in clause (a) of Section 2.01 from the
due date of any such payment of principal until the same is paid, in
such order and amounts as Beneficiary may elect.
Third: To the payment of any other sums required to be paid by
Grantor pursuant to any provision hereof or of the Note, including all
expenses, liabilities and advances made or incurred by Beneficiary
hereunder or in connection with
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the enforcement hereof, together with interest at the Default Rate on
all such advances.
Fourth: To the payment of the surplus, if any, to whomsoever
may be lawfully entitled to receive the same.
(e) Upon any sale or sales made under or by virtue of this Article II,
whether made under the power of sale herein granted or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale,
Beneficiary may bid for and acquire the Mortgaged Property or any part thereof
and in lieu of paying cash therefor may make settlement for the purchase price
by crediting upon the indebtedness secured hereby the net sales price after
deducting therefrom the expenses of the sale and the costs of the action and any
other sums which Trustee or Beneficiary are authorized to deduct hereunder.
Section 2.03. Payment of Amounts Due. (a) In case an Event of Default
described in clause (a) of Section 2.01 shall have happened and be continuing,
then, upon demand of Beneficiary, Grantor will pay to Beneficiary the whole
amount which then shall have become due and payable on the Note, for principal
or interest or both, as the case may be, and after the happening of said Event
of Default will also pay to Beneficiary interest at the Default Rate on the then
unpaid principal of the Note, and the sums required to be paid by Grantor
pursuant to any provision hereof, and in addition thereto such further amount as
shall be sufficient to cover the costs and expenses of collection, including
reasonable compensation to Trustee and Beneficiary, their agents and counsel and
any expenses incurred by Trustee or Beneficiary hereunder. In the event Grantor
shall fail forthwith to pay all such amounts upon such demand, Beneficiary shall
be entitled and empowered to institute such action or proceedings at law or in
equity as may be advised by its counsel for the collection of the sums so due
and unpaid, and may prosecute any such action or proceedings to judgment or
final decree, and may enforce any such judgment or final decree against Grantor
and collect, out of the property of Grantor wherever situated, as well as out of
the Mortgaged Property, in any manner provided by law, moneys adjudged or
decreed to be payable.
(b) Beneficiary shall be entitled to recover judgment as aforesaid
either before, after or during the pendency of any proceedings for the
enforcement of the provisions hereof; and the right of Beneficiary to recover
such judgment shall not be affected by any entry or sale hereunder, or by the
exercise of any other right, power or remedy for the enforcement of the
provisions hereof, or the foreclosure of the lien hereof; and in the event of a
sale of the Mortgaged Property, and of the application of the proceeds of sale,
as herein provided, to the payment of the debt hereby secured, Beneficiary shall
be entitled to enforce payment of, and to receive all amounts then remaining due
and unpaid upon, the Note, and to enforce payment of all other charges, payments
and costs due hereunder or otherwise in respect of the Loan, and shall be
entitled to recover judgment for any portion of the debt remaining unpaid, with
interest at the Default Rate. In case of proceedings against Grantor in
insolvency or bankruptcy or any proceedings for its reorganization or involving
the liquidation of its assets, then Beneficiary shall be entitled to prove the
whole amount of principal, interest and other
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sums due upon the Note to the full amount thereof, and all other payments,
charges and costs due hereunder or otherwise in respect of the Loan, without
deducting therefrom any proceeds obtained from the sale of the whole or any part
of the Mortgaged Property, provided, however, that in no case shall Beneficiary
receive, from the aggregate amount of the proceeds of the sale of the Mortgaged
Property and the distribution from the estate of Grantor, a greater amount than
such principal and interest and such other payments, charges and costs.
(c) No recovery of any judgment by Beneficiary and no levy of an
execution under any judgment upon the Mortgaged Property or upon any other
property of Grantor shall affect in any manner or to any extent, the lien hereof
upon the Mortgaged Property or any part thereof, or any liens, rights, powers or
remedies of Trustee or Beneficiary hereunder, but such liens, rights, powers and
remedies of Trustee or Beneficiary shall continue unimpaired as before.
(d) Any moneys thus collected by Beneficiary under this Section 2.03
shall be applied by Beneficiary in accordance with the provisions of clause (d)
of Section 2.02.
Section 2.04. Actions; Receivers. After the happening of any Event of
Default and immediately upon the commencement of any action, suit or other legal
proceedings by Trustee or Beneficiary to obtain judgment for the principal of,
or interest on, the Note and other sums required to be paid by Grantor pursuant
to any provision hereof, or of any other nature in aid of the enforcement of the
Note or hereof, Grantor will (a) waive the issuance and service of process and
enter its voluntary appearance in such action, suit or proceeding and (b) if
required by Beneficiary, consent to the appointment of a receiver or receivers
of all or part of the Mortgaged Property and of any or all of the Rents in
respect thereof. After the happening of any Event of Default and during its
continuance, or upon the commencement of any proceedings to foreclose this Deed
or to enforce the specific performance hereof or in aid thereof or upon the
commencement of any other judicial proceeding to enforce any right of Trustee or
Beneficiary, Trustee or Beneficiary shall be entitled, as a matter of right, if
they shall so elect, without the giving of notice to any other party and without
regard to the adequacy or inadequacy of any security for the indebtedness
secured hereby, forthwith either before or after declaring the unpaid principal
of the Note to be due and payable, to the appointment of such a receiver or
receivers.
Section 2.05. Beneficiary's Right to Possession. Notwithstanding the
appointment of any receiver, liquidator or trustee of Grantor, or of any of its
property, or of the Mortgaged Property or any part thereof, Trustee and
Beneficiary shall be entitled to retain possession and control of all property
now or hereafter held hereunder.
Section 2.06. Remedies Cumulative. No remedy herein conferred upon or
reserved to Trustee or Beneficiary is intended to be exclusive of any other
remedy or remedies, and each and every such remedy shall be cumulative, and
shall be in addition to every other remedy given hereunder or now or hereafter
existing at law, in equity or by statute. No delay or omission of Trustee or
Beneficiary to exercise any right or power accruing upon any Event of Default
shall impair any such right or power, or shall be
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construed to be a waiver of any such Event of Default or any acquiescence
therein; and every power and remedy given hereby to Trustee or Beneficiary may
be exercised from time to time as often as may be deemed by them expedient.
Nothing herein or in the Note shall affect the obligation of Grantor to pay the
principal of, and interest and other sums on, the Note in the manner and at the
time and place therein respectively expressed.
Section 2.07. Moratorium Laws; Right of Redemption. Grantor will not at
any time insist upon, or plead, or in any manner whatever claim or take any
benefit or advantage of any stay or extension or moratorium law, any exemption
from execution or sale of the Mortgaged Property or any part thereof, wherever
enacted, now or at any time hereafter in force, which may affect the covenants
and terms of performance hereof, nor claim, take or insist upon any benefit or
advantage of any law now or hereafter in force providing for the valuation or
appraisal of the Mortgaged Property, or any part thereof, prior to any sale or
sales thereof which may be made pursuant to any provision herein, or pursuant to
the decree, judgment or order of any court of competent jurisdiction; nor, after
any such sale or sales, claim or exercise any right under any statute heretofore
or hereafter enacted to redeem the property so sold or any part thereof and
Grantor hereby expressly waives all benefit or advantage of any such law or
laws, and covenants not to hinder, delay or impede the execution of any power
herein granted or delegated to Trustee or Beneficiary, but to suffer and permit
the execution of every power as though no such law or laws had been made or
enacted. Grantor, for itself and all who may claim under it, waives, to the
extent that it lawfully may, all right to have the Mortgaged Property marshaled
upon any foreclosure hereof.
Section 2.08. Intentionally Omitted.
Section 2.09. Beneficiary's Rights Concerning Application of Amounts
Collected. Notwithstanding anything to the contrary contained herein, upon the
occurrence of an Event of Default, Beneficiary may apply, to the extent
permitted by law, any amount collected hereunder to principal, interest or any
other sum due under the Note or otherwise in respect of the Loan in such order
and amounts, and to such obligations, as Beneficiary shall elect in its sole and
absolute discretion.
ARTICLE III
CONCERNING TRUSTEE
Section 3.01. Trustee's Performance. Trustee, by its acceptance hereof,
covenants faithfully to perform and fulfill the trusts herein created, being
liable, however, only for willful negligence or misconduct, and hereby waives
any statutory fee and agrees to accept reasonable compensation, in lieu thereof,
for any services rendered by it in accordance with the terms hereof.
Section 3.02. Resignation by Trustee. Trustee may resign at any time
upon giving thirty (30) days' notice to Grantor and Beneficiary.
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Section 3.03. Removal of Trustee; Successors. Beneficiary may remove
Trustee at any time or from time to time and select a successor trustee. In the
event of the death, removal, resignation or refusal or inability to act of
Trustee, or in its sole discretion for any reason whatsoever, Beneficiary may,
without notice and without specifying any reason therefor and without applying
to any court, select and appoint a successor Trustee, and all powers, rights,
duties and authority of Trustee, as aforesaid, shall thereupon become vested in
such successor. In such connection, Beneficiary may, on its and Grantor's
behalf, execute, acknowledge and record an instrument or agreement of such
substitution, and Grantor hereby irrevocably appoints Beneficiary as its
attorney-in-fact, with full power of substitution, to do so. Such substitute
trustee shall not be required to give bond for the faithful performance of its
duties unless required by Beneficiary.
ARTICLE IV
MISCELLANEOUS
Section 4.01. Assignment of Rents. This Deed is intended to constitute
a present, absolute and irrevocable assignment of all of the Rents now or
hereafter accruing, and Grantor, without limiting the generality of the Granting
Clause hereof, specifically hereby presently, absolutely and irrevocably assigns
all of the Rents now or hereafter accruing to Beneficiary. The aforesaid
assignment shall be effective immediately upon the execution hereof and is not
conditioned upon the occurrence of any Event of Default hereunder or any other
contingency or event, provided, however, that Beneficiary hereby grants to
Grantor the right and license to collect and receive the Rents as they become
due, and not in advance, so long as no Event of Default exists hereunder.
Immediately upon the occurrence of any such Event of Default, the foregoing
right and license shall be automatically terminated and of no further force or
effect. Nothing contained in this Section or elsewhere herein shall be construed
to make Beneficiary a mortgagee in possession unless and until Beneficiary
actually takes possession of the Mortgaged Property, nor to obligate Beneficiary
to take any action or incur any expense or discharge any duty or liability under
or in respect of any leases or other agreements relating to the Mortgaged
Property or any part thereof.
Section 4.02. Security Agreement and Fixture Filing. This Deed
constitutes a security agreement under the Uniform Commercial Code as adopted in
the State of Utah with respect to the Chattels and such other of the Mortgaged
Property which is personal property or which are fixtures and not yet realty.
Grantor desires and intends that this Deed also constitute a Fixture Filing
between Grantor as debtor and Beneficiary as secured party. To this end, Grantor
acknowledges (a) that this Deed covers goods which are or are to become
fixtures, (b) this financing statement is to be recorded in the real estate
records, (c) Grantor is the record owner of the Premises and (d) products of
collateral are also covered. No financing statement covering the personal
property or any portion thereof is on file in any public office, other than
financing statements with respect to obligations assumed by Grantor in
connection with its purchase thereof from Promus Florida. Grantor will not
remove or permit the removal of the collateral or any part thereof without the
prior written permission of Beneficiary. In addition to the rights and
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remedies granted to Beneficiary by other applicable law or hereby, Beneficiary
shall have all of the rights and remedies with respect to the Chattels and such
other personal property as are granted to a secured party under the Uniform
Commercial Code as adopted in the State of Utah. Upon Beneficiary's request
after an Event of Default, Grantor shall promptly and at its expense assemble
the Chattels and such other personal property and make the same available to
Beneficiary at a convenient place acceptable to Beneficiary. Grantor, after an
Event of Default, shall pay to Beneficiary on demand, with interest at the
Default Rate, any and all expenses, including attorneys' fees, incurred by
Beneficiary in protecting its interest in the Chattels and such other personal
property and in enforcing its rights with respect thereto. Any notice of sale,
disposition or other intended action by Beneficiary with respect to the Chattels
and such other personal property sent to Grantor in accordance with the
provisions hereof at least five (5) days prior to such action shall constitute
reasonable notice to Grantor. The proceeds of any such sale or disposition, or
any part thereof, may be applied by Beneficiary to the payment of the
indebtedness secured hereby in such order and proportions as Beneficiary in its
discretion shall deem appropriate. To the extent Grantor may lawfully do so and
without limiting any rights and/or privileges herein granted to Beneficiary,
Grantor agrees that Beneficiary and/or Trustee and any successor Trustee may
dispose of any or all of the Chattels at the same time and place and after
giving the same notices provided in this Deed in connection with a non-judicial
foreclosure sale under the terms and conditions set forth in Article II, Section
2.01, or III of this Deed. In this connection, Grantor agrees that the sale may
be conducted by Trustee or successor Trustee; that the sale of the real estate
and improvements described in this Deed and the Chattels or any part thereof,
may be sold separately or together; and that in the event the Premises and the
Chattels or any part thereof are sold together, Beneficiary will not be
obligated to allocate the consideration received as between the Premises and the
Chattels.
Section 4.03. Application of Certain Payments. In the event that all or
any part of the Mortgaged Property is encumbered by one or more deeds of trust
held by or for the benefit of Beneficiary, Grantor hereby irrevocably authorizes
and directs Beneficiary to apply any payment received by Beneficiary in respect
of any note secured hereby or by any other such deed of trust to the payment of
such of said notes as Beneficiary shall elect in its sole and absolute
discretion, and Beneficiary shall have the right to apply any such payment in
reduction of principal and/or interest and in such order and amounts as
Beneficiary shall elect in its sole and absolute discretion without regard to
the priority of the deed of trust securing the note so repaid or to contrary
directions from Grantor or any other party.
Section 4.04. Severability. In the event any one or more of the
provisions contained herein or in the Note shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof, but this Deed
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein or therein.
Section 4.05. Modifications and Waivers in Writing. No provision hereof
may be changed, waived, discharged or terminated orally or by any other means
except an instrument in writing signed by the party against whom enforcement of
the change,
25
<PAGE>
waiver, discharge or termination is sought. Any agreement hereafter made by
Grantor and Beneficiary relating hereto shall be superior to the rights of the
holder of any intervening or subordinate lien or encumbrance.
Section 4.06. Notices. All notices, demands, consents, approvals and
statements required or permitted hereunder shall be in writing and shall be
deemed to have been sufficiently given or served for all purposes when presented
personally, three (3) days after mailing by registered or certified mail,
postage prepaid, or one (1) day after delivery to a nationally recognized
overnight courier service providing evidence of the date of delivery, if to
Grantor at its address stated above, with a copy to Thomas E. Davis, Esq.,
Jenkens & Gilchrist, 1445 Ross Avenue, Suite 3200, Dallas, Texas 75202-2799, and
if to Beneficiary to its address stated above, or at such other address of which
a party shall have notified the party giving such notice in accordance with the
provisions of this Section.
Section 4.07. Successors and Assigns. All of the grants, covenants,
terms, provisions and conditions herein shall run with the land and shall apply
to, bind and inure to the benefit of, the successors and assigns of Grantor, the
successors in trust of Trustee and the endorsees, transferees, successors and
assigns of Beneficiary.
Section 4.08. Limitation on Interest. Anything herein or in the Note to
the contrary notwithstanding, the obligations of Grantor hereunder and under the
Note shall be subject to the limitation that payments of interest shall not be
required to the extent that receipt of any such payment by Beneficiary would be
contrary to provisions of law applicable to Beneficiary limiting the maximum
rate of interest that may be charged or collected by Beneficiary.
Section 4.09. Counterparts. This Deed may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original; and all such counterparts shall together constitute but one and
the same deed.
Section 4.10. Substitute Deeds. Grantor and Beneficiary shall, upon
their mutual agreement to do so, execute such documents as may be necessary in
order to effectuate the modification hereof, including the execution of
substitute deeds of trust, so as to create two (2) or more liens on or security
titles in respect of the Mortgaged Property in such amounts as may be mutually
agreed upon but in no event to exceed, in the aggregate, the unpaid principal
portion of the Note Amount; in such event, Grantor covenants and agrees to pay
the reasonable fees and expenses of Beneficiary and its counsel in connection
with any such modification.
Section 4.11. Beneficiary's Sale of Interests in Loan. Grantor
recognizes that Beneficiary may sell and transfer interests in the Loan to one
or more participants or assignees and that all documentation, financial
statements, appraisals and other data, or copies thereof, relevant to Grantor,
any Guarantor or the Loan, may be exhibited to and retained by any such
participant or assignee or prospective participant or assignee.
26
<PAGE>
Section 4.12. No Merger of Interests. Unless expressly provided
otherwise, in the event that ownership hereof and title to the fee and/or
leasehold estates in the Premises encumbered hereby shall become vested in the
same person or entity, this Deed shall not merge in said title but shall
continue to be and remain a valid and subsisting lien and/or trust deed on said
estates in the Premises for the amount secured hereby.
Section 4.13. CERTAIN WAIVERS. GRANTOR EXPRESSLY AND UNCONDITIONALLY
WAIVES BY EXECUTION HEREOF, AND BENEFICIARY WAIVES BY ACCEPTANCE HEREOF, IN
CONNECTION WITH ANY FORECLOSURE OR SIMILAR ACTION OR PROCEDURE BROUGHT BY
BENEFICIARY ASSERTING AN EVENT OF DEFAULT UNDER CLAUSE (A) OF SECTION 2.01 OF
THIS DEED, ANY AND EVERY RIGHT IT MAY HAVE TO A TRIAL BY JURY.
Section 4.14. GOVERNING LAW. THE PERFORMANCE REQUIRED BY THIS DEED
SHALL, INSOFAR AS IS POSSIBLE, BE RENDERED TO THE BENEFICIARY AT ITS OFFICE IN
TENNESSEE. GRANTOR AND BENEFICIARY INTEND THAT THE VALIDITY AND CONSTRUCTION OF
THE OBLIGATIONS SECURED BY THIS DEED BE GOVERNED BY THE LAWS OF THE STATE OF
TENNESSEE INCLUDING ALL OBLIGATIONS AND LIABILITIES HEREUNDER WITH RESPECT TO
THE PAYMENT OF INTEREST OR ANY OTHER COMPENSATION FOR THE USE, FORBEARANCE OR
DETENTION OF MONEY. THIS DEED SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TENNESSEE, WITHOUT REFERENCE TO THE CONFLICTS OF LAW
PRINCIPLES OF THAT STATE, EXCEPT ONLY TO THE EXTENT THAT UTAH LAW EXPRESSLY
PROVIDES THAT IT GOVERNS AND THAT A CONTRARY AGREEMENT BY THE PARTIES IS
INEFFECTIVE AND EXCEPT THAT THE LAW OF THE STATE OF UTAH SHALL APPLY TO ANY AND
ALL ACTS WITH RESPECT TO THE CREATION AND PRIORITY OF THE LIEN OF THE DEED AND
ASSIGNMENT OF LEASES AND RENTS ON THE MORTGAGED PROPERTY HEREBY EVIDENCED AND
FORECLOSURE BY TRUSTEE ON THE MORTGAGED PROPERTY. GRANTOR, BENEFICIARY AND
TRUSTEE COVENANT AND AGREE TO TAKE ANY AND ALL ACTION WHICH MAY BE NECESSARY
UNDER UTAH LAW WITH RESPECT TO FORECLOSURE UNDER THE LAWS OF THE STATE OF UTAH.
SHOULD ANY OBLIGATION OR REMEDY UNDER THIS DEED BE INVALID OR UNENFORCEABLE
UNDER THE LAWS PROVIDED HEREIN TO GOVERN, THE LAWS OF ANOTHER STATE WHOSE LAWS
CAN VALIDATE AND APPLY TO THIS DEED SHALL APPLY.
27
<PAGE>
IN WITNESS WHEREOF, this Deed has been duly executed and delivered by
Grantor.
APPLE SUITES, INC.,
a Virginia corporation
By /s/ Glade M. Knight [L.S.]
---------------------------------
Name: Glade M. Knight
Title: President
APPLE SUITES MANAGEMENT, INC.,
a Virginia corporation
By /s/ Glade M. Knight [L.S.]
---------------------------------
Name: Glade M. Knight
Title: President
<PAGE>
STATE OF TEXAS
COUNTY OF DALLAS
On the 20th day of December, A.D. 1999 personally appeared before me
Glade Knight who being by me duly sworn did say, for himself, that he is the
President of Apple Suites, Inc., that he executed the above instrument on behalf
of said corporation by authority of a resolution of its board of directors and
said Glade Knight duly acknowledged to me that said corporation executed the
same.
/s/ Deanna Jost
---------------------------------
Notary Public
Residing at:
3773 Timberglen Road
---------------------------------
Dallas, Texas 75287
---------------------------------
My commission expires:
April 8, 2003
- ---------------------------
Notary Seal
STATE OF TEXAS
COUNTY OF DALLAS
On the 20th day of December, A.D. 1999 personally appeared before me
Glade Knight who being by me duly sworn did say, for himself, that he is the
President of Apple Suites Management, Inc., that he executed the above
instrument on behalf of said corporation by authority of a resolution of its
board of directors and said Glade Knight duly acknowledged to me that said
corporation executed the same.
/s/ Deanna Jost
---------------------------------
Notary Public
Residing at:
3773 Timberglen Road
---------------------------------
Dallas, Texas 75287
---------------------------------
My commission expires:
April 8, 2003
- -------------------------
Notary Seal
<PAGE>
Salt Lake City
SCHEDULE A
LEGAL DESCRIPTION OF PREMISES
PARCEL 1:
Beginning at a point on the South right of way line of North Union Avenue, said
point being North 1610.42 feet and West 1313.30 feet from the center of Section
29, Township 2 South, Range 1 East, Salt Lake Base and Meridian, said point of
beginning also being South 86 deg. 36'20" West 362.84 feet and South 33.06 feet
from the Salt Lake County monument in the intersection of 900 East Street and
North Union Avenue; and running thence South 59.14 feet; thence South 27 deg.
15' West 392.70 feet; thence North 72 deg 00' West 272.80 feet; thence North 6
deg. 20'50" West 255.50 feet to the South right of way line of North Union
Avenue; thence North 71 deg. 47' 20" East along said South line 70.07 feet to a
point of a 730.94 foot radius curve to the right; thence Northeasterly along the
arc of said curve and right of way line 189.02 feet to a point of tangency;
thence North 86 deg. 36'20" East along said South right of way line 216.17 feet
to the point of beginning.
PROPERTY ADDRESS: 844-846 EAST NORTH UNION AVENUE
MIDVALE, UTAH 84047
PARCEL 2:
Beginning at a point South 970 feet, more or less, and South 86 deg. 30' West
223.9 feet from the Northwest corner of the East half of the Northwest quarter
of Section 29, Township 2 South, Range 1 East, Salt Lake Base and Meridian;
thence South 86 deg. West 147.68 feet, more or less; thence North 15 deg. 30'
East 117 feet, more or less; thence Easterly along curve to the right 102.13
feet, more or less; thence South 153.41 feet to the point of beginning.
PROPERTY ADDRESS: 801 EAST NORTH UNION AVENUE
MIDVALE, UTAH 84047
<PAGE>
SCHEDULE A (continued)
AS SURVEYED, SOUTH PARCEL:
Beginning at a point on the South right of way line of North Union Avenue, said
point being North 1610.42 feet and West 1313.30 feet from the center of Section
29, Township 2 South, Range 1 East, Salt Lake Base and Meridian, said point of
beginning also being South 89 deg. 36'20" West 362.84 feet and South 33.06 feet
from the Salt Lake County Monument in the intersection of 900 East Street and
North Union Avenue; and running thence South 59.14 feet; thence South 27 deg.
15'00" West 392.70 feet; thence North 72 deg. 00' West 272.80 feet; thence North
6 deg. 20'50" West 255.50 feet to the South right of way line of North Union
Avenue; thence North 71 deg. 47'20" East along said South line 70.07 feet to a
point of a 730.94 foot radius curve to the right; thence Northeasterly along the
arc of said curve and right of way line 189.02 feet to a point of tangency;
thence North 86 deg. 36'20" East along said South right of way line 216.17 feet
to the pint of beginning.
AS SURVEYED, NORTH PARCEL:
Beginning at a point on the North right of way line of North Union Avenue and on
the arc of a 796.94 foot radius curve to the left, said point being South 965.80
feet and South 86 deg. 30'0" West 223.90 feet from the Northwest corner of the
East half of the Northwest quarter of Section 29, Township 2 South, Range 1
East, Salt Lake Base and Meridian; and running thence Southwesterly along said
North line and along the arc of said curve 145.17 feet (chord bears South 80
deg. 22'00" West 144.97 feet); thence North 16 deg. 15'00" East 156.93 feet
along a fence to a point on the arc of 749.51 foot radius curve to the right;
thence Northeasterly along the South line of Fort Union Boulevard and along the
arc of said curve 103.09 feet (chord bears North 76 deg. 32'32" East 103.01
feet); thence South 0 deg. 26'56" West 150.38 feet to the point of beginning.
Exhibit 4.7
SECOND
DEED OF TRUST MODIFICATION AGREEMENT
SECOND DEED OF TRUST MODIFICATION AGREEMENT (this "Agreement")
made this 22nd day of December, 1999, among PROMUS HOTELS, INC., a Delaware
corporation, having an office at 755 Crossover Lane, Memphis, Tennessee
38117-4900 ("Beneficiary"), APPLE SUITES REIT LIMITED PARTNERSHIP, a Virginia
limited partnership ("Fee Owner"), APPLE SUITES SERVICES LIMITED PARTNERSHIP, a
Virginia limited partnership ("Lessee"; together with Fee Owner, collectively,
"Grantor"), each of Fee Owner and Lessee having an office at 306 East Main
Street, Richmond, Virginia 23219, and DAVID LONG, an individual, having an
address at Hoge, Evans, Holmes, Carter & Ledbetter, PLLC, 4311 Oak Lawn Avenue,
Suite 600, Dallas, Texas 75219 ("Trustee").
Preliminary Statement
Beneficiary is the beneficiary under, and the lawful owner and
holder of the obligations secured by, the Fee and Leasehold Deed of Trust,
Assignment of Leases and Rents and Security Agreement, securing the Note Amount
of $37,560,000, dated October 5, 1999, from Grantor to Trustee, as trustee,
recorded in the County Clerk's Office in Collin County, Texas on October 6, 1999
in Book 04516 at Page 01103, as amended by Deed of Trust Modification Agreement
dated November 29, 1999 from Grantor to Trustee, as trustee, which has been or
is to be recorded in the County Clerk's Office in Collin County, Texas (as
amended, the "Deed of Trust"). The Deed of Trust secures a $7,350,000 note of
Apple Suites, Inc. ("Borrower") dated October 5, 1999 and a $30,210,000 note of
Borrower dated November 29, 1999 (said notes, collectively, the
<PAGE>
"Original Notes"), which Original Notes evidence purchase money loans
(collectively, the "Loans") in the aggregate amount of $37,560,000 from
Beneficiary to Grantor. Borrower indirectly owns one hundred percent (100%) of
the beneficial interests in Fee Owner.
Pursuant to an Agreement of Sale dated November 22, 1999 between
Beneficiary, Hampton Inns, Inc. and Promus Hotels Florida, Inc., as sellers, and
Borrower, as buyer, Borrower is on the date hereof to acquire certain premises
described therein and in connection therewith, Borrower will borrow $4,384,500
from Beneficiary and has executed and delivered to Beneficiary its note, dated
the date hereof, obligating it to pay the sum of $4,384,500 (the "New Note").
In consideration of such additional loan by Beneficiary to Borrower,
Beneficiary and Grantor have agreed to modify the Deed of Trust to secure the
New Note and thereby increase the Note Amount secured by the Deed of Trust and
in the manner hereinafter set forth, and Trustee has agreed to join in the
execution of this Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto covenant and agree as follows:
1. The Deed of Trust is modified as follows: The term "Note" shall mean,
collectively, the Original Notes and the New Note, as the same may hereafter be
amended, modified, extended, severed, assigned, renewed or restated, from time
to time and the term "Note Amount" shall mean $41,944,500.
2. Grantor warrants and represents that there are no defenses, offsets or
counterclaims with respect to its obligations under the Deed of Trust, as
modified hereby, including, without limitation, its obligation for the payment
of the Note.
2
<PAGE>
3. Except as modified in the manner set forth above, the Deed of Trust
shall remain unmodified and in full force and effect.
4. This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and any party
hereto may execute this Agreement by signing any such counterpart.
[Remainder of page intentionally left blank.]
3
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by each of the parties hereto as of the date first above written.
PROMUS HOTELS, INC.
By /s/ Joseph P. Pidkowicz
-----------------------
Joseph P. Pidkowicz
Vice President
APPLE SUITES REIT LIMITED
PARTNERSHIP, a Virginia limited
partnership
By: Apple Suites General, Inc., its
general partner
By /s/ Glade M. Knight
----------------------
Name: Glade M. Knight
Title: President
APPLE SUITES SERVICES LIMITED
PARTNERSHIP, a Virginia limited
partnership
By: Apple Suites Services General,
Inc., its general partner
By /s/ Glade M. Knight
----------------------
Name: Glade M. Knight
Title: President
/s/ David Long
----------------------
DAVID LONG, as Trustee
<PAGE>
STATE OF TENNESSEE
COUNTY OF SHELBY
THIS INSTRUMENT was acknowledged before me on the 16th day of
December, 1999, by Joseph P. Pidkowicz, Vice President of Promus Hotels, Inc., a
Delaware corporation.
/s/ Julia A. Hill
---------------------------------
Notary Public, State of Tennessee
Printed Name: Julia A. Hill
Commission Expires: September 8, 2003
<PAGE>
STATE OF TEXAS
COUNTY OF DALLAS
THIS INSTRUMENT was acknowledged before me on the 20th day of
December, 1999, by Glade M. Knight, President of Apple Suites General, Inc., a
Virginia corporation, as general partner of Apple Suites REIT Limited
Partnership, on behalf of said Apple Suites General, Inc., as general partner of
Apple Suites REIT Limited Partnership.
/s/ Deanna Jost
----------------------------------
Notary Public, State of Texas
Printed Name: Deanna Jost
Commission Expires: April 8, 2003
<PAGE>
STATE OF TEXAS
COUNTY OF DALLAS
THIS INSTRUMENT was acknowledged before me on the 20th day of
December, 1999, by Glade M. Knight, President of Apple Suites Services General,
Inc., a Virginia corporation, as general partner of Apple Suites Services
Limited Partnership, on behalf of said Apple Suites Services General, Inc., as
general partner of Apple Suites Services Limited Partnership.
/s/ Deanna Jost
----------------------------------
Notary Public, State of Texas
Printed Name: Deanna Jost
Commission Expires: April 8, 2003
<PAGE>
STATE OF TEXAS
COUNTY OF DALLAS
THIS INSTRUMENT was acknowledged before me on the 17th day of
December, 1999, by David Long, an individual.
/s/ Reagan Lee Samuels
----------------------------------
Notary Public, State of Texas
Printed Name: Reagan Lee Samuels
Commission Expires: March 24, 2001
Exhibit 4.8
SECOND
DEED OF TRUST MODIFICATION AGREEMENT
SECOND DEED OF TRUST MODIFICATION AGREEMENT (this "Agreement")
made this 22nd day of December, 1999, among PROMUS HOTELS, INC., a Delaware
corporation, having an office at 755 Crossover Lane, Memphis, Tennessee
38117-4900 ("Beneficiary"), APPLE SUITES REIT LIMITED PARTNERSHIP, a Virginia
limited partnership ("Fee Owner"), APPLE SUITES SERVICES LIMITED PARTNERSHIP, a
Virginia limited partnership ("Lessee"; together with Fee Owner, collectively,
"Grantor"), each of Fee Owner and Lessee having an office at 306 East Main
Street, Richmond, Virginia 23219, and DAVID LONG, an individual, having an
address at Hoge, Evans, Holmes, Carter & Ledbetter, PLLC, 4311 Oak Lawn Avenue,
Suite 600, Dallas, Texas 75219 ("Trustee").
Preliminary Statement
Beneficiary is the beneficiary under, and the lawful owner and
holder of the obligations secured by, the Fee and Leasehold Deed of Trust,
Assignment of Leases and Rents and Security Agreement, securing the Note Amount
of $37,560,000, dated October 5, 1999, from Grantor to Trustee, as trustee,
recorded in the County Clerk's Office in Dallas County, Texas on October 6, 1999
in Book 99195 at Page 05671, as amended by Deed of Trust Modification Agreement
dated November 29, 1999 from Grantor to Trustee, as trustee, which has been or
is to be recorded in the County Clerk's Office in Dallas County, Texas (as
amended, the "Deed of Trust"). The Deed of Trust secures a $7,350,000 note of
Apple Suites, Inc. ("Borrower") dated October 5, 1999 and a $30,210,000 note of
Borrower dated November 29, 1999 (said notes, collectively, the
<PAGE>
"Original Notes"), which Original Notes evidence purchase money loans
(collectively, the "Loans") in the aggregate amount of $37,560,000 from
Beneficiary to Grantor. Borrower indirectly owns one hundred percent (100%) of
the beneficial interests in Fee Owner.
Pursuant to an Agreement of Sale dated November 22, 1999 between
Beneficiary, Hampton Inns, Inc. and Promus Hotels Florida, Inc., as sellers, and
Borrower, as buyer, Borrower is on the date hereof to acquire certain premises
described therein and in connection therewith, Borrower will borrow $4,384,500
from Beneficiary and has executed and delivered to Beneficiary its note, dated
the date hereof, obligating it to pay the sum of $4,384,500 (the "New Note").
In consideration of such additional loan by Beneficiary to Borrower,
Beneficiary and Grantor have agreed to modify the Deed of Trust to secure the
New Note and thereby increase the Note Amount secured by the Deed of Trust and
in the manner hereinafter set forth, and Trustee has agreed to join in the
execution of this Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto covenant and agree as follows:
1. The Deed of Trust is modified as follows: The term "Note" shall mean,
collectively, the Original Notes and the New Note, as the same may hereafter be
amended, modified, extended, severed, assigned, renewed or restated, from time
to time and the term "Note Amount" shall mean $41,944,500.
2. Grantor warrants and represents that there are no defenses, offsets or
counterclaims with respect to its obligations under the Deed of Trust, as
modified hereby, including, without limitation, its obligation for the payment
of the Note.
2
<PAGE>
3. Except as modified in the manner set forth above, the Deed of Trust
shall remain unmodified and in full force and effect.
4. This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and any party
hereto may execute this Agreement by signing any such counterpart.
[Remainder of page intentionally left blank.]
3
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by each of the parties hereto as of the date first above written.
PROMUS HOTELS, INC.
By /s/ Joseph P. Pidkowicz
-----------------------------
Joseph P. Pidkowicz
Vice President
APPLE SUITES REIT LIMITED
PARTNERSHIP, a Virginia limited
partnership
By: Apple Suites General, Inc.,
its general partner
By /s/ Glade M. Knight
-----------------------------
Name: Glade M. Knight
Title: President
APPLE SUITES SERVICES LIMITED
PARTNERSHIP, a Virginia limited
partnership
By: Apple Suites Services General,
Inc., its general partner
By /s/ Glade M. Knight
-----------------------------
Name: Glade M. Knight
Title: President
/s/ David Long
-----------------------------
DAVID LONG, as Trustee
<PAGE>
STATE OF TENNESSEE
COUNTY OF SHELBY
THIS INSTRUMENT was acknowledged before me on the 16th day of
December, 1999, by Joseph P. Pidkowicz, Vice President of Promus Hotels, Inc., a
Delaware corporation.
/s/ Julia A. Hill
-----------------------------------
Notary Public, State of Tennessee
Printed Name: Julia A. Hill
Commission Expires: September 8, 2003
<PAGE>
STATE OF TEXAS
COUNTY OF DALLAS
THIS INSTRUMENT was acknowledged before me on the 20th day of
December, 1999, by Glade M. Knight, President of Apple Suites General, Inc., a
Virginia corporation, as general partner of Apple Suites REIT Limited
Partnership, on behalf of said Apple Suites General, Inc., as general partner of
Apple Suites REIT Limited Partnership.
/s/ Deanna Jost
-------------------------------------
Notary Public, State of Texas
Printed Name: Deanna Jost
Commission Expires: April 8, 2003
<PAGE>
STATE OF TEXAS
COUNTY OF DALLAS
THIS INSTRUMENT was acknowledged before me on the 20th day of
December, 1999, by Glade M. Knight, President of Apple Suites Services General,
Inc., a Virginia corporation, as general partner of Apple Suites Services
Limited Partnership, on behalf of said Apple Suites Services General, Inc., as
general partner of Apple Suites Services Limited Partnership.
/s/ Deanna Jost
-------------------------------------
Notary Public, State of Texas
Printed Name: Deanna Jost
Commission Expires: April 8, 2003
<PAGE>
STATE OF TEXAS
COUNTY OF DALLAS
THIS INSTRUMENT was acknowledged before me on the 17th day of
December, 1999, by David Long, an individual.
/s/ Reagan Lee Samuels
-------------------------------------
Notary Public, State of Texas
Printed Name: Reagan Lee Samuels
Commission Expires: March 24, 2001
Exhibit 10.1
EXHIBIT 10.1
[Mississippi]
INDEMNITY
December 22, 1999
Promus Hotels, Inc.
755 Crossover Lane
Memphis, Tennessee 38117-4900
Attention: General Counsel
Loan: Purchase money financings aggregating $68,569,500
Borrower: Apple Suites, Inc.
Premises: 853 Centre Street, Ridgeland, Mississippi
Dear Sirs:
Except to the extent of any existing liability of you and/or
your affiliates for Corrective Work with respect to Hazardous Materials
currently in, on or under the Property, for good and valuable consideration in
hand received, the undersigned, and if there are two or more signers, each of
us, hereby jointly and severally covenants and agrees for your benefit, in
addition to, and not in limitation of, any other rights and remedies available
to you at law or in equity, as follows:
1. Definitions: The following terms shall be defined as set forth
below.
(a) Corrective Work: The removal, relocation,
elimination, remediation or encapsulation of
Hazardous Materials from all or any portion of the
Property and (to the extent provided in Subparagraph
2(b) hereof) surrounding areas and, to the extent
thereby required, the reconstruction and
rehabilitation of the Property pursuant to, and in
compliance with, Governmental Requirements;
(b) Governmental Requirements: Any present and future (i)
federal, state or local laws, rules or regulations
and (ii) judicial or administrative interpretation
thereof, including any judicial or administrative
orders or judgments;
(c) Hazardous Materials: (i) Asbestos and polychlorinated
biphenyls and (ii) hazardous or toxic materials,
wastes and substances which are defined, determined
or identified as such (including petroleum
<PAGE>
products if they are defined, determined or
identified as such) in, or subject to, any
Governmental Requirements, in each case in amounts in
violation of applicable Governmental Requirements;
(d) Indemnified Losses: Incurred damages, losses,
liabilities, costs and expenses of Corrective Work,
including, without limitation, obligations,
penalties, fines, impositions, fees, levies, lien
removal or bonding costs, claims, litigation,
demands, defenses, judgments, suits, proceedings,
costs, disbursements or expenses (including, without
limitation, attorneys' and experts' reasonable fees
and disbursements) of any kind and nature whatsoever,
including interest thereon;
(e) Loan Documents: The documents comprising the total
documentation pertaining to the Loan indicated above
made to, or for the benefit of, the above-named
Borrower, including, without limitation, and as
applicable, any loan agreement, building loan or
construction loan agreement, note, mortgage, deed of
trust, security agreement, assignment of leases and
rents, any guaranty or guaranties (whether of payment
and/or performance), pledge agreement, commitments,
letters of credit, assignment of partnership
interests, and all other instruments and documents
evidencing, securing, or collateral to, the Loan;
(f) Property: The land more particularly described in
Exhibit A hereto attached and as indicated above,
together with the buildings, improvements, structures
and betterments now or hereafter existing thereon or
thereunder.
2. (a) Except as hereinafter limited in Paragraph 9 and
Subparagraphs 2(b) and 2(c), the undersigned covenant and
agree, at their sole cost and expense, to indemnify, protect
and save you harmless against and from any and all Indemnified
Losses which may at any time be imposed upon, incurred by or
asserted or awarded against you arising from, out of,
attributable to or by reason of, the:
(i) nonperformance or delayed performance and completion
of Corrective Work; or
(ii) enforcement of this Indemnity or the assertion by the
undersigned of any defense to its obligations
hereunder (except the successful defense of actual
performance not subject to further appeal);
whether the Indemnified Losses arise before, during or after,
enforcement of the remedies and rights available to you under
the Loan Documents, including the acquisition of title to all
or any portion of the Property
2
<PAGE>
by you or your successors or affiliates (as such terms are
defined in Paragraph 8(a) hereof).
(b) The Indemnified Losses shall not extend to the costs of
Corrective Work pertaining to surrounding areas if the
applicable Hazardous Materials did not originate from any
portion of the Property, unless the removal of the Hazardous
Materials from the surrounding areas by Borrower is
necessitated by Governmental Requirements.
(c) If you, or any of your successors or affiliates, take
(i) title to the Property at a foreclosure sale, at a
sale pursuant to a power of sale under a mortgage or
deed of trust, or by deed in lieu of foreclosure, or
by exercise of other remedial rights; or
(ii) possession, custody and control of the Property
as a mortgagee-in-possession or through court
designated receiver and Borrower, and its successors
or affiliates, never reacquire such possession,
custody and control,
then the Indemnified Losses shall not include or apply to
Hazardous Materials which are initially placed on, in or under
all or any portion of the Property at any time thereafter.
3. (a) So long as Borrower is in possession, custody and control
of the Property you agree that prior to the undertaking of
Corrective Work by you, the Borrower or the undersigned may at
their sole cost and expense contest the Governmental
Requirements and/or perform any Corrective Work, provided that
at all times all of the following conditions are continuously
satisfied in full:
(i) no uncured event of default (other than as
related to the Hazardous Materials involved in such
contest or Corrective Work) exists under any of the
Loan Documents;
(ii) you (and your agents, officers, directors,
servants, employees, contractors and shareholders)
shall not be subject to any criminal or other
penalties, fines, costs or expenses, by reason of
such contest or Corrective Work or any delays in
connection therewith;
(iii) unless the undersigned has instituted a contest
as permitted hereunder with respect to any Corrective
Work, the undersigned shall commence the Corrective
Work promptly after obtaining actual knowledge of the
Hazardous Materials on, in, under or affecting the
Property or any surrounding areas, but at least
fifteen (15) days prior to commencement of such
Corrective Work, submit to you in conformity with
your reasonable requirements (which
3
<PAGE>
requirements may not create conditions which violate
Governmental Requirements), reasonably detailed plans
for such Corrective Work complying with Governmental
Requirements. If, within said fifteen (15)-day
period, you, in your reasonable judgment, reject such
plans, the undersigned shall promptly submit revised
plans conforming to your reasonable requirements to
you for your approval. If within fifteen (15) days
from your receipt of the original plans, or revised
plans, you fail to approve or reject such original
plans, or revised plans, as the case may be, the same
shall be deemed accepted by you. All Corrective Work
shall be performed in compliance with such approved
original or revised plans;
(iv) a contest, if instituted, shall be instituted
promptly after the undersigned, or Borrower, obtains
actual knowledge of an action, suit, proceeding, or
governmental order or directive which asserts any
obligation or liability affecting all or any portion
of the Property, or Borrower or any of the
undersigned and diligently prosecuted until a final
judgment is obtained;
(v) Corrective Work shall be instituted promptly
following an unsuccessful nonappealable completion of
the contest and shall be diligently prosecuted until
the Hazardous Materials involved in the contest are
removed, relocated, encapsulated and/or disposed of
as required by the Governmental Requirements;
(vi) the undersigned shall notify you within ten (10)
days after commencement of such contest or Corrective
Work and shall render to you a written monthly report
detailing the progress thereof including such
information as you shall reasonably request; and
(vii) if you are named in any action or proceeding as
a necessary party or as a party defendant relating to
matters covered by this Indemnity, you agree to
utilize counsel designated by the undersigned,
subject to your right of approval, not to be
unreasonably withheld or delayed. If you are not
named in any such action or proceeding, you, at your
expense, shall have the right (but not the
obligation) to join in any action or proceeding in
which the undersigned or Borrower contests any
Governmental Requirements.
So long as all of such conditions are continuously satisfied,
you agree that you will not enter into any settlement
agreement binding upon the undersigned, or Borrower, without
their prior consent, which consent will not be unreasonably
withheld or delayed.
4
<PAGE>
(b) Promptly after the receipt by you of written notice of any
demand or claim or the commencement of any action, suit or
proceeding in respect of any of the Indemnified Losses, you
shall notify the undersigned thereof in writing, but the
failure by you promptly to give such notice shall not relieve
the undersigned of any of their obligations under this
Indemnity, except to the extent of prejudice to any defense to
such Indemnified Losses resulting from such delay.
4. The liability of the undersigned under this Indemnity shall in
no way be limited or impaired by (a) any amendment or
modification of the Loan Documents; (b) any extensions of time
for performance required by any of the Loan Documents; (c) any
sale, assignment or foreclosure pursuant to the Loan Documents
or any sale or transfer of all or any part of the Property;
(d) any exculpatory provision in any of the Loan Documents
limiting your recourse to the Property or to any other
security, or limiting your rights to a deficiency judgment
against Borrower, or the undersigned; (e) the accuracy or
inaccuracy of any representations or warranties made to you
under the Loan Documents; (f) the release of Borrower or any
other person from performance or observance of any of the
agreements, covenants, terms or conditions contained in any of
the Loan Documents by operation of law, your voluntary act, or
otherwise; (g) the release or substitution, in whole or in
part, of any security for the note or other evidence of debt
issued pursuant to the Loan Documents; (h) your failure to
record or file any of the Loan Documents (or your improper
recording or filing of any thereof) or to otherwise perfect,
protect, secure or insure any security interest or lien given
as security for the note or other evidence of indebtedness
under the Loan Documents, (i) any other action or circumstance
whatsoever which constitutes, or might be construed to
constitute, a legal or equitable discharge or defense of
Borrower or others for their obligations under any of the Loan
Documents or of the undersigned for their obligations under
this Indemnity or (j) the invalidity, irregularity or
unenforceability, in whole or in part, of any of the Loan
Documents; and in any of such cases, whether with or without
notice to Borrower or the undersigned and with or without
consideration.
5. The undersigned (a) waive any right or claim of right to cause
a marshalling of the undersigned's assets or to cause you to
proceed against any of the security for the Loan Documents
before proceeding under this Indemnity or to cause you to
proceed against the undersigned in any particular order; (b)
agree that any payments required to be made hereunder shall
become due on demand; (c) waive and relinquish all rights and
remedies accorded by applicable law to indemnitors or
guarantors, except any rights of subrogation which the
undersigned may have, provided that (i) the indemnity provided
for hereunder shall neither be contingent upon the existence
of any such rights of subrogation nor subject to any claims or
defenses whatsoever which may be asserted in connection with
the enforcement or attempted enforcement of such
5
<PAGE>
subrogation rights including, without limitation, any claim
that such subrogation rights were abrogated by any of your
acts, and (ii) the undersigned postpone and subordinate (A)
the exercise of any and all of their rights of subrogation to
your rights against the undersigned under this Indemnity and
(B) any rights of subrogation to any collateral securing the
Loan until the Loan shall have been paid in full.
6. No delay on your part in exercising any right, power or
privilege under any of the Loan Documents shall operate as a
waiver of any such privilege, right or power.
7. Any one or more of the undersigned, or any other party liable
upon or in respect of this Indemnity or the Loan, may be
released from liability (in whole or in part) under this
Indemnity or the Loan Documents without affecting the
liability hereunder of any of the undersigned not so released.
8. (a) This Indemnity shall be binding upon the undersigned and
their respective heirs, personal representatives, successors
and assigns and shall inure to the benefit of and, where
applicable, shall be binding upon, you and your successors and
affiliates, which acquire all or any part of the Property by
any sale, assignment or foreclosure under the Loan Documents,
by deed or other assignment in lieu of foreclosure, or
otherwise, including if you, or such successor, affiliate or
participant, is the successful bidder at a foreclosure or
other remedial sale. For purposes of this Indemnity your (i)
"successors" shall mean successors by merger, consolidation or
acquisition of all or a substantial part of your assets and
business and (ii) "affiliates" shall mean your parent, if any,
or its successors as above defined and any direct or indirect
subsidiary or affiliate of your parent or its successors as
above defined.
(b) Except as provided in Subparagraph 8(a) above, the
obligations of the undersigned under this Indemnity shall not
inure to the benefit of (i) any other purchaser of the
Property at a foreclosure sale or a sale pursuant to a power
of sale or other remedial rights under the Loan Documents or
(ii) any subsequent holder of the Loan Documents unless such
holder is your successor, affiliate or participant as
hereinabove defined.
9. (a) Except as provided in Subparagraph 9(b) hereof, this
Indemnity shall terminate and be of no further force and
effect upon payment in full by Borrower or guarantor of all
principal, interest and other sums and costs evidenced or
secured by the Loan Documents, provided that at the time of
such full payment neither you, nor your successors or
affiliates, have, at any time, or in any manner, through
exercise of their remedial rights under the Loan Documents,
participated in the management or control of, taken possession
of, or title to, the Property or any portion thereof, whether
by foreclosure, deed in lieu of foreclosure, sale under power
of sale pursuant to the Loan Documents, or otherwise.
6
<PAGE>
(b) Notwithstanding Subparagraph 9(a) above, the undersigned
agree that this Indemnity shall continue after full payment of
the Loan with respect to:
(i) litigation or administrative claims involving
Indemnified Losses pertaining to Hazardous Materials
covered by this Indemnity pending at the date of
payment in full of the Loan, and
(ii) reasonable costs and expenses (including
experts' and attorneys' fees and disbursements)
incurred or expended by you in (A) enforcing
Subparagraph 2(a)(ii) of this Indemnity or (B) any
litigation, arbitration, administrative claims or
matters relating to any Indemnified Losses
subsequently arising within four (4) years after the
date of such full payment (hereinafter called
("Subsequent Claims") involving Hazardous Materials
on, in or under the Property, or if covered by this
Indemnity, any surrounding areas, but the
undersigned's obligation under this Indemnity as to
Subsequent Claims is hereby limited and shall not
extend to payment of any monetary awards or damages
against you but only to the costs and expenses above
mentioned. You agree to utilize counsel designated by
the undersigned (whether or not the undersigned are
also parties defendant in such matters) subject to
your right of approval, not to be unreasonably
withheld or delayed.
10. This Indemnity shall continue to be effective, or be
reinstated automatically, as the case may be, if at any time
payment, in whole or in part, of any of the obligations
indemnified against hereby is rescinded or otherwise must be
restored or returned by you (whether as a preference,
fraudulent conveyance or otherwise) upon or in connection with
the insolvency, bankruptcy, dissolution, liquidation or
reorganization of Borrower, any of the undersigned or any
other person, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar
officer for, Borrower, any of the undersigned or any other
person or for a substantial part of Borrower's, any of the
undersigned's or any of such other person's property, as the
case may be, or otherwise, all as though such payment had not
been made. Each of the undersigned further agrees that in the
event any such payment is rescinded or must be restored or
returned, all costs and expenses (including, without
limitation, legal fees and expenses) incurred by you or on
your behalf in defending or enforcing such continuance or
reinstatement, as the case may be, shall constitute costs of
enforcement which are covered by each of the undersigned's
indemnification obligations under this Indemnity.
11. Each of the undersigned represents and covenants to you that:
(i) if a corporation, partnership, venture, trust or
limited liability company, it is duly organized,
validly existing and in good
7
<PAGE>
standing under the laws of the state of its formation
and has full power and authority to execute, deliver
and perform this Indemnity; each of the undersigned
will preserve and maintain such legal existence and
good standing;
(ii) there are no actions, suits or proceedings
pending or threatened against or affecting Borrower
or any of the undersigned, at law, in equity or
before or by any governmental authorities except
actions, suits or proceedings which are fully covered
by insurance or would, if adversely determined, not
be likely to have a material adverse effect on
Borrower's or any of the undersigned's business or
financial condition; neither Borrower nor any of the
undersigned is in material default with respect to
any order, writ, injunction, decree or demand of any
court or governmental authorities;
(iii) the consummation of the transactions
contemplated hereby and the performance of this
Indemnity have not resulted and will not result in
any breach of, or constitute a default under, any
mortgage, deed of trust, lease, bank loan or credit
agreement, corporate charter, by-laws, partnership
agreement or other instrument to which any of the
undersigned is a party or by which any of the
undersigned may be bound or affected; and
(iv) each of the undersigned is in compliance with,
and the transactions contemplated by this Indemnity
do not and will not violate any provision of, or
require any filing, registration, consent or approval
under, any federal, state or local law, rule,
regulation, ordinance, order, writ, judgment,
injunction, decree, determination or award
(hereinafter, "Laws") presently in effect having
applicability to it; each of the undersigned will
comply promptly with all Laws now or hereafter in
effect having applicability to it.
12. You shall, at all times, at your discretion and expense, be
free to independently establish to your satisfaction the
existence or non-existence of any fact or facts, the existence
or non-existence of which is a condition of this Indemnity or
any of its provisions.
13. This Indemnity may be executed in one or more counterparts,
each of which shall be deemed an original. Said counterparts
shall constitute but one and the same instrument and shall be
binding upon each of the undersigned as fully and completely
as if all had signed but one instrument. The joint and several
liability of the undersigned shall be unaffected by the
failure of any of the undersigned to execute any or all of the
counterparts.
8
<PAGE>
14. All notices hereunder shall be in writing and shall be deemed
to have been sufficiently given or served for all purposes
when sent by registered or certified mail, if to the
undersigned at their respective addresses stated on the
signature page hereof and if to you, at your address indicated
above, or at such other address of which a party shall have
notified the party giving such notice in writing in accordance
with the foregoing requirements.
15. No provision of this Indemnity may be changed, waived,
discharged or terminated orally, by telephone or by any other
means except by an instrument in writing signed by the party
against whom enforcement of the change, waiver, discharge or
termination is sought.
16. THE UNDERSIGNED BY EXECUTION HEREOF, AND YOU, BY ACCEPTANCE
HEREOF, HEREBY EXPRESSLY AND UNCONDITIONALLY WAIVE, IN
CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING BROUGHT BY YOU
ON THIS INDEMNITY, ANY AND EVERY RIGHT THEY MAY HAVE TO A
TRIAL BY JURY.
17. THIS INDEMNITY AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
TENNESSEE APPLICABLE TO THE INTERPRETATION, CONSTRUCTION AND
ENFORCEMENT OF INDEMNITIES (WITHOUT GIVING EFFECT TO
TENNESSEE'S PRINCIPLES OF CONFLICTS OF LAW). THE EXISTENCE OF
HAZARDOUS MATERIALS SHALL BE DETERMINED IN ACCORDANCE WITH
FEDERAL LAW AND STATE AND LOCAL LAWS OF THE STATE IN WHICH THE
PROPERTY IS LOCATED.
9
<PAGE>
18. THE UNDERSIGNED IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE
JURISDICTION OF ANY TENNESSEE STATE OR FEDERAL COURT SITTING
IN THE CITY OF MEMPHIS, STATE OF TENNESSEE, OVER ANY SUIT,
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
INDEMNITY AND THE UNDERSIGNED AGREE AND CONSENT THAT, IN
ADDITION TO ANY METHODS OF SERVICE OF PROCESS PROVIDED FOR
UNDER APPLICABLE LAW, ALL SERVICE OF PROCESS IN ANY SUCH SUIT,
ACTION OR PROCEEDING IN ANY ABOVE STATED COURT SITTING IN THE
CITY OF MEMPHIS MAY BE MADE BY CERTIFIED OR REGISTERED MAIL,
RETURN RECEIPT REQUESTED, DIRECTED TO THE UNDERSIGNED AT THEIR
RESPECTIVE ADDRESSES INDICATED ON THE SIGNATURE PAGE HEREOF,
AND SERVICE SO MADE SHALL BE COMPLETE FIVE (5) DAYS AFTER THE
SAME SHALL HAVE BEEN SO MAILED.
Very truly yours,
Indemnitor: Address Of Indemnitor:
- ----------- ----------------------
APPLE SUITES, INC., a 306 East Main Street
Virginia corporation Richmond, Virginia 23219
Attention: Mr. Glade M. Knight
By /s/ Glade M. Knight With a copy to:
- -------------------------------
Name: Glade M. Knight
Title: President Thomas E. Davis, Esq.
Jenkens & Gilchrist
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202-2799
This is to certify that this Indemnity was executed in my presence on
the date hereof by the parties whose signatures appear above in the capacities
indicated.
/s/ Deanna Jost
----------------------
Notary Public
My commission expires:
April 8, 2003
----------------------
10
<PAGE>
EXHIBIT A
Being situated in Lots 3 and 4 of Block 34 of Highland Colony, a
subdivision, the map or plat of which is recorded in the Office of the
Chancery Clerk of Madison County at Canton, Mississippi and being more
particularly described by metes and bounds as follows, to wit:
Commence at the Southwest corner of said Lot 3 and run thence North
0(Degree)18'31" East for a distance of 240.48 feet along with West line of
said Lot 3 to the POINT OF BEGINNING for the parcel herein described;
thence North 78(Degree)04'03" East for a distance of 472.795 feet to the
Southwest right-of-way line of Centre Street; thence North 31(Degree)57'26"
West for a distance of 88.98 feet along the Southwesterly edge of a
concrete curb and gutter, being the Southwest right-of-way line of Centre
Street; thence run 445.47 feet along the arc of 440.0 foot radius curve to
the left along the said Southwesterly edge of a concrete curb and gutter,
said arc having a 426.685 foot chord which bears North 60(Degree)57'40"
West; thence North 89(Degree)57'54" West for a distance of 179.25 feet
along the Southerly edge of a concrete curb and gutter, being the Southern
right-of-way line of Centre Street; thence leave said Southern right-of-way
line and run South 00(Degree)18'31" West for a distance of 379.32 feet;
thence South 89(Degree)31'28" East for a distance of 138.86 feet to the
POINT OF BEGINNING.
Exhibit 10.2
SCHEDULE 2.1(h)
COMMENCEMENT DATES
Homewood Suites(R) Jackson
Jackson, Mississippi
December 22, 1999
<PAGE>
SCHEDULE 3.1(a)-8
BASE RENTS
Homewood Suites(R) Jackson
Jackson, Mississippi
$462,750
<PAGE>
SCHEDULE 3.1(b)-8
SUITE REVENUE BREAKPOINT
HOMEWOOD SUITES(R) JACKSON
JACKSON, MISSISSIPPI
<TABLE>
<CAPTION>
- ------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- -----------
QUARTERS 2000 2001 2002 2003 2004 2005 2006 2007 2008
-------- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1ST QUARTER $150,394 $155,021 $161,963 $166,590 $171,218 $175,845 $180,473 $185,100 $189,728
2ND QUARTER $300,788 $310,043 $323,925 $333,180 $342,435 $351,690 $360,945 $370,200 $379,455
3RD QUARTER $451,181 $465,064 $485,888 $499,770 $513,653 $527,535 $541,418 $555,300 $569,183
4TH QUARTER $601,575 $620,085 $647,850 $666,360 $684,870 $703,380 $721,890 $740,400 $758,910
- ------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- -----------
</TABLE>
EXHIBIT 10.3
[LOGO] JACKSON, MISSISSIPPI
PROMUS HOTELS, INC
755 CROSSOVER LANE
MEMPHIS, TENNESSEE 38117
99-hom/co
HOMEWOOD SUITES
LICENSE AGREEMENT
DATED JANUARY 4, 2000 BETWEEN PROMUS HOTELS, INC., A DELAWARE CORPORATION
-----------------
("LICENSOR"), AND APPLE SUITES MANAGEMENT, INC., A VIRGINIA CORPORATION
-----------------------------------------------------------
("LICENSEE"), WHOSE ADDRESS IS 306 EAST MAIN STREET, RICHMOND, VIRGINIA 23219 .
-------------------------------------------------
THE PARTIES AGREE AS FOLLOWS:
1. THE LICENSE.
Licensor owns, operates and licenses a system designed to provide a
distinctive, high quality hotel service to the public under the name
"Homewood Suites" (the "SYSTEM"). High standards established by
Licensor are the essence of the System. Future investments may be
required of Licensee under this License Agreement ("AGREEMENT").
Licensee has independently investigated the risks of the business to be
operated hereunder, including current and potential market conditions,
competitive factors and risks, has read Licensor's "Franchise Offering
Circular," and has made an independent evaluation of all such facts.
Aware of the relevant facts, Licensee desires to enter into this
Agreement in order to obtain a license to use the System in the
operation of a Homewood Suites hotel located at 853 CENTRE STREET,
JACKSON, MISSISSIPPI 39157 (the "HOTEL") subject to the terms of this
Agreement.
a. THE HOTEL. The Hotel comprises all structures, facilities,
appurtenances, furniture, fixtures, equipment, and entry, exit,
parking and other areas from time to time located on the site
approved for the Hotel and acknowledged by Licensor in
anticipation of the execution of this Agreement, or located on
any land from time to time approved by Licensor for additions,
signs or other facilities. No change in the number of approved
guest suites ("GUEST SUITES") reflected on Attachment B (the
"RIDER") and no other significant change in the Hotel may be
made without Licensor's prior approval. Redecoration and minor
structural changes that comply with Licensor's standards and
specifications will not be considered significant. Licensee
represents that it is entitled to possession of the Hotel during
the entire License Term without restrictions that would
interfere with anything contemplated in this Agreement.
b. THE SYSTEM. The System is composed of elements, as designated
from time to time by Licensor, designed to identify "Homewood
Suites hotels" to the consuming public and/or to contribute to
such identification and its association with quality standards.
The System at present includes the service mark "Homewood
Suites" and such other service marks and such copyrights,
trademarks and similar property rights as may be designated from
time to time by Licensor to be part of the System; access to a
reservation service; distribution of advertising, publicity and
other marketing programs and materials; the furnishing of
training programs and materials, standards, specifications and
policies for construction, furnishing, operation, appearance and
service of the Hotel, and other requirements as stated or
<PAGE>
referred to in this Agreement and from time to time in the
Manual (as defined herein) or in other communications to
Licensee; and programs for inspecting the Hotel and consulting
with Licensee. Licensor may add elements to the System or
modify, alter or delete elements of the System (including the
trade name and/or brand name of the Hotel) at its sole
discretion from time to time. Licensee is only authorized to use
"Homewood Suites" service marks and trademarks at or in
connection with the Hotel.
c. THE MANUAL. Licensee acknowledges the receipt of a current
Homewood Suites Standards Manual ("MANUAL"). The Manual
contains, among other matters, minimum standards and
requirements for constructing, equipping, furnishing, supplying,
operating, maintaining and marketing the Hotel. Licensor shall
have the right to change the Manual from time to time and
Licensee agrees to abide by the Manual as changed. The Manual
shall at all times remain the sole property of Licensor.
Licensee shall use all reasonable efforts to maintain the
confidentiality of the Manual. Licensee shall not make or
distribute copies of the Manual or any portion thereof.
d. APPLICATION OF MANUAL. All hotels operated within the System
will be subject to the Manual, as it may from time to time be
modified or revised by Licensor. Licensor may, in its sole
discretion, grant limited exceptions from compliance with the
Manual which may be made based on local conditions or special
circumstances. Each material change in the Manual will be
explained in writing to Licensee at least 30 days before it goes
into effect. Licensee is responsible for the costs of
implementing all changes required because of modification to the
Manual.
Licensor may require that particular models or brands of
furniture, fixtures, equipment, food, and other items
(collectively, the "SUPPLIES") be used in the operation of the
Hotel or be purchased from Licensor or from a source designated
by Licensor. Otherwise, Licensee may purchase all Supplies from
any source as long as the standards and specifications in the
Manual are met, which standards and specifications may be
changed by Licensor from time to time. Licensee will be
responsible for the costs, if any, associated with the purchase
of Supplies or changing brands, models or sources of supply.
2. GRANT OF LICENSE.
Licensor hereby grants to Licensee a nonexclusive license (the
"LICENSE") to use the System only at the Hotel, only in connection with
the operation of a Homewood Suites hotel, only in accordance with this
Agreement and only during the "License Term" beginning with the date
hereof and terminating as provided in Paragraph 13. The License applies
to the location of the Hotel specified herein and no other. This
Agreement does not limit Licensor's right, or the rights of any parent,
subsidiary, division or affiliate of Licensor ("ENTITIES"), to use or
license to others the System or any part thereof or to engage in or
license any business activity at any other location. Licensee
acknowledges that Licensor and its Entities are and may in the future
be engaged in other business activities including activities involving
transient lodging and related activities which may be or may be deemed
to be competitive with the System; that facilities, programs, services
and/or personnel used in connection with the System may also be used in
connection with such other business activities of Licensor and its
Entities; and that Licensee is acquiring no rights hereunder other than
the non-exclusive right to use the System in connection with a Homewood
Suites hotel as specifically defined herein in accordance with the
terms of this Agreement.
3. LICENSOR'S RESPONSIBILITIES.
a. TRAINING. During the License Term, Licensor will specify
required and optional training programs and provide these
programs at various locations. Licensee may be charged for (i)
required training services and materials and (ii) for optional
training services and materials if provided to Licensee.
Travel, lodging and other expenses of Licensee and its
employees will be borne by Licensee.
2
<PAGE>
b. RESERVATION SERVICES. During the License Term, so long as
Licensee is in full compliance with the obligations set forth
in this Agreement, Licensor will afford Licensee access to
reservation services for the Hotel.
c. CONSULTATION. Licensor will, from time to time at Licensor's
sole discretion, make available to Licensee consultation and
advice in connection with operations, facilities and
marketing. Licensor shall have the right to establish fees in
advance for its advice and consultation on a projectbyproject
basis.
d. ARRANGEMENTS FOR MARKETING, ETC. Licensor will use the
Marketing/Reservation Contribution for costs associated with
advertising, promotion, publicity, market research and other
marketing programs and related activities, including
reservation programs and services. Licensor may enter into
arrangements for development, marketing, operations,
administrative, technical and support functions, facilities,
programs, services and/or personnel with any other entity and
may use any facilities, programs, services and/or personnel
used in connection with the System in connection with any
business activities of its Entities. Licensor is not obligated
to expend funds for marketing or reservation services in
excess of the amounts received from Licensees using the
System. Licensor and its designees shall have no obligation in
administering any marketing and reservation activities to make
expenditures for Licensee which are equivalent or
proportionate to Licensee's payments, or to ensure that any
particular hotel benefits directly or proportionately from
such expenditures.
e. INSPECTIONS/COMPLIANCE ASSISTANCE. Licensor has the right to
inspect the Hotel at any time, with or without notice to
Licensee, to determine if the Hotel is in compliance with the
standards and rules of operation set forth in the Manual. If
the Hotel fails to comply with such standards and rules of
operation, Licensor may, at its option and at Licensee's cost,
require an action plan to correct the deficiencies. Licensee
must then take all steps necessary to correct any deficiencies
within the times established by Licensor. Licensor's approval
of an action plan does not waive any rights it may have under
this Agreement nor does it relieve Licensee of any obligations
under this Agreement.
4. PROPRIETARY RIGHTS.
a. OWNERSHIP OF THE SYSTEM. Licensee acknowledges and will not
contest, either directly or indirectly, Licensor's (or its
affiliates, as the case may be) unrestricted and exclusive
ownership of the System and any element(s) or component(s)
thereof, and acknowledges that Licensor has the sole right to
grant licenses to use all or any element(s) or component(s) of
the System. Licensee specifically agrees and acknowledges that
Licensor (or its affiliates) is the owner of all right, title
and interest in and to the service mark "Homewood Suites", its
distinguishing characteristics, trade names, service marks,
trademarks, logos, copyrights, slogans, etc., and all other
marks associated with the System ("MARKS") together with the
goodwill symbolized thereby and that Licensee will not contest
directly or indirectly the validity or ownership of the Marks
either during the term of this Agreement or at any time
thereafter. All improvements and additions whenever made to or
associated with the System by the parties to this Agreement or
anyone else, and all service marks, trademarks, copyrights,
and service mark and trademark registrations at any time used,
applied for or granted in connection with the System, and all
goodwill arising from Licensee's use of the Marks shall inure
to the benefit of and become the property of Licensor (or its
applicable affiliate). Upon expiration or termination of this
Agreement, no monetary amount shall be assigned as
attributable to any goodwill associated with Licensee's use of
the System or any element(s) or component(s) of the System
including the name or Marks.
b. USE OF NAME. Licensee will not use the word "Homewood" or
"Homewood Suites" or any similar word(s) in its corporate,
partnership, business or trade name, or in any Internet
related name (including a domain name) except as provided in
this Agreement or the Manual, nor authorize or permit such
word(s) to be used by anyone else.
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5. TRADEMARK AND SERVICE MARK.
a. TRADEMARK DISPUTES. Licensor will have the sole right and
responsibility to handle disputes with third parties
concerning use of all or any part of the System, and Licensee
will, at its reasonable expense, extend its full cooperation
to Licensor in all such matters. All recoveries made as a
result of disputes with third parties regarding use of the
System or any part thereof shall be for the account of
Licensor. Licensor need not initiate suit against alleged
imitators or infringers and may settle any dispute by grant of
a license or otherwise. Licensee will not initiate any suit or
proceeding against alleged imitators or infringers or any
other suit or proceeding to enforce or protect the System.
b. PROTECTION OF NAMES AND MARKS. Both parties will make every
effort consistent with the foregoing to protect and maintain
the Marks and name "Homewood Suites" and its distinguishing
characteristics as standing for the System and only the
System. Licensee agrees to execute any documents deemed
necessary by Licensor or its counsel to obtain protection for
Licensor's Marks or to maintain their continued validity and
enforceability. Licensee agrees to use such names and Marks
only in connection with the operation of a Homewood Suites
hotel and in the manner authorized by Licensor. Licensee
acknowledges that any unauthorized use of the names or Marks
shall constitute infringement of Licensor's rights. Licensee
must notify Licensor immediately, in writing, of any
infringement or challenge to Licensee's use of the Marks or of
any unauthorized use or possible misuse of Licensor's Marks or
Licensor's proprietary information.
6. LICENSEE'S RESPONSIBILITIES.
a. OPERATIONAL AND OTHER REQUIREMENTS. During the License Term,
Licensee will:
(1) promptly pay to Licensor all amounts due Licensor and
its Entities as royalties or fees or for goods or
services purchased by Licensee;
(2) maintain the Hotel in a clean, safe and orderly manner
and in first class condition;
(3) provide efficient, courteous and high-quality service to
the public;
(4) operate the Hotel 24 hours a day every day, except as
otherwise permitted by Licensor based on special
circumstances;
(5) strictly comply in all respects with the Manual and with
all other policies, procedures and requirements of
Licensor which may be from time to time communicated to
Licensee;
(6) strictly comply with Licensor's reasonable requirements
to protect the System and the Hotel from unreliable
sources of supply;
(7) strictly comply with Licensor's requirements as to:
(a) the types of services and products that either
must or may be used, promoted or offered at the
Hotel;
(b) use, display, style and type of signage;
(c) directory and reservation service listings of the
Hotel;
(d) training of persons to be involved in the
operation of the Hotel;
(e) participation in all marketing, reservation
service, advertising, training and operating
programs designated by Licensor as System-wide (or
areawide) programs based on Licensors assessment
of the long-term
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best interests of hotels using the System,
considering the interest of the System overall;
(f) maintenance, appearance and condition of the
Hotel;
(g) quality and types of services offered to customers
at the Hotel, and
(h) its 100% Satisfaction Guarantee rule of operation,
and any similar rules of operation designed to
maintain or improve relationships with past,
present and potential guests and other hotel
customers, as such rule or rules are in effect or
as they may be established or revised hereafter;
(8) use such automated guest service and/or hotel management
and/or telephone system(s) which Licensor deems to be in
the best interests of the System based on Licensor's
assessment of the long-term best interests of hotels
using the System, considering the interests of the
System overall, including any additions, enhancements,
supplements or variants thereof which may be developed
during the term hereof;
(9) participate in and use those reservation services which
Licensor deems to be in the best interests of the System
based on Licensors assessment of the long-term best
interests of hotels using the System, considering the
interests of the System overall, including any
additions, enhancements, supplements or variants thereof
which may be developed during the term hereof;
(10) adopt improvements or changes to the System as may be
from time to time designated by Licensor;
(11) strictly comply with all governmental requirements,
including the filing and maintenance of any required
trade name or fictitious name registrations, paying all
taxes, and maintaining all governmental licenses and
permits necessary to operate the Hotel in accordance
with the System;
(12) permit inspection of the Hotel by Licensor's
representatives at any time and give them free lodging
for such time as may be reasonably necessary to complete
their inspections;
(13) upon request by Licensor, provide to Licensor statistics
on Hotel operations in the form specified by Licensor
and using definitions specified by Licensor;
(14) promote the Hotel on a local or regional basis subject
to Licensor's requirements as to form, content and prior
approvals;
(15) ensure that no part of the Hotel or System is used to
further or promote another lodging facility or any
business that competes with any business Licensor or an
affiliate engages in at any time during the Agreement
(including, but not limited to, the timeshare resort or
vacation ownership business), except for those approved
by Licensor, its parent, subsidiaries or affiliates;
(16) use every reasonable means to encourage use of Homewood
Suites facilities everywhere by the public; provided,
however, this will not prohibit Licensor from requiring
Licensees participation in programs designed to refer
prospective customers to other hotels (in the System or
otherwise);
(17) in all respects use Licensee's best efforts to reflect
credit upon and create favorable public response to the
name "Homewood Suites";
(18) comply with Licensor's requirements concerning
confidentiality of information;
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(19) not at any time during the term of this Agreement,
through itself or any member of an affiliated group (as
defined by the Internal Revenue Code) own, in whole or
in part, or be the licensor of, a hotel brand,
tradename, system or chain without the written consent
of Licensor in its sole discretion. Hereafter, any
entity that, through itself or any affiliate, owns in
whole or in part, or is the licensor of a hotel brand,
tradename, system or chain shall be referred to as a
COMPETITOR; and
(20) maintain possession and control of the Hotel and Hotel
site.
b. UPGRADING OF THE HOTEL. Licensor may at any time during the
License Term require substantial modernization, rehabilitation
and other upgrading of the Hotel to meet the then current
standards specified in the Manual as long as those standards
apply to a majority of the hotels operated by Licensor and its
licensees in the same brand or category as the Hotel. Nothing
in this paragraph shall be construed to relieve Licensee from
the obligation to maintain acceptable product quality ratings
at the Hotel and maintain the Hotel in accordance with the
Manual at all times during the Agreement. Limited exceptions
from those standards may be made by Licensor based on local
conditions or special circumstances. If the upgrading
requirements contained in this Paragraph 6b cause Licensee
undue hardship, Licensee may terminate this Agreement by
paying a fee computed according to Paragraph 13f.
c. STAFF AND MANAGEMENT. Licensee is at all times responsible for
the management of the Hotel's business. Licensee may fulfill
this responsibility by retaining a third party management
company ("MANAGER"); provided, however, Licensee shall not
enter into any lease, management agreement or other similar
arrangement for the operation of the Hotel or any part thereof
with any entity without the prior written consent of Licensor
in Licensors sole discretion (there being no obligation on the
part of Licensor to approve a third party management company).
Licensee understands that Licensor will not normally approve a
Competitor to manage the Hotel, or any entity that (through
itself or an affiliate) is the exclusive manager for a
Competitor. If a Manager becomes a Competitor at any time
during the term of the Agreement, Licensee shall have 90 days
to retain a substitute manager suitable to Licensor. As a
prerequisite for Licensor's approval of a Manager, the
proposed management agreement must provide (1) that the
Manager has authority for the day-to-day management of the
Hotel; (2) that the Manager has the authority to perform the
obligations of the Licensee under this Agreement; and (3) that
in the case of any conflict between this Agreement and the
management agreement, this Agreement prevails.
7. FEES.
a. Commencing on the opening date of the Hotel as a Homewood
Suites hotel and continuing for the full term of this
Agreement, for each month (or part of a month), Licensee will
pay to Licensor by the 15th of the following month:
(1) a royalty fee equal to 4 percent of the gross revenues
attributable to or payable for rental of Guest Suites
at the Hotel with deductions for sales and room taxes
only ("GROSS SUITES REVENUE"); and
(2) a "MARKETING/RESERVATION CONTRIBUTION" equal to 4
percent of Gross Suites Revenue. The
Marketing/Reservation Contribution is subject to change
by Licensor from time to time, which
Marketing/Reservation Contributions do not include the
cost, installation or maintenance of reservation
services equipment or training; and
(3) all amounts due Licensor for any other miscellaneous
fees or invoices or for goods or services purchased by
or provided to Licensee or paid by Licensor on
Licensee's behalf; and
(4) an amount equal to any sales, gross receipts or similar
tax imposed on Licensor for the receipt of the payments
required in (1), (2) and (3) of this Paragraph above,
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unless the tax is an optional alternative to an income
tax otherwise payable by Licensor.
b. Licensee will operate the Hotel so as to maximize Gross Suites
Revenue consistent with sound marketing and industry practice
and will not engage in any conduct which is likely to reduce
Gross Suites Revenue in order to further other business
activities.
c. Royalties may be charged on revenues (or upon any other basis,
if so determined by Licensor) from any activity conducted at
the Hotel if added by mutual agreement and if: (i) not now
offered at hotels within the System generally and is likely to
benefit significantly from or be identified significantly with
the Homewood Suites name or other aspects of the System or
(ii) designed or developed by or for Licensor.
d. Licensor may charge for optional products or services accepted
by Licensee from Licensor either in accordance with current
practice or as developed in the future.
e. A Guest Suite addition fee for guest suite additions to a
hotel set forth in Licensor's then current "FRANCHISE OFFERING
CIRCULAR" shall be paid by Licensee to Licensor on Licensee's
submission of an application to add any Guest Suites to the
Hotel. As a condition to Licensor granting its approval of
such application, Licensor may require Licensee to upgrade the
Hotel, subject to Paragraph 6b.
f. Local and regional marketing programs and related activities
may be conducted by Licensee, but only at Licensee's expense
and subject to Licensor's requirements. Reasonable charges may
be made by Licensor for optional advertising materials ordered
or used by Licensee for such programs and activities.
g. Licensee shall participate in Licensor's travel agent
commission program(s) as it may be modified from time to time
and shall reimburse Licensor on or before the 15th of each
month for call costs associated with such programs including,
but not limited to, travel agent commissions and third party
reservation service charges (such as airline reservation
systems).
h. Each payment paid by Licensor under this Paragraph 7 shall be
accompanied by the monthly statement referred to in Paragraph
8. Licensor may apply any amounts received under this
Paragraph 7 to any amounts due under this Agreement. If any
amounts are not paid when due, such non-payment shall
constitute a breach of this Agreement and, in addition, such
unpaid amounts will accrue a service charge beginning on the
first day of the month following the due date of 1 1/2 percent
per month but not to exceed the maximum amount permitted by
applicable law.
8. RECORDS AND AUDITS.
a. DAILY AND MONTHLY REPORTS. At the request of Licensor,
Licensee shall prepare and deliver daily reports to Licensor,
which reports will contain information reasonably requested by
Licensor on a daily basis, such as daily rate and room
occupancy, and which may be used by Licensor for its
reasonable purposes. At least monthly, Licensee shall prepare
a statement which will include all information concerning
Gross Suites Revenue, other revenues generated at the Hotel,
suite occupancy rates, reservation data and other information
required by Licensor (the "DATA"). The Data will be
permanently recorded and retained as may be reasonably
required by Licensor. By the 15th of each month, Licensee will
submit to Licensor a statement setting forth the Data for the
previous month and reflecting the computation of the amounts
then due under Paragraph 7. The statement will be in such form
and detail as Licensor may reasonably request from time to
time, and may be used by Licensor for its reasonable purposes.
b. MAINTENANCE OF RECORDS. Licensee shall, in a manner and form
satisfactory to Licensor and utilizing accounting and
reporting standards as reasonably required by Licensor,
prepare on a current basis (and preserve for no less than four
years), complete and
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accurate records concerning Gross Suites Revenue and all
financial, operating, marketing and other aspects of the
Hotel, and maintain an accounting system which fully and
accurately reflects all financial aspects of the Hotel and its
business. Such records shall include books of account, tax
returns, governmental reports, register tapes, daily reports,
and complete quarterly and annual financial statements (profit
and loss statements, balance sheets and cash flow statements).
c. AUDIT. Licensor may require Licensee to have the Gross Suites
Revenue or other monies due hereunder computed and certified
as accurate by a certified public accountant. During the
License Term and for two years thereafter, Licensor and its
authorized agents shall have the right to verify information
required under this Agreement by requesting, receiving,
inspecting and auditing, at all reasonable times, any and all
records referred to above wherever they may be located (or
elsewhere if reasonably requested by Licensor). If any such
inspection or audit discloses a deficiency in any payments due
hereunder, Licensee shall immediately pay to Licensor (i) the
deficiency, (ii) a service charge thereon as provided in
Paragraph 7h, and (iii) all inspection and audit costs
(including travel, lodging, meals, salaries and other expenses
of the inspecting or auditing personnel). Licensor's
acceptance of Licensee's payment of any deficiency as provided
for herein shall not waive Licensor's right to terminate this
Agreement as provided for herein in Paragraph 13. If the audit
discloses an overpayment, Licensor shall refund the
overpayment to Licensee within 30 days.
d. ANNUAL FINANCIAL STATEMENTS. Licensee will submit to Licensor
complete year-end financial statements for the Hotel, Licensee
and/or any guarantors as soon as available but not later than
90 days after the end of Licensee's fiscal year. Licensee will
certify them to be true and correct and to have been prepared
in accordance with generally accepted accounting principles
consistently applied, and any false certification will be a
breach of this Agreement.
e. All of the information provided to Licensor pursuant to this
paragraph or any other part of this Agreement, or pursuant to
any agreement ancillary to this Agreement (including
agreements relating to the System 21 business system or other
property management system provided by Licensor) (the
"INFORMATION"), shall be the property of Licensor. HOWEVER,
NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT,
INFORMATION, SUCH AS FINANCIAL STATEMENTS, PREPARED FOR THE
HOTEL, LICENSEE AND/OR GUARANTORS, WHICH ANY SUCH PARTIES ARE
REQUIRED BY LAW OR BY THEIR NORMAL BUSINESS PRACTICES TO USE
FOR OTHER PURPOSES (SUCH AS IN FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION OR OTHER GOVERNMENTAL AUTHORITIES OR FOR
TRANSMISSION TO SHAREHOLDERS) MAY BE USED BY THEM FOR SUCH
PURPOSES, AND SUCH PARTIES SHALL RETAIN OWNERSHIP IN SUCH
INFORMATION TO THE EXTENT NECESSARY TO PERMIT SUCH USE.
NEVERTHELESS, LICENSOR SHALL OWN THE COPIES OF ANY SUCH
INFORMATION PROVIDED BY ANY SUCH PARTIES IN ACCORDANCE WITH
THE TERMS OF THIS AGREEMENT. Licensor will use reasonable
efforts to sort, categorize, classify and otherwise analyze
the information to help licensees market their hotels. The
Information will remain the proprietary information of
Licensor which Licensor will share with licensees only as
determined by Licensor in its sole discretion. Licensor and
its affiliates may use the Information for any reason
whatsoever, including an earnings claim in Licensors offering
circular.
9. INDEMNITY.
SUBJECT TO THE PROVISIONS OF ANY MANAGEMENT AGREEMENT BETWEEN LICENSOR
(AS MANAGER THEREUNDER) AND LICENSEE (AS OWNER THEREUNDER), Licensee
will indemnify, during and after the term of this Agreement, Licensor
and its affiliates, and their respective officers, directors,
employees, agents, predecessors, successors and assigns ("INDEMNIFIED
PARTIES") against, hold them harmless from, and promptly reimburse them
for, all payments of money (fines, damages, legal fees, expenses, etc.)
by reason of any claim, demand, tax, penalty, or judicial or
administrative investigation or proceeding (even where negligence of
Licensor and/or its Entities and/or their Indemnified Parties is actual
or alleged) arising from any claimed occurrence at the Hotel or arising
from, as a result of, or in connection with the development or
operation of the Hotel (including, but
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not limited to, the design, construction, financing, furnishing,
equipment, acquisition of supplies or operation of the Hotel in any
way), or any other of Licensee's acts, omissions or obligations or
those of anyone associated or affiliated with Licensee or the Hotel in
any way arising out of or related to this Agreement. At the election of
Licensor, Licensee will also defend Licensor and/or its Entities and/or
their Indemnified Parties against the same. In any event, Licensor will
have the right, through counsel of its choice, to control any matter to
the extent it could directly or indirectly affect Licensor and/or its
Entities and/or their Indemnified Parties financially. Licensee will
also reimburse Licensor for all expenses, including attorneys' fees and
court costs, reasonably incurred by Licensor to protect itself and/or
its Entities and/or their Indemnified Parties from, or to remedy
Licensee's defaults or to collect any amounts due under this Agreement.
10. INSURANCE.
a. Licensee will comply with Licensor's specifications for
insurance as to amount and type of coverage as may be
reasonably specified by Licensor from time to time in writing
and will in any event maintain as a minimum the following
insurance underwritten by an insurer approved by Licensor:
(1) employer's liability and workers' compensation
insurance as prescribed by applicable law; and
(2) liquor liability insurance, if applicable, naming
Licensor and its then current Entities and their
predecessors, successors and assigns as additional
insureds with single-limit coverage for personal and
bodily injury and property damage of at least
$10,000,000 for each occurrence; and
(3) commercial general liability insurance (with
products, completed operations and independent
contractors coverage) and comprehensive automobile
liability insurance, all on an occurrence and per
location basis naming Licensor, its Entities and
their predecessors, successors and assigns as
additional insureds and underwritten by an insurer
approved by Licensor, with single-limit coverage for
personal and bodily injury and property damage of at
least $10,000,000 for each occurrence; and
(4) in connection with all construction at the Hotel
during the License Term, Licensee will cause the
general contractor to maintain with an insurer
approved by Licensor commercial general liability
insurance (with products, completed operations, and
independent contractors coverage including workers'
compensation and automobile liability insurance for
such independent contractors) in at least the amount
of $10,000,000 for each occurrence for personal and
bodily injury and property damage with Licensor, its
Entities and their predecessors, successors and
assigns as additional insureds.
b. EVIDENCE OF INSURANCE/CHANGES. This coverage shall be
evidenced by original certificates of insurance submitted to
Licensor simultaneously herewith, annually hereafter and each
time a change is made in any insurance or insurance carrier,
Licensee will furnish to Licensor certificates of insurance
including the term and coverage of the insurance in force, the
persons insured, and a statement that the coverage may not be
cancelled, altered or permitted to lapse or expire without 30
days advance written notice to Licensor. Licensor will send
Licensee notice of any policy or coverage which Licensor, in
its sole discretion, finds unacceptable and upon receipt of
such notice, Licensee will promptly undertake to change such
policy or coverage.
c. If Licensee fails or neglects to obtain or maintain the
insurance or policy limits required by this Agreement,
Licensor shall have the option, without notice, to obtain and
maintain such insurance for Licensee, and Licensee shall pay
immediately upon demand therefore, the premiums and the cost
incurred by Licensor in taking such action.
11. TRANSFER.
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a. TRANSFER OF THIS AGREEMENT BY LICENSOR. Licensor shall have
the right to transfer or assign this Agreement or any of
Licensor's rights, obligations, or assets under this Agreement
to any person or legal entity provided that the transferee
assumes all of Licensor's obligations to Licensee under this
Agreement.
b. TRANSFERS BY LICENSEE.
(1) General Statement of Explanation and Intent.
This Agreement is not transferable by Licensee, and a
change in ownership of the Hotel or the licensed
business (i.e., either this Agreement, the Licensee
or any indirect ownership interest in the Licensee)
is not allowed under this Agreement. Certain
intra-family transfers of interest and (in the case
of corporate licensees) corporate restructurings are
permitted as long as the requirements described below
are met. However, Licensor has entered into this
Agreement with a particular Licensee or its owners.
If the Licensee wants to transfer the Hotel or its
interest in the licensed business, such a transfer
will constitute a "change of ownership". If the
transferee wants to continue to operate the Hotel as
a Homewood Suites hotel, the transferee will have to
apply for a new license which, if approved, will last
at most for the balance of the term of this
Agreement. If the change of ownership is not
approved, or if the transferee does not want to
continue to operate the Hotel as a Homewood Suites
hotel, Licensor may refuse to consent to the
termination of this Agreement. If Licensor does
consent to termination, this Agreement will terminate
and Licensee will owe liquidated damages. In
addition, if the transfer is to a Competitor,
Licensor has the right to buy the Hotel. The
foregoing explanation is more fully described and
qualified by the following specific provisions.
(2) Licensee understands and acknowledges that the rights
and duties set forth in this Agreement are personal
to Licensee, and that Licensor has entered into this
Agreement in reliance on the business skill,
financial capacity, and personal character of
Licensee (if Licensee is an individual), and that of
the partners, members, or stockholders of Licensee
(if Licensee is a partnership, company, corporation,
or other legal entity). Accordingly, no direct or
indirect interest in the Hotel or in this Agreement,
and no direct or indirect Equity Interest (as defined
herein) in Licensee may be sold, leased, assigned, or
transferred, (such instances hereafter referred to
collectively as a "TRANSFER"), without the consent of
the Licensor. Nothing herein shall require Licensors
approval for any pledge, mortgage, or hypothecation
of all or any part of the assets of the licensed
business (other than this Agreement or any Equity
Interest in Licensee) to banks or other lending
institutions.
(3) Any purported Transfer, by operation of law or
otherwise, not in accordance with the provisions of
this Agreement shall be null and void and shall
constitute a breach of this Agreement, for which
Licensor may terminate this Agreement upon notice
without opportunity to cure pursuant to Paragraph
13d, and as a result of which Licensee will owe
liquidated damages.
(4) References in this Agreement to "EQUITY INTERESTS"
shall mean any direct or indirect beneficial interest
in Licensee (an "INDIRECT" interest is an interest in
an entity other than the Licensee that either itself,
or through others, has an interest in the Licensee).
In addition, "PUBLICLY-TRADED EQUITY INTEREST" shall
mean any Equity Interest which is traded on any
securities exchange or is quoted in any publication
or electronic reporting service maintained by the
National Association of Securities Dealers, Inc. or
any of its successors. In computing changes of Equity
Interests, limited partners will not be distinguished
from general partners. Licensor's judgment will be
final if there is any question as to the definition
of Equity Interest or as to the computation of
relative Equity Interests, the principal
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considerations being: direct and indirect (i) power
to exercise control over the affairs of Licensee;
(ii) right to share in Licensee's profits; and (iii)
exposure to risk in the Licensee's business.
(5) Licensee represents that the Equity Interests are
directly and (if applicable) indirectly owned as
shown on the Rider.
c. PROCEDURES FOR TRANSFERS. Licensee must provide written notice
to Licensor in advance of any proposed Transfer stating the
identity of the prospective transferee, purchaser, or lessee
and the terms and conditions of the conveyance. As a condition
to consenting to the transfer, Licensor may require any one or
more of the following to be met:
(1) Licensee will upon request provide a copy of any
proposed agreement of transfer and all other
information with respect thereto which Licensor may
reasonably require;
(2) Licensee will upon request provide documents showing
ownership structure of the Licensee, site control by
the Licensee, possession or management control by the
Licensee, financial statements of any participants,
and any other documents reasonably requested by
Licensor;
(3) Licensee will upon request pay a processing fee to
Licensor of up to $5,000 to cover Licensor's costs to
review and consent to the Transfer; provided however,
in the case of a transfer of Equity Interests which
require registration under any federal or state
securities law, Licensee will pay a processing fee
that will not exceed $25,000;
(4) Licensee and all participants in any proposed public
offering (including the sale of partnership or
membership interests) (i) agree to fully indemnify
Licensor in connection with the registration, (ii)
furnish Licensor with all information requested, and
(iii) avoid using Licensors service marks or
trademarks or otherwise implying Licensor's
participation in or endorsing of any public offering;
(5) Licensee will at all times adequately provide for the
management of the Hotel during any Transfer; or
(6) Licensor may require the transferee to promptly
execute a new license agreement on Licensor's then
current license agreement for the unexpired term of
this Agreement, and Licensor may require the
guarantee of the new license agreement by the same
guarantors of this Agreement (or substitute
guarantors approved by Licensor in its sole
discretion).
d. PERMITTED TRANSFERS. Licensor will not unreasonably withhold
consent to any of the following Transfers provided Licensee
complies with all the requirements specified by Licensor
pursuant to Subparagraph c above (it being understood that if
Licensee is in default of any of its obligations under the
Agreement, it will not be unreasonable for Licensor to refuse
to consent to any of these Transfers):
(1) Equity Interests which are not publicly-traded may be
transferred, if after the transaction, Glade M.
Knight owns, directly or indirectly, a beneficial
interest in the general partner of Licensee and
controls the management and policies of such general
partner and not less than 50% of all Equity Interests
are owned, directly or indirectly, by Glade M. Knight
and, in the case of any such permitted transfer, the
requirements of clauses (3) and (6) of subparagraph
c. above need not be complied with by Licensee.
(2) Publicly-traded equity interests may be transferred
(without Licensor's consent and without notification)
if such transfer is exempt from registration under
federal securities law and if immediately before and
after the transfer, the transferor
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and transferee respectively each own less than 25
percent of the Equity Interests in Licensee.
(3) Licensee, if a natural person, may transfer its
interest in the License or Equity Interest in the
Licensee to one or more of Licensee's spouse,
parents, siblings, nephews, descendants or spouses'
descendants or to a corporation entirely owned by
Licensee ("PERMITTED TRANSFEREES").
(4) If Licensee is a natural person, upon the Licensee's
death, the License or Licensee's Equity Interest in
the Licensee will pass in accordance with Licensee's
will, or, if Licensee dies intestate, in accordance
with laws of intestacy governing the distribution of
the Licensee's estate, as the case may be, provided
the transferee is one or more of the decedent's
Permitted Transferees (excluding corporations
formerly owned by the Licensee) and within one year
after the death the Permitted Transferees meet all
Licensors normal requirements of an approved
applicant.
(5) Licensee may sell or lease the Hotel, the Hotel site,
or any portion thereof if, in the reasonable judgment
of Licensor, after such transfer, Licensee will
retain possession and control of the Hotel site and
management control of the Hotel operations (which may
be via third party management contract pursuant to
Paragraph 6c). If, in the reasonable judgment of
Licensor, the transfer of the Hotel will result in
the loss of possession or control of the Hotel or
Hotel site or management of the Hotel, the transfer
will constitute a change of ownership as described in
Subparagraph e.
e. CHANGE OF OWNERSHIP.
(1) Any Transfer that does not qualify as a permitted
transfer under Subparagraph d above shall constitute
a change of ownership. If in the case of a change of
ownership, the transferee desires to continue to
operate the Hotel as a Homewood Suites hotel, the
transferee must submit an application for a new
license agreement. The new license, if approved, will
be at most for the unexpired term of this Agreement.
The transferee shall be responsible for all normal
fees and costs (including application fees and costs
of improvements to the Hotel).
(2) Licensor shall process such change of ownership
application in good faith and in accordance with
Licensor's then current procedures, criteria and
requirements regarding upgrading of the Hotel,
credit, operational abilities and capabilities, prior
business dealings, market feasibility, guarantees,
and other factors deemed relevant by Licensor. If
such change of ownership application is approved,
Licensor and the new owner shall, upon surrender of
this Agreement, enter into a new license agreement.
The new license agreement shall be on Licensor's then
current form and contain Licensor's then current
terms (except for duration), and if applicable, the
new license agreement will contain specified
upgrading and other requirements. If the application
is approved, Licensee submits a voluntary termination
of this Agreement and signs a release (in a form
satisfactory to Licensor) of all claims against
Licensor, and the proposed new owner executes a new
license within 30 days of the sale of the Hotel, no
liquidated damages described in Paragraph 13 will be
owed by Licensee for the termination of this
Agreement.
(3) If a change of ownership application for the proposed
transferee is not approved by Licensor or the
transferee does not want to continue to operate the
Hotel as a Homewood Suites hotel, Licensor may refuse
consent to the transfer and reserve all remedies; if
Licensee does consent and the Transfer occurs, then
this Agreement shall terminate pursuant to Paragraph
13d hereof and Licensor shall be entitled to all of
its remedies including liquidated damages.
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f. TRANSFER TO COMPETITOR. Notwithstanding any of the foregoing,
if the Licensee receives a bona fide offer from a Competitor
to purchase or lease the Hotel or to purchase Licensee or any
entity that controls Licensee, or to purchase an interest in
either, and Licensee or any person or entity that owns or
controls Licensee wishes to accept such offer, Licensee shall
give written notice thereof to Licensor, stating the name and
full identity of the prospective purchaser or tenant, as the
case may be, including the names and addresses of the owners
of the capital stock, partnership interests or other
proprietary interests of such prospective purchaser or tenant,
the price or rental and all terms and conditions of such
proposed transaction, together with all other information with
respect thereto which is requested by Licensor and reasonably
available to Licensee. Within 60 days after receipt by
Licensor of such written notice from Licensee, Licensor shall
elect by written notice to Licensee one of the following four
alternatives:
(1) If the proposed transaction is a sale or lease of the
Hotel, Licensor (or its designee) shall have the
right to purchase or lease the Hotel premises and
related property at the same price or rental and upon
the same terms and conditions as those set forth in
such bona fide offer from a Competitor. In such event
Licensee and Licensor (or its designee) shall
promptly enter into an agreement for sale or lease at
the price or rental and on terms consistent with such
bona fide offer.
(2) If the proposed transaction is a purchase of all or a
portion of the stock or assets (which includes the
Hotel) of Licensee or the person that owns or
controls Licensee, Licensor (or its designee) shall
have the right to purchase the Hotel premises and
related property. If the parties are unable to agree
as to a purchase price and terms within thirty days
of Licensor's election, the fair market value of the
Hotel premises and related property shall be
determined by arbitration as follows: Either party
may by written notice to the other appoint an
arbitrator. Thereupon, within 15 days after the
giving of such notice, the other shall by written
notice to the former appoint another arbitrator, and
in default of such second appointment the arbitrator
first appointed shall be the sole arbitrator. When
any two arbitrators have been appointed as aforesaid,
they shall, if possible, agree upon a third
arbitrator and shall appoint him by notice in
writing, signed by both of them in triplicate, one of
which triplicate notices shall be given to each party
hereto; but if 15 days shall lapse without the
appointment of the third arbitrator as aforesaid,
then such third arbitrator shall be appointed by the
American Arbitration Association from its qualified
panel of arbitrators, and shall be a person having at
least ten (10) years' recent professional experience
as to the subject matter in question. Upon
appointment of the third arbitrator (whichever way
appointed as aforesaid), the three arbitrators shall
meet and render their decision. The decision of a
majority of the arbitrators so chosen shall be
conclusive. Licensor (or its designee) shall have the
right, at any time within 30 days of being notified
in writing of the decision of the arbitrators as
aforesaid, to purchase the Hotel premises and related
property at the valuation fixed by the arbitrators.
The parties shall share equally the expense of such
arbitration.
(3) To terminate this Agreement, in which event Licensee
shall be obligated to pay to Licensor liquidated
damages pursuant to a Special Termination as set
forth in Paragraph 13f.
(4) To refuse to consent to the Transfer, reserving all
remedies under the applicable law.
g. FINANCING. The construction and/or operation of the Hotel may
not be financed by a public offering of any right, title or
interest in the Hotel, the property upon which it is built or
the receipts from its operation without the prior review and
approval of the applicable documentation by Licensor. Licensee
shall submit a non-refundable $25,000 fee with said
documentation.
12. CONDEMNATION AND CASUALTY.
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a. CONDEMNATION. Licensee shall, at the earliest possible time,
give Licensor notice of any proposed taking by eminent domain.
If Licensor agrees that the Hotel or a substantial part
thereof is to be taken, Licensor may, in its sole discretion
and within a reasonable time of the taking (within four
months) transfer this Agreement to a nearby location selected
by Licensee. If Licensor approves the new location and
authorizes the transfer and if within one year of the closing
of the Hotel Licensee opens a new hotel at the new location in
accordance with Licensor's specifications, then the new hotel
will be deemed to be the Hotel licensed under this Agreement.
If a condemnation takes place and a new hotel does not, for
whatever reason, become the Hotel under this Agreement in
strict accordance with this paragraph (or if it is reasonably
evident to Licensor that such will be the case), this
Agreement will terminate immediately upon notice thereof by
Licensor to Licensee, without the payment of liquidated
damages as calculated in Paragraph 13f.
b. CASUALTY. If the Hotel is damaged by fire or other casualty,
Licensee will expeditiously repair the damage. If the damage
or repair requires closing the Hotel, Licensee will
immediately notify Licensor, will repair or rebuild the Hotel
according to Licensor's standards, will commence
reconstruction within four months after closing, and will
reopen the Hotel for continuous business operations as soon as
practicable (but in any event within one year after the
closing of the Hotel), giving Licensor ample advance notice of
the date of reopening. If the Hotel is not reopened according
to this Paragraph, this Agreement will terminate immediately,
upon notice thereof by Licensor to Licensee, with the payment
of liquidated damages as calculated in Paragraph 13f, provided
however, if Licensee's insurer fails to pay the applicable
insurance policy proceeds to Licensee, or if Licensee's
lender, pursuant to a valid agreement with Licensee, refuses
to allow the insurance proceeds to be used for repair or
rebuilding, the Agreement may be terminated by Licensee
without payment of the liquidated damages in Paragraph 13f. In
such case Licensee shall notify Licensor and provide any
reasonable proof requested by Licensor.
c. NO EXTENSIONS OF TERM. Nothing in this Paragraph 12 will
extend the License Term but Licensee shall not be required to
make any payments pursuant to Paragraph 7 for periods during
which the Hotel is closed by reason of condemnation or
casualty.
13. TERMINATION.
a. EXPIRATION OF TERM. Unless terminated earlier, this Agreement
will expire without notice 20 YEARS FROM THE EFFECTIVE DATE OF
THIS AGREEMENT, AS DEFINED ON ATTACHMENT B HEREIN.
b. PERMITTED TERMINATION PRIOR TO EXPIRATION OF TERM. Licensee
may terminate this Agreement on the tenth or fifteenth
anniversary date of the opening of the Hotel by giving at
least 12 but not more than 15 months advance notice to
Licensor accompanied by the payment as provided in Paragraph
13f herein.
c. TERMINATION OR SUSPENSION BY LICENSOR ON ADVANCE NOTICE. This
Agreement may be terminated if Licensee fails to satisfy any
obligations under this Agreement or any attachment hereto.
Except in the case of an immediate termination as provided in
subparagraph 13d below, this Agreement shall terminate if
Licensee fails to cure an Event of Default after the Licensor
furnishes adequate notice of termination based on the Event of
Default.
(1) An "EVENT OF DEFAULT" shall occur if the Licensee
fails to satisfy or comply with any of the
requirements, conditions, or terms set forth in (i)
this Agreement or any attachment including, but not
limited to, any provisions regarding: any transfer of
the Hotel, or any direct or indirect interest in the
Agreement or Licensee, any representation or
warranty, any fee obligation, any operational
requirements (including the standards in the Manual);
trademarks usage; maintenance of records, insurance
and indemnity; or (ii) any other agreement between
Licensor (or
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an affiliate) and Licensee relating to the Hotel,
including, but not limited to, any property
management system agreement, such as the System 21
business system agreement, or any agreement to manage
the Hotel.
(2) Notice of termination shall be adequate, if mailed
thirty (30) days (or such longer period required by
applicable law) in advance of the termination date.
(3) Licensor's notice of termination shall not relieve
Licensee of its obligations under this Agreement or
any attachment.
(4) As a result of Licensee's efforts to comply with the
terms and conditions contained on Attachment A and
elsewhere in this Agreement, Licensee will incur
substantial expense and expend substantial time and
effort. Licensee acknowledges and agrees that
Licensor shall have no liability or obligation to
Licensee for any losses, obligations, liabilities or
expenses incurred by Licensee if (i) Licensee commits
an Event of Default as described in Paragraph 13c(1);
(ii) the Hotel is not authorized by Licensor to Open
as defined in Attachment A or (iii) this Agreement is
terminated because Licensee has not complied with the
terms and conditions of this Agreement.
(5) Notwithstanding the foregoing, following an Event of
Default, Licensor may at any time, in its sole
discretion, suspend its obligations under this
Agreement (including reservation services).
d. IMMEDIATE TERMINATION BY LICENSOR. Notwithstanding the
foregoing paragraph, this Agreement may be immediately
terminated (or terminated at the earliest time permitted by
applicable law) if one or more of the following material
breaches to this Agreement or any Attachment occur:
(1) Any Event of Default where a prior Event of Default
had also occurred during the preceding 12 months, but
the License was not terminated because Licensee cured
the prior Event of Default;
(2) Licensee or any guarantor of Licensee's obligations
hereunder shall:
(a) generally not pay its debts as they become
due or shall admit in writing its inability
to pay its debts, or shall make a general
assignment for the benefit of creditors; or
(b) commence any case, proceeding or other
action seeking reorganization, arrangement,
adjustment, liquidation, dissolution or
composition of it or its debts under any law
relating to bankruptcy, insolvency,
reorganization or relief of debtors, or
seeking appointment of a receiver, trustee,
custodian or other similar official for it
or for all or any substantial part of its
property; or
(c) take any corporate or other action to
authorize any of the actions set forth above
in Paragraphs (a) or (b).
(3) Any case, proceeding or other action against Licensee
or any such guarantor shall be commenced seeking to
have an order for relief entered against it as
debtor, or seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition
of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of
debtors, or seeking appointment of a receiver,
trustee, custodian or other similar official for it
or for all or any substantial part of its property,
and such case, proceeding or other action (i) results
in the entry of an order for relief against it which
is not fully stayed within seven business days after
the entry thereof or (ii) remains undismissed for a
period of 45 days; or
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(4) an attachment remains on all or a substantial part of
the Hotel or of Licensee's or any such guarantors
assets for 30 days; or
(5) Licensee or any such guarantor fails within 60 days
of the entry of a final judgment against Licensee in
any amount exceeding $50,000 to discharge, vacate or
reverse the judgment, or to stay execution of it, or
if appealed, to discharge the judgment within 30 days
after a final adverse decision in the appeal; or
(6) Licensee loses possession or the right to possession
of all or a significant part of the Hotel or Hotel
site; or
(7) Licensee fails to continue to identify the Hotel to
the public as a Homewood Suites hotel; or
(8) Licensee contests in any court or proceeding
Licensor's ownership of the System or any part of the
System, or the validity of any service marks or
trademarks associated with Licensor's business; or
(9) Any action is taken toward dissolving or liquidating
Licensee or any such guarantor, if it is a
corporation or partnership, except for death of a
partner; or
(10) Licensee or any of its principals is, or is
discovered to have been convicted of a felony (or any
other offense if it is likely to adversely reflect
upon or affect the Hotel, the System, the Licensor
and/or its Entities in any way; or
(11) Licensee maintains false books and records of
accounts or submits false reports or information to
Licensor.
(12) Licensee becomes a Competitor (as defined in
Paragraph 6a(19).
e. DE-IDENTIFICATION OF HOTEL UPON TERMINATION. Upon termination
or expiration of the term, Licensee will take whatever action
is necessary to assure that no use is made of any part of the
System (including but not limited to the Marks) at or in
connection with the Hotel or otherwise. Licensee shall return
to Licensor the Manual and all other proprietary materials,
remove all distinctive System features of the Hotel, including
the primary freestanding sign down to the structural steel,
and take all other actions ("DE-IDENTIFICATION ACTIONS")
required to preclude any possibility of confusion on the part
of the public that the Hotel is still using all or any part of
the System or is otherwise holding itself out to the public as
a Homewood Suites hotel. If within 30 days after termination
of this Agreement Licensee fails to comply with this
paragraph, Licensor or its agents at Licensee's expense, may
enter the premises of the Hotel to perform the
De-identification Actions. The preceding sentence shall not in
any way limit Licensor's other rights or remedies under this
Agreement.
f. LIQUIDATED DAMAGES. The parties recognize the difficulty of
ascertaining damages to Licensor resulting from premature
termination of this Agreement, and have provided for
liquidated damages, which represent the parties' best estimate
as to the damages arising from the circumstances in which they
are provided and which are only damages for the premature
termination of this Agreement, and not as a penalty or as
damages for breaching this Agreement or in lieu of any other
payment. If this Agreement is terminated other than by the
expiration of the term described in Paragraph 13a, Licensee
will pay Licensor, within 10 days of termination, liquidated
damages in an amount determined as follows:
(1) an amount equal to the amount payable under Paragraph
7 (regarding Fees) for the three years prior to
termination; or
(2) if the Hotel opened but has been Open for less than
three years, an amount equal to the greater of: (i)
36 times the monthly average payable under Paragraph
7, or (ii) 36 times the amount payable under
Paragraph 7 for the last full month prior to
termination; or
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(3) if the Hotel opened, but has not been in operation
for one full month, an amount equal to $3,000 per
Guest Suite in the Hotel; or
(4) if the Agreement is terminated before the
commencement of construction or of the Work (as
described in the applicable attachment), an amount
equal to the initial application fee that would be
due for a license application according to Licensor's
then current franchise offering circular (in addition
to any initial application fee already paid); or
(5) if the Agreement is terminated after commencement of
construction or of the Work but before opening of the
Hotel, an amount equal to two times the initial
application fee; or
(6) if the Agreement is terminated pursuant to Paragraph
13b (permitted termination after 10th or 15th year)
only, an amount equal to the amount payable under
Paragraph 7 for the two years prior to notice of
termination.
Furthermore, Licensee recognizes the additional harm by way of
confusion with respect to national accounts, greater
difficulty in re-entering the market, and damage to goodwill
of the Marks that Licensor will suffer in the case of (i) a
Licensee who terminates two or more license agreements with
Licensor at approximately the same time (between either itself
or its affiliates and Licensor) or (ii) a license that
terminates as a result of the Hotel or Licensee being acquired
by a Competitor, and the Licensor is unable or elects not to
buy the Hotel pursuant to Paragraph 11f (each of these will be
referred to as a "SPECIAL TERMINATION"). Licensee agrees that
in the case of a Special Termination, the amount of liquidated
damages as calculated above will be doubled.
14. RENEWAL.
This Agreement is non-renewable.
15. RELATIONSHIP OF PARTIES.
a. NO AGENCY RELATIONSHIP. Licensee is an independent contractor.
Neither party is the legal representative or agent of, or has
the power to obligate (or has the right to direct or supervise
the daily affairs of) the other for any purpose whatsoever.
Licensor and Licensee expressly acknowledge that the
relationship intended by them is a business relationship based
entirely on, and defined by, the express provisions of this
Agreement and that no partnership, joint venture, agency,
fiduciary or employment relationship is intended or created by
reason of this Agreement.
b. LICENSEE'S NOTICES TO PUBLIC CONCERNING INDEPENDENT STATUS.
Licensee will take all necessary steps including those
reasonably requested by Licensor to minimize the chance of a
claim being made against Licensor for anything that occurs at
the Hotel, or for acts, omissions or obligations of Licensee
or anyone associated or affiliated with Licensee or the Hotel.
Such steps may, for example, include giving notice in Guest
Suites, public rooms and advertisements, on business forms and
stationery, etc., making clear to the public that Licensor is
not the owner or operator of the Hotel and is not accountable
for what happens at the Hotel. Unless required by law,
Licensee will not use the words "Homewood", "Homewood Suites"
or any other names or mark associated with the System to incur
any obligation or indebtedness on behalf of Licensor. Licensee
shall not enter into or execute any contracts in the name
"Homewood Suites hotel", and all contracts for the Hotel's
operations and services at the Hotel shall be in the name of
Licensee or Licensee's management company. Likewise, the words
"Homewood", "Homewood Suites", or any similar words will not
be used to name or identify developments adjacent to or
associated with the Hotel, nor will Licensee use such names in
its general business in any manner separated from the business
of the Hotel.
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16. MISCELLANEOUS.
a. SEVERABILITY AND INTERPRETATION. The remedies provided in this
Agreement are not exclusive. If any provision of this
Agreement is held to be unenforceable, void or voidable as
being contrary to the law or public policy of the jurisdiction
entitled to exercise authority hereunder, all remaining
provisions shall nevertheless continue in full force and
effect unless deletion of such provision(s) impairs the
consideration for this Agreement in a manner which frustrates
the purpose of the parties or makes performance commercially
impracticable. The provisions of this Agreement shall be
interpreted based on the reasonable intention of the parties
in the context of this transaction without interpreting any
provision in favor of or against any party whether or not such
party was the drafting party or by such party's position
relative to the other party. Any covenant, term or provision
of this Agreement which, in order to effect the intent of the
parties, must survive the termination of this Agreement, shall
survive any such termination.
b. CONTROLLING LAW. This Agreement shall become valid when signed
by the parties hereto. It shall be deemed made and entered
into in the State of Tennessee and shall be governed and
construed under and in accordance with the laws of the State
of Tennessee. In entering into this Agreement, Licensee
acknowledges that it has sought, voluntarily accepted and
become associated with Licensor who is headquartered in
Memphis, Tennessee, and that this Agreement contemplates and
will result in business relationships with Licensor's
headquarter's personnel. The choice of law designation
permits, but does not require that all suits concerning this
Agreement be filed in the State of Tennessee.
c. EXCLUSIVE BENEFIT. This Agreement is exclusively for the
benefit of the parties hereto, and it may not give rise to
liability to a third party, except as otherwise specifically
set forth herein. No agreement between Licensor and anyone
else is for the benefit of Licensee.
d. ENTIRE AGREEMENT. Licensor and the Licensee each acknowledge
and warrant to each other that they wish to have all terms of
this business relationship defined in this written agreement.
Neither Licensor nor Licensee wishes to enter into a business
relationship with the other in which any terms or obligations
are the subject of alleged oral statements or in which oral
statements serve as the basis for creating rights or
obligations different than or supplementary to the rights and
obligations set forth in this Agreement. Accordingly, Licensor
and Licensee agree that this Agreement and any Attachments
hereto and the documents referred to herein, shall be
construed together and shall supersede and cancel any prior
and/or contemporaneous discussions or writings (whether
described as representations, inducements, promises,
agreements or any other term) between Licensor or anyone
acting on its behalf and Licensee or anyone acting on his, her
or its behalf, which might be taken to constitute agreements,
representations, inducements, promises or understandings (or
any equivalent to such terms) with respect to this Agreement
or the relationship between the parties and Licensor and
Licensee each agree that they have placed, and will place, no
reliance on any such discussions or writings. This Agreement
(including any Attachments and the documents referred to
herein), is the entire agreement between the parties and
contains all of the terms, conditions, rights and obligations
of the parties with respect to the Hotel or any other aspect
of the relationship between the parties. No future license or
offer of a license for additional locations or any other
business activity have been promised to Licensee and no such
license or offer shall come into existence, except by means of
a separate writing, executed by Licensor's officer or such
other entity granting the license and specifically identified
as a License Agreement. No change, modification, amendment or
waiver of any of the provisions of this Agreement will be
effective and binding upon Licensor unless it is in writing,
specifically identified as an amendment to this Agreement and
signed by Licensor's officer.
e. LICENSOR'S WITHHOLDING CONSENT. Licensor may withhold its
consent, wherever required under this Agreement, if any
default or breach by Licensee exists under this Agreement.
Approvals and consents by Licensor will not be effective
unless evidenced by a writing duly executed on behalf of
Licensor.
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f. NOTICES. Any notice must be in writing and will be effective
on either (1) the day it is sent via facsimile with a
confirmation of receipt; or (2) the third day after it is
mailed by first class mail; or (3) the day it is delivered by
express delivery service; or (4) the third day after it is
sent by certified mail to the appropriate party at its address
first stated above or to such person and at such address as
may be designated by notice hereunder.
g. GENERAL RELEASE. Licensee and its respective heirs,
administrators, executors, agents, representatives and their
respective successors and assigns, hereby release, remise,
acquit and forever discharge Licensor and its Entities and
their officers, directors, employees, agents, representatives
and their respective successors and assigns from any and all
actions, claims, causes of action, suits, rights, debts,
liabilities, accounts, agreements, covenants, contracts,
promises, warrants, judgments, executions, demands, damages,
costs and expenses, whether known or unknown at this time, of
any kind or nature, absolute or contingent, if any, at law or
in equity, on account of any matter, cause or thing whatsoever
which has happened, developed or occurred at any time from the
beginning of time to and including the date of Licensee's
execution and delivery to Licensor of this Agreement and that
they will not institute any suit or action at law or otherwise
against Licensor directly or indirectly relating to any claim
released hereby by Licensee. This release and covenant not to
sue shall survive the termination of this Agreement. Licensee
shall take whatever steps are necessary or appropriate to
carry out the terms of this release upon Licensor's request.
h. DESCRIPTIVE HEADINGS. The descriptive headings in this
Agreement are for convenience only and shall not control or
affect the meaning or construction of any provision in this
Agreement.
i. WARRANTIES. Licensee warrants, represents and agrees that all
statements made by Licensee in the Application submitted to
Licensor in anticipation of this Agreement and all other
documents and information submitted by Licensee are true,
correct and complete as of the date hereof and will continue
to be updated so that they are true, correct and complete.
This warranty and representation shall survive the termination
of this Agreement.
j. TIME. Time is of the essence in this Agreement.
k. INCLUDING. Including shall mean including, without limitation.
l. COUNTERPARTS. This Agreement may be executed in counterparts,
and each copy so executed and delivered shall be deemed an
original.
m. AMENDMENTS. If an amendment to this Agreement is required
prior to its execution, said amendment shall be made a part of
this Agreement as an Attachment. If an amendment to this
Agreement is necessary after its execution, said amendment
shall be made a part of this Agreement in the form of a
separate document.
n. PERFORMANCE REQUIREMENTS/RESPONSIBILITIES. Attachment A is
hereby incorporated by reference and made a part of this
Agreement to set forth certain of Licensee's performance
conditions and requirements.
o. BUSINESS JUDGMENT. The parties hereto recognize, and any
mediator or judge is affirmatively advised, that certain
provisions of this Agreement describe the right of Licensor to
take (or refrain from taking) certain actions in the exercise
of its assessment of the long-term best interests of hotels
using the System, considering the interests of the System
overall. Where such decisions have been taken by Licensor and
are supported by the business judgment of Licensor, neither a
mediator nor a judge nor any other person reviewing such
decisions shall substitute his, her or its judgment for the
judgment so exercised by Licensor.
17. EXPIRATION OF OFFER.
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This Agreement constitutes an offer which must be accepted by the
Licensee named on the signature page hereof by dating, executing and
returning to Licensor two copies hereof (and all attachments hereto,
including, if required, the Guaranty) on or before the date specified
on the Rider.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first stated above.
LICENSEE: LICENSOR:
APPLE SUITES MANAGEMENT, INC. PROMUS HOTELS, INC.
BY: /S/ GLADE M. KNIGHT BY:
------------------------------- ---------------------------------
NAME: GLADE KNIGHT NAME: THOMAS P. POWELL
----------------------------- -------------------------------
TITLE: CHIEF EXECUTIVE OFFICER TITLE: SR. VICE PRESIDENT-DEVELOPMENT
----------------------------- -------------------------------
WITNESS: /S/ C. DOUGLAS SCHEPKER WITNESS:
--------------------------- -----------------------------
DATE: DATE:
----------------------------- ------------------------------
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GUARANTY
Location: 853 CENTRE STREET, JACKSON, MISSISSIPPI
- --------------------------------------------------------------------------------
As an inducement to Promus Hotels, Inc. ("LICENSOR") to execute the above
License Agreement, the undersigned, jointly and severally, hereby
unconditionally warrant to Licensor and its successors and assigns that all of
Licensee's representations in the License Agreement and the application
submitted by Licensee to obtain the License Agreement are true and guarantee
that all of Licensee's obligations under the above License Agreement, including
any amendments thereto whenever made (the "AGREEMENT"), will be punctually paid
and performed.
Upon default by Licensee or notice from Licensor, the undersigned will
immediately make each payment required of Licensee under the Agreement. Without
affecting the obligations of the undersigned under this Guaranty, Licensor may
without notice to the undersigned extend, modify or release any indebtedness or
obligation of Licensee, or settle, adjust or compromise any claims against
Licensee. The undersigned waive notice of amendment of the Agreement and notice
of demand for payment or performance by Licensee.
Upon the death of an individual guarantor, the estate of such guarantor will be
bound by this Guaranty but only for defaults and obligations hereunder existing
at the time of death, and the obligations of the other guarantors will continue
in full force and effect.
The Guaranty constitutes a guaranty of payment and not of collection, and each
of the guarantors specifically waives any obligation of Licensor to proceed
against Licensee on any money or property held by Licensee or by any other
person or entity as collateral security, by way of set off or otherwise. The
undersigned further agree that this Guaranty shall continue to be effective or
be reinstated as the case may be, if at any time payment or any of the
guaranteed obligations is rescinded or must otherwise be restored or returned by
Licensor upon the insolvency, bankruptcy or reorganization of Licensee or any of
the undersigned, all as though such payment has not been made.
This Guaranty shall be governed and construed under and in accordance with the
laws of the State of Tennessee.
IN WITNESS WHEREOF, each of the undersigned has signed this Guaranty as of the
date of the above Agreement.
Witnesses: Guarantors:
Apple Suites, Inc.
/s/ C. Douglas Schepker By: /s/ Glade M. Knight (Seal)
- ---------------------------- -------------------------------
Glade Knight, President
21
<PAGE>
ATTACHMENT A - PERFORMANCE CONDITIONS
CHANGE OF OWNERSHIP
I. CONSULTATION. Licensee or its representative(s) shall meet with
Licensor at a location selected by Licensor, within 30 days following
the date of Licensee's receipt of a request from Licensor for
consultation and coordination with the project manager assigned to
Licensee by Licensor.
II. WORK AND PURCHASE REQUIREMENT. Attachment C, the Product Improvement
Plan (the "PIP"), is incorporated by reference, attached to and made a
part of this Agreement. Licensee shall perform the renovation and/or
construction work and purchase the items described on the PIP (the
"WORK") on or before the completion date specified on the Rider.
Whether or not indicated on the PIP, the Work shall include Licensee's
purchasing and/or leasing and installing all fixtures, equipment,
furnishings, furniture, signs, computer terminals and related
equipment, supplies and other items which would be required of a new
Homewood Suites licensee under the Manual and such other equipment,
furnishings and supplies as may be required by Licensor in order to
operate the Hotel. Licensee shall be solely responsible for obtaining
all necessary licenses, permits and zoning variances required for the
Hotel.
III. APPROVAL OF ARCHITECT/ENGINEER AND CONTRACTOR. Licensor shall have the
right to approve the architect/engineer, general contractor and major
subcontractors for the Work. The Work shall not commence until such
approval has been granted, which approvals may be conditioned on
bonding of the contractors. Prior to commencement of the Work, if
requested by Licensor, Licensee shall submit to Licensor, resumes and
financial statements of the architect/engineer, general contractor and
any major sub-contractors for the Work and such additional information
concerning their experience and financial responsibility as Licensor
may request.
IV. APPROVAL OF PLANS. On or before the Plans submission date specified on
the Rider, Licensee shall submit to Licensor, Licensee's plans and
specifications and drawings for the Work, including the proposed
furnishings, fixtures, equipment and signs (collectively, "PLANS") for
approval. Licensor may supply Licensee with representative prototype
Guest Room and public area plans and schematic building plans as a
guide for preparation of plans and specifications for the Hotel. Once
Licensor has approved the Plans, no change shall be made to the Plans
without the advance consent of Licensor. In approving the Plans,
Licensor does not in any manner warrant the depth of its analysis or
assume any responsibility for the efficacy of the Plans or the
resulting construction. Licensee shall cause the Hotel renovation
and/or construction to be in accordance with this Agreement, the
approved Plans, the Manual and the PIP.
V. COMMENCEMENT; COMPLETION. Licensee shall commence the Work on or before
the date specified on the Rider and shall continue the Work
uninterrupted (except for interruption by reason of events constituting
force majeure) until it is completed. Notwithstanding the occurrence of
any events constituting force majeure, or any other cause, the Work
shall be completed and the Hotel shall be furnished, equipped, and
shall otherwise be in compliance with this Agreement not later than the
date specified on the Rider. Licensor shall have the sole right to
determine whether the Work has been completed in accordance with this
Agreement, the approved Plans, the Manual and the PIP.
VI. INSPECTION. During the course of the Work, Licensee shall, and Licensee
shall cause the architect, engineer, contractors, and subcontractors to
cooperate fully with Licensor for the purpose of permitting Licensor to
inspect the Hotel in order to determine whether the Work is being done
in accordance with this Agreement and shall provide Licensor with
samples of construction materials, etc. as Licensor may request.
VII. REPORTS. Licensee shall submit to Licensor each month after the date
hereof (or more frequently if Licensor shall so request) a report
showing progress made toward fulfilling the terms of this Agreement.
Attachment A-1
<PAGE>
VIII. ACQUISITION OF EQUIPMENT, FURNISHINGS, AND SUPPLIES/STAFFING. Licensee
shall order, purchase and/or lease and install all fixtures, equipment,
furnishings, furniture, signs, computer terminals and related
equipment, supplies and other items required by Licensor, this
Agreement, the approved Plans, the Manual and the PIP.
In accordance with the Manual and such other instructions as are
furnished to Licensee by Licensor, Licensee shall cause to be hired a
staff to operate the Hotel, and all such personnel shall be trained as
required by the Manual. All costs and expenses incurred directly or
indirectly in hiring and training such staff shall be paid by Licensee,
except as expressly provided otherwise in the Manual.
IX. COST OF CONSTRUCTION AND EQUIPPING. Licensee shall bear the entire cost
of the Work, including the cost of the plans, professional fees,
licenses and permits, equipment, furniture, furnishings and supplies.
X. LIMITATION OF LIABILITY. Notwithstanding the right of Licensor to
approve the Plans, the architect, engineer and certain contractors, and
to inspect the Work and the Hotel, Licensor shall have no liability or
obligation with respect to the Work, or the design and construction of
the Hotel, as the rights of Licensor are being exercised solely for the
purpose of assuring compliance with the terms and conditions of this
Agreement. Licensor does not undertake to approve the Hotel as
complying with governmental requirements or as being safe for guests or
other third parties. Licensee should not rely upon Licensor's approval
for any purpose whatsoever except compliance with Licensor's then
prevailing standards and requirements of the Manual.
XI. CONDITIONAL AUTHORIZATION. Licensor may conditionally authorize
Licensee to continue to operate the Hotel as a Homewood Suites hotel
even though Licensee has not fully complied with the terms of this
Agreement. Under certain circumstances, Licensor may suspend services
to the Hotel (including reservation services) while the Work is being
performed by Licensee.
XII. PERFORMANCE OF AGREEMENT. Licensee agrees to satisfy all of the terms
and conditions of this Agreement, and to equip, supply and staff the
Hotel in accordance with this Agreement and to cooperate with Licensor
in connection therewith. As a result of Licensee's efforts to comply
with the terms and conditions of this Agreement, Licensee will incur
substantial expense and expend substantial time and effort. Licensee
acknowledges and agrees that Licensor shall have no liability or
obligation to Licensee for any losses, obligations, liabilities or
expenses incurred by Licensee if this Agreement is terminated because
Licensee has not complied with the terms and conditions of this
Agreement.
Attachment A-2
<PAGE>
ATTACHMENT B
RIDER TO LICENSE AGREEMENT
<TABLE>
<S> <C>
1. Name and Address of Licensee: Apple Suites Management, Inc.
Attn: Glade M. Knight
306 East Main Street
Richmond, Virginia 23219
2. Location of Hotel: 853 Centre Street
Jackson, Mississippi 39157
3. Number of Approved Guest Rooms: 91
4. Effective Date of License: Date Apple Suites, Inc. closes the purchase of and obtains
possession and control of the Hotel ("Closing")
It shall be a condition precedent to the validity of this
Agreement, and this Agreement shall be of no force and effect
and Licensee shall have no rights hereunder unless and until
on or before December 6, 1999, Licensee shall have submitted
to Licensor, written verification, in a form satisfactory to
Licensor, that Closing has occurred. Within five days of
Closing, Licensee shall submit to Licensor (i) a copy of the
deed, as recorded, transferring the Hotel to Apple Suites,
Inc., (ii) a copy of the lease agreement between Licensee and
Apple Suites, Inc., and (iii) the franchise application fee in
the amount of $45,000
5. Term of License to Expire: 20 years from the date of Closing
6. Plans Submission Dates: as required under the Product Improvement Plan (Attachment C)
7. Construction or Work Commencement Date: upon Closing
8. Construction or Work Completion Date: within 90 days of Closing but not later than March 1, 2000
9. Offer Expiration Date [Paragraph 17]: December 6, 1999
10. Ownership of Licensee: Apple Suites Management, Inc. 100%
Stockholder:
Glade Knight 100%
</TABLE>
Attachment B-1
EXHIBIT 10.4
[Mississippi]
MANAGEMENT AGREEMENT
This Management Agreement (as the same may be amended, modified or
supplemented from time to time, this "Agreement") is made and entered into as of
the 22nd day of December, 1999 ("Effective Date") between Apple Suites
Management, Inc., a Virginia corporation, whose address is 306 East Main Street,
Richmond, Virginia 23219 ("Owner") and Promus Hotels, Inc., a Delaware
corporation, whose address is 755 Crossover Lane, Memphis, Tennessee 38117
("Manager").
ARTICLE 1
THE HOTEL
Section 1.01. The Hotel. The subject matter of this Agreement is the
management of the "Hotel", as defined in the Homewood Suites License Agreement
attached hereto as Exhibit "A" (hereinafter collectively referred to as the
"License Agreement"), by Manager. The Hotel is owned in fee by Apple Suites,
Inc., a Virginia corporation ("Fee Owner") and leased to Owner pursuant to a
lease between Fee Owner and Owner with a commencement date of even date herewith
covering the Hotel (hereinafter the "Percentage Lease"). The License Agreement
shall exclusively govern Owner's right to use the Homewood Suites "System" (as
defined in the License Agreement) in the operation of the Hotel. Fee Owner shall
have no right to use the Homewood Suites "System" except as expressly set forth
in the License Agreement. Owner hereby expressly acknowledges that neither it
nor Fee Owner shall derive any rights in or to the use of the "Homewood Suites"
name or the Homewood Suites "System" from this Agreement.
ARTICLE 2
TERM
Section 2.01. Term. The term shall commence on the Effective Date and
continue for the term of years from the Effective Date set forth on Exhibit "B"
("Term").
ARTICLE 3
MANAGER'S OBLIGATIONS
Section 3.01. Manager's Obligations. Manager shall, on behalf of Owner
and at Owner's expense, direct the operation of the Hotel pursuant to the terms
of this Agreement and the License Agreement. Manager shall be exclusively
responsible for
<PAGE>
directing the day-to-day activities of the Hotel and establishing all policies
and procedures relating to the management and operation of the Hotel. Except as
specifically otherwise provided, all cost(s) and expense(s) incurred by Manager
in association with the performance of the obligations hereinafter set forth
shall be, regardless of the designation of a portion thereof as Fee Ownership
Costs (as herein defined), operating costs and shall accordingly be paid from
the Bank Account(s) as hereinafter defined in Section 3.01(iv) below. Manager,
during the Term, shall have the following obligations:
(i) Costs of Fee Owner and Owner. Pursuant to the terms of the
Percentage Lease, Manager understands that Fee Owner has
agreed to pay, among other things (i) land, building and
personal property taxes and assessments applicable to the
Hotel, (ii) premiums and charges for the casualty insurance
coverages specified on Exhibit "D", (iii) expenditures for
capital replacements, (iv) expenditures for maintenance and
repair of underground utilities and structural elements of the
Hotel and (v) the payments of principal, interest and other
sums payable under the Acquisition Loan (as herein defined)
(collectively, "Fee Ownership Costs"). To the extent this
Agreement obligates or authorizes Manager to pay any such Fee
Ownership Costs, Manager shall pay such Fee Ownership Costs on
behalf of Fee Owner to the extent of funds in the Bank
Account(s) (as herein defined) in the order of priority set
forth in Exhibit B or the Reserve Fund (as herein defined) and
Fee Owner and Owner shall make such adjustments and payments
to each other as may be necessary from time to time to take
into account any such payments by Manager. Manager shall have
no duty, obligation or liability to Fee Owner or Owner (i) to
make any determination as to whether any expense required to
be paid by Manager hereunder is a Fee Ownership Cost or a cost
of Owner, (ii) to make any determination as to whether funds
in the Bank Account(s) or the Reserve Fund belong to Fee Owner
or Owner or (iii) to require that Fee Ownership Costs be paid
from funds which can be identified as belonging to Fee Owner,
or that other costs and expenses required to be paid by Owner
be paid from funds which can be identified as belonging to
Owner; it being the intent of the parties to this Agreement
that (i) Owner and Fee Owner shall look only to each other and
not to Manager with respect to moneys that may be owed one to
the other as a consequence of Manager's performance under this
Agreement and (ii) Manager need only look to Owner to pay
operating costs, including, without limitation, those
designated herein as Fee Ownership Costs;
(ii) Personnel. Manager shall be the sole judge of the fitness and
qualification of all personnel working at the Hotel ("Hotel
Personnel") and shall have the sole and absolute right to
hire, supervise, order, instruct, discharge and determine the
compensation, benefits and terms of employment of all Hotel
Personnel. All Hotel Personnel shall be employees of Manager.
Manager shall also have the right to use employees of Manager,
Manager's parent and subsidiary and affiliated companies, not
located at the Hotel to provide services to the Hotel
("Off-Site Personnel") and the right to have
2
<PAGE>
the general manager of the hotel serve as the regional manager
for other hotels managed by Manager. All expenses, costs
(including, but not limited to, salaries, benefits and
severance pay), liabilities and claims which are related to
Hotel Personnel and Off-Site Personnel shall be operating
costs; provided, however, with respect to any moving expenses
for any Hotel Personnel who has not been an employee at the
Hotel for at least twelve (12) months, only that portion of
such moving expenses equal to Owner's Share (as hereinafter
defined) shall constitute operating costs and the balance
shall be paid by Manager and/or such employee. Manager shall
also have the right to have Off-Site Personnel performing
regional or area duties relating to the Hotel and other hotels
managed by Manager lodged at the Hotel from time to time free
of charge. "Owner's Share" shall mean a fraction having twelve
(12) as its denominator and the number of months or part
thereof such person has been one of the Hotel Personnel as its
numerator. All expenses for Off-Site Personnel shall be
included as a separate category or item of the Operating
Budgets or shall otherwise be approved by Owner.
Manager agrees that it will consult with Owner regarding the
hiring, transferring, or terminating of the general manager
and director of sales for the Hotel. Owner shall be afforded
an opportunity to review the resumes of, and to interview, the
candidates for these positions, all within a time frame
established by Manager, which shall be reasonable under the
circumstances in question. Manager and Owner shall consult
with each other concerning such decisions and Manager agrees
to give serious consideration to the views of Owner prior to
Manager's making a final decision with respect to any such
individual;
(iii) Hotel Policies. Manager shall determine the terms of guest
admittance to the Hotel, establish room rates, and use of
rooms for commercial purposes;
(iv) Bank Accounts. Manager shall open and operate the Hotel's bank
accounts. All sums received from the operation of the Hotel
and all items paid by Manager arising by virtue of Manager's
operation of the Hotel shall pass through bank account(s)
established by Manager in Owner's name at such banks as
Manager and Owner shall mutually agree ("Bank Account(s)");
only Manager's designees shall be exclusively authorized to
operate and draw from the Bank Account(s). Each fiscal month
Manager, on behalf of Owner, shall disburse funds from the
Bank Account(s) in the order of priority and to the extent
available in accordance with the priority schedule set forth
on Exhibit "B";
(v) Operating Budgets. Manager has submitted to Owner, for Owner's
approval, a proposed operating budget for the ensuing full or
partial fiscal year, as the case may be ("Operating Budget").
Hereafter, Manager shall, not less than forty-five (45) days
prior to the commencement of each full
3
<PAGE>
fiscal year, submit to Owner, for Owner's approval, a proposed
Operating Budget for the ensuing full or partial fiscal year,
as the case may be. Each Operating Budget shall be accompanied
by, and shall include, a business plan which shall describe
business objectives and strategies for the period covered by
the Operating Budget. The business plan shall include, without
limitation, an analysis of the market area in which the Hotel
competes, a comparison of the Hotel and its business with
competitive hotels, an analysis of categories of potential
guests, and a description of sales and marketing activities
designed to achieve and implement identified objectives and
strategies. Fee Owner shall have no right to approve any
Operating Budget.
Owner's approval of the Operating Budget shall not be
unreasonably withheld and shall be deemed given unless a
specific written objection thereto is delivered by Owner to
Manager within fifteen (15) days after submission. Owner shall
review the Operating Budget on a line-by-line basis. To be
effective, any notice which disapproves a proposed Operating
Budget must contain specific objections in reasonable detail
to individual line items.
If the initial Operating Budget contains disputed budget
item(s), said item(s) shall be deemed adopted until Owner and
Manager have resolved the item(s) objected to by Owner or the
Accountant(s) (hereinafter defined in Section 10.02) have
resolved the item(s) objected to by Owner. Thereafter, if
Owner disapproves or raises objections to a proposed Operating
Budget in the manner and within the time period provided
therefor, and Owner and Manager are unable to resolve the
disputed or objectionable matters submitted by Owner prior to
the commencement of the applicable fiscal year, the undisputed
portions of the proposed Operating Budget shall be deemed to
be adopted and approved and the corresponding line item
contained in the Operating Budget for the preceding fiscal
year shall be adjusted as set forth herein and shall be
substituted in lieu of the disputed items in the proposed
Operating Budget. Those line items which are in dispute shall
be determined by increasing the preceding fiscal year's
corresponding line items by an amount determined by Manager
which does not exceed the Consumer Price Index for All Urban
Consumers published by the Bureau of Labor Statistics of the
United States Department of Labor, U.S. City Average, all
items (1984-1986=100) for the fiscal year prior to the fiscal
year with respect to which the adjustment to the line item is
being calculated or any successor or replacement index
thereto. The resulting Operating Budget obtained in accordance
with the preceding sentence shall be deemed to be the
Operating Budget in effect until such time as Manager and
Owner have resolved the items objected to by Owner.
Manager shall revise the Operating Budget from time to time,
as necessary, to reflect any unpredicted significant changes,
variables or
4
<PAGE>
events or to include significant, additional, unanticipated
items of income or expense. Any such revision shall be
submitted to Owner for approval, which approval shall not be
unreasonably withheld, delayed or conditioned. Manager shall
be permitted to reallocate part or all of the amount budgeted
with respect to any line item to another line item and to make
such other modifications to the Operating Budget as Manager
deems necessary, provided, however, that Manager may not
reallocate from one Department to another without Owner's
consent, which shall not be unreasonably withheld or delayed.
The term "Department" shall mean and refer to those general
divisional categories shown in the Operating Budget (e.g.,
Guest Services Department or Administration Department), but
shall not mean or refer to subcategories (e.g., linen
replacement or uniforms) appearing in a divisional category.
In addition, in the event actual Adjusted Gross Revenues (as
defined in Exhibit "C" hereto) for any calendar period are
greater than those provided for in the Operating Budget, the
amounts approved in the Operating Budget for suite
maintenance, guest services, food and beverage, telephone,
utilities, marketing and hotel repair and maintenance for any
calendar month shall be automatically deemed to be increased
to an amount that bears the same relationship (ratio) to the
amounts budgeted for such items as actual Adjusted Gross
Revenue for such month bears to the projected Adjusted Gross
Revenue for such month. Owner acknowledges that the Operating
Budget is intended only to be a reasonable estimate of the
Hotel's income and expenses for the ensuing fiscal year.
Manager shall not be deemed to have made any guarantee,
warranty or representation whatsoever in connection with the
Operating Budget;
(vi) Operating Statement. Manager shall prepare and furnish Owner,
on or before the twentieth (20th) day of the fiscal month
immediately following the close of a fiscal month, with a
detailed operating statement setting forth the results of the
Hotel's operations. Within ninety (90) days after the end of
each fiscal year, Manager shall furnish Owner with a detailed
operating statement setting forth the results of the Hotel's
operations for the fiscal year;
(vii) Capital Budgets. Manager shall, not less than forty-five (45)
days prior to the commencement of each fiscal year, submit to
Owner, for Owner's approval, a recommended "Capital Budget"
for the ensuing full or partial fiscal year, as the case may
be, for furnishings, equipment, and ordinary Hotel capital
replacement items as shall be required to operate the Hotel in
accordance with the standards referred to in the License
Agreement. Manager, to the extent it is able to do so without
compromising compliance with the minimum standards required
under the terms of the License Agreement, shall take into
consideration, among other factors, the amount of funds
available to pay for the proposed capital expenditures.
Manager shall also identify for Owner those projects that are
required to meet the minimum standards of the License
Agreement and give priority
5
<PAGE>
to such items. Owner and Manager shall meet to discuss the
proposed Capital Budget and Owner shall be required to make
specific written objections to a proposed Capital Budget in
the manner and within the same time periods specified in
Section 3.01(v) with respect to an Operating Budget. Owner
agrees not to unreasonably withhold or delay its consent. If
Owner does not approve the Capital Budget, Manager (i) with
respect to Capital Improvements (as herein defined) required
to meet the minimum standards of the License Agreement, will
be entitled to spend such amounts as are necessary to meet
such minimum standards and (ii) with respect to any other
Capital Improvements, will only spend such amounts as are
approved by Owner, acting reasonably, provided, however, that
in any event Manager shall be entitled to spend up to five
percent (5%) of Gross Revenue for capital expenditures after
the date hereof until the disputed Capital Budget item(s) have
been resolved in accordance with Section 10.02.1(e). Manager,
at Owner's expense, shall be responsible for supervising the
design, installation and construction of alterations or
additions to, or rebuilding or renovation of, the Hotel,
including any additions to Hotel furnishings and equipment
(collectively, "Capital Improvements"). Owner shall have the
right to approve and inspect the installation and construction
of Capital Improvements and any mortgagee having a first lien
on Owner's leasehold estate in the Hotel ("Owner's Leasehold
Mortgagee") or a first lien on Fee Owner's fee estate in the
Hotel (the "Fee Owner's Mortgagee") shall also have any right
of approval or inspection of the installation and construction
of the Capital Improvements to the extent set forth in the
mortgage, deed of trust or other loan documents (collectively,
the "Mortgage Documents") (but only if and to the extent the
Manager has been provided with copies of the Mortgage
Documents). Fee Owner shall not have the right to approve any
Capital Budget.
After a Capital Budget has been adopted, it shall be subject
to review and modification in the event unpredicted or
unanticipated capital expenditures are required during any
calendar year. Manager and Owner each agree not to
unreasonably withhold or delay its consent to a proposed
modification of a Capital Budget. Any amendment that is
mutually agreed upon shall be set forth in writing and signed
by both parties. It is acknowledged by Owner that capital
expenditures required as a result of an emergency situation
shall not reduce amounts available pursuant to the Capital
Budget or otherwise hereunder, other than to the extent a
Capital Budget item is subsumed within the capital
expenditures required as a result of the occurrence of the
emergency;
(viii) General Maintenance Non-Capital Replacements. Manager shall
supervise the maintenance, repair and replacement of
non-capital replacements;
6
<PAGE>
(ix) Operating Equipment. Manager shall select and purchase all
operating equipment for the Hotel such as linens, utensils,
uniforms and other similar items, provided, however, that if
Owner determines that it can purchase operating equipment of a
quality at least equal to that which Manager generally uses at
a price lower than the price obtained by Manager, Manager
shall purchase such operating equipment from the vendor
designated by Owner;
(x) Operating Supplies. Manager shall select and purchase all
operating supplies for the Hotel such as food, beverages,
fuel, soap, cleansing items, stationery and other consumable
items, provided, however, that if Owner determines that it can
purchase operating supplies of a quality at least equal to
that which Manager generally uses at a price lower than the
price obtained by Manager, Manager shall purchase such
operating supplies from the vendor designated by Owner;
(xi) Accounting Standards. Manager shall maintain the books and
records reflecting the operations of the Hotel in accordance
with the accounting practices of Manager in conformity with
generally accepted accounting practices consistently applied
and shall adopt and follow the fiscal accounting periods
utilized by Manager in its normal course of business. The
Hotel level generated accounting records reflecting detailed
day-to-day transactions of the Hotel's operations, shall be
kept by Manager at the Hotel or at Manager's regional offices
or corporate headquarters, or at such other location as
Manager shall reasonably determine. Manager shall receive a
monthly fee for accounting services provided to the Hotel
("Accounting Fee"). The current Accounting Fee is set forth on
Exhibit "B". The Accounting Fee shall be adjusted by Manager
from time to time and set forth in the annual Operating
Budget;
(xii) Marketing and Advertising. Manager shall advertise and promote
the Hotel in coordination with the sales and marketing
programs of Manager and other Homewood Suites hotels. Manager
may participate in sales and promotional campaigns and
activities involving complimentary rooms. Manager, in
marketing and advertising the Hotel, shall have the right to
use marketing and advertising services of employees of Manager
and its parent and affiliated companies not located at the
Hotel. Manager may charge the Hotel for personnel and other
costs and expenses incurred in providing such services;
provided that (i) Manager's allocation of such costs and
expenses among hotels, including the Hotel, shall be pro rated
among all hotels owned or managed by Manager and (ii) the
annual allocation of such costs and expenses to the Hotel
shall not exceed $10,000.00. Such costs and expenses shall be
reflected in the budgets and operating statements required to
be prepared and submitted by Manager under this Agreement;
7
<PAGE>
(xiii) Permits and Licenses. Manager shall obtain and maintain the
various permits and licenses required or permitted to be held
in its name that are necessary to enable Manager to operate
the Hotel in accordance with the terms of this Agreement and
the License Agreement, provided, however, that Manager shall
only hold liquor licenses and alcoholic beverage licenses if
required by the laws of the jurisdiction in which the Hotel is
located. In addition, Manager shall upon request cooperate
with and assist Owner in obtaining the various permits and
licenses that are required to be held in the name of either or
both of Owner and Fee Owner that are necessary to enable
Manager to operate the Hotel. Manager, at Owner's cost and
expense, shall use all reasonable efforts, to the extent
within its control, to comply with the terms and conditions of
all licenses and permits issued with respect to the Hotel and
the business conducted at the Hotel, including, without
limitation, the terms and conditions of the License Agreement;
(xiv) Owner Meetings. The Hotel's general manager shall meet with
Owner's Representative as hereinafter defined in Section
4.01(viii) quarterly to review and discuss the previous and
future month's operating statement, cash flow, budget, capital
expenditures, important personnel matters and the general
concerns of Owner and Manager. In addition, a representative
of Manager's corporate staff shall meet with Owner's
Representative quarterly to review and discuss the previous
and future quarter's operating statement, cash flow, budget,
capital expenditures, important personnel matters and the
general concerns of Owner and Manager. Except to the extent
otherwise mutually agreed upon by Owner and Manager, the
quarterly meetings described in this clause (xiv) shall be
held at the Hotel;
(xv) Insurance. Manager shall procure and maintain throughout the
Term the insurance coverages set forth on Exhibit "D";
(xvi) Compliance with Law. Manager, at Owner's cost and expense,
shall use all reasonable efforts to comply with all laws,
ordinances, regulations and requirements of any federal, state
or municipal government that are applicable to the use and
operation of the Hotel, as well as with all orders and
requirements of the local fire department, of which Manager
has knowledge; provided, however, that Owner shall have the
right to contest by proper legal proceedings, the validity of
any such law, ordinance, rule, regulation, order, decision or
requirement and may postpone compliance therewith to the
extent and in the manner provided by law until final
determination of any such proceedings. Manager promptly shall
notify Owner in writing of all notices of legal requirements
applicable to the Hotel that are received by Manager;
(xvii) Satisfaction of Obligations. Manager agrees to pay, when due,
all amounts due under any equipment leases and all other
contracts and agreements relating to the operation or
maintenance of the Hotel, and, if
8
<PAGE>
requested by Owner, any Mortgage Documents relating to the
loan from Owner's Leasehold Mortgagee ("Owner's Mortgage
Documents"), but solely from and to the extent that funds are
available in the Bank Account(s), and to comply, at Owner's
cost and expense, with all other covenants and obligations
contained in the equipment leases and all utility contracts,
concession agreements, and service and maintenance contracts,
and, if requested by Owner, Owner's Mortgage Documents to the
extent that compliance therewith is within the reasonable
control of Manager by reason of its management and operation
of the Hotel pursuant to this Agreement; provided, however,
Manager shall have no obligation to comply with any provisions
in the Mortgage Documents that conflict with its rights and
obligations under this Agreement. Manager shall have no
obligation to perform or comply with any obligations of (i)
Fee Owner or Owner under the Percentage Lease or (ii) Fee
Owner under any Mortgage Documents relating to the loan from
Fee Owner's Mortgagee (other than any right to approve or
inspect Capital Improvements contemplated by Section 3.01(vii)
above);
(xviii) Requests for Information. Manager shall respond, with
reasonable promptness, to any information requests by Owner's
Leasehold Mortgagee in accordance with Owner's Mortgage
Documents, to the extent such information is required to be
furnished by Manager to Owner pursuant to this Agreement. Any
additional information or reports requested by Owner's
Leasehold Mortgagee shall be provided by Manager only if Owner
so directs Manager in writing and, to the extent such
information or reports are not being prepared for Owner in the
ordinary course of business pursuant to this Agreement, Owner
agrees to pay the reasonable expenses of preparing such
information and reports;
(xix) Tax and Insurance Accruals. If requested by Owner, Manager
shall accrue and set aside on a monthly basis funds from
Adjusted Gross Revenues if available in the priority set forth
on Exhibit B for the payment of real estate taxes and
insurance premiums, and such accruals shall be deposited in a
separate account and not commingled with other operating
accounts for Hotel operations generally, provided, however,
that to the extent such accruals exceed the amount necessary
to pay the actual amount of real estate taxes and insurance
premiums, such excess shall be available for operating costs,
ownership costs, Owner's Basic Return, the Subordinated
Management Fee and the others items set forth on, and in the
priority set forth on, Exhibit B. If such accruals do not
exceed the actual amounts due in respect of real estate taxes
and insurance premiums but Owner and Manager agree in writing,
the tax and insurance accruals on deposit may be used from
time to time to pay operating costs if Adjusted Gross Revenues
are not otherwise sufficient to pay such operating costs.
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ARTICLE 4
OWNER'S OBLIGATIONS
Section 4.01. Owner's Obligations. During the Term, Owner shall have
the obligations set forth below:
(i) License Agreement. Owner shall comply with all the terms and
conditions of the License Agreement (specifically including,
but not limited to, Licensee's obligation to pay the fees,
charges and contributions set forth in paragraphs 3.c. and 7
of the License Agreement) and keep the License Agreement in
full force and effect from the Effective Date through the
remainder of the Term. Nothing in this Agreement shall be
interpreted in a manner which would relieve Owner of any of
its obligations under the License Agreement;
(ii) Licenses and Permits. Owner shall obtain and maintain, with
Manager's assistance and cooperation, all governmental
permissions, licenses and permits required to be held in
Owner's and/or Fee Owner's name that are necessary to enable
Manager to operate the Hotel in accordance with the terms of
this Agreement and the License Agreement;
(iii) Insurance. Owner shall procure and maintain throughout the
Term the insurance coverages set forth on Exhibit "E";
(iv) Intentionally Omitted;
(v) Operating Funds. Owner shall provide all funds necessary to
enable Manager to manage and operate the Hotel in accordance
with the terms of this Agreement and the License Agreement,
regardless of the designation of a portion of the operating
costs as Fee Ownership Costs. Owner agrees to deliver to
Manager for deposit into the Bank Account(s) on the Effective
Date the amount specified on Exhibit "B" which amount shall be
the "Minimum Balance" to be maintained by Owner during the
first year of the Hotel's operation. The Minimum Balance
thereafter shall be no less than the Hotel's operating costs
for the preceding fiscal month. The Minimum Balance shall
serve as working capital for the Hotel's operations. Owner
agrees, upon Manager's written request, to immediately furnish
Manager with sufficient funds to make up any deficiency in the
Minimum Balance;
(vi) Capital Funds. Owner shall expend such amounts for renovation
programs, furnishings, equipment and ordinary Hotel capital
replacement items as are required from time to time to (a)
maintain the Hotel in good order and repair, (b) comply with
the standards referred to in the License Agreement, and (c)
comply with governmental regulations and orders. Owner shall
cooperate fully with Manager in establishing appropriate
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procedures and timetables for Owner to undertake capital
replacement projects.
It is recognized that expenditures for capital replacements
are incapable of precise calculation in advance. Therefore,
five percent (5%) of Gross Revenues each year shall be paid
over in cash in each calendar month after the Effective Date
into a Reserve Fund (as hereinafter defined) to pay for
capital replacements. In lieu of funding monthly into the
Reserve Fund as contemplated above, Owner shall have the
right, but not the obligation, to deposit into the Reserve
Fund, on or about the commencement of each year, the full
amount set forth in the Capital Budget. Manager shall
establish a reserve for capital replacements on the books of
account for the Hotel and the cash amounts required for such
reserve shall be placed into an interest-bearing account (the
"Reserve Fund") established in the Hotel's name at the bank at
which the Bank Account(s) are established, with Manager's
designees being the only authorized signatories on said
account. All amounts on deposit in the Reserve Fund shall be
Owner's. Any expenditures for capital replacements during any
calendar year which have been included in an approved Capital
Budget may be made without Owner's or Fee Owner's additional
approval and, to the extent available, shall be made by
Manager from the Reserve Fund (including accrued interest and
unused accumulations from prior calendar years). Any amounts
remaining in the Reserve Fund at the close of each calendar
year shall be carried forward and retained in the Reserve Fund
until fully used as herein provided. To the extent the Reserve
Fund is insufficient at a particular time or to the extent the
Reserve Fund plus anticipated contributions for the ensuing
calendar year is less than the budgeted expenditures set forth
in the approved Capital Budget for the ensuing calendar year
then in either such event, Manager shall give Owner written
notice thereof at least sixty (60) days before the anticipated
date such funds will be needed. Owner shall supply the
necessary funds by deposit to the Reserve Fund at least
fifteen (15) days before the anticipated date such funds will
be needed. All proceeds from the sale of capital items no
longer needed for the operation of the Hotel shall be
deposited to the Reserve Fund. Sale of such items shall be at
the discretion of Manager, and conducted in a commercially
reasonable manner. Manager shall not dispose of any capital
item or group of capital items having a value in excess of ten
thousand dollars ($10,000) without Owner's prior written
consent unless the replacement of such capital item or group
of capital items has been contemplated in the applicable
Capital Budget. Manager also shall obtain the consent of
Owner's Leasehold Mortgagee when required for any disposition
of capital items otherwise prohibited under the terms of
Owner's Mortgage Documents, provided, however, that to the
extent a capital item is being replaced because the same is
defective or obsolete or with an item of equal or greater
value no such consent need be obtained from Owner's Leasehold
Mortgagee. Upon termination of this Agreement for whatever
reason or upon sale of the Hotel, Manager's right
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to expend any unused portion of the Reserve Fund shall
terminate and the balance of the fund shall be paid over to
Owner, less any sums then due Manager.
To the extent any expenditure under this Section 4.01(vi)
shall exceed twenty thousand dollars ($20,000), Manager shall
first solicit bids from at least three different reputable and
qualified third parties, and the lowest of the bidders shall
be selected unless acceptance of a higher bid has been
approved by Owner in writing or unless Manager provides a
reasonably detailed explanation for its selection of a bid
higher than the lowest of the bidders;
(vii) Payments to Manager. Owner shall promptly pay to Manager all
amounts due Manager under this Agreement;
(viii) Owner's Representative. Owner shall appoint a representative
to represent Owner in all matters relating to this Agreement
and/or the Hotel ("Owner's Representative"). Owner's initial
Owner's Representative shall be the individual named on
Exhibit "B". Manager shall have the right to deal solely with
the Owner's Representative on all such matters. Manager may
rely upon statements and representations of Owner's
Representative as being from and binding upon Owner. Owner may
change its Owner's Representative from time to time by
providing written notice to Manager in the manner provided for
herein. Owner shall cause the Owner's Representative to attend
all quarterly meetings referred to in Section 3.01(xiv);
(ix) Owner's Audits. Owner shall have the right to have its
independent accounting firm examine the books and records of
the Hotel at any reasonable time upon forty-eight (48) hours
notice to Manager;
(x) Right of Inspection and Review. Owner, Owner's Leasehold
Mortgagee, Fee Owner and Fee Owner's Mortgagee and their
respective accountants, attorneys, agents and other
representatives and invitees, shall have the right to enter
upon any part of the Hotel at all reasonable times during
normal business hours and during the term of this Agreement
upon reasonable prior notice to Manager for the purpose of
examining or inspecting the Hotel, showing the Hotel to
prospective purchasers or mortgagees, or auditing, examining
or making extracts of books and records of the Hotel, or for
any other purpose which Owner, in its reasonable discretion,
shall deem necessary or advisable, but the same shall be done
with as little disruption to the business of the Hotel as
under the circumstances is reasonable; and
(xi) Quiet and Peaceable Operation. Owner shall ensure that Manager
is able to peaceably and quietly operate the Hotel in
accordance with the terms of this Agreement, free from
molestation, eviction and disturbance by Owner
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or by any other person or persons claiming by, through or
under Owner. Owner shall undertake and prosecute all
reasonable and appropriate actions, judicial or otherwise,
required to assure such quiet and peaceable operations by
Manager.
ARTICLE 5
MANAGEMENT FEE
Section 5.01. Management Fee. On the first day of each fiscal month
after the Effective Date, Manager is authorized by Owner to pay itself from the
Bank Account(s) the Management Fees calculated in the manner set forth on
Exhibit "C".
ARTICLE 6
CLAIMS AND LIABILITY
Section 6.01. Claims and Liability. Owner and Manager mutually agree
for the benefit of each other to look only to the appropriate insurance
coverages in effect pursuant to this Agreement in the event any demand, claim,
action, damage, loss, liability or expense occurs as a result of injury to
person or damage to property regardless whether any such demand, claim, action,
damage, loss, liability or expense is caused or contributed to, by or results
from the negligence of Owner or Manager or their subsidiaries, affiliates,
employees, directors, officers, agents or independent contractors and regardless
whether the injury to person or damage to property occurs in and about the Hotel
or elsewhere as a result of the performance of this Agreement. Nevertheless, in
the event the insurance proceeds are insufficient or there is no insurance
coverage to satisfy the demand, claim, action, loss, liability or expense and
the same did not arise out of the gross negligence or willful misconduct of
Manager, Owner agrees, at its expense, to indemnify and hold Manager and its
subsidiaries, affiliates, officers, directors, employees, agents or independent
contractors harmless to the extent of the excess liability.
Section 6.02. Survival. The provisions of this Article 6 shall survive
any cancellation, termination or expiration of this Agreement and shall remain
in full force and effect until such time as the applicable statute of limitation
shall cut off all demands, claims, actions, damages, losses, liabilities or
expenses which are the subject of the provisions of this Article 6.
ARTICLE 7
CLOSURE, EMERGENCIES AND DELAYS
Section 7.01. Events of Force Majeure. If at any time during the Term
of this Agreement it becomes necessary, in Manager's opinion, to cease operation
of the Hotel in order to protect the Hotel and/or the health, safety and welfare
of the guests
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and/or employees of the Hotel for reasons beyond the reasonable control of
Manager, such as, but not limited to, acts of war, insurrection, civil strife
and commotion, labor unrest, governmental regulations and orders, shortage or
lack of adequate supplies or lack of skilled or unskilled employees, contagious
illness, catastrophic events or acts of God, which shall not include Manager's
computer systems and software not being able to accurately process date data and
information, including, but not limited to, calculating, comparing and
sequencing from, into and between the twentieth century, the year 2000 and the
twenty-first century ("Force Majeure"), then in such event or similar events
Manager may close and cease operation of all or any part of the Hotel, reopening
and commencing operation when Manager deems that such may be done without
jeopardy to the Hotel, its guests and employees.
Manager and Owner agree, except as otherwise provided herein, that the
time within which a party is required to perform an obligation and Manager's
right to manage the Hotel under this Agreement shall be extended for a period of
time equivalent to the period of delay caused by an event of Force Majeure.
Section 7.02. Emergencies. If a condition of an emergency nature should
exist which requires that immediate repairs be made for the preservation and
protection of the Hotel, its guests or employees, or to assure the continued
operation of the Hotel, Manager is authorized to take all actions and to make
all expenditures necessary to repair and correct such condition, regardless
whether provisions have been made in the applicable budget for such emergency
expenditures. Expenditures made by Manager in connection with an emergency shall
be paid, in Manager's sole discretion, out of the Bank Account(s). Owner shall
immediately replenish such funds paid from the Bank Account(s). Manager shall
endeavor to communicate with Owner prior to making any expenditures to correct
an emergency condition, but in any event shall promptly notify Owner after the
emergency expenditures have been made.
ARTICLE 8
CONDEMNATION AND CASUALTY
Section 8.01. Condemnation. If the Hotel is taken in any eminent
domain, expropriation, condemnation, compulsory acquisition or similar
proceeding by a competent authority, this Agreement shall automatically
terminate as of the date of taking or condemnation. Any compensation for the
taking or condemnation of the physical facility comprising the Hotel shall be
paid to Owner. Manager, however, with the full cooperation of Owner, shall have
the right to file a claim with the appropriate authorities for the loss of
Management Fee income for the remainder of the Term and any extension thereof
because of the condemnation or taking. If only a portion of the Hotel is so
taken and the taking does not make it unreasonable or imprudent, in Manager's
and Owner's opinion, to operate the remainder as a hotel of the type immediately
preceding such taking, this Agreement shall not terminate. Any compensation
shall be used, however, in whole or in part, to render the Hotel a complete and
satisfactory architectural unit as a hotel of the same type and class as it was
immediately preceding such taking or condemnation.
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Section 8.02. Casualty. In the event of a fire or other casualty, Owner
shall comply with the terms of the License Agreement and this Agreement shall
remain in full force and effect so long as the License Agreement remains in full
force and effect.
ARTICLE 9
TERMINATION RIGHTS
Section 9.01. Bankruptcy and Dissolution. If either party is
voluntarily or involuntarily dissolved or declared bankrupt, insolvent, or
commits an act of bankruptcy, or if a company enters into liquidation whether
compulsory or voluntary otherwise than for the purpose of amalgamation or
reconstruction, or compounds with its creditors, or has a receiver appointed
over all or any part of its assets, or passes title in lieu of foreclosure, the
other party may terminate this Agreement immediately upon serving notice to the
other party, without liability on the part of the terminating party.
Section 9.02. Manager's Termination Right Upon the Termination of
License Agreement. If the License Agreement is terminated for any reason,
Manager may terminate this Agreement immediately upon serving notice to Owner,
without liability on the part of Manager. Upon such termination, unless
specifically provided otherwise herein, Manager shall be entitled to receive the
Sale Termination Fee calculated in the manner set forth on Exhibit "B".
Notwithstanding anything contained herein, Manager shall not be entitled to
receive the Sale Termination Fee if the License Agreement is terminated because
of Manager's failure to perform its obligations hereunder and Manager's failure
was not caused by the failure of Owner to perform its obligations hereunder.
Section 9.03. (a) Owner's Default. The following shall, at the election
of Manager, constitute events of default by Owner under this Agreement (each
such event being referred to herein as an "Owner's Default"):
(i) The failure of Owner to pay any amount to Manager provided for
herein for a period of ten (10) days after written notice by
Manager of such failure to pay.
(ii) Failure of Owner to keep or perform any duty, obligation,
covenant or agreement of Owner under this Agreement (other
than the obligation to pay that is the subject of paragraph
(i) above) and such failure continues for a period of thirty
(30) days after receipt of written notice thereof from
Manager; provided, however, if such failure cannot reasonably
be remedied or corrected within such thirty (30) day period,
then such thirty (30) day period shall be extended for such
additional period as may be reasonably required to cure such
default but only if Owner promptly commences to cure such
default and continues thereafter with all due diligence to
complete such a cure to the satisfaction of Manager.
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(iii) The occurrence of a default under or other termination of the
Percentage Lease.
(iv) Failure of Fee Owner to keep or perform any duty, obligation,
covenant or agreement of Fee Owner under the "Comfort Letter"
of even date herewith from Manager to Fee Owner agreed to and
accepted by Fee Owner (the "Comfort Letter") relating to the
Hotel and such failure continues for a period of thirty (30)
days after receipt of written notice thereof from Manager;
provided, however, if such failure cannot reasonably be
remedied or corrected within such thirty (30) day period, then
such thirty (30) day period shall be extended for such
additional period as may be reasonably required to cure such
default, but only if Fee Owner promptly commences to cure such
default and continues thereafter with all due diligence to
complete such a cure to the satisfaction of Manager.
(v) The occurrence of an "Event of Default" (as defined in the
Acquisition Mortgage Documents (as herein defined)) under the
Acquisition Mortgage Documents.
On the occurrence of any Owner's Default, Manager shall have the right
to terminate this Agreement by written notice to Owner, in addition to its
rights to seek damages or other remedies available to it at law or in equity.
(b) Manager Default. The following shall, at the election of Owner,
constitute an event of default by Manager under this Agreement (such event being
referred to herein as the "Manager Default"): Failure of Manager to keep or
perform any duty, obligation, covenant or agreement of Manager under this
Agreement and such failure shall continue for a period of thirty (30) days after
receipt of written notice thereof from Owner; provided, however, if such failure
cannot reasonably be remedied or corrected within such thirty (30) day period,
then such thirty (30) day period shall be extended for such additional period as
may be reasonably required to cure such default provided that Manager promptly
commences to cure such default and continues thereafter with all due diligence
to complete such cure to the satisfaction of Owner. Upon the occurrence of the
Manager Default, Owner shall have the right to terminate this Agreement by
written notice to Manager, in addition to its right to seek damages or other
remedies available to it at law or in equity.
Section 9.04. Owner's -- Termination Rights. (a) Provided Owner is not
in default under this Agreement at the time of delivery of the Termination
Notice (as defined herein) or on the Termination Date (as defined herein), Owner
shall have the right, after the tenth anniversary of the Effective Date, to
terminate this Agreement by giving written notice (a "Termination Notice") to
Manager setting forth an effective termination date which shall be the last day
of a month (the "Termination Date") and which shall be not less than six (6)
months nor more than twelve (12) months after the date of such Termination
Notice and shall in no event be prior to the tenth anniversary of the Effective
Date. If Owner terminates this Agreement pursuant to this Section 9.04(a), in
addition to payment of all other fees and reimbursable sums due to Manager on
the
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Termination Date, Manager shall have the right to receive the Cancellation
Termination Fee calculated in the manner set forth on Exhibit "B". Such
termination shall be effective so long as on or before the Termination Date (x)
Owner pays to Manager the Cancellation Termination Fee and all amounts
determined by Owner and Manager, each acting reasonably and in good faith, to be
due and owing to Manager pursuant to the terms and provisions of this Agreement
and (y) all sums then outstanding under the Acquisition Loan shall have been
paid in full.
(b) (i) Provided Owner is not in default under this Agreement, Owner
shall have the right to terminate this Agreement if, beginning in the first full
calendar year of Hotel operations, Manager fails to achieve, in any two
consecutive calendar years, a Gross Operating Profit (as herein defined) which
is at least eighty-five percent (85%) of the amount set forth in the respective
annual Operating Budget for Gross Operating Profit ("Budgeted GOP"); provided,
however, that, if within sixty (60) days of receipt of a notice from Owner that
Owner intends to terminate this Agreement pursuant to this Section 9.04(b)(i),
Manager pays in cash to Owner the difference between the achieved Gross
Operating Profit and eighty-five percent (85%) of the Budgeted GOP for the
second of the two consecutive calendar years in which shortfalls occurred, then
Owner shall not be entitled to terminate this Agreement. If Owner is entitled to
and elects to terminate this Agreement, Owner shall give written notice to
Manager within ninety (90) days following delivery to Owner of the annual
financial statements for the calendar year. If such notice is not provided by
Owner to Manager within such ninety (90) day period, Owner shall be deemed to
have waived its right hereunder to terminate this Agreement with respect to the
calendar year as to which the failure occurred. In the event Owner has the right
to terminate with respect to a calendar year but waives such right, Owner's
right to terminate shall carry forward and shall be applicable to the next
succeeding calendar year if Manager fails to achieve eighty-five percent (85%)
of Budgeted GOP for the next succeeding year, subject to Manager's right to cure
for such calendar year. For purposes of this section, the term "Gross Operating
Profit" shall mean the amount, if any, by which Adjusted Gross Revenues for any
calendar year exceed operating costs for such calendar year.
(ii) The provisions of clause (b)(i) above shall not apply in any
calendar year in which the operation of the Hotel, or the use of the Hotel's
facilities, are significantly disrupted by casualty loss, strike, eminent
domain, or other events of Force Majeure that are beyond the reasonable control
of Manager, or major repairs to or refurbishment of the Hotel. In the event
Owner exercises the right of termination contemplated in clause (b)(i) above,
(a) Owner shall have no obligation to pay any termination fee or other damages
to Manager as a consequence of such termination, except that Owner shall be
liable to Manager and shall pay immediately upon such termination all fees
earned and other amounts and expenses payable or reimbursable to Manager
pursuant to this Agreement and (b) the exercise of the right of termination
shall only be valid if on or prior to the termination date all sums outstanding
under the Acquisition Loan shall have been paid in full.
Section 9.05. Manager's Right to Terminate Upon Sale. If there is to be
a "Change in Ownership" as defined in the License Agreement and the new owner of
the
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Hotel has not received a Homewood Suites License Agreement for the operation of
the Hotel (for purposes of this Section 9.05, said agreement shall be referred
to as the "License Agreement"), Manager shall have the right upon giving notice
to Owner to terminate this Agreement on the date the Change of Ownership occurs.
If there is a Change of Ownership and the new owner of the Hotel receives a
License Agreement, but does not enter into an assumption agreement, pursuant to
which the new owner assumes all of Owner's obligations hereunder, with Manager
prior to the date the Change of Ownership occurs, Manager shall have the right,
upon giving notice to Owner, to terminate this Agreement on the date the Change
of Ownership occurs. If Manager terminates this Agreement pursuant to this
Section 9.05 (in addition to payment of all other fees and reimbursable sums due
to Manager to the date of termination), Manager shall have the right to receive
the Sale Termination Fee calculated in the manner set forth on Exhibit "B". If a
Change of Ownership occurs, and the new owner obtains a License Agreement and
the new owner and Manager enter into an assumption agreement pursuant to which
this Agreement remains in full force and effect, Manager shall not receive a
Termination Fee and references in this Agreement to License Agreement shall be
to the License Agreement with such new owner.
Section 9.06. Delays. Notwithstanding any other provision of this
Agreement, if any event of the type described in Article 7 or 8 occurs after the
Effective Date and Manager is unable to operate the Hotel for a period of ninety
(90) days, Manager shall have the option to terminate this Agreement upon thirty
(30) days' prior written notice to Owner, without liability on the part of
Manager, its parent or their subsidiaries or affiliates. Under any such
circumstances, the Acquisition Loan shall be repaid in full.
Section 9.07. Employment Solicitation Restriction Upon Termination.
Owner and its affiliates and subsidiaries and their successors hereby agree not
to solicit the employment of the Hotel general manager, assistant general
manager or director of sales at any time during the term of this Agreement
without Manager's prior written approval. Furthermore, Owner and its affiliates
and subsidiaries and successors agree not to employ the Hotel's general manager,
assistant general manager or director of sales for a period of twelve (12)
months after the termination or expiration of this Agreement, without Manager's
prior written approval.
Section 9.08. Transition Upon Termination. Upon any termination of this
Agreement, all fees and payments due to Manager as of the effective date of
termination, including all accrued and unpaid fees and reimbursable charges and
expenses, shall be paid to Manager within ten (10) days after delivery to Owner
of an itemized statement of such fees and payments. Manager shall be entitled to
exercise the right of setoff provided in Section 11.16 hereof with respect to
such fees, charges and expenses. Manager shall deliver to Owner, or such other
person or persons as Owner may designate, copies of all books and records of the
Hotel and all funds in the possession of Manager belonging to Owner or received
by Manager pursuant to the terms of this Agreement, and shall assign, transfer
or convey to such person or persons all service contracts and personal property
relating to or used in the operation and maintenance of the Hotel, except any
personal property which is owned by Manager. Manager also shall, for a period of
thirty (30) days
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after such expiration or termination, make itself available to consult with and
advise Owner or such other person or persons regarding the operation and
maintenance of the Hotel at a consultation fee to be agreed upon between Manager
and Owner.
ARTICLE 10
APPLICABLE LAW AND ARBITRATION
Section 10.01. Applicable Law. The interpretation, validity and
performance of this Agreement shall be governed by the procedural and
substantive laws of the state of Tennessee and any and all disputes, except
those specifically referred to below, shall be brought and maintained within
that state. If any judicial authority holds or declares that the law of another
jurisdiction is applicable, this Agreement shall remain enforceable under the
laws of that jurisdiction.
Section 10.02. Arbitration of Financial Matters.
Subsection 10.02.1. Matters to be Submitted to Arbitration. In
the case of a dispute with respect to any of the following matters,
either party may submit such matter to arbitration which shall be
conducted by the Accountants (as hereinafter defined in Subsection
10.02.2): (a) computation of the Management Fees; (b) reimbursements
due to Manager under the provisions of Section 11.15; (c) any
adjustment in the Minimum Balance under the provisions of Section
4.01(v); (d) any adjustment in dollar amounts of insurance coverages
required to be maintained; and (e) any dispute concerning the approval
of an Operating Budget.
All disputes concerning the above matters shall be submitted
to the Accountants. The decision of the Accountants with respect to any
matters submitted to them under this Subsection 10.02.1 shall be
binding on both parties hereto.
Subsection 10.02.2. The Accountants. The "Accountants" shall
be one of three (3) firms of certified public accountants of recognized
national standing in the hotel industry. Until otherwise agreed to by
the parties, the three (3) firms shall be Arthur Andersen & Co.,
PriceWaterhouseCoopers, and Ernst & Young, notwithstanding any existing
relationships which may exist between Owner and such accounting firms
or Manager and such accounting firms. The party desiring to submit any
matter to arbitration under Subsection 10.02.1 shall do so by written
notice to the other party, which notice shall set forth the items to be
arbitrated and such party's choice of one of the three (3) accounting
firms. The party receiving such notice shall within fifteen (15) days
after receipt of such notice either approve such choice, or designate
one of the remaining two (2) firms by written notice back to the first
party, and the first party shall within fifteen (15) days after receipt
of such notice either approve such choice or disapprove the same. If
both parties shall have approved one of the three (3) firms under the
preceding sentence, then such firm shall be the "Accountants" for the
purposes of arbitrating
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the dispute; if the parties are unable to agree on an accounting firm,
then the third firm, which was not designated by either party, shall be
the "Accountants" for such purpose. The Accountants shall be required
to render a decision in accordance with the procedures described in
Subsection 10.02.3 within fifteen (15) days after being notified of
their selection. The fees and expenses of the Accountants will be paid
by the non-prevailing party.
Subsection 10.02.3. Procedures. In all arbitration proceedings
submitted to the Accountants, the Accountants shall be required to
agree upon and approve the substantive position advocated by Owner or
Manager with respect to each disputed item. Any decision rendered by
the Accountants that does not reflect the position advocated by Owner
or Manager shall be beyond the scope of authority granted to the
Accountants and, consequently, may be overturned by either party. All
proceedings by the Accountants shall be conducted in accordance with
the Uniform Arbitration Act, except to the extent the provisions of
such act are modified by this Agreement or the mutual agreement of the
parties. Unless otherwise agreed, all arbitration proceedings shall be
conducted at the Hotel.
Section 10.03. Performance During Disputes. It is mutually agreed that
during any kind of controversy, claim, disagreement or dispute, including a
dispute as to the validity of this Agreement, Manager shall remain in possession
of the Hotel as Manager; and Owner and Manager shall continue their performance
of the provisions of this Agreement and its exhibits. Manager shall be entitled
to injunctive relief from a civil court or other competent authority to maintain
possession in the event of a threatened eviction during any dispute,
controversy, claim or disagreement arising out of this Agreement.
ARTICLE 11
GENERAL PROVISIONS
Section 11.01. Authorization. Owner and Manager represent and warrant
to each other that their respective corporations have full power and authority
to execute this Agreement and to be bound by and perform the terms hereof. On
request, each party shall furnish the other evidence of such authority.
Section 11.02. Relationship. Manager and Owner shall not be construed
as joint venturers or partners of each other by reason of this Agreement and
neither shall have the power to bind or obligate the other except as set forth
in this Agreement.
Section 11.03. Manager's Contractual Authority in the Performance of
this Agreement. Manager is authorized to make, enter into and perform in the
name of and for the account of Owner any contracts deemed necessary by Manager
to perform its obligations under this Agreement. In exercising its authority
hereunder, Manager shall be entitled to execute and enter into contracts without
the specific approval of Owner and Fee Owner so long as each such contract (i)
requires expenditures or otherwise establishes liability of twenty-five thousand
dollars ($25,000) or less and (ii) has a term
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(excluding options in favor of Manager and Owner to renew) of one (1) year or
less or can be cancelled without penalty upon sixty (60) days' notice or less,
provided, however, that any contract entered into pursuant to the last paragraph
of Section 4.01(vi) shall be governed by the provisions of said Section
4.01(vi). Any contract that does not satisfy the conditions set forth in the
preceding sentence shall require the prior approval in each instance of Owner,
regardless whether such expenditure is authorized in an applicable budget,
unless the form of the contract proposed to be entered into has been approved in
advance by Owner. Owner agrees to promptly respond to any request for approval
and further agrees that its consent shall not be unreasonably withheld or
delayed. Manager shall be authorized to enter into contracts with affiliates of
Manager, but only so long as Owner shall have approved in advance the cost of
the service or product to be provided.
Section 11.04. Further Actions. Owner and Manager agree to execute all
contracts, agreements and documents and to take all actions necessary to comply
with the provisions of this Agreement and the intent hereof.
Section 11.05. Successors and Assigns. Owner's consent shall not be
required for Manager to assign any of its rights, interests or obligations as
Manager hereunder to any parent, subsidiary or affiliate of Manager or Promus
Hotel Corporation, provided that any such assignee agrees to be bound by the
terms and conditions of this Agreement and provided, further, that such assignee
has received an assignment of all or substantially all of the management
agreements entered into by Manager with respect to other Homewood Suites hotels.
The acquisition of Manager or its parent company by a third party shall not
constitute an assignment of this Agreement by Manager and this Agreement shall
remain in full force and effect between Owner and Manager. Except as herein
provided, Manager shall not assign any of its obligations hereunder without the
prior written consent of Owner, which shall not be unreasonably withheld or
delayed. Owner shall be deemed to have consented to such an assignment of this
Agreement if Owner has not notified Manager in writing to the contrary within
fifteen (15) days after Owner has received Manager's request for Owner's consent
to an assignment. Manager shall have the right to pledge or assign its right to
receive the Management Fees hereunder without the prior written consent of
Owner.
Owner shall have the right to assign this Agreement to the person or
entity which has obtained (i) leasehold title to the Hotel in accordance with
the Comfort Letter and (ii) a Homewood Suites License Agreement for the Hotel.
Except as hereinabove provided, Owner shall not have the right to assign this
Agreement.
Section 11.06. Notices. All notices or other communications provided
for in this Agreement shall be in writing and shall be either hand delivered,
delivered by certified mail, postage prepaid, return receipt requested,
delivered by an overnight delivery service, or delivered by facsimile machine
(with an executed original sent the same day by an overnight delivery service),
addressed as set forth on Exhibit "B". Notices shall be deemed delivered on the
date that is four (4) calendar days after the notice is deposited in the U.S.
mail (not counting the mailing date) if sent by certified mail, or, if hand
delivered, on the date the hand delivery is made, or if delivered by facsimile
machine, on the date the transmission is made. If given by an overnight
21
<PAGE>
delivery service, the notice shall be deemed delivered on the next business day
following the date that the notice is deposited with the overnight delivery
service. The addresses given above may be changed by any party by notice given
in the manner provided herein.
Section 11.07. Documents. Owner shall furnish Manager copies of all
leases, title documents, property tax receipts and bills, insurance statements,
all financing documents (including notes and mortgages) relating to the Hotel
and such other documents pertaining to the Hotel as Manager shall request.
Section 11.08. Defense. Manager shall defend and/or settle any claim or
legal action brought against Manager or Owner, individually, jointly or
severally in connection with the operation of the Hotel. Manager shall retain
and supervise legal counsel, accountants and such other professionals,
consultants and specialists as Manager deems appropriate to defend and/or settle
any such claim or cause of action. Owner shall have the right to participate
actively in the defense of any such claim or cause of action in which Owner is a
named defendant. Owner's approval shall be required with respect to any proposed
settlement of any claim or cause of action in which Owner is a named party or
that is not covered by insurance (excluding any deductible amount specified in
the applicable policy of insurance). Manager shall confer with Owner concerning
any settlement proposal that Manager is considering accepting, regardless of
whether Owner is a named party, but Owner's approval shall not be required if
Owner is not a named party and the settlement is covered by insurance. All
liabilities, costs, and expenses, including attorneys' fees and disbursements,
incurred in defending and/or settling any such claim or legal action which are
not covered by insurance shall be paid by Owner.
Section 11.09. Waivers. No failure or delay by Manager or Owner to
insist upon the strict performance of any covenant, agreement, term or condition
of this Agreement, or to exercise any right or remedy consequent upon the breach
thereof, shall constitute a waiver of any such breach or any subsequent breach
of such covenant, agreement, term or condition. No covenant, agreement, term, or
condition of this Agreement and no breach thereof shall be waived, altered or
modified except by written instrument. No waiver of any breach shall affect or
alter this Agreement, but each and every covenant, agreement, term and condition
of this Agreement shall continue in full force and effect with respect to any
other then existing or subsequent breach thereof.
Section 11.10. Changes. Any change to or modification of this
Agreement, including, without limitation, any change in the application of this
Agreement to the Hotel, must be evidenced by a written document signed by both
parties hereto.
Section 11.11. Captions. The captions for each Article and Section are
intended for convenience only.
Section 11.12. Severability. If any of the terms and provisions hereof
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any of the other terms or provisions hereof. If, however, any
material part of a party's rights under this Agreement shall be declared invalid
or unenforceable (specifically including Manager's right to receive its
Management Fees), the party whose rights have been
22
<PAGE>
declared invalid or unenforceable shall have the option to terminate this
Agreement upon thirty (30) days' written notice to the other party, without
liability on the part of the terminating party.
Section 11.13. Interest. Any amount payable to Manager or Owner by the
other which has not been paid when due shall accrue interest at the lesser of:
(a) the highest legal limit in the state in which the Hotel is located, (b) the
highest legal limit in the state of Tennessee, or (c) two percentage points (2%)
over the published base rate of interest charged by Citibank, N.A., New York,
New York, to borrowers on ninety (90) day unsecured commercial loans, as the
same may be changed from time to time.
Section 11.14. Reimbursement. The performance by Manager of its
responsibilities under this Agreement are conditioned upon Owner providing
sufficient funds to Manager on a timely basis to enable Manager to perform its
obligations hereunder. Nevertheless, Manager shall be entitled, at its option,
after first providing not less than ten (10) days' prior written notice to Owner
specifying the obligations to be satisfied and the amount of money to be
advanced, to advance funds or contribute property, on behalf of the Owner, to
satisfy obligations of Owner in connection with the Hotel and this Agreement.
Manager shall keep appropriate records to document all reimbursable expenses
paid by Manager, which records shall be made available for inspection by Owner
or its agents upon request. Owner agrees to reimburse Manager with interest upon
demand for money paid or property contributed by Manager to satisfy obligations
of Owner in connection with the Hotel and this Agreement. Interest shall be
calculated at the rate set forth in Section 11.13 from the date Owner was
obligated to remit the funds or contribute the property for the satisfaction of
such obligation to the date reimbursement is made.
Section 11.15. Travel and Out-of-Pocket Expenses. Manager shall be
reimbursed for all reasonable travel and out-of-pocket expenses of Manager's
employees reasonably incurred in the performance of this Agreement, provided,
however, that travel and out-of-pocket expenses of officers of Manager, its
parent and affiliates shall not be reimbursable by Owner. Manager shall have
sole discretion, which shall not be unreasonably exercised, to determine the
necessity for such travel or other expenses.
Section 11.16. Set off. Without prejudice to Manager's right to
terminate this Agreement pursuant to the provisions of this Agreement, Manager
may at any time and without notice to Owner set off or transfer any sum or sums
held by Manager or other affiliate of Promus Hotels, Inc. to the order or on
behalf of Owner or Fee Owner or standing to the credit of Owner or Fee Owner in
the Bank Account(s) in or towards satisfaction of any of Owner's liabilities to
Manager in respect of all sums due to Manager under the terms of this Agreement.
Section 11.17. Third Party Beneficiary. This Agreement is exclusively
for the benefit of the parties hereto and it may not be enforced by any party
other than the parties to this Agreement and shall not give rise to liability to
any third party other than the authorized successors and assigns of the parties
hereto.
23
<PAGE>
Section 11.18. Brokerage. Manager and Owner represent and warrant to
each other that neither has sought the services of a broker, finder or agent in
this transaction, and neither has employed, nor authorized, any other person to
act in such capacity. Manager and Owner each hereby agrees to indemnify and hold
the other harmless from and against any and all claims, loss, liability, damage
or expenses (including reasonable attorneys' fees) suffered or incurred by the
other party as a result of a claim brought by a person or entity engaged or
claiming to be engaged as a finder, broker or agent by the indemnifying party.
Section 11.19. Survival of Covenants. Any covenant, term or provision
of this Agreement which, in order to be effective, must survive the termination
of this Agreement, shall survive any such termination.
Section 11.20. Estoppel Certificate. Manager and Owner agree to furnish
to the other party, from time to time upon request, an estoppel certificate in
such reasonable form as the requesting party may request stating whether there
have been any defaults under this Agreement known to the party furnishing the
estoppel certificate and such other information relating to the Hotel as may be
reasonably requested.
Section 11.21. Other Agreements. Except to the extent as may now or
hereafter be specifically provided, nothing contained in this Agreement shall be
deemed to modify any other agreement between Owner and Manager with respect to
the Hotel or any other property. This Agreement, together with the Comfort
Letter, contains the entire agreement between Owner and Manager regarding the
management of the Hotel.
Section 11.22. Periods of Time. Whenever any determination is to be
made or action is to be taken on a date specified in this Agreement, if such
date shall fall on a Saturday, Sunday or legal holiday under the laws of the
states of Tennessee and Virginia and/or the state in which the Hotel is located,
then in such event said date shall be extended to the next day which is not a
Saturday, Sunday or legal holiday.
Section 11.23. Preparation of Agreement. This Agreement shall not be
construed more strongly against either party regardless of who is responsible
for its preparation.
Section 11.24. Exhibits. All exhibits attached hereto are incorporated
herein by reference and made a part hereof as if fully rewritten or reproduced
herein.
Section 11.25. Attorneys' Fees and Other Costs. The parties to this
Agreement shall bear their own attorneys' fees in relation to negotiating and
drafting this Agreement. Should Owner or Manager engage in litigation to enforce
their respective rights pursuant to this Agreement, the prevailing party shall
have the right to indemnity by the non-prevailing party for an amount equal to
the prevailing party's reasonable attorneys' fees, court costs and expenses
arising therefrom.
Section 11.26. Agreement Not an Interest in Real Property. This
Agreement is not, and shall not be deemed at any time to be or to create, an
interest in real estate or a
24
<PAGE>
lien or other encumbrance of any kind whatsoever against the Hotel or the land
on which it is erected.
Section 11.27. Acquisition Loan; Agency Coupled With an Interest; No
Termination While the Acquisition Loan Remains Outstanding. In accordance with
the Purchase Agreement (as herein defined), that certain Agreement of Sale dated
August 6, 1999 by and among Hampton Inns, Inc., Promus Hotels Florida, Inc. and
Promus Hotels, Inc., as sellers, and Fee Owner, as buyer, and that certain
Agreement of Sale dated October 5, 1999 between Hampton Inns, Inc., as seller,
and Fee Owner, as buyer (as the same have been amended, collectively, the
"Existing Purchase Agreement"), Promus Hotels, Inc. (in its capacity as lender,
the "Acquisition Lender") has loaned to Fee Owner the sum of $68,569,500 (the
"Acquisition Loan") as purchase money financing for the acquisition of the
properties (the "Properties") conveyed pursuant to the Purchase Agreement and
the Existing Purchase Agreement. The Acquisition Loan is evidenced by (i) a note
of Fee Owner dated September 20, 1999 in the amount of $26,625,000, (ii) a note
of Fee Owner dated October 5, 1999 in the amount of $7,350,000, (iii) a note of
Fee Owner dated November 29, 1999 in the amount of $30,210,000 and (iv) a note
of Fee Owner of even date herewith in the amount of $4,384,500 and is secured
by, among other things, mortgage(s), deed(s) of trust or deed(s) to secure debt
dated September 20, 1999, October 5, 1999, November 29, 1999 or of even date
herewith from Fee Owner or its wholly-owned subsidiary which encumbers some or
all of the Properties, which may include the Hotel (the documents evidencing and
securing the Acquisition Loan herein referred to as the "Acquisition Mortgage
Documents"). Owner and Manager specifically acknowledge and agree that (i)
Acquisition Lender has been induced, in part, to make the Acquisition Loan to
Fee Owner based upon Owner's agreement to enter into this Agreement with
Manager, (ii) Acquisition Lender required Owner to enter into this Agreement
with Manager as a condition to making the Acquisition Loan so that (inter alia)
Manager could facilitate the repayment of the Acquisition Loan in accordance
with its terms by managing and operating the Hotel in accordance with the terms
of this Agreement, and (iii) it is the parties' intention that Owner's retention
of Manager to operate the Hotel pursuant to the terms of this Agreement is
intended to, and shall, create an "agency coupled with an interest" in favor of
Manager, which agency shall be irrevocable unless and until the Acquisition Loan
is repaid in full. Manager shall be entitled to the legal and equitable
protections that the status of an agent coupled with an interest confers on
Manager for so long as the Acquisition Loan remains outstanding. Accordingly,
(x) no purported termination of this Agreement by Owner for any reason
whatsoever (including, without limitation, any purported termination pursuant to
Article 8 or Article 9) shall be effective unless and until the Acquisition Loan
shall have been repaid in full, and (y) Manager shall have the right and option
to extend the Term of this Agreement indefinitely for so long as the Acquisition
Loan remains outstanding. The provisions of this Section shall take effect
notwithstanding anything to the contrary set forth in this Agreement.
Section 11.28. Counterparts. This Agreement may be executed in two (2)
or more counterparts, each of which shall be deemed an original.
25
<PAGE>
The parties have respectively caused this Agreement to be executed as
of the respective dates shown below.
OWNER:
/s/ Tina R. Hansen APPLE SUITES MANAGEMENT,
- --------------------------- INC., a Virginia corporation
Witness:
By /s/ Glade M. Knight
-------------------------------
Name: Glade M. Knight
Title: President
Date: 12/22/99
MANAGER:
/s/ Glenda Long PROMUS HOTELS, INC.
- ---------------------------
Witness:
By /s/ Joseph P. Pidkowicz
-------------------------------
Joseph P. Pidkowicz
Vice President
Date: 12/16/99
<PAGE>
EXHIBIT "A"
LICENSE AGREEMENT
A-1
<PAGE>
EXHIBIT "B"
DEAL SPECIFIC TERMS
TERM: Fifteen (15) years from the Effective Date
INITIAL MINIMUM BALANCE
FOR THE BANK ACCOUNT(S) : $75,000
INITIAL OWNER'S REPRESENTATIVE: Doug Schepker
DISBURSEMENT PRIORITY SCHEDULE:
Each fiscal month Manager, on behalf of Owner, shall disburse funds
from the Bank Account(s) in the following order of priority and to the extent
available:
(a) all fees, assessments and charges due and payable under the
License Agreement when issued;
(b) the Management Fee, but excluding, to the extent then
applicable, the Subordinated Management Fee;
(c) all reimbursable expenses due Manager;
(d) all other Hotel operating costs (herein and in the Agreement
referred to as "operating costs"), as such costs and expenses
are defined under the accounting practices of Manager in
conformity with generally accepted accounting practices
consistently applied, specifically including, but not limited
to, (i) the cost of operating equipment and operating
supplies, wages, salaries and employee fringe benefits,
advertising and promotional expenses, the cost of personnel
training programs, utility and energy costs, operating
licenses and permits, grounds and landscaping maintenance
costs and equipment rentals approved by Manager as an
operating cost; (ii) all expenditures made for maintenance and
repairs to keep the Hotel in good condition and repair,
specifically excluding expenditures for Capital Replacements;
and (iii) premiums and charges on the insurance coverages
specified in Exhibit "D" incurred after the Effective Date.
There shall be excluded from the operating costs of the Hotel
the following, which shall be ownership costs of the Hotel:
(i) depreciation of the Hotel, furnishings, fixtures and
equipment; (ii) rental pursuant to a ground lease, if any, or
the Percentage Lease or any other lease payments; (iii) debt
service (interest and principal) on any mortgage(s)
encumbering Owner's leasehold interest in, and/or Fee Owner's
fee interest in, the Hotel; (iv) property taxes and
assessments; (v) expenditures for Capital Replacements; (vi)
audit, legal and other professional or special fees; (vii)
premiums for insurance
B-1
<PAGE>
coverages specified in Exhibit "E"; (viii) administrative and
general expenses and disbursements of Owner, including
compensation of employees of Owner; (ix) Federal, State and
local Franchise and Income Taxes; (x) amortization of bond
discounts and mortgage expenses; (xi) deposits into the
Reserve Fund or amounts held pursuant to Section 3.01(xix);
and (xiii) such other costs or expenses which are normally
treated as ownership costs under the accounting practices of
Manager in conformity with generally accepted accounting
practices consistently applied;
(e) the following ownership costs, disbursed in the following
order of priority and to the extent available:
(i) an amount (annualized) to satisfy land, building and
personal property taxes and assessments;
(ii) an amount (annualized) to satisfy the premiums for
the insurance required to be obtained by Owner in
accordance with Exhibit "E";
(iii) the amount to be deposited in the Reserve Fund
pursuant to Section 4.01(d); and
(iv) any ground lease payments, but specifically
excluding, except as specifically itemized above, any
sums payable by Owner to Fee Owner pursuant to the
Percentage Lease;
(f) Owner's Basic Return;
(g) the Subordinated Management Fee;
(h) payments of principal, interest and other sums payable under
the Acquisition Loan;
(i) any payments not specifically contemplated above which are
required to be paid by Owner to Fee Owner pursuant to the
Percentage Lease; and
(j) except as provided above, debt service upon any mortgage(s)
encumbering the Hotel and any capital lease payments.
After the disbursements set forth above, any excess funds remaining in
the Bank Account(s) over the Minimum Balance shall be distributed to Owner. If
after making the disbursements set forth above, there shall be a deficiency in
the Minimum Balance, Owner shall immediately provide such funds as may be
required to maintain the Minimum Balance in the Bank Account(s).
B-2
<PAGE>
NOTICES:
Owner: Apple Suites Management, Inc.
306 East Main Street
Richmond, Virginia 23219
Fax: 804/782-9302
Attention: Mr. Glade M. Knight
with a copy to:
Jenkens & Gilchrist
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202-2799
Fax: 214/855-4300
Attention: Thomas E. Davis, Esq.
Manager: Promus Hotels, Inc.
755 Crossover Lane
Memphis, Tennessee 38117
Fax: 901/374-5050
Attention: Corporate Secretary
with a copy to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019-6092
Fax: 212/259-6333
Attention: Graham R. Hone, Esq.
SALE TERMINATION FEE:
The "Sale Termination Fee" shall be: (i) if the termination of this
Agreement occurs on or before the second anniversary of the Effective Date, the
sum of $449,143; (ii) if the termination of this Agreement occurs after the
second anniversary of the Effective Date but on or before the tenth (10th)
anniversary of the Effective Date, an amount equal to the product of (x) three
(3) times (y) the quotient of the aggregate of the Management Fees earned during
the preceding twenty-four (24) month period divided by two (2); (iii) if the
termination of this Agreement occurs after the tenth (10th) anniversary of the
Effective Date but on or before the fourteenth (14th) anniversary of the
Effective Date, an amount equal to the product of (x) one and one-half (1.5)
times (y) the aggregate of the Management Fees earned during the preceding
twenty-four month period divided by two (2); and (iv) if the termination of this
Agreement occurs after the fourteenth (14th) anniversary of the Effective Date,
an amount equal to the product of (x) the aggregate of the Management Fees
earned during the preceding twenty-four (24) month period divided by 24 times
(y) the number of full calendar months remaining in the Term.
B-3
<PAGE>
CANCELLATION TERMINATION FEE:
The "Cancellation Termination Fee" shall be: (i) if the termination of
this Agreement occurs after the tenth (10th) anniversary of the Effective Date
but on or before the fourteenth (14th) anniversary of the Effective Date, an
amount equal to the product of (x) two (2) times (y) the aggregate of the
Management Fees earned during the preceding twenty-four month period divided by
two (2); and (ii) if the termination of this Agreement occurs after the
fourteenth (14th) anniversary of the Effective Date, an amount equal to the
product of (x) the aggregate of the Management Fees earned during the preceding
twenty-four (24) month period divided by 24 times (y) the number of full
calendar months remaining in the Term.
ACCOUNTING FEE: $1,000/month
B-4
<PAGE>
EXHIBIT "C"
MANAGEMENT FEES
The "Management Fee" shall mean and refer to a fee equal to four
percent (4%) of Adjusted Gross Revenues (as hereinafter defined) with respect to
each fiscal month during the term of this Agreement, provided, however, that for
the first two years of the term of this Agreement a portion of the Management
Fee equal to one percent (1%) of Adjusted Gross Revenues (such portion, the
"Subordinated Management Fee") shall be subordinated to Owner's Basic Return (as
hereinafter defined). Manager and Owner agree that, in light of Manager's
agreement to subordinate the Subordinated Management Fee, the Subordinated
Management Fee, while payable monthly to the extent proceeds are available,
shall be adjusted annually and paid, to the extent Adjusted Gross Revenues after
payment of Owner's Basic Return are available therefor, within thirty (30) days
of Manager's delivery of the operating statements required pursuant to Section
3.01(vi) of the Agreement. Any Subordinated Management Fee not so paid pursuant
to the provisions of the immediately preceding sentence shall not thereafter be
payable by Owner.
The term "Gross Revenues" shall be defined as all revenues and income
of any nature derived directly or indirectly from the Hotel or from the use or
operation thereof, whether on or off the Site, including total room sales, food
and beverage sales, if any, laundry, telephone, telegraph and telex revenues,
other income, rental or other payments from lessees, sublessees, licensees and
concessionaires (but not the gross receipts of such lessees, sublessees,
licensees or concessionaires) and the proceeds of business interruption, use,
occupancy or similar insurance.
The term "Adjusted Gross Revenues" shall be defined as Gross Revenues
less the following revenues actually received by the Hotel and included in Gross
Revenues: (i) any gratuities or service charges added to a customer's bill; (ii)
any credits or refunds made to customers, guests or patrons; (iii) any sums and
credits received by Owner for lost or damaged merchandise; (iv) any sales taxes,
excise taxes, gross receipt taxes, admission taxes, entertainment taxes, tourist
taxes or charges; (v) any proceeds from the sale or other disposition of the
Hotel, furnishings and equipment or other capital assets; (vi) any fire and
extended coverage insurance proceeds; (vii) any condemnation awards; (viii) any
proceeds of financing or refinancing of the Hotel; and (ix) any interest on the
Bank Account(s).
The term "Owner's Investment" shall mean the sum of (x) the purchase
price for the Hotel ("Purchase Price") as set forth in the Agreement of Sale
dated November 22, 1999 by and between Fee Owner, as buyer, and Hampton Inns,
Inc., Promus Hotels Florida, Inc. and Promus Hotels, Inc. as sellers (the
"Purchase Agreement") plus (y) all reasonable costs and expenses incurred by Fee
Owner in connection with performing its due diligence in connection with the
Purchase Agreement and consummating the purchase contemplated by the Purchase
Agreement, including, without limitation, title and survey fees and charges,
real estate transfer taxes and reasonable attorneys' fees and
C-1
<PAGE>
charges, which shall be deemed to include any such reasonable costs and expenses
incurred or advanced by Cornerstone Realty Income Trust, Inc. or Glade M. Knight
for the benefit of Apple Suites, Inc. or Owner and reimbursed to it or him by
any of Apple Suites, Inc. or Owner and which are specifically allocable to the
Hotel or if not specifically allocable allocated on a pro rata basis based on
the purchase prices set forth in the Existing Purchase Agreement and the
Purchase Agreement, including the purchase price of any other properties
acquired by Fee Owner or its directly or indirectly wholly-owned affiliate(s)
from Manager or its directly or indirectly wholly-owned affiliate(s) pursuant to
the Purchase Agreement after the date hereof but on or prior to December 31,
1999, but specifically excluding fees and charges paid to Apple Suites Advisors,
Inc., Apple Suites Realty Group, Inc. or any other affiliate of Glade M. Knight
or any fees and charges paid in connection with offering of common stock in Fee
Owner plus (z) amounts advanced by any of Apple Suites, Inc. or Owner in respect
of the PIP (as defined in the License Agreement) and in respect of Hotel capital
replacement items which are in excess of amounts required to be deposited in the
Reserve Fund from Gross Revenues.
The term "Owner's Basic Return" shall mean for the first and second
years, eleven percent (11%) of Owner's Investment.
Attached hereto and made a part hereof, as Exhibit C-1, is an example
of the calculation of, and payment of, the Management Fee (less the Subordinated
Management Fee), the Owner's Basic Return and the Subordinated Management Fee.
C-2
<PAGE>
EXHIBIT "C-1"
MANAGEMENT FEE
C-1-1
<PAGE>
EXHIBIT "D"
INSURANCE
In accordance with Section 3.01(xv), Manager shall, on behalf of Owner
and at Owner's expense, procure the insurance coverages hereinafter set forth
and ensure that they are in full force and effect as of the Effective Date and
that they remain in full force and effect throughout the Term of this Agreement.
All cost(s) and expense(s) incurred by Manager in procuring the following
insurance coverages shall be operating costs and shall be paid from the Bank
Account(s):
<TABLE>
<CAPTION>
Coverages: Amounts of Insurance
- ---------- --------------------
<S> <C>
Comprehensive General Liability $10,000,000 per location
Including -
Premises - Operations
Products/Completed Operations
Contractual
Personal Injury
Liquor Liability/Dram Shop (if applicable)
Elevators and Escalators
Automotive Liability $10,000,000
Owned Vehicles
Non-Owned Vehicles
Uninsured Motorist where Required by Statute
Automobile Physical Damage (Optional)
Comprehensive (To Value if insured)
Collision
Workers' Compensation Statutory
Employer's Liability $1,000,000
Fidelity (Employee Dishonesty) As required
Money and Securities As required
</TABLE>
All insurance coverages provided for under this Exhibit "D" shall be
effected by policies issued by insurance companies (i) that are authorized to do
business in the state in which the Hotel is located; and (ii) that are of good
reputation and of sound and
D-1
<PAGE>
adequate financial responsibility, having a Bests Rating of B+ VI, or better, or
a comparable rating if Bests ceases to publish its ratings or materially changes
its rating standards or procedures.
Manager shall deliver to Owner duly executed certificates of insurance
with respect to all of the policies of insurance procured, including existing,
additional and renewal policies.
Each policy of insurance maintained in accordance with this Exhibit
"D," to the extent obtainable, shall specify that such policies shall not be
cancelled or materially changed without at least thirty (30) days' prior written
notice to Owner and Manager.
Except as otherwise provided in the Agreement, Manager and Owner each
waives, releases and discharges the other from all claims or demands which each
may have or acquire against the other, or against each other's subsidiaries,
affiliates, directors, officers, agents, employees, independent contractors or
partners, with respect to any claims for any losses, damages, liabilities or
expenses (including attorneys' fees) incurred or sustained by either of them on
account of injury to persons or damage to property or business arising out of
the ownership, management, operation and maintenance of the Hotel, regardless
whether any such claim or demand may arise because of the fault of negligence of
the other party or its subsidiaries, affiliates, officers, employees, directors,
agents or independent contractors. Each policy of insurance maintained in
accordance with this Exhibit "D" shall contain a specific waiver of subrogation
reflecting the above with respect to insured claims.
All policies of insurance provided for under this Exhibit "D" shall be
carried in the name of the Manager. Owner's interest and that of any other
applicable party will be included in the coverage by an additional insured
endorsement.
All such policies of insurance shall be written on an "occurrence"
basis, with no per location aggregate limitation.
Either Manager or Owner, by notice to the other, shall have the right
to require that the minimum amount of insurance to be maintained with respect to
the Hotel under this Exhibit "D" be increased to make such insurance comparable
with prudent industry standards and to reflect increases in liability exposures,
taking into account the size and location of the Hotel.
Owner hereby authorizes Manager to utilize the services of and/or place
the insurance set forth in this Exhibit "D" with (i) any subsidiary or
affiliated company of Promus Hotels, Inc. in the insurance business as Manager
deems appropriate; or (ii) a third party insurance carrier meeting the
specifications set forth above.
D-2
<PAGE>
EXHIBIT "E"
INSURANCE
In accordance with Section 4.01(iii), Owner agrees, at its expense, to
procure and maintain the following insurance coverages, as reasonably adjusted
from time to time, throughout the Term of this Agreement:
<TABLE>
<CAPTION>
Coverages: Amounts of Insurance
- ---------- --------------------
<S> <C>
Builders Risk Completed value of the Hotel
All risk for term of the initial and any subsequent Hotel
construction and renovation.
Real and Personal Property 100% replacement value of building and contents
Blanket Coverage
Replacement Cost - all risk
Boiler Machinery - written on a comprehensive form
Business Interruption Calculated yearly based on estimated Hotel revenues
Blanket Coverage for the perils insured against under Real and
Personal Property in this Exhibit "E". This coverage shall
specifically cover Manager's loss of Management Fees. The business
interruption insurance shall be for a twelve (12) month indemnity
period.
Owner's Protective Liability $10,000,000
All risks from construction and renovation occurring prior to the
Opening Date and all risks from Hotel construction and renovation
projects costing more than $250,000 occurring after the Opening
Date.
</TABLE>
All insurance coverages provided for under this Exhibit "E" shall be
effected by policies issued by insurance companies (i) that are authorized to do
business in the state in which the Hotel is located; and (ii) that are of good
reputation and of sound and adequate financial responsibility, having a Bests
Rating of B+ VI, or better, or a comparable rating if Bests ceases to publish
its ratings or materially changes its rating standards or procedures.
Owner shall deliver to Manager duplicate copies of either insurance
policies or certificates of insurance (at Manager's option) with respect to all
of the policies of insurance procured, including existing, additional and
renewal policies, and in the case of insurance nearing expiration, shall deliver
duplicate copies of the insurance policies or
<PAGE>
certificates of insurance with respect to the renewal policies to Manager not
less than thirty (30) days prior to the respective dates of expiration.
Each policy of insurance maintained in accordance with this Exhibit
"E," to the extent obtainable, shall specify that such policies shall not be
cancelled or materially changed without at least thirty (30) days' prior written
notice to Owner and Manager.
Except as otherwise provided in this Agreement, Manager and Owner each
waives, releases and discharges the other from all claims or demands which each
may have or acquire against the other, or against each other's subsidiaries,
affiliates, directors, officers, agents, employees, independent contractors or
partners, with respect to any claims for any losses, damages, liabilities or
expenses (including attorneys' fees) incurred or sustained by either of them on
account of injury to persons or damage to property or business arising out of
the ownership, management, operation and maintenance of the Hotel, regardless
whether any such claim or demand may arise because of the fault of negligence of
the other party or its subsidiaries, affiliates, officers, employees, directors,
agents or independent contractors. Each policy of insurance maintained in
accordance with this Exhibit "E" shall contain a specific waiver of subrogation
reflecting the above with respect to insured claims.
All policies of insurance provided for under this Exhibit "E" shall be
carried in the name of the Owner and Manager, and losses thereunder shall be
payable to the parties as their respective interests may appear. All liability
policies shall name the Owner and Manager, and in each case any of their
affiliated or subsidiary companies which they may specify, and their respective
directors, officers, agents, employees and partners as additional named
insureds.
All such policies of insurance shall be written on an "occurrence"
basis.
Either Manager or Owner, by notice to the other, shall have the right
to require the minimum amount of insurance to be maintained with respect to the
Hotel under this Exhibit "E" be increased to make such insurance comparable with
prudent industry standards and to reflect increases in liability exposures,
taking into account the size and location of the Hotel.
Exhibit 10.5
December 22, 1999
Apple Suites, Inc.
306 East Main Street
Richmond, Virginia 23219
Attention: Mr. Glade M. Knight
Re: Closing of Buyer's Purchase of Jackson, Mississippi Homewood
Suites' Hotel pursuant to Agreement of Sale dated as of
November 22, 1999 by and between the undersigned and you (the
"Purchase Agreement"; capitalized terms not otherwise defined
herein shall have the meanings ascribed to such terms in the
Purchase Agreement)
Gentlemen:
Each of the undersigned and you hereby agree that (i) the
Management Agreement of even date herewith, or any other Management Agreements
hereafter entered into pursuant to the Purchase Agreement, in each case between
Promus and Lessee, shall not be interpreted to require any proceeds of financing
or refinancing of the respective Property to be included in the "Gross Revenues"
of such Property for purposes of deposits into the Reserve Fund, or amounts that
may be spent by Manager for capital expenditures in the event of disputes
regarding Capital Budgets, pursuant to such Management Agreements, and (ii) the
Purchase Agreement is hereby amended so to provide. All capitalized terms used
in the foregoing sentence and not otherwise defined herein are used therein as
defined in such Management Agreements.
Except as expressly provided herein, the Purchase Agreement
shall continue in full force and effect among the parties hereto.
<PAGE>
Please indicate your agreement to the foregoing by signing in
the space provided below.
Very truly yours,
HAMPTON INNS, INC. , successor-by-
merger to Homewood Suites Equity
Development Corp.
By /s/ Joseph P. Pidkowicz
-------------------------------------
Name: Joseph P. Pidkowicz
Title: Vice President
PROMUS HOTELS FLORIDA, INC.
By /s/ W. Steven Standefer
-------------------------------------
Name: W. Steven Standefer
Title: Vice President and Assistant Treasurer
PROMUS HOTELS, INC.
By /s/ Joseph P. Pidkowicz
-------------------------------------
Name: Joseph P. Pidkowicz
Title: Vice President
2
<PAGE>
Accepted and agreed to this ______
day of December, 1999.
APPLE SUITES, INC.,
a Virginia corporation
By: /s/ Glade M. Knight
---------------------------------
Name: Glade M. Knight
Title: President
3
Exhibit 10.6
[Mississippi]
COMFORT LETTER
December 22, 1999
Apple Suites, Inc.
306 East Main Street
Richmond, Virginia 23219
Attention: Mr. Glade M. Knight
Re: Homewood Suites(R) hotel located at 853
Centre Street, Ridgeland, Mississippi (the
"Hotel")
Gentlemen:
Promus Hotels, Inc. ("Promus") is about to execute with respect to the
Hotel (i) a License Agreement and the Rider, Attachment and Exhibits referenced
therein (the "License Agreement"), dated the date hereof, pertaining to the
licensing of Apple Suites Management, Inc., a Virginia corporation ("Lessee"),
to operate the Hotel as a Homewood Suites(R) hotel, and (ii) a management
agreement of even date herewith (the "Management Agreement") with respect to the
operation of the Hotel by Promus, as Manager. In addition, Promus has loaned to
Apple Suites, Inc. ("Fee Owner") the sum of $68,569,500 (the "Acquisition Loan")
as purchase money financing for the acquisition of certain properties (the
"Properties") conveyed pursuant to the Purchase Agreement (as defined in the
Management Agreement), that certain Agreement of Sale dated August 6, 1999 by
and among Hampton Inns, Inc., Promus Hotels Florida, Inc. and Promus, as
sellers, and Fee Owner, as buyer, as the same has been amended, and that certain
Agreement of Sale dated October 5, 1999 between Hampton Inns, Inc., as seller,
and Fee Owner, as buyer, as the same has been amended, which Acquisition Loan is
evidenced by (i) a note of Fee Owner dated September 20, 1999 in the amount of
$26,625,000, (ii) a note of Fee Owner dated October 5, 1999 in the amount of
$7,350,000, (iii) a note of Fee Owner dated November 29, 1999 in the amount of
$30,210,000 and (iv) a note of Fee Owner of even date herewith in the amount of
$4,384,500 and is secured by, among other things, mortgage(s), deed(s) of trust
or deed(s) to secure debt dated September 20, 1999, October 5, 1999, November
29, 1999 or of even date herewith from Fee Owner or its wholly-owned subsidiary
which encumbers some or all of the Properties, which may include the Hotel (the
documents evidencing and securing the Acquisition Loan herein referred to as the
"Acquisition Mortgage Documents"). Lessee is the owner of a
<PAGE>
leasehold estate in the Hotel pursuant to a Master Hotel Lease Agreement dated
September 20, 1999 (as supplemented, amended and modified, the "Percentage
Lease") with Fee Owner. Although the License Agreement is non-assignable, and is
not subject to any collateral assignment, Lessee and Fee Owner have requested
that Promus enter into this letter agreement with Fee Owner with respect to,
among other things, Fee Owner's rights with regard to the License Agreement, and
Promus has requested that Fee Owner enter into this letter agreement with Promus
with respect to, among other things, the Management Agreement and its continuing
rights to operate the Hotel for the term of the Management Agreement, subject to
the terms thereof and hereof, and to confirm certain understandings with respect
to the Acquisition Loan. No third party beneficiaries (other than Fee Owner) are
intended or implied. Fee Owner has requested that Promus inform you of the
procedures Promus agrees to follow in the event Lessee commits a breach under
the provisions of the License Agreement.
So long as Fee Owner is the owner of the Hotel, and the License
Agreement is in effect, Promus will notify Fee Owner by certified mail at the
above address (or such other address as you may specify in a written notice to
Promus pursuant hereto) of any default as a result of any breach of the License
Agreement or Management Agreement by Lessee, provided, however, that to the
extent the default is a default under, or termination of, the Percentage Lease
or a default under the Acquisition Loan, Promus shall have no obligation to
notify Fee Owner as contemplated above. This notice will be in the form of a
copy of the notice of such default that is sent to Lessee. In the notice, Promus
will give Fee Owner (i) ten (10) days to cure or cause to be cured monetary
defaults identified in Promus's default notice and (ii) thirty (30) days to cure
or cause to be cured the non-monetary breach(es) identified in Promus's default
notice, provided, however, that to the extent the default identified in Promus's
default notice is not capable of being cured by Fee Owner (i.e., the bankruptcy
of Lessee or a transfer in violation of the License Agreement), Fee Owner will
not be afforded an opportunity to cure such incurable defaults. If a breach
identified in the notice is of a curable non-monetary nature which is not
reasonably capable of being cured within such thirty (30) day period, Promus
shall extend the cure period for such length of time as Promus in its sole
discretion reasonably determines is necessary for such breach to be cured (not
to exceed in any event an additional period of ninety (90) days).
In the event a default occurs under the Percentage Lease (other than a
default under the Acquisition Loan) and, as a consequence thereof, Fee Owner
elects to terminate the Percentage Lease, or remove Lessee from possession of
the Hotel without terminating the Percentage Lease or if Lessee does not elect
to extend the Percentage Lease term through the full term of the License
Agreement (any such event being referred to herein as a "Triggering Event")
while the License Agreement and/or the Management Agreement are in effect, Fee
Owner shall give Promus written notice of such termination ("Triggering Event
Notice"). Fee Owner shall have a ninety (90) day period from the date such
Triggering Event Notice is given to elect to enter into a lease agreement with a
substitute lessee of the Hotel satisfying the conditions set forth in Paragraph
1 below (a "Successor Lessee") and to obtain a new license agreement for such
Hotel in the name of such Successor Lessee, for a term equal to the balance of
the original term of the License
2
<PAGE>
Agreement and otherwise on the terms and conditions set forth in the License
Agreement, except that it shall be issued to Successor Lessee without
the payment of any application fee or transfer fee. Promus's obligations to
issue a new license agreement pursuant to this paragraph are subject to and
conditioned upon the satisfaction of the following:
1. Successor Lessee shall (i) be a "Permitted Transferee" (as
hereinafter defined) and (ii) either (y) be (1) at least fifty percent (50%)
owned by Fee Owner or persons that are its "Affiliates" (as hereinafter defined)
and (2) controlled by Fee Owner or its Affiliates or (z) have complied with the
requirements of Section 11 of the applicable License Agreement.
For purposes of this letter agreement the following terms shall have
the respective meanings assigned thereto:
(a) The term "Permitted Transferee" means a person or entity
that (i) has adequate financial resources to perform all of Lessee's
obligations under and in accordance with the terms of the License
Agreement, the Percentage Lease, and/or the Management Agreement, (ii)
is not the franchisor or an operator of a chain of hotels (i.e., a
group of hotels marketed under the same brand name) which competes with
the Homewood Suites(R)system of hotels, and (iii) enjoys a favorable
reputation for integrity in his or its community; provided, however,
that an entity the stock of which is not traded on a national stock
exchange shall not qualify as a "Permitted Transferee" unless (A) all
officers, directors, managing members and general partners of such
entity and all persons having, directly or indirectly, a ten percent
(10%) or more equity or profit-sharing interest in such entity would
qualify as Permitted Transferees under clauses (ii) and (iii) of this
sentence, and (B) all officers, directors, managing members and general
partners of any entity having, directly or indirectly, a ten percent
(10%) or more equity or profit-sharing interest in such entity, the
stock of which is not traded on a national stock exchange, would
qualify as Permitted Transferees under clauses (ii) and (iii) of this
sentence. For purposes of the foregoing, it is agreed that any person
or entity who or which, because of reputation or past conduct, has been
denied or would be likely to be denied a gaming license by any
governmental authority shall not qualify as a "Permitted Transferee".
(b) The term "Affiliate" means, with respect to any person or
entity, any other person or entity which, directly or indirectly,
controls, is controlled by, or is under common control with, such first
person or entity. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlled by" and
"under common control with"), shall mean the possession, directly or
indirectly, of the power (i) to vote more than fifty percent (50%) of
the securities having ordinary voting power for the election of
directors of the controlled person, or (ii) to direct or cause the
direction of the management and policies of the controlled person,
whether through the ownership of voting shares or by contract or
otherwise, and shall be deemed to include the directors and executive
officers of Fee Owner.
3
<PAGE>
2. Successor Lessee shall also enter into a management agreement with
Promus covering the Hotel for a term equal to the balance of the original term
of the Management Agreement covering the Hotel and otherwise on the terms and
conditions set forth in such Management Agreement.
If Fee Owner fails to provide a written notice to Promus of Successor
Lessee's intention to obtain a new license within such ninety (90) day period,
the License Agreement shall, at Promus's option, terminate upon the date of
expiration of such ninety (90) day period, in which event Fee Owner shall pay to
Promus an amount, as liquidated damages, equal to the aggregate amount owed
under the License Agreement (including liquidated damages attributable to such
termination as provided in Paragraph 13 of the License Agreement) and the
Management Agreement.
If Fee Owner enters into a new lease with a Successor Lessee who
intends to obtain a new license, all existing breaches under the License
Agreement and the Management Agreement (collectively, the "Hotel Agreements") of
which Promus notifies Fee Owner must be cured on or before the final day of the
ninety (90) day period, provided, however, if such breach(es) are of the type
set forth in paragraph 13.d.(3) and (4) of the License Agreement or Section 9.01
of the Management Agreement and are not capable of being cured by Fee Owner or a
Successor Lessee within such ninety (90) day period, such breach(es) need not be
cured if Fee Owner or a Successor Lessee cures all other breaches of the Hotel
Agreements. With regard to any breaches of a non-monetary nature which are not
reasonably capable of being cured within said ninety (90) day period, Promus
shall extend the cure period for such period of time as Promus in its sole
discretion reasonably determines is necessary for such breaches to be cured.
In the event Fee Owner exercises its rights under the terms of this
letter agreement to enable a Successor Lessee to obtain a new license agreement,
Lessee shall not be released from its obligations under the applicable Hotel
Agreements accruing prior to the date such Successor Lessee obtains a new
license and enters into a new management agreement with Promus.
In addition, in the event the provisions of Internal Revenue Code, as
amended, applicable to real estate investment trusts ("REIT") are amended to
permit REITs, such as Fee Owner, to operate hotels or otherwise render the
structure embodied by the Percentage Lease to be obsolete as economically
unnecessary, Fee Owner may give Promus written notice thereof (the "Tax Event
Notice") and of Fee Owner's election to terminate the Percentage Lease and of
its desire to obtain a new license agreement for the Hotel in Fee Owner's name
for a term equal to the balance of the original term of the License Agreement
and otherwise on the terms and conditions set forth in the License Agreement,
except that it shall be issued to Fee Owner without the payment of any
application fee or transfer fee. The Tax Event Notice shall, in addition,
contain Lessee's consent to the termination of the Management Agreement and the
License Agreement and acknowledgment of the provisions of the immediately
succeeding paragraph. Promus's obligations to issue a new license agreement
pursuant to this paragraph are subject to and conditioned upon the satisfaction
of the following:
4
<PAGE>
1. Fee Owner shall be a "Permitted Transferee", except that clause (i)
thereof shall be amended to read "(i) has adequate financial resources to
perform all of owner's obligations under and in accordance with the terms of the
License Agreement and/or the Management Agreement".
2. Fee Owner shall also enter into a management agreement with Promus
covering the Hotel for a term equal to the balance of the original term of the
Management Agreement covering the Hotel and otherwise on the terms and
conditions set forth in the Management Agreement.
In the event Fee Owner exercises its right under the terms of the
immediately preceding paragraph of this letter agreement to enable it to obtain
a new license agreement, Lessee shall not be released from its obligations under
the applicable Hotel Agreements accruing prior to the date Fee Owner obtains a
new license and enters into a new management agreement with Promus.
In connection with Lessee's execution and delivery of the License
Agreement, Apple Suites, Inc. has executed and delivered for the benefit of
Promus that certain Guaranty of even date herewith with respect to the License
Agreement (the "Guaranty"). Promus acknowledges that, in the event of actual
conflict, the terms and provisions of this letter agreement shall control over
the terms and provisions of the Guaranty. Without limiting the generality of the
foregoing, and in order to provide Apple Suites, Inc. with the full benefits
intended by the provisions of the immediately preceding sentence, Promus shall
notify Apple Suites, Inc. by certified mail not less than ten (10) days prior to
Promus's execution and delivery of any amendment or modification of the License
Agreement or of its acceptance of any voluntary surrender or termination by
Lessee of the License Agreement, other than amendments or modifications or
surrender or termination which has been requested by Fee Owner or Apple Suites,
Inc. or to which Fee Owner is a party. Nothing in the foregoing sentence shall
be deemed or construed to limit or restrict Promus's rights to terminate or
exercise any other remedy under the License Agreement in the event of a default
by Lessee thereunder, subject to the other terms and provisions of this letter
agreement.
With reference to Licensee's representation in the last sentence of
Section 1(a) of the License Agreement, Promus acknowledges that the Percentage
Lease is for a base term of less than twenty (20) years and that only upon
exercising all extension options available to Licensee, including certain
options requiring negotiation of fair market rental, will the term of the
Percentage Lease extend to the full twenty (20) years of the term of the License
Agreement. Fee Owner and Lessee acknowledge that the failure for any reason to
exercise the extension options will result in the application of the liquidated
damages provisions of Paragraph 13.f of the License Agreement if, upon the
termination of the Percentage Lease, Fee Owner or a Successor Lessee does not
obtain a new license agreement for the Hotel for a term equal to the balance of
the original term of the License Agreement, as contemplated herein.
Promus hereby confirms for the benefit of Fee Owner and Lessee that the
License Agreement shall be read with the following clarifications:
5
<PAGE>
(i) with respect to the provisions of Paragraph 1.d. of the
License Agreement relating to the requirement to use particular
Supplies or that particular Supplies be purchased from Promus or a
source designated by Promus, such requirements shall only be imposed on
the licensee under the License Agreement to the extent Promus is
imposing such requirements on substantially all of its licensees of the
System, but that with respect to other Supplies if Lessee determines
that it can purchase Supplies of a quality at least equal to that which
Promus is requiring at a price lower than the price then being charged
by Promus or its designated supplier, Lessee may purchase such Supplies
from its vendor;
(ii) with respect to the provisions of Paragraph 6.a.(19) of
the License Agreement, such provisions are not intended to preclude
Lessee or any member of an affiliated group from owning licensed hotels
of other, even competing, brands, but from owning a hotel brand,
tradename, system or chain;
(iii) with respect to the provisions of Paragraph 11 of the
License Agreement relating to change in ownership or a transfer of the
hotel, the provisions are intended to apply only to Lessee's beneficial
or equity interests or its interest in the hotel; and
(iv) with respect to the language of the second sentence of
Paragraph 13.f. of the License Agreement reading "If this Agreement is
terminated other than by the expiration of the term described in
Paragraph 13.a.,", this language is not intended to modify other
provisions of the License Agreement relating to whether or not
liquidated damages are payable under other circumstances and
accordingly shall be read as if preceded by the phrase "Subject to the
other provisions of this Agreement". In addition, liquidated damages
shall not be payable if the License Agreement is terminated as a result
of Promus's default under the License Agreement.
Promus acknowledges that, in the event of actual conflict between this
letter agreement and the License Agreement, the terms and provisions of this
letter agreement shall control over the terms and provisions of the License
Agreement. Without limiting the generality of the foregoing, (i) no transfer of
any interest in Fee Owner, or of fee ownership of the Hotel to an affiliate of
Fee Owner, shall constitute a prohibited change of ownership under the License
Agreement, subject, however, to the penultimate paragraph of this letter
agreement, (ii) no transfer of the leasehold interest of Lessee in the Hotel to
a Successor Lessee shall constitute a prohibited change of ownership under the
License Agreement, and (iii) in no event shall the initial Licensee be liable
for liquidated damages as the result of termination of the Percentage Lease or
default under the License Agreement if a Successor Lessee is supplied by Fee
Owner or Fee Owner enters into a new License Agreement following a Tax Event
Notice, and all prior curable defaults under the License Agreement are cured by
Fee Owner, as contemplated herein.
Fee Owner and Lessee agree with Promus as follows with respect to the
relationship of Promus and Lessee under the Management Agreement:
6
<PAGE>
(a) Pursuant to the terms of the Percentage Lease, Fee Owner
has agreed to pay, among other things, (i) land, building and personal
property taxes and assessments applicable to the Hotel, (ii) premiums
and charges for property casualty insurance coverages specified in
Exhibit "D" to the Management Agreement, (iii) expenditures for capital
replacements, (iv) expenditures for maintenance and repair of
underground utilities and structural elements of the Hotel and (v) the
payments of principal, interest and other sums payable under the
Acquisition Loan (collectively, "Fee Owner Costs"). To the extent the
Management Agreement obligates or authorizes Promus to pay any Fee
Owner Costs, Promus shall pay such Fee Owner Costs on behalf of Lessee
to the extent of funds in the Hotel's bank account(s) (collectively,
the "Hotel Accounts"), including, without limitation, the Bank
Account(s) and the Reserve Fund (as such terms are defined in the
Management Agreement) subject to any limitations contained in the
Management Agreement and Fee Owner and Lessee shall make such
adjustments and payments to each other as may be necessary from time to
time to take into account any such payments. Promus shall have no duty,
obligation or liability to Fee Owner (x) to make any determination as
to whether any expense required to be paid by Promus under the
Management Agreement is a Fee Owner Cost or a cost of Lessee, or (y) to
make any determination as to whether funds in the Hotel Accounts belong
to Fee Owner or Lessee, or (z) to require that Fee Owner Costs be paid
from funds which can be identified as belonging to Fee Owner, or other
costs and expenses required to be paid by Lessee be paid from funds
which can be identified as belonging to Lessee; it being the intent of
this provision that (i) Fee Owner and Lessee shall look only to each
other and not to Promus with respect to moneys that may be owed one to
the other as consequence of Promus's performance of the Management
Agreement and (ii) Promus need only look to Lessee to pay operating
costs, including, without limitation, those designated herein as Fee
Owner Costs.
(b) Promus shall be permitted (and is hereby authorized) to
set off against any amounts owed to Promus by Lessee under the
Management Agreement and the License Agreement any funds held by Promus
pursuant to the Management Agreement, including amounts in the Hotel
Accounts, whether or not amounts are due to Fee Owner by Lessee under
the Percentage Lease.
(c) Fee Owner has approved the form of the Management
Agreement and License Agreement and agrees that Fee Owner's consent or
approval is not required with respect to the performance of any of its
rights, duties or obligations under the Management Agreement or the
License Agreement.
(d) Fee Owner hereby approves the deposit of funds into the
Reserve Account and the expenditure of funds from the Reserve Account
by Promus in accordance with the terms of the Management Agreement.
(e) To the extent required by applicable laws, Fee Owner shall
obtain and maintain (or cooperate in obtaining and maintaining) any
licenses, permits or approvals of any governmental authority necessary
to operate and manage the Hotel in accordance with the Management
Agreement.
7
<PAGE>
(f) Fee Owner acknowledges and agrees that, unless it enters
into a license agreement pursuant to a Tax Event Notice, it has no
right to use the Homewood Suites(R) "System" except as expressly set
forth in the License Agreement nor any right to use the name "Homewood
Suites" or the Homewood Suites(R) "System" as a result of Lessee
entering into the Hotel Agreements.
(g) Fee Owner acknowledges and agrees that any amounts owed to
Promus under the License Agreement and the Management Agreement are
superior to any amounts owed by Lessee to Fee Owner under the
Percentage Lease, other than amounts owed in respect of the
Subordinated Management Fee, as defined in the Management Agreement, to
the extent Lessee applies amounts received in respect of Owner's Basic
Return, as defined in the Management Agreement, in respect of amounts
owed by Lessee to Fee Owner under the Percentage Lease.
(h) Fee Owner agrees not to amend or modify the Percentage
Lease in any manner that would (i) reduce the term of the Percentage
Lease, (ii) increase the amount of rent payable by Lessee thereunder
(except as contemplated by the provisions of the Percentage Lease), or
(iii) have a material adverse effect on any of the rights, duties and
privileges of Promus under the Management Agreement. Nothing in this
paragraph (h) shall be deemed or construed to limit or restrict Fee
Owner's rights to terminate or exercise any other remedy under the
Percentage Lease in the event of a default by Lessee thereunder.
(i) Fee Owner acknowledges and agrees that Promus has no duty
or obligation to comply with any of the terms of the Percentage Lease
and that Fee Owner will look solely to Lessee with respect to such
matters.
(j) Fee Owner acknowledges and agrees that (i) no sale,
transfer or conveyance of Fee Owner's fee estate in the Hotel shall
terminate the Management Agreement, (ii) except as provided below,
neither the termination of the Percentage Lease nor the assignment of
Lessee's interest therein shall terminate the Management Agreement, and
(iii) no merger of the leasehold and fee simple estates of the Hotel
shall terminate the Management Agreement; it being the intent of Fee
Owner and Promus that the Management Agreement shall continue in effect
for the term of the Management Agreement so long as the Hotel is
operating as a Homewood Suites(R) hotel pursuant to a license agreement
and Manager is not in default of its obligations under the Management
Agreement (subject, however, to any express rights of termination
contained in the Management Agreement).
(k) Fee Owner acknowledges and agrees that Manager shall have
a right to file a separate claim in any condemnation case in accordance
with Article VIII of the Management Agreement.
(l) Fee Owner agrees that so long as the License Agreement is
in effect the casualty insurance proceeds will be applied in the manner
provided in the License Agreement.
8
<PAGE>
(m) In the event that Fee Owner terminates the Percentage
Lease and as a consequence thereof Promus terminates the License
Agreement and does not enter into a new license agreement with any
successor operator of the Hotel, Promus and Fee Owner, subject to the
payment of all amounts owed under the Management Agreement and all
amounts owed under the Acquisition Loan, shall have the right to
terminate the Management Agreement covering the Hotel. Otherwise, the
successor operator shall assume in writing the remaining term of such
Management Agreement.
Fee Owner and Lessee further agree with Promus with respect to the
Acquisition Loan that the Percentage Lease shall be subject and subordinate to
the lien of the Acquisition Mortgage Documents and to all of the terms,
conditions and provisions thereof, to all advances made or to be made
thereunder, and to any renewals, extensions, modifications or replacements
thereof, including any increases therein or supplements thereto. The foregoing
provisions shall be self-operative. However, Fee Owner and Lessee agree to
execute and deliver to Promus such other instrument as Promus shall request in
order to effectuate said provisions.
It is acknowledged and agreed that (i) Promus shall be entitled to rely
upon any written notice or request by Fee Owner made pursuant to the provisions
hereof without requirement of investigating the accuracy or authenticity of such
written notice or any facts or allegations contained therein, and (ii) Fee Owner
shall be entitled to rely upon any written notice or request by Promus made
pursuant to the provisions hereof without requirement of investigating the
accuracy or authenticity of such written notice or any facts or allegations
contained therein.
You agree to notify Promus by certified mail at 755 Crossover Lane,
Memphis, Tennessee 38117-4900, Attention: General Counsel (or such other address
as Promus may specify in a written notice to you) of any action regarding the
Hotel to: (a) terminate the Percentage Lease; (b) petition for appointment of a
Receiver or Trustee for Lessee to take any action under Federal Bankruptcy law
or similar state laws; or (c) take possession of the Hotel, through a Successor
Lessee or otherwise, without termination of the Percentage Lease.
The rights, powers and interests of Promus hereunder may be transferred
and assigned by Promus, without the prior written consent of Fee Owner, Lessee
and, if applicable, any Successor Lessee, to any person to whom the License
Agreement and Management Agreement may be assigned. The rights and obligations
of Fee Owner, Lessee and, if applicable, Successor Lessee hereunder are not
transferable without the written consent of Promus.
Subject to the foregoing limitations, this letter agreement shall
extend to, and shall bind, the respective successors and assigns of Promus, Fee
Owner, Lessee and, if applicable, any Successor Lessee, provided, however, that
in the case of Fee Owner, this letter agreement shall not extend to any
transferee of Fee Owner's fee interest in the Hotel nor to Fee Owner if Apple
Suites, Inc. is not a publicly held REIT.
9
<PAGE>
Please indicate your agreement with the terms of this letter agreement
by signing and returning four executed copies to Promus. This letter may be
executed by original signature or by signature received by telecopy in any
number of counterparts, each of which shall be original and all of which
together shall constitute and be construed as one and the same instrument.
Very truly yours,
PROMUS HOTELS, INC.
By /s/ Joseph P. Pidkowicz
-----------------------------------
Joseph P. Pidkowicz
Vice President
cc: Franchise Administration
Accepted and Agreed:
APPLE SUITES, INC.
By /s/ Glade M. Knight
-----------------------------------
Name: Glade M. Knight
Title: President
Acknowledged and Agreed:
APPLE SUITES MANAGEMENT, INC.
By /s/ Glade M. Knight
-----------------------------------
Name: Glade M. Knight
Title: President
Exhibit 10.7
APPLE SUITES, INC.
c/o Cornerstone Realty Income Trust, Inc.
306 East Main Street
Richmond, Virginia 23219
December 22, 1999
Promus Hotels, Inc.
755 Crossover Lane
Memphis, Tennessee 38117-4900
Re: Agreement of Sale dated November 22, 1999 (the
"Purchase Agreement"; capitalized terms not otherwise
defined herein shall have the meanings ascribed to such
terms in the Purchase Agreement) between Hampton Inns,
Inc., Promus Hotels Florida, Inc. and Promus Hotels,
Inc., as Sellers, and Apple Suites, Inc., as Buyer
Gentlemen:
Reference is made to (i) the Purchase Agreement and (ii) the purchase
money note of even date herewith made by the undersigned in the amount of
$4,384,500 (the "Note") and the mortgages and/or deeds of trust and/or deeds to
secure debt securing the Note (individually and collectively, the "Mortgage").
We hereby agree that until such time as all amounts evidenced and
secured by the Note and the Mortgage have been paid in full we shall not:
(i) transfer, or agree to transfer (or suffer or permit the transfer or
agreement to transfer), in any manner, either voluntarily or involuntarily,
by operation of law or otherwise, all or any portion of any of the
properties located in Henrico County, Virginia, Pinellas County, Florida
and Anne Arundel County, Maryland heretofore transferred to us by deeds
from you dated September 20, 1999 or November 29, 1999 (the "Restricted
Properties"), without, in any such case, your prior written consent, which
shall not be unreasonably withheld in the case of a transfer to any
affiliate or subsidiary wholly owned by Apple Suites, Inc.; or
(ii) encumber, or agree to encumber, in any manner, either voluntarily
or involuntarily, by operation of law or otherwise, all or any portion of
any of the Restricted Properties, or any interest or rights therein
without, in any such case,
<PAGE>
your prior written consent. As used in this clause, "encumber" shall
include, without limitation, the placing or permitting the placing of any
mortgage, deed of trust, assignment of rents or other security device. (It
is understood that you may grant or deny your consent under this clause and
the immediately preceding clause in your sole discretion).
Notwithstanding the foregoing, it is understood that neither the lease
to Apple Suites Management, Inc. from us, dated September 20, 1999 nor the Deed
of Trust, Assignment of Leases and Rents and Security Agreement (or other
mortgage document) made by us and Apple Suites Management, Inc. for your benefit
dated September 20, 1999 or November 29, 1999, shall constitute a violation of
the foregoing restrictions.
Very truly yours,
APPLE SUITES, INC.,
a Virginia corporation
By /s/ Glade M. Knight
-----------------------------------
Name: Glade M. Knight
Title: President
2
Exhibit 10.8
(HOTEL FRANCHISE FEES)
PROMISSORY NOTE
$45,000.00 RICHMOND, VIRGINIA
DECEMBER 22, 1999
FOR VALUE RECEIVED, Apple Suites Management, Inc., a Virginia corporation (the
"Maker"), hereby makes an UNCONDITIONAL PROMISE TO PAY TO THE ORDER OF Apple
Suites, Inc., a Virginia corporation (the "Holder"), in lawful money of the
United States of America, the principal sum of Forty Five Thousand and 00/100
Dollars ($45,000.00), together with interest thereon, in accordance with the
following terms:
1. INTEREST.
Interest shall accrue on the unpaid principal balance at the annual
rate of nine percent (9%) (the "Note Rate"). With respect to amortized payments,
interest at the Note Rate shall be based on a 360-day year and a uniform period
of 30 days per month. If there is an Event of Default (as defined below), the
annual rate of interest shall increase to twelve percent (12%), and shall be
compounded monthly (the "Default Rate"). The computation of interest at the
Default Rate shall be based on the actual number of days elapsed.
2. PAYMENTS.
(a) The debt represented by this Note shall be paid in one hundred
twenty-one (121) consecutive monthly installments. The amount of the first
installment shall be $112.50, consisting entirely of interest, based on the
actual number of days elapsed. The amount of each subsequent installment shall
be $570.04, consisting of principal and interest on an amortized basis.
(b) Installments shall be due and payable on the first day of each
month, beginning with January 1, 2000. The due date for each installment shall
be deemed a "Payment Date." The entire balance of principal and interest shall
be due and payable in full on January 1, 2010.
(c) The Maker is entitled to prepay the principal balance under this
Note, in whole or in part, on one or more occasion(s), without premium or
penalty.
(d) The Holder shall have the right to allocate all payments under this
Note in accordance with the following priority: (1) first, to accrued but unpaid
interest; and (2) second, to unpaid principal.
3. PAYMENT ADDRESS AND METHOD.
The Holder shall have the right, which may be exercised on one or more
occasion(s) in the sole discretion of the Holder, to require the Maker to use
any address for the delivery of payment and any reasonable method of payment,
including but not limited to cashier's check or
<PAGE>
wire transfer. For present purposes, the Holder hereby requires the Maker to
use a single check for each installment payment, and to use the mailing address
shown below for the delivery of all payments:
Apple Suites, Inc.
Attn: Stanley J. Olander, Jr., Secretary
306 East Main Street
Richmond, VA 23219
4. SECURITY AND COLLATERAL.
The Holder and the Maker acknowledge and agree that no security
interest has been granted in any property or collateral in connection with this
Note.
5. PURPOSE.
The Maker has leased an extended-stay hotel in Jackson, Mississippi.
The Maker has received funds from the Holder for the satisfaction of various
franchise fees for such hotel. This Note serves as evidence of the indebtedness
of the Maker to the Holder, and provides for the repayment of such indebtedness
to the Holder.
6. EVENTS OF DEFAULT.
(a) Each of the following events shall constitute an "Event of
Default" under this Note:
(1) the Maker's failure to pay to the Holder, within a grace
period of five (5) calendar days after any Payment Date, the full amount due on
such Payment Date;
(2) the acceleration of any payment obligation of the Maker
under any other promissory note, debt instrument or other financial instrument
or agreement that now exists or may exist in the future;
(3) the commencement of any proceeding to appoint any
receiver, trustee, custodian, liquidator, or similar official for the Maker, or
the final appointment of any of the foregoing;
(4) the attachment, levy, seizure or garnishment, whether in
whole or in part, of any wages, funds, financial accounts or other property of
the Maker;
(5) the entry of any judgment against the Maker that exceeds,
when combined with its other unpaid judgments, ten percent (10%) of the then
unpaid principal balance under this Note;
(6) the general inability of the Maker to pay its debts as
they become due;
-2-
<PAGE>
(7) the filing or commencement, by the creditors of the Maker,
of any Insolvency Action (as defined below) that is not dismissed within thirty
(30) calendar days after the original date of filing or commencement;
(8) the approval or voluntary filing of any Insolvency Action,
or the approval or consummation of any plan to make a general assignment for the
benefit of creditors, by the Maker;
(9) the approval of any plan, or the execution of any
contract, that causes or is intended to cause any of the following with respect
to the Maker: (A) its dissolution; (B) the liquidation of its assets; (C) the
termination of its corporate existence, whether by merger or otherwise; or (D)
the sale or transfer of all, or substantially all, of its assets;
(10) any event that causes or will cause the Maker to cease
its business or operations for a period of more than thirty (30) consecutive
calendar days; or
(11) any event that terminates or will terminate the business,
operations or legal existence of the Maker.
(b) For purposes of this Note, the term "Insolvency Action" shall
mean any case or proceeding, or petition relating thereto, that arises under
any state or Federal laws relating to bankruptcy or insolvency, whether now
existing or subsequently enacted, and that seeks reorganization, liquidation
or other relief with respect to the debts, assets or businesses of the Maker.
7. REMEDIES.
(a) If an Event of Default occurs, all unpaid principal and accrued
interest under this Note shall become immediately due and payable in full,
without any action whatsoever by the Holder.
(b) The Maker shall pay all costs, including but not limited to
reasonable legal fees and expenses, whether arising in connection with an
Insolvency Action or otherwise, that may be incurred by the Holder to enforce
this Note or to collect the amounts due under this Note ("Enforcement Costs").
The Holder, in its sole discretion, shall have the right to treat Enforcement
Costs as additional interest under this Note.
-3-
<PAGE>
8. TRANSFER AND ASSIGNMENT.
(a) The Holder shall have the right to transfer this Note and to assign
any rights or remedies under this Note. Such right may be exercised in whole or
in part, on one or more occasion(s), in the sole discretion of the Holder. The
obligations of the Maker under this Note shall not be altered or affected in any
way by any such transfer or assignment by the Holder.
(b) The Maker shall be absolutely prohibited from assigning any of its
obligations under this Note without the prior written consent of the Holder. The
Holder shall be entitled to withhold such consent in its sole discretion for any
reason or no reason. Any attempted assignment in violation of such prohibition
shall be ineffective and void.
(c) The Holder and the Maker acknowledge and agree that this Note (1)
is evidence of commercial debt financing; and (2) is not an investment contract,
is not designed to raise capital, is not part of any plan of distribution and is
not related to any offering of securities.
9. WAIVERS.
(a) The Holder shall not be deemed to have waived any of its rights or
remedies under this Note unless the Holder delivers a written notice to the
Maker that states the nature and scope of such waiver. Without limiting the
foregoing, no waiver of the Holder's rights or remedies shall be deemed to exist
solely because the Holder, on one or more occasion(s), may have: (1) waived
certain rights or remedies; (2) elected certain rights or remedies in lieu of
others; (3) delayed in exercising any rights or remedies; (4) extended any
Payment Dates under this Note; or (5) refrained from requiring the Maker to act
in strict compliance with this Note.
(b) The Maker, to the maximum extent permitted by law, hereby grants a
complete, irrevocable and unconditional waiver of each of the following: (1) the
right to require presentment, demand, dishonor, protest or any notices of any
kind or nature from the Holder in connection with this Note; (2) the right to
assert any statute of limitations as a defense to the enforcement of this Note;
(3) any claim that seeks to restrain, enjoin, prohibit, delay or interfere with
any transfer of this Note by the Holder, or any assignment of the Holder's
rights or remedies under this Note; (4) any claim that a transfer or assignment
by the Holder with respect to this Note has altered or affected the obligations
of the Maker in any way; and (5) any claim that the Holder has waived its rights
or remedies under this Note in a manner other than the manner described in
subsection (a) immediately above.
-4-
<PAGE>
10. GENERAL.
(a) Time is of the essence with respect to this Note and each Payment
Date. Except as expressly set forth in this Note, or in a written waiver that
may be granted by the Holder, there are no grace periods and no extensions of
time for payment with respect to this Note, and no grace periods or extensions
shall be implied.
(b) This Note shall be interpreted and enforced in accordance with the
laws of the Commonwealth of Virginia, without regard to any choice of law
provisions or principles thereof to the contrary.
(c) All provisions in this Note are severable and each valid and
enforceable provision shall remain in full force and effect, regardless of any
official or formal determination that declares certain provisions of this Note
to be invalid or unenforceable.
(d) Captions and headings are used in this Note for convenience only
and shall not affect the interpretation of this Note. Terms such as "hereof,"
"hereby," "hereto," "herein" and "hereunder" shall be deemed to refer to this
Note as a whole, rather than to any particular provision of this Note.
(e) All terms and conditions of this Note shall be binding upon, and
enforceable against, the Holder and the Maker, and all of their respective
assignees and successors in title or interest.
APPLE SUITES MANAGEMENT, INC.,
a Virginia corporation
By: /s/ Glade M. Knight
--------------------------------
Glade M. Knight, President
-5-
Exhibit 10.9
(HOTEL SUPPLIES)
PROMISSORY NOTE
$9,100.00 RICHMOND, VIRGINIA
DECEMBER 22, 1999
FOR VALUE RECEIVED, Apple Suites Management, Inc., a Virginia corporation (the
"Maker"), hereby makes an UNCONDITIONAL PROMISE TO PAY TO THE ORDER OF Apple
Suites, Inc., a Virginia corporation (the "Holder"), in lawful money of the
United States of America, the principal sum of Nine Thousand One Hundred and
00/100 Dollars ($9,100.00) together with interest thereon, in accordance with
the following terms:
1. INTEREST.
Interest shall accrue on the unpaid principal balance at the annual
rate of nine percent (9%) (the "Note Rate"). With respect to amortized payments,
interest at the Note Rate shall be based on a 360-day year and a uniform period
of 30 days per month. If there is an Event of Default (as defined below), the
annual rate of interest shall increase to twelve percent (12%), and shall be
compounded monthly (the "Default Rate"). The computation of interest at the
Default Rate shall be based on the actual number of days elapsed.
2. PAYMENTS.
(a) The debt represented by this Note shall be paid in sixty-one (61)
consecutive monthly installments. The amount of the first installment shall be
$22.75, consisting entirely of interest, based on the actual number of days
elapsed. The amount of each subsequent installment shall be $188.90, consisting
of principal and interest on an amortized basis.
(b) Installments shall be due and payable on the first day of each
month, beginning with January 1, 2000. The due date for each installment shall
be deemed a "Payment Date." The entire balance of principal and interest shall
be due and payable in full on January 1, 2005.
(c) The Maker is entitled to prepay the principal balance under this
Note, in whole or in part, on one or more occasion(s), without premium or
penalty.
(d) The Holder shall have the right to allocate all payments under this
Note in accordance with the following priority: (1) first, to accrued but unpaid
interest; and (2) second, to unpaid principal.
3. PAYMENT ADDRESS AND METHOD.
The Holder shall have the right, which may be exercised on one or more
occasion(s) in the sole discretion of the Holder, to require the Maker to use
any address for the delivery of payment and any reasonable method of payment,
including but not limited to cashier's check or wire transfer. For present
purposes, the Holder hereby requires the Maker to use a single check
<PAGE>
for each installment payment, and to use the mailing address shown below for the
delivery of all payments:
Apple Suites, Inc.
Attn: Stanley J. Olander, Jr., Secretary
306 East Main Street
Richmond, VA 23219
4. SECURITY AND COLLATERAL.
The Holder and the Maker acknowledge and agree that no security
interest has been granted in any property or collateral in connection with this
Note.
5. PURPOSE.
The Maker has leased an extended-stay hotel in Jackson, Mississippi.
The Maker has received funds from the Holder for the purchase of various
supplies for such hotel, including without limitation, sheets, towels and
similar supplies to be used in connection with the operation of such hotel (the
"Supplies"). This Note serves as evidence of the indebtedness of the Maker to
the Holder, and provides for the repayment of such indebtedness to the Holder.
6. EVENTS OF DEFAULT.
(a) Each of the following events shall constitute an "Event of Default"
under this Note:
(1) the failure by the Maker to pay to the Holder, within a
grace period of five (5) calendar days after any Payment Date, the full amount
due on such Payment Date;
(2) the acceleration of any payment obligation of the Maker
under any other promissory note, debt instrument or other financial instrument
or agreement that now exists or may exist in the future;
(3) the commencement of any proceeding to appoint any
receiver, trustee, custodian, liquidator, or similar official for the Maker, or
the final appointment of any of the foregoing;
(4) the attachment, levy, seizure or garnishment, whether in
whole or in part, of any wages, funds, financial accounts or other property of
the Maker;
(5) the entry of any judgment against the Maker that exceeds,
when combined with other unpaid judgments of the Maker, ten percent (10%) of the
then unpaid principal balance under this Note;
- 2 -
<PAGE>
(6) the general inability of the Maker to pay its debts as
they become due;
(7) the filing or commencement, by the creditors of the Maker,
of any Insolvency Action (as defined below) that is not dismissed within thirty
(30) calendar days after the original date of filing or commencement;
(8) the Maker's approval or voluntary filing of any Insolvency
Action, or its approval or consummation of any plan to make a general assignment
for the benefit of creditors;
(9) the approval of any plan, or the execution of any
contract, that causes or is intended to cause any of the following with respect
to the Maker: (A) its dissolution; (B) the liquidation of its assets; (C) the
termination of its corporate existence, whether by merger or otherwise; or (D)
the sale or transfer of all, or substantially all, of its assets;
(10) any event that causes or will cause the Maker to cease
its business or operations for a period of more than thirty (30) consecutive
calendar days; or
(11) any event that terminates or will terminate the business,
operations or legal existence of the Maker.
(b) For purposes of this Note, the term "Insolvency Action" shall mean
any case or proceeding, or petition relating thereto, that arises under any
state or Federal laws relating to bankruptcy or insolvency, whether now existing
or subsequently enacted, and that seeks reorganization, liquidation or other
relief with respect to the debts, assets or businesses of the Maker.
7. REMEDIES.
(a) If an Event of Default occurs, all unpaid principal and accrued
interest under this Note shall become immediately due and payable in full,
without any action whatsoever by the Holder.
(b) The Maker shall pay all costs, including but not limited to
reasonable legal fees and expenses, whether arising in connection with an
Insolvency Action or otherwise, that may be incurred by the Holder to enforce
this Note or to collect the amounts due under this Note ("Enforcement Costs").
The Holder, in its sole discretion, shall have the right to treat Enforcement
Costs as additional interest under this Note.
- 3 -
<PAGE>
8. TRANSFER AND ASSIGNMENT.
(a) The Holder shall have the right to transfer this Note and to assign
any rights or remedies under this Note. Such right may be exercised in whole or
in part, on one or more occasion(s), in the sole discretion of the Holder. The
obligations of the Maker under this Note shall not be altered or affected in any
way by any such transfer or assignment by the Holder.
(b) The Maker shall be absolutely prohibited from assigning any of its
obligations under this Note without the prior written consent of the Holder. The
Holder shall be entitled to withhold such consent in its sole discretion for any
reason or no reason. Any attempted assignment in violation of such prohibition
shall be ineffective and void.
(c) The Holder and the Maker acknowledge and agree that this Note (1)
is evidence of commercial debt financing; and (2) is not an investment contract,
is not designed to raise capital, is not part of any plan of distribution and is
not related to any offering of securities.
9. WAIVERS.
(a) The Holder shall not be deemed to have waived any of its rights or
remedies under this Note unless the Holder delivers a written notice to each of
the Maker that states the nature and scope of such waiver. Without limiting the
foregoing, no waiver of the Holder's rights or remedies shall be deemed to exist
solely because the Holder, on one or more occasion(s), may have: (1) waived
certain rights or remedies; (2) elected certain rights or remedies in lieu of
others; (3) delayed in exercising any rights or remedies; (4) extended any
Payment Dates under this Note; or (5) refrained from requiring the Maker to act
in strict compliance with this Note.
(b) The Maker, to the maximum extent permitted by law, hereby grants a
complete, irrevocable and unconditional waiver of each of the following: (1) the
right to require presentment, demand, dishonor, protest or any notices of any
kind or nature from the Holder in connection with this Note; (2) the right to
assert any statute of limitations as a defense to the enforcement of this Note;
(3) any claim that seeks to restrain, enjoin, prohibit, delay or interfere with
any transfer of this Note by the Holder, or any assignment of the Holder's
rights or remedies under this Note; (4) any claim that a transfer or assignment
by the Holder with respect to this Note has altered or affected the obligations
of the Maker in any way; and (5) any claim that the Holder has waived its rights
or remedies under this Note in a manner other than the manner described in
subsection (a) immediately above.
10. GENERAL.
(a) Time is of the essence with respect to this Note and each Payment
Date. Except as expressly set forth in this Note, or in a written waiver that
may be granted by the Holder, there are no grace periods and no extensions of
time for payment with respect to this Note, and no grace periods or extensions
shall be implied.
- 4 -
<PAGE>
(b) This Note shall be interpreted and enforced in accordance with the
laws of the Commonwealth of Virginia, without regard to any choice of law
provisions or principles thereof to the contrary.
(c) All provisions in this Note are severable and each valid and
enforceable provision shall remain in full force and effect, regardless of any
official or formal determination that declares certain provisions of this Note
to be invalid or unenforceable.
(d) Captions and headings are used in this Note for convenience only
and shall not affect the interpretation of this Note. Terms such as "hereof,"
"hereby," "hereto," "herein" and "hereunder" shall be deemed to refer to this
Note as a whole, rather than to any particular provision of this Note.
(e) All terms and conditions of this Note shall be binding upon, and
enforceable against, the Holder and the Maker, and all of their respective
assignees and successors in title or interest.
APPLE SUITES MANAGEMENT, INC.,
a Virginia corporation
By: /s/ Glade M. Knight
-----------------------------
Glade M. Knight, President
- 5 -
EXHIBIT 24
[LETTERHEAD]
Consent of Independent Auditors'
The Board of Directors
Apple Suites, Inc.
Richmond, Virginia
We consent to the use of our report dated November 7, 1999 with respect
to the balance sheets of the Homewood Suites Hotel - Jackson as of December 31,
1998 and 1997 and the related statements of income, shareholders' equity and
cash flows for the years then ended, for inclusion in a form 8K filing with the
Securities and Exchange Commission by Apple Suites, Inc.
/s/ L. P. Martin & Co., P.C.
Richmond, Virginia
January 4, 2000
