<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
MARK ONE
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD from TO
----------------- -------------------
FOR THE PERIOD ENDED JUNE 30, 1996 COMMISSION FILE NUMBER: 1-8303
-------------------------
THE HALLWOOD GROUP INCORPORATED
(Exact name of registrant as specified in its charter)
-------------------------
DELAWARE 51-0261339
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3710 RAWLINS, SUITE 1500
DALLAS, TEXAS 75219
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 528-5588
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
1,566,218 shares of Common Stock, $.10 par value per share,
were outstanding at July 31, 1996, including 267,709 shares owned by the
Company's Hallwood Energy Corporation subsidiary.
================================================================================
<PAGE> 2
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM NO. PART I - FINANCIAL INFORMATION PAGE
- -------- ------------------------------ ----
<S> <C> <C>
1 Financial Statements (Unaudited):
Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . 3-4
Consolidated Statements of Operations for the
Six Months Ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . 5-6
Consolidated Statements of Operations for the
Three Months Ended June 30, 1996 and 1995 . . . . . . . . . . . . . . 7-8
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . 9
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . 10-17
2 Managements's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . 18-23
PART II - OTHER INFORMATION
---------------------------
1 thru 6 Exhibits, Reports on Form 8-K and Signature Page . . . . . . . . . . . . 24-93
</TABLE>
Page 2
<PAGE> 3
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
--------- -----------
<S> <C> <C>
ASSET MANAGEMENT
REAL ESTATE
Investments in HRP . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,176 $ 9,406
Receivables and other assets . . . . . . . . . . . . . . . . . . . . . 289 430
Mortgage loans, net . . . . . . . . . . . . . . . . . . . . . . . . . 67 59
Properties, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 25
--------- ---------
8,597 9,920
ENERGY
Oil and gas properties, net . . . . . . . . . . . . . . . . . . . . . 8,757 9,839
Current assets of HEP . . . . . . . . . . . . . . . . . . . . . . . . 2,816 2,236
Noncurrent assets of HEP . . . . . . . . . . . . . . . . . . . . . . . 1,549 1,407
Receivables and other assets . . . . . . . . . . . . . . . . . . . . . 1,210 1,122
--------- ---------
14,332 14,604
--------- ---------
Total asset management assets . . . . . . . . . . . . . . . . . . . 22,929 24,524
OPERATING SUBSIDIARIES
TEXTILE PRODUCTS
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,526 13,735
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,999 10,938
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . 8,611 8,709
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,009 1,092
--------- ---------
40,145 34,474
HOTELS
Properties, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,629 10,498
Receivables and other assets . . . . . . . . . . . . . . . . . . . . . 2,303 2,195
--------- ---------
18,932 12,693
--------- ---------
Total operating subsidiaries assets . . . . . . . . . . . . . . . . 59,077 47,167
ASSOCIATED COMPANY
Investment in ShowBiz. . . . . . . . . . . . . . . . . . . . . . . . . 16,248 16,490
OTHER
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . 7,609 3,339
Deferred tax asset, net . . . . . . . . . . . . . . . . . . . . . . . 5,771 5,929
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,152 688
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 96
--------- ---------
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . 14,636 10,052
--------- ---------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 112,890 $ 98,233
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3
<PAGE> 4
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---------- -----------
<S> <C> <C>
ASSET MANAGEMENT
REAL ESTATE
Loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 662 $ 1,037
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . 123 240
---------- --------
785 1,277
ENERGY
Long-term obligations of HEP . . . . . . . . . . . . . . . . . . . . . 5,312 5,366
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . 3,362 3,293
Current liabilities of HEP . . . . . . . . . . . . . . . . . . . . . . 2,013 2,857
Loan payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 975 1,125
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . 150 106
---------- --------
11,812 12,747
---------- --------
Total asset management liabilities . . . . . . . . . . . . . . . . 12,597 14,024
OPERATING SUBSIDIARIES
TEXTILE PRODUCTS
Loan payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,093 8,300
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . 9,411 6,586
---------- --------
19,504 14,886
HOTELS
Loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,009 5,432
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . 1,778 2,238
---------- --------
13,787 7,670
---------- --------
Total operating subsidiaries liabilities . . . . . . . . . . . . . 33,291 22,556
ASSOCIATED COMPANY
Loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,000 9,000
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . 17 63
---------- --------
Total associated company liabilities . . . . . . . . . . . . . . . 11,017 9,063
OTHER
7% Collateralized Senior Subordinated Debentures . . . . . . . . . . . 25,184 25,469
13.5% Subordinated Debentures . . . . . . . . . . . . . . . . . . . . 22,855 22,855
Interest and other accrued expenses . . . . . . . . . . . . . . . . . 4.635 3,657
---------- --------
Total other liabilities . . . . . . . . . . . . . . . . . . . . . . 52,674 51,981
---------- --------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . 109,579 97,624
REDEEMABLE PREFERRED STOCK
Series B, $.10 par value; 250,000 shares issued and outstanding;
stated at redemption value . . . . . . . . . . . . . . . . . . . . 1,000 1,000
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.10 par value; 250,000 shares issued and outstanding -- --
Common stock, $.10 par value; issued 1,597,204 shares at both dates;
outstanding 1,322,668 and 1,326,635 shares, respectively . . . . . 160 160
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 57,263 57,210
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . (48,259) (50,963)
Treasury stock, 274,536 and 270,569 shares, respectively, at cost . . (6,853) (6,798)
---------- --------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) . . . . . . . . . . . . . . . 2,311 (391)
---------- --------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 112,890 $ 98,233
========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4
<PAGE> 5
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1996 1995
--------- ---------
<S> <C> <C>
ASSET MANAGEMENT
REAL ESTATE
Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,092 $ 2,093
Loss from investments in HRP . . . . . . . . . . . . . . . . . . . . . . (949) (75)
Interest and discounts from mortgage loans . . . . . . . . . . . . . . . 3 74
Rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 355
--------- ---------
1,146 2,447
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . 651 649
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 336 486
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 314
Provision for losses (recovery) . . . . . . . . . . . . . . . . . . . . (22) (6)
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 8
--------- ---------
1,001 1,451
--------- ---------
Income from real estate operations . . . . . . . . . . . . . . . . . 145 996
ENERGY
Oil and gas revenues . . . . . . . . . . . . . . . . . . . . . . . . . . 3,584 2,527
Other income (expense) (including intercompany income of $57 in 1995) . 64 (81)
--------- ---------
3,648 2,446
Depreciation, depletion, amortization and impairment . . . . . . . . . . 855 1,345
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 732 642
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . 434 500
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254 204
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 228 (51)
--------- ---------
2,503 2,640
--------- ---------
Income (loss) from energy operations . . . . . . . . . . . . . . . . 1,145 (194)
--------- ---------
Income from asset management operations . . . . . . . . . . . . . . . 1,290 802
OPERATING SUBSIDIARIES
TEXTILE PRODUCTS
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,087 45,128
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,354 39,936
Administrative and selling expenses . . . . . . . . . . . . . . . . . . 4,279 4,040
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322 459
--------- ---------
38,955 44,435
--------- ---------
Income from textile products operations . . . . . . . . . . . . . . . 1,132 693
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5
<PAGE> 6
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1996 1995
--------- ---------
<S> <C> <C>
OPERATING SUBSIDIARIES (CONTINUED)
HOTELS
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,061 $ 11,256
Gain from sale of hotel and management contracts . . . . . . . . . . . . -- 2,396
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 125
--------- ---------
11,061 13,777
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,949 9,393
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 1,175 1,165
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423 335
--------- ---------
10,547 10,893
--------- ---------
Income from hotel operations . . . . . . . . . . . . . . . . . . . . 514 2,884
--------- ---------
Income from operating subsidiaries . . . . . . . . . . . . . . . . . 1,646 3,577
ASSOCIATED COMPANY
Income from investment in ShowBiz . . . . . . . . . . . . . . . . . . . 3,203 305
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340 341
--------- ---------
Income (loss) from associated company . . . . . . . . . . . . . . . . 2,863 (36)
OTHER
Interest on short-term investments and other income . . . . . . . . . . 231 190
Fee income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212 212
--------- ---------
443 402
Interest (including intercompany expense of $57 in 1995) . . . . . . . . 2,051 2,132
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . 1,066 980
--------- ---------
3,117 3,112
--------- ---------
Other loss, net . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,674) (2,710)
--------- ---------
Income before income taxes and extraordinary gain . . . . . . . . . . . 3,125 1,633
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421 258
--------- ---------
Income before extraordinary gain . . . . . . . . . . . . . . . . . . . . 2,704 1,375
Extraordinary gain from extinguishment of debt . . . . . . . . . . . . . -- 144
--------- ---------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,704 $ 1,519
========= =========
PER COMMON SHARE (PRIMARY)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.04 $ 1.11
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 6
<PAGE> 7
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
------------------------
1996 1995
--------- ---------
<S> <C> <C>
ASSET MANAGEMENT
REAL ESTATE
Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,084 $ 1,236
Loss from investments in HRP . . . . . . . . . . . . . . . . . . . . . (455) (51)
Interest and discounts from mortgage loans . . . . . . . . . . . . . . 2 31
Rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 174
--------- ---------
631 1,390
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . 324 336
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 168 243
Provision for losses (recovery) . . . . . . . . . . . . . . . . . . . (22) 1
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 168
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 3 7
--------- ---------
486 755
--------- ---------
Income from real estate operations . . . . . . . . . . . . . . . . 145 635
ENERGY
Oil and gas revenues . . . . . . . . . . . . . . . . . . . . . . . . . 1,730 1,229
Other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . 36 (147)
--------- ---------
1,766 1,082
Depreciation, depletion, amortization and impairment . . . . . . . . . 386 463
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 350 303
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . 187 248
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . 113 (14)
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 133
--------- ---------
1,149 1,133
--------- ---------
Income (loss) from energy operations . . . . . . . . . . . . . . . 617 (51)
--------- ---------
Income from asset management operations . . . . . . . . . . . . . . 762 584
OPERATING SUBSIDIARIES
TEXTILE PRODUCTS
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,917 24,350
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,752 21,530
Administrative and selling expenses . . . . . . . . . . . . . . . . . 2,169 2,091
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 254
--------- ---------
21,087 23,875
--------- ---------
Income from textile products operations . . . . . . . . . . . . . . 830 475
</TABLE>
See accompanying notes to consolidated financial statements.
Page 7
<PAGE> 8
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
------------------------
1996 1995
--------- ---------
<S> <C> <C>
OPERATING SUBSIDIARIES (CONTINUED)
HOTELS
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,491 $ 5,462
Gain from sale of management contracts . . . . . . . . . . . . . . . . -- 232
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 73
--------- ---------
5,491 5,767
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 4,398 4,558
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 612 536
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285 147
--------- ---------
5,295 5,241
--------- ---------
Income from hotel operations . . . . . . . . . . . . . . . . . . . 196 526
Income from operating subsidiaries . . . . . . . . . . . . . . . . 1,026 1,001
ASSOCIATED COMPANY
Income (loss) from investment in ShowBiz . . . . . . . . . . . . . . . 2,395 (120)
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 174
--------- ---------
Income (loss) from associated company . . . . . . . . . . . . . . . 2,221 (294)
OTHER
Interest on short-term investments and other income . . . . . . . . . 157 116
Fee income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 106
--------- ---------
263 222
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,025 1,066
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . 572 429
--------- ---------
1,597 1,495
--------- ---------
Other loss, net . . . . . . . . . . . . . . . . . . . . . . . . . . (1,334) (1,273)
--------- ---------
Income before income taxes and extraordinary gain . . . . . . . . . . 2,675 18
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279 76
--------- ---------
Income (loss) before extraordinary gain . . . . . . . . . . . . . . . 2,396 (58)
Extraordinary gain from extinguishment of debt . . . . . . . . . . . . -- 144
--------- ---------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,396 $ 86
========= =========
PER COMMON SHARE (PRIMARY)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.81 $ 0.06
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 8
<PAGE> 9
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1996 1995
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,704 $ 1,519
Adjustments to reconcile net income to net cash (used in) operating activities:
Depreciation, depletion, amortization and impairment . . . . . . . . . . . . . . . . 2,945 3,526
Undistributed income from energy affiliate . . . . . . . . . . . . . . . . . . . . . (2,397) (1,325)
Gain from sale of investment in ShowBiz . . . . . . . . . . . . . . . . . . . . . . (2,040) --
Net change in accrued interest on 13.5% Debentures . . . . . . . . . . . . . . . . . 1,538 1,533
Distributions from energy affiliate . . . . . . . . . . . . . . . . . . . . . . . . 1,355 1,554
Amortization of deferred gain from debenture exchange . . . . . . . . . . . . . . . (285) (249)
Equity in net (income) of associated company . . . . . . . . . . . . . . . . . . . . (1,163) (305)
Equity in net loss of real estate affiliate . . . . . . . . . . . . . . . . . . . . . 949 75
Net change in deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . 158 37
Increase in mortgage loans from sale of real estate . . . . . . . . . . . . . . . . (10) (18)
Proceeds from collections of mortgage loans . . . . . . . . . . . . . . . . . . . . 2 273
Gain from sale of hotel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (2,164)
Mortgage loans assigned to plaintiff in litigation settlement . . . . . . . . . . . -- 592
Gain from extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . -- (144)
Amortization of mortgage loan discounts . . . . . . . . . . . . . . . . . . . . . . -- (10)
Net change in textile products assets and liabilities . . . . . . . . . . . . . . . (2,971) (4,417)
Net change in other assets and liabilities . . . . . . . . . . . . . . . . . . . . . (1,618) (2,538)
Net change in energy assets and liabilities . . . . . . . . . . . . . . . . . . . . (65) 831
--------- --------
Net cash (used in) operating activities . . . . . . . . . . . . . . . . . . . . . (898) (1,230)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of fee interest in hotel . . . . . . . . . . . . . . . . . . . . . . . . . (6,550) --
Proceeds from sale of investment in ShowBiz . . . . . . . . . . . . . . . . . . . . . . 3,498 --
Capital expenditures for hotels and real estate . . . . . . . . . . . . . . . . . . . . (793) (213)
Investments in textile products property and equipment . . . . . . . . . . . . . . . . (455) (701)
Investments in energy property and equipment . . . . . . . . . . . . . . . . . . . . . (101) (19)
Investment in affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (55) (2,108)
Net change in restricted cash for investing activities . . . . . . . . . . . . . . . . (8) (5)
Proceeds from sale of hotel assets . . . . . . . . . . . . . . . . . . . . . . . . . . -- 12,888
--------- --------
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . (4,464) 9,842
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank borrowings and loans payable . . . . . . . . . . . . . . . . . . . . 10,700 4,030
Repayment of bank borrowings and loans payable . . . . . . . . . . . . . . . . . . . . (855) (6,881)
Purchase of capital stock by energy subsidiary for treasury . . . . . . . . . . . . . . (158) (1,042)
Purchase of common stock for treasury . . . . . . . . . . . . . . . . . . . . . . . . . (55) (314)
Net change in restricted cash for financing activities . . . . . . . . . . . . . . . . -- 724
Repurchase of 7% Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (460)
Payment of dividends to minority stockholders of energy subsidiary . . . . . . . . . . -- (268)
--------- --------
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . 9,632 (4,211)
--------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . 4,270 4,401
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . 3,339 3,295
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,609 $ 7,696
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 9
<PAGE> 10
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the
information and disclosures required by generally accepted accounting
principles, although, in the opinion of management, all adjustments
considered necessary for a fair presentation have been included. These
financial statements should be read in conjunction with the audited
consolidated financial statements and related disclosures thereto included
in Form 10-K for the fiscal year ended July 31, 1995 and the unaudited
consolidated financial statements and related disclosures in the transition
Form 10-Q for the five month period ended December 31, 1995.
In October 1995 the Company announced its intention to change its
fiscal year end from July 31 to December 31, effective December 31, 1995.
This Form 10-Q contains comparative information for the quarter and six
months ended June 30, 1995 to conform with the Company's new reporting
requirements. The Company was not required to file a Form 10-K for the
period ended December 31, 1995, but will report audited accounts for the
five month period then ended in the next required Form 10-K, which will
include the period beginning August 1, 1995 and ending December 31, 1996.
Share and per share amounts have been adjusted for the one-for-four reverse
stock split effected on June 28, 1995.
Accounting Policies. The preparation of the financial statements for
the Company in conformity with generally accepted principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from these estimates.
During 1996, the Company adopted Statement of Financial Accounting
Standards No. 121-Accounting for the Impairment of Long Lived Assets and
for Long Lived Assets to be Disposed Of ("SFAS No. 121"). Accordingly, the
Company's management routinely reviews its investments for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The adoption of SFAS No. 121
did not have an impact on the consolidated financial statements of the
Company.
Management has elected, as is allowable under Statement of Financial
Accounting Standards No. 123- Account for Stock Based Compensation ("SFAS
No. 123"), to continue to account for its stock based compensation under
its current method. Accordingly, the adoption of SFAS No. 123 had no
impact on the Company's financial statements.
2. INVESTMENTS IN AFFILIATE AND ASSOCIATED COMPANY (DOLLAR AMOUNTS IN
THOUSANDS):
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996 AMOUNT AT INCOME (LOSS) FROM INVESTMENTS
-------------------------- WHICH CARRIED AT FOR THE SIX MONTHS ENDED
COST OR ---------------------- JUNE 30,
BUSINESS SEGMENTS AND NUMBER OF ASCRIBED JUNE 30, DECEMBER 31, ------------------------
DESCRIPTION OF INVESTMENT UNITS OR SHARES VALUE 1996 1995 1996 1995
------------------------- --------------- -------- -------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSET MANAGEMENT
REAL ESTATE AFFILIATE
HALLWOOD REALTY PARTNERS, L.P. (A)
- General partner interest . . . . . . . -- $ 8,650 $ 5,504 $ 5,841 $ (52) $ (55)
- Limited partner units . . . . . . . . 413,040 5,381 2,672 3,565 (897) (20)
-------- -------- --------- -------- -----
Totals . . . . . . . . . . . . . . . $ 14,031 $ 8,176 $ 9,406 $ (949) $ (75)
======== ======== ========= ======== =====
ASSOCIATED COMPANY
SHOWBIZ PIZZA TIME, INC. (B)
- Common stock . . . . . . . . . . . . . 2,451,289 $ 4,981 $ 16,248 $ 16,490 $ 1,163 $ 305
- Gain on sale of shares . . . . . . . . -- -- -- 2,040 --
-------- -------- --------- -------- -----
Totals . . . . . . . . . . . . . . . $ 4,981 $ 16,248 $ 16,490 $ 3,203 $ 305
======== ======== ========= ======== =====
</TABLE>
Page 10
<PAGE> 11
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
(A) At June 30, 1996, Hallwood Realty Corporation ("HRC"), a wholly
owned subsidiary of the Company, owned a 1% general partner
interest and the Company owned a 25% limited partner interest in
its Hallwood Realty Partners, L.P. ("HRP") affiliate.
The carrying value of the Company's investment in the general
partner interest of HRP includes the value of intangible rights to
provide asset management and property management services.
Beginning November 1, 1993, the Company commenced amortization of
that portion of the general partner interest ascribed to the
management rights, and for the six months ended June 30, 1996 and
1995 such amortization was $336,000, respectively.
Due to recording the pro rata share of losses reported by HRP as
prescribed by equity accounting, the Company's carrying value of
the 89,269 limited partner units acquired prior to March 1995 had
been reduced to zero; therefore, the Company no longer records its
pro rata share of HRP's losses with respect to such units.
Unrecognized losses, which have occurred since the carrying value
of the 89,269 units was reduced to zero, must be recovered before
the Company would be able to recognize income on such units in the
future. As further discussed in Note 4, the Company has pledged
these 89,269 limited partner units to collateralize a promissory
note, due March 1998, in the original principal amount of
$500,000.
Subsequent to March 1995, the Company has acquired 323,771
additional HRP limited partner units for $4,476,000. The Company
recorded its pro rata share of HRP's losses relating to such
units, which amounted to $897,000 and $20,000 for the six months
ended June 30, 1996 and 1995, respectively.
(B) The Company accounts for its investment in ShowBiz Pizza Time,
Inc. ("ShowBiz") on the equity method of accounting. The Company
also records its pro rata share of various stockholders' equity
transactions. The financial impact of ShowBiz's shareholders'
equity transactions resulted in a non-cash increase in the
carrying value of the Company's investment in ShowBiz and a
corresponding increase in additional paid-in capital in the amount
of $53,000 for the six months ended June 30, 1996.
On May 22, 1996, ShowBiz completed a three for two stock split in
the form of a 50% dividend to holders of record as of May 1, 1996.
The Company received 842,096 additional shares of ShowBiz in
connection with the stock split. All references to the number of
ShowBiz shares have been restated for the effect of this stock
split.
During the quarter ended June 30, 1996, the Company sold 225,000
shares of ShowBiz for aggregate proceeds of $3,498,000 (average
price of $15.55 per share). The net gain from the various sales
was $2,040,000. On July 1, 1996, the Company sold an additional
37,500 shares of ShowBiz for aggregate proceeds of $640,000
(average price of $17.07 per share).
At June 30, 1996, the Company owned 13% of ShowBiz, all of which
is pledged to secure certain loans payable discussed in Note 4.
Page 11
<PAGE> 12
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
The quoted market price per unit/share and the Company's carrying
value per unit/share of the limited partner units of HRP and the common
shares of ShowBiz at June 30, 1996 were:
<TABLE>
<CAPTION>
AMOUNT PER SHARE
---------------------
SECURITY DESCRIPTION MARKET CARRYING
AND (QUOTRON SYMBOL) PRICE VALUE
-------------------- ------ --------
<S> <C> <C>
HRP limited partner units (HRY) . . . . . . . . . . . . $21.75 $6.47
ShowBiz common shares (SHBZ) . . . . . . . . . . . . . . 15.75 6.63
</TABLE>
The general partner interest in HRP is not publicly traded.
3. LITIGATION, CONTINGENCIES AND COMMITMENTS
Reference is made to Note 19 to the consolidated financial statements
contained in Form 10-K for the fiscal year ended July 31, 1995 and the
transition Form 10-Q for the five month period ended December 31, 1995.
Settlement of Claim by the Securities and Exchange Commission. On
July 22, 1996, the Company announced that it agreed to a settlement of a
claim by the Securities and Exchange Commission ("SEC") arising from the
sale of a small portion of its holdings in the stock of ShowBiz during a
four-day period in June 1993. These and other similar sales were made by
the Company pursuant to a pre-planned, long-term selling program begun in
December 1992. The SEC asserted that some, but not all, of the Company's
June 1993 sales were improper because, before the sales program was
completed, the Company is alleged to have received non-public information
about ShowBiz. In connection with the settlement, the Company agreed to
contribute approximately $953,000, representing the loss that the SEC
alleged the Company avoided by selling during the four-day period, plus
interest of $240,000. This money will go into a fund for the benefit of
those who bought ShowBiz stock from the Company during the four-day period.
The Company has also agreed to be subject to an injunction against any
future violations of certain federal securities laws. In addition, the SEC
alleged that Anthony J. Gumbiner, Chairman of the Board and Chief Executive
Officer of the Company, failed to take appropriate action to discontinue
the Company's sales of the ShowBiz shares during the four days in question.
Mr. Gumbiner did not directly conduct the sales, nor did he sell any shares
for his own account or for the account of any trust for which he has the
power to designate the trustee. Although the sales were made solely by the
Company, the SEC assessed a civil penalty of $477,000, against Mr.
Gumbiner, as a "control person" for the Company. Mr. Gumbiner, however, is
not subject to any separate injunction concerning his future personal
activities.
As provided in the settlement, neither the Company nor Mr. Gumbiner
admitted or denied the allegations made by the SEC, and both entered into
the settlement to avoid the extraordinary time and expense that would be
involved in protracted litigation with the government. The Company
believes that the SEC's legal theories in any such litigation would have
been novel, but feels that this settlement is in its best interests and
fair to the shareholders who were affected by the Company's sales.
As the settlement had been anticipated and estimated amounts
previously accrued, the Company's contribution, including interest, did not
result in an additional charge against operations in any period included
herein. In approving the terms of the settlement, the Board of Directors
of the Company also authorized the Company to loan Mr. Gumbiner the amount
needed to satisfy his personal assessment. Significant terms of the
promissory note from Mr. Gumbiner include: (i) principal amount of
$477,000; (ii) interest rate of prime plus 0.75%; and (iii) quarterly
principal and interest payments of $31,250.
Page 12
<PAGE> 13
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
4. LOANS PAYABLE
Loans payable at the balance sheet dates are detailed below by business
segment (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
<S> <C> <C>
Real Estate
Promissory note, 8%, due March 1998 . . . . . . . . . . . $ 600 $ 600
Promissory note, 7.5%, repaid in July 1996 . . . . . . . . 62 437
-------- --------
662 1,037
Energy
Line of credit, prime + 2%, due September 1999 . . . . . . 975 1,125
Textile Products
Revolving credit facility, prime + .5%, due August 1997 . 10,000 8,100
Equipment loan, 10%, due December 1996 . . . . . . . . . . 93 200
-------- --------
10,093 8,300
Hotels
Term loan, prime + 3.5%, due May 2001 . . . . . . . . . . 6,792 --
Term loan, 10%, due May 2001 . . . . . . . . . . . . . . . 5,051 5,099
Non-interest bearing obligation, due March 1997 . . . . . 166 333
-------- --------
12,009 5,432
Associated Company
Line of credit, prime + .75%, due April 1997 . . . . . . . 7,000 5,000
Promissory note, 5%, due March 1997 . . . . . . . . . . . 4,000 4,000
-------- --------
11,000 9,000
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,739 $ 24,894
======== ========
</TABLE>
Further information regarding loans payable is provided below:
Real Estate
Promissory note. In connection with the settlement of an obligation
related to the Company's Integra Hotels, Inc. subsidiary, the Company
issued a four-year, $500,000, promissory note in March 1994. The note is
secured by a pledge of 89,269 HRP limited partner units. The settlement
agreement also provided that the pledgee has the right to receive an
additional payment in an amount equal to 25% of the increase in the value
of the HRP units over the base amount of $11.25 per unit, but in no event
more than an additional $500,000 (the "Participation Amount"). As the HRP
per unit price was $21.75 at June 30, 1996, the Company has increased the
promissory note to $600,000 for this Participation Amount by a $100,000
charge to interest expense in December 1995.
Promissory note. The Company issued a promissory note in the amount
of $1,500,000 to the agent for plaintiffs in the litigation styled Equitec
Roll-up Litigation, discussed in Note 19 to the Company's Form 10-K for
the fiscal year ended July 31, 1995. Monthly payments include $62,500 of
principal amortization. The note is collateralized by 187,500 shares of
common stock of Hallwood Energy Corporation ("HEC"). The outstanding
balance at June 30, 1996 was $63,000 and was repaid in July 1996.
Energy
Line of credit. In May 1995, HEC entered into a line of credit
facility with a bank in the maximum commitment amount of $1,500,000.
Interest is paid monthly and principal amortization of $75,000 is paid
Page 13
<PAGE> 14
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
quarterly. The interest rate was 10.25% at June 30, 1996. The facility
limits dividends to $3.50 per share per annum. Availability is limited to
50% of the market value of HEC's pledged HEP units at the date additional
borrowings are made, subject to the maximum of $1,500,000. HEC presently
has no additional borrowing capacity under this facility. The outstanding
balance at June 30, 1996 was $975,000.
Included in the consolidated balance sheets are HEC's share of the
long-term obligations of its affiliated entity, Hallwood Energy Partners,
L.P. ("HEP") in the amount of $5,312,000.
Textile Products
Revolving credit facility. In December 1992, the Company's textile
products subsidiary, Brookwood Companies Incorporated ("Brookwood")
established a revolving line of credit facility with The Chase Manhattan
Bank, N.A. ("Chase") in an amount up to $13,500,000 (the "Brookwood
Revolver"). The Brookwood Revolver is collateralized by accounts
receivable and the industrial machinery and equipment located in Kenyon,
Rhode Island. In September 1994, the Brookwood Revolver was amended to
extend the expiration date to August 1997, reduce the interest to one-half
percent over prime or libor plus 2.25%, permit the repayment of the
Company's $1,000,000 balance of bridge financing and change certain of the
financial covenants. The interest rate and outstanding balance at June 30,
1996 was 7.9% and $10,000,000, respectively. Brookwood had $2,092,000 of
additional borrowing capacity at June 30, 1996.
Equipment loan. In December 1991, Brookwood entered into an equipment
financing arrangement with CIT Group/Equipment Financing, Inc. The loan
matures in December 1996, bears a 10% fixed interest rate and is secured by
certain dyeing and finishing equipment. The outstanding balance at June
30, 1996 was $93,000.
Hotels
Term loan. In May 1996, a newly-formed, wholly-owned special purpose
subsidiary, Brock Suite Greenville, Inc., acquired the fee interest in the
Residence Inn by Marriott hotel in Greenville, South Carolina for
$6,550,000. Prior to the acquisition, the Company held a leasehold
interest in the hotel. The acquisition was financed by a $6,800,000 loan
from Allied Capital Commercial Corporation and Business Mortgage Investors,
Inc. The loan is secured by the hotel and includes the following
significant terms: (i) interest rate of prime plus 3.50% (minimum rate 12%,
maximum rate 17%); (ii) loan payments based upon a 19-year amortization
schedule with a maturity date of May 2001; (iii) loan may be prepaid,
subject to a prepayment premium which declines from 4% to 1% of loan
balance, depending on the prepayment date; and (iv) various financial and
non-financial covenants, including a minimum debt service coverage ratio,
as defined, of 1.25. The outstanding balance at June 30, 1996 was
$6,792,000.
Term loan. In October 1994, the Company entered into a mortgage loan
in the amount of $5,200,000. The loan is secured by the Tulsa, Oklahoma
Residence Inn by Marriott hotel and includes the following significant
terms: (i) fixed interest rate of 10%; (ii) loan payments based upon a
20-year amortization schedule with a call after seven years; (iii)
participation by lender of 15% of net cash flow (as defined) after capital
expenditures and debt service and 15% of residual value at maturity or upon
sale or refinancing; and (iv) maintenance of a 4% capital reserve. The
outstanding balance at June 30, 1996 was $5,051,000.
Non-interest bearing obligation. A $500,000 non-interest bearing
obligation was issued to the former preferred shareholders of Integra in
connection with the Settlement and Supplemental Settlement described in
Note 8 of the Company's 1995 Form 10-K, and is payable in three equal
annual installments in the amount of $166,667. The first two installments
were paid on March 8, 1995 and 1996, respectively, with the remaining
installment due on March 8, 1997. The outstanding balance at June 30, 1996
was $166,666.
Page 14
<PAGE> 15
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
Associated Company
Line of credit. In April 1994, the Company obtained a line of credit
from Merrill Lynch Business Financial Services Inc. ("MLBFS") in the
maximum commitment amount of $6,000,000, the proceeds of which were used to
repay a former margin loan. Significant terms were (i) initial maturity
date - April 25, 1995; (ii) interest rate - prime plus 0.75%; (iii)
collateral - 2,159,047 shares of ShowBiz common stock; and (iv)
availability limited to 50% of the market value of the pledged shares of
ShowBiz. In connection with an extension of the line of credit to April
30, 1996, the maximum commitment amount was reduced to $5,000,000. The
maturity date of the line of credit was further extended to April 30, 1997,
and the maximum commitment amount was increased by $2,000,000 to
$7,000,000. The Company drew down the additional $2,000,000 on June 10,
1996. The interest rate and outstanding balance at June 30, 1996 were
9.00% and $7,000,000, respectively.
Promissory note. The Company issued a $4,000,000 promissory note to
the Integra Unsecured Creditors' Trust in connection with the consummation
of the Integra Plan of Reorganization. Significant terms are (i) maturity
date - March 8, 1997; (ii) interest rate - 5% fixed; (iii) collateral -
517,242 shares of ShowBiz common stock; and (iv) the Trust is entitled to
contingent interest in an amount equal to 100% of the increase in the value
of the ShowBiz shares over the base amount of $16.67 per share. As the
ShowBiz share price was $15.75 at June 30, 1996, the Company did not record
an additional charge for this contingent interest.
5. 7% COLLATERALIZED SENIOR SUBORDINATED DEBENTURES AND 13.5% SUBORDINATED
DEBENTURES
7% Collateralized Senior Subordinated Debentures. On March 1, 1993,
the Company completed an exchange offer whereby $27,481,000 of its 13.5%
Debentures were exchanged for a new issue of 7% Collateralized Senior
Subordinated Debentures due July 31, 2000 (the" 7% Debentures"), and
purchased for cash $14,538,000 of its 13.5% Debentures at 80% of face
value. Interest is payable quarterly in arrears, in cash, and the 7%
Debentures are secured by a pledge of the capital stock of the Brookwood
and Hallwood Hotels, Inc. subsidiaries. The common and preferred stock of
Brookwood are subject to a prior pledge in favor of Chase.
Since 1994, the Company has repurchased 7% Debentures having a
principal value of $4,673,000. These repurchases satisfied the Company's
obligation to retire 10% of the original issue ($2,748,000) prior to March
1996, and partially satisfied the Company's obligation to retire an
additional 15% of the original issue ($4,122,000) prior to March 1998.
13.5% Subordinated Debentures. On May 15, 1989, the Company
distributed to its stockholders $46,318,600 aggregate principal amount of
an original issue (the "1989 Series") of its 13.5% Subordinated Debentures,
due July 31, 2009 (the "13.5% Debentures"). The Company had authorized the
issuance of up to $100,000,000 aggregate principal amount of 13.5%
Debentures. The 13.5% Debentures are subordinate to bank borrowings,
guarantees of the Company and other "Senior Indebtedness" (as defined in
the indenture relating to the 13.5% Debentures).
Interest on the 13.5% Debentures is payable annually, on August 15,
and, at the Company's option, up to two annual interest payments in any
five-year period may be paid in-kind by the issuance of additional 13.5%
Debentures in lieu of cash. Interest due on August 15, 1989 and 1990 was
paid in cash. Interest due on August 15, 1991 was paid in-kind by the
issuance of $6,019,500 additional 13.5% Debentures (the "1991 Series") and
$139,200 of cash in lieu of fractional debentures. Interest due on August
15, 1992 was paid in-kind by the issuance of $6,792,900 additional 13.5%
Debentures (the "1992 Series") and $172,500 of cash in lieu of fractional
debentures. Interest due on August 15, 1993, 1994 and 1995 was paid in
cash.
Page 15
<PAGE> 16
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
Interest due on August 15, 1996 will be paid in-kind by the issuance
of $2,979,000 additional 13.5% Debentures (the "1996 Series") and $99,000
of cash in lieu of fractional debentures. The 1996 Series does not meet
the $5,000,000 minimum listing requirement on a recognized exchange and
therefore will not be listed.
Balance sheet amounts for the 7% Debentures and 13.5% Debentures are
detailed below (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
DESCRIPTION 1996 1995
------------------------------------------ -------- -----------
<S> <C> <C>
7% Debentures (face value) . . . . . . . . . . . . . . . . . $22,808 $22,808
Unrecognized gain from purchase and exchange, net of
$1,844 and $1,559 accumulated amortization, respectively 2,376 2,661
------- -------
Totals . . . . . . . . . . . . . . . . . . . . . . . $25,184 $25,469
======= =======
13.5% Debentures (face value)
1989 Series . . . . . . . . . . . . . . . . . . . . . . . $18,203 $18,203
1991 Series . . . . . . . . . . . . . . . . . . . . . . . 2,292 2,292
1992 Series . . . . . . . . . . . . . . . . . . . . . . . 2,360 2,360
------- -------
Totals . . . . . . . . . . . . . . . . . . . . . . . $22,855 $22,855
======= =======
</TABLE>
6. INCOME TAXES
The following is a summary of the income tax expense (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1996 1995 1996 1995
------- ------- ------- ------
<S> <C> <C> <C> <C>
Federal
Deferred . . . . . . . . . . $ 95 $ -- $158 $ 37
Current . . . . . . . . . . . -- -- 54 --
----- ------ ---- ----
Sub-total . . . . . . . . 95 -- 212 37
State . . . . . . . . . . . . 184 76 209 221
----- ------ ---- ----
Total . . . . . . . . . . $ 279 $ 76 $421 $258
===== ====== ==== ====
</TABLE>
The federal deferred tax expense in 1996 was recorded by the Company's
HEC subsidiary, and the 1995 amount was recorded by the Company. The
federal current tax expense in 1996 is an estimate for alternative minimum
tax payable by the Company.
State tax expense is an estimate based upon taxable income allocated
to those states in which the Company does business, at their respective tax
rates.
The amount of the consolidated deferred tax asset (net of valuation
allowance) was $5,771,000 at June 30, 1996. The deferred tax asset arises
principally from the anticipated utilization of the Company's NOLs and tax
credits from the implementation of various tax planning strategies.
Page 16
<PAGE> 17
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
7. SUPPLEMENTAL DISCLOSURES TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS (IN
THOUSANDS)
The following transactions affected recognized assets or liabilities
but did not result in cash receipts or cash payments:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
DESCRIPTION 1996 1995
----------------------------------------- -------- -------
<S> <C> <C>
Supplemental schedule of noncash investing
and financing activities:
Recording of proportionate share of stockholders'
equity transaction by ShowBiz . . . . . . . . . . . . . . $ 53 $ 142
Mortgage loans assigned to plaintiff in connection
with litigation settlement . . . . . . . . . . . . . . . . -- 592
Supplemental disclosures of cash payments:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . $ 1,998 $ 2,351
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . 151 153
</TABLE>
8. COMMISSION-FREE OFFER TO PURCHASE COMMON STOCK
On June 10, 1996, the Company announced a commission-free offer
(the "Offer") program for stockholders holding 99 or fewer shares of
the Company's common stock as of the record date of June 7, 1996 to
sell their shares to the Company. The Offer allowed eligible
stockholders to sell all, but not less than all, of their shares to
the Company without incurring any brokerage commission. The price
paid by the Company was $14.00 per share, which was higher than the
average of the closing market prices of the shares for the five
trading days immediately preceding the Record Date, as reported by the
Wall Street Journal.
On July 10, 1996 the Offer was extended from its original
termination date of July 12, 1996 to July 23, 1996. As a result the
Company purchased 28,126 shares, or 1.76% of the total outstanding
shares, from 1,590 stockholders at a total cost of $394,000. Such
shares have been added to treasury shares, 3,967 of which, at a cost
of $55,000, are included in the quarter ended June 30, 1996.
Page 17
<PAGE> 18
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company reported net income of $2,396,000 for the second quarter
ended June 30, 1996, compared to net income of $86,000 in the 1995 period.
The six-month net income of $2,704,000, compares to net income of
$1,519,000 in the 1995 period. Total revenue for the 1996 second quarter
was $32,463,000, compared to $32,691,000 in the prior-year period. For the
six months revenue was $59,588,000 compared to $64,505,000 in the
prior-year period.
The prior year quarter and six month results have been restated as a
result of a change in the Company's fiscal year end from July 31 to
December 31, beginning December 31, 1995.
Following is an analysis of the results of operations by asset
management, operating subsidiaries and associated company divisions; and by
the real estate, energy, textile products, hotels and restaurant business
segments within those divisions.
Asset Management. The business segments of the Company's asset
management division consist of real estate and energy.
REAL ESTATE.
Revenue. Fee income of $1,084,000 for the quarter ended June 30, 1996
decreased by $152,000, or 12%, from $1,236,000 in the prior-year period.
Fee income of $2,092,000 for the six months decreased by $1,000 from the
similar period a year ago. The decreases were due to lower leasing fees.
Fee income is principally derived from the Company's asset management,
property management, leasing and construction services provided to its
Hallwood Realty Partners, L.P. affiliate, a real estate master limited
partnership ("HRP").
The equity loss from investments in HRP represents the Company's
recognition of its pro-rata share of the loss as reported by HRP. For the
1996 second quarter, the Company reported a $455,000 loss compared to a
$51,000 loss in the period a year ago. The comparative six month amounts
were losses of $949,000 and $75,000 for the 1996 and 1995 periods,
respectively. The increased losses result from the Company's additional
investment in HRP limited partner units. Since March 1995, the Company has
acquired 323,771 additional limited partner units, pursuant to HRP's
reverse unit split and commission-free, odd-lot buyback programs. The
Company will continue to recognize significant non-cash, equity losses from
its HRP investment, until the book value of the limited partner units is
reduced to zero.
The Company's carrying value of the 89,269 HRP limited partner units
acquired prior to March 1995 had been reduced to zero; therefore, the
Company no longer records its pro rata share of HRP's losses with respect
to such units. Unrecognized losses, which have occurred since the carrying
value of the 89,269 units was reduced to zero, must be recovered before the
Company would be able to recognize income on such units in the future. See
Note 2 to the Company's consolidated financial statements.
Interest and discounts from mortgage loans for the 1996 second quarter
declined to $2,000 from the 1995 amount of $31,000 and for the six months
declined to $3,000 from the 1995 amount of $74,000. The declines were the
result of the sale or assignment of substantially all of the mortgage loan
portfolio in the prior year.
As a result of the December 1995 sale of the United Kingdom
office-retail property, the Company reported no rental income in 1996,
compared to $174,000 in the 1995 second quarter and $355,000 for the six
months in 1995.
Expenses. Administrative expenses changed slightly to $324,000 and
$651,000 in the 1996 second quarter the six month periods, compared to
$336,000 and $649,000 in the comparable year-ago periods.
Page 18
<PAGE> 19
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Depreciation and amortization expense of $168,000 for the 1996 second
quarter and $336,000 for the six month period decreased from $243,000 and
$486,000 in the 1995 periods. The 1995 periods included depreciation
expense of $75,000 and $150,000 for the 1995 three and six month periods,
respectively. Amortization expense of $168,000 for the quarter and
$336,000 for the six months in both the 1996 and 1995 periods relates to
HRC's general partner investment in HRP to the extent allocated to
management rights.
Interest expense decreased to $13,000 from $168,000 in the 1996 second
quarter and decreased to $30,000 from $314,000 in the six month period, due
to the aforementioned sale of the office-retail property and repayment of
the associated loan payable.
Operating expenses and provision for losses (recovery) were immaterial
for the 1996 and 1995 periods.
ENERGY.
Revenue. Following the December 1995 conversion of its HEC preferred
stock investment into common stock and various purchases of its own stock
for treasury, the Company owns 82% of the common stock of HEC. HEC's
general partner interest in Hallwood Energy Partners, L.P. ("HEP") entitles
it to a share of net revenues derived from HEP's properties ranging from 2%
to 25%, and it also holds approximately 6.5% of HEP's limited partner
units. HEC accounts for its ownership of HEP using the proportionate
consolidation method of accounting, whereby HEC records its proportionate
share of HEP's revenue and expenses, current assets, current liabilities,
noncurrent assets, long-term obligations and fixed assets. HEP owns
approximately 46% of its affiliate, Hallwood Consolidated Resources
Corporation, which HEP accounts for under the equity method.
Second quarter 1996 oil and gas revenues of $1,730,000 increased
$501,000, or 41%, compared to $1,229,000 in the year-ago period. For the
six months, the comparison of oil and gas revenues was $3,584,000 in the
current year and $2,527,000 in the year ago period. Oil revenue for the
six months increased $308,000 to $1,345,000, due to an increase in
production to 71,000 barrels from 62,000 barrels, combined with an increase
in the average price per barrel to $18.94 from $16.73. Gas revenue for
the six months increased $749,000 to $2,239,000, primarily as a result of
an increase in the average gas price to $2.41 from $1.69 per mcf, and an
increase in production to 928,000 mcf from 880,000 mcf. The increase in
oil and gas production is primarily due to increased production from
developmental and exploratory drilling projects in Montana, Wyoming and
West Texas, partially offset by normal production declines.
Other income consists primarily of HEC's direct interest income, as
well as HEC's share of HEP's interest income, facilities income from two
gathering systems in New Mexico, pipeline revenue, equity in income (loss)
of affiliates and miscellaneous income or expense. The increases in other
income to $36,000 for the 1996 second quarter from the $147,000 loss in the
1995 period and to $64,000 for the 1996 six month period from the ($81,000)
loss in the 1995 period are due to an increase in HEP's equity in earnings
of affiliate which resulted from higher oil and gas revenues.
Expenses. Depreciation, depletion, amortization and impairment
expenses were $386,000 for the 1996 second quarter and $855,000 for the six
months compared to $463,000 and $1,345,000 in the year-ago periods. The
decreases are primarily the result of an asset impairment reported in the
March 1995 period of $464,000, which represented HEC's pro rata share of
the write-off of HEP's Indonesian operations, combined with lower
capitalized costs in 1996.
Operating expenses increased by $47,000 to $350,000 for the 1996
second quarter from $303,000 in the prior-year quarter and increased
$90,000 to $732,000 for the six months from $642,000 as a result of
increased production taxes and operating expenses in 1996 due to the
production increase described above.
Page 19
<PAGE> 20
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Administrative expenses decreased by $61,000 for the 1996 second
quarter to $187,000 from $248,000 in the 1995 quarter and decreased by
$66,000 to $434,000 for the 1996 six month period from $500,000 due to a
decline in allocated internal overhead.
Minority interest, which represents the interest of other common
shareholders in the net income (loss) of HEC, increased in the current-year
periods, due to higher net income from energy operations, partially offset
by a lower minority interest ownership percentage, resulting from HEC's
repurchase of its own shares from minority shareholders for treasury and
the Company's purchase of additional HEC shares in the October through
December 1995 period.
Interest expense decreased by $20,000 to $113,000 for the 1996 second
quarter compared to $133,000 in 1995 and increased by $50,000 to $254,000
for the 1996 six months compared to $204,000 for the year-ago period,
primarily from HEC's net borrowings under its line of credit.
Operating Subsidiaries. The business segments of the Company's
operating subsidiaries consist of textile products and hotels.
TEXTILE PRODUCTS.
Revenue. Sales decreased $2,433,000 in the 1996 second quarter to
$21,917,000, compared to $24,350,000 in the same quarter a year ago. The
comparative six month sales decreased to $40,087,000 in 1996 from
$45,128,000 in 1995. The decreases in sales are due to weak market
conditions experienced by many of Brookwood's customers. Due to the
uncertain market conditions, these customers have reduced current purchases
and are delaying making some future commitments. However, these decreases
are partially offset by continued growth of distribution businesses.
Expenses. Cost of sales decreased $2,778,000 or 12.9% to $18,752,00
from $21,530,000, compared to the 10.0% decrease in sales for the 1996
second quarter from the comparable prior year quarter. The higher gross
profit margin for the 1996 second quarter (14.4% versus 11.6%) was
principally the result of more efficient operations at the Kenyon dyeing
and finishing plant. The comparable gross profit margins for the six month
periods were 14.3% in 1996 and 11.5% in 1995.
Administrative and selling expenses increased $78,000 in the 1996
second quarter to $2,169,000 from $2,091,000 for the comparable 1995 period
and increased $239,000 for the six month period to $4,279,000 from
$4,040,000 for the comparable 1995 period, due primarily to a $95,000
provision for costs related to management changes at the Kenyon plant in
the first quarter and increased operating expenses associated with growth of
the distribution businesses.
The $88,000 decrease in interest expense to $166,000 for the 1996
second quarter and $137,000 decrease to $322,000 for the six months were
the result of lower average borrowings and interest rates than in the
prior-year periods.
HOTELS
Revenue. Sales of $5,491,000 in the 1996 second quarter increased by
$29,000 from the year-ago amount of $5,462,000. The 1996 six month hotel
revenues of $11,061,000 decreased by $195,000, compared to $11,256,000 for
the 1995 period. The decrease for the six months is attributable to the
January 1995 sale of the Lido Beach Holiday Inn hotel, which had
contributed $362,000 to sales in the 1995 first quarter, partially offset
by increased revenues at the remaining hotels. In January 1995 the Company
sold its fee interest in the Lido Beach Holiday Inn hotel resulting in a
gain of $2,164,000 and in the 1995 second quarter the Company sold two
management contracts which resulted in a gain of $232,000. Management fee
income of $73,000 for the 1995 second quarter and $125,000 for the 1995 six
month period related to managed properties prior to the sale of the
management contracts.
Page 20
<PAGE> 21
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Expenses. Operating expenses of $4,398,000 for the 1996 quarter
decreased by $160,000 from the year-ago amount of $4,558,000. The 1996 six
month hotel operating expenses decreased by $444,000 to $8,949,000,
compared to $9,393,000 for the 1995 period. The decrease for the six
months is primarily attributable to the aforementioned sale of the Lido
Beach Holiday Inn hotel.
Depreciation and amortization expense increased by $76,000 to $612,000
for the 1996 second quarter, reflecting the purchase of the fee interest in
the Residence Inn by Marriott hotel in Greenville, South Carolina and
recent capital expenditures at the remaining properties, partially offset
by the sale of the Lido Beach Holiday Inn hotel. Depreciation and
amortization for the 1996 and 1995 six month periods were $1,175,000 and
$1,165,000, respectively.
Interest expense increased by $138,000 to $285,000 for the quarter
from $188,000 in the 1995 period from $147,000 and increased by $88,000 to
$423,000 for the six month period from $335,000 in 1995, due to the
procurement of the $6,800,000 term loan on the Greenville, South Carolina
hotel, partially offset by the payoff of the term loan secured by The Lido
Beach Holiday Inn hotel.
ASSOCIATED COMPANY
Revenue. The Company records its pro-rata share of ShowBiz results
using the equity accounting method. The Company recorded income of $355,000
from its investment in ShowBiz for the quarter ended June 30, 1996,
compared to a loss of $120,000 in the prior-year period. For the six
months the Company recorded equity income of $1,163,000, compared to income
of $305,000 in 1995. The improvement in ShowBiz results for the 1996
periods are attributable to a 9.4% increase in comparable same store sales
and in improved operating margins. During the quarter ended June 30, 1996
the Company also sold 225,000 shares of ShowBiz for aggregate proceeds of
$3,498,000 (average price of $15.55 per share). The net gain from the
various sales was $2,040,000.
Expenses. Interest expense of $174,000 for the 1996 second quarter
was unchanged from the year-ago quarter. Interest expense of $340,000 for
the 1996 six month period decreased by $1,000 from the 1995 amount of
$341,000.
OTHER
Revenue. Interest on short-term investments and other income
increased by $41,000 to $157,000 for the 1996 second quarter and increased
by $41,000 to $231,000 for the 1996 six month period from the comparable
prior year amounts. Fee income in the 1996 second quarter and six month
periods of $106,000 and $212,000, respectively, were the same as the
prior-year amounts.
Expenses. Interest expense in the amount of $1,025,000 for the 1996
second quarter and $2,051,000 for the six months decreased from the prior
year amounts of $1,066,000 and $2,132,000, respectively. The decreases are
due to the repurchase of 7% Debentures in 1995.
Administrative expenses of $572,000 for the 1996 second quarter and
$1,066,000 for the six months, were increased from the comparable 1995
amount of $429,000 and $980,000, respectively. The increases are primarily
attributable to an increase in legal, accounting and consulting fees.
Income taxes. Income taxes were $279,000 for the 1996 quarter and
$76,000 in the 1995 quarter. The 1996 quarter included a $95,000 deferred
tax charge and $158,000 for the six months. The balance of the expense in
all periods was for state taxes, apart from a provision for estimated
federal alternative minimum tax of $54,000 in the 1996 quarter.
Page 21
<PAGE> 22
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
State tax expense is an estimate based upon taxable income allocated
to those states in which the Company does business at their respective tax
rates.
As of June 30, 1996, the Company had approximately $60,000,000 of tax
net operating loss carryforwards ("NOLs") and temporary differences
(excluding separate return losses of HEC) to reduce future federal income
tax liability. Based upon the Company's expectations and available tax
planning strategies, management has determined that taxable income will
more likely than not be sufficient to utilize approximately $16,000,000 of
the NOLs prior to their ultimate expiration in the year 2010.
Management believes that the Company has certain tax planning
strategies available, which include the potential sale of its ShowBiz
shares, hotel properties and certain other assets, that could be
implemented, if necessary, to supplement income from operations to fully
realize the recorded tax benefits before their expiration. Management has
considered such strategies in reaching its conclusion that, more likely
than not, taxable income will be sufficient to utilize a significant
portion of the NOLs before expiration; however, future levels of operating
income and taxable gains are dependent upon general economic conditions and
other factors beyond the Company's control. Accordingly, no assurance can
be given that sufficient taxable income will be generated for significant
utilization of the NOLs. Although the use of such carryforwards could,
under certain circumstances, be limited, the Company is presently unaware
of the occurrence of any event which would result in the imposition of such
limitations.
As a result of the Company's purchase of approximately 37,000
additional HEC common shares in the October through December 1995 period,
and the December 31, 1995 conversion of 356,000 shares of HEC preferred
stock into 356,000 shares of common stock, as well as various purchases by
HEC of its own stock for treasury, the Company owns 82% of the common stock
of HEC. Beginning January 1, 1996 HEC will be included in the consolidated
income tax returns of the Company. Prior to January 1, 1996, HEC was an
independent entity for tax reporting purposes, although it has been a
consolidated subsidiary for financial reporting purposes since May 1990.
As of June 30, 1996, HEC had estimated net operating loss carryforwards
("NOLs") of $109,000,000, in addition to various other tax credits and
carryforwards. A related valuation allowance was recorded, based upon
HEC's expectations regarding the utilization of such NOLs, to reduce the
value of the reported tax benefit to $342,000. In accordance with federal
tax laws and regulations governing consolidated groups, these NOLs and tax
carryforwards must remain at the subsidiary level.
Extraordinary gain from extinguishment of debt. The extraordinary
gain in the second quarter of 1995 resulted from the early extinguishment
of 7% Debentures at a discount, having a face value of $604,000.
Page 22
<PAGE> 23
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's unrestricted cash and cash equivalents at June 30, 1996
totaled $7,609,000.
Although the Company's ShowBiz shares, having a market value of
approximately $35,838,000 at July 31, 1996 (based upon the closing price on
such date of $14.62 per share), are presently unregistered, and may be
subject to some limitations on sale, management believes there is a ready
market to sell such shares without adversely affecting market price. All
of the Company's 2,451,289 ShowBiz shares are pledged as collateral for
the $7,000,000 line of credit and the $4,000,000 promissory note. The
Company currently has no availability under its line of credit which
matures in April 1997, and the promissory note is due March 1997.
The Company's real estate segment generates funds principally from
its property management activities, without significant additional capital
costs. The majority of its investment in HRP is presently unencumbered.
The Company's energy segment generates funds from operating and
financing activities. Cash flow is subject to fluctuating oil and gas
production and prices. In accordance with the proportionate consolidation
method of accounting, HEC reports its share of the long-term obligations of
its HEP affiliate totaling $5,312,000 at June 30, 1996. HEP's borrowings
are secured by a first lien on approximately 80% in value of HEP's oil and
gas properties. In May 1995, HEC obtained a $1,500,000 line of credit from
a bank and subsequently borrowed $1,200,000, which has been reduced to
$975,000 at June 30, 1996. The line of credit is secured by the
publicly-traded limited partner units it holds in HEP. HEC has no unused
borrowing capacity under its line of credit at June 30, 1996. The line of
credit limits HEC's dividends to $3.50 in each calendar year.
Brookwood maintains a $13,500,000 revolving line of credit facility
with The Chase Manhattan Bank, N.A., which is collateralized by accounts
receivable and equipment. At June 30, 1996, Brookwood had $2,092,000 of
unused borrowing capacity on its line of credit.
The Company's hotel segment generates cash flow from operating five
hotels (one Holiday Inn in Florida, one Embassy Suites and one Residence
Inn in Oklahoma, and one Residence Inn each in Alabama and South Carolina).
The sale of hotel properties may also provide a source of liquidity;
however, sales transactions may be impacted by the inability of prospective
purchasers to obtain equity capital or suitable financing.
The Company hopes to be able to reinvest the proceeds of asset sales
to increase profits and cash flows, and also to retire debentures and /or
equity from time to time through open market purchases or negotiated
transactions.
Page 23
<PAGE> 24
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item
1 Legal Proceedings
Reference is made to Note 3 to the Company's consolidated
financial statements of this Form 10-Q for discussion of
pending litigation matters.
2 Changes in Securities None
3 Defaults upon Senior Securities None
4 Submission of Matters to a Vote of Security Holders None
5 Other Information None
6 Exhibits and Reports on Form 8-K
(a) Exhibits
(i) 10.24 - Loan agreement and related promissory
note, dated May 2, 1996, between Brock
Suite Greenville, Inc. and Allied
Capital Commercial Corporation and
Business Mortgage Investors, Inc. Pages 26-86
10.25 - Promissory note from Anthony J.
Gumbiner, as Maker, in favor of the
Company, dated July 25, 1996. Pages 87-89
10.26 - Letter agreement, dated June 4, 1996,
between the Company and Merrill Lynch
Business Financial Services, Inc.
amending certain terms of the WCMA Note
and Loan Agreement, dated April 19, 1994. Pages 90-91
(ii) 11 - Statement Regarding Computation of Per
Share Earnings Page 92
(iii) 27 - Financial Data Schedule Page 93
(b) Reports on Form 8-K None
Page 24
<PAGE> 25
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
SIGNATURE
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 thereunto duly authorized.
THE HALLWOOD GROUP INCORPORATED
Dated: August 14, 1996 By: /s/ Melvin J. Melle
-------------------------------
Melvin J. Melle, Vice President
(Duly Authorized Officer and
Principal Financial and
Accounting Officer)
Page 25
<PAGE> 26
EXHIBIT INDEX
EXHIBIT
- -------
10.24 Loan Agreement
10.25 Promissory Note
10.26 Letter of Terms
11 Statement Regarding Computation
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.24
LOAN AGREEMENT
BETWEEN
BROCK SUITE GREENVILLE, INC.,
AS BORROWER
AND
ALLIED CAPITAL COMMERCIAL CORPORATION AND
BUSINESS MORTGAGE INVESTORS, INC.,
AS LENDER
_______________________________
$6,800,000 LOAN
_______________________________
DATED MAY 2, 1996
THIS INSTRUMENT CONTAINS INDEMNIFICATION PROVISIONS AND
PROVISIONS LIMITING THE LENDER'S LIABILITY FOR NEGLIGENCE
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 - GENERAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Terms Defined Above . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3 Accounting Terms and Determinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 2 - THE CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.1 Commitment to Lend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.2 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.3 Nature of Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 3 - SECURITY FOR THE OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.1 Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4.1 Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4.2 Power and Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4.3 Binding Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4.4 No Legal Bar or Resultant Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4.5 No Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4.6 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.7 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.8 Taxes and Governmental Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.9 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.10 Casualties and Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.11 Compliance with the Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.12 No Material Misstatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.13 Title to Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.14 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.15 Governmental Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.16 Continuing Accuracy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.17 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.18 Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.19 Side Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.20 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.21 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.22 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.23 Representations Concerning Loan and Property . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.24 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
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<TABLE>
<S> <C>
ARTICLE 5 - AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.1 Financial Statements and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(a) Annual Report of the Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(b) Operating Statements, Financial Statements and Budget Reports of the Property . . . . . . . 12
(c) Tax Returns and Government Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(d) Certificates of No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(e) Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.2 Taxes and Other Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.3 Maintenance of Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.4 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.5 Performance of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.6 Reimbursement of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.7 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.8 Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.9 Accounts and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.10 Right of Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.11 Notice of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.12 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.13 Compliance with Laws and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.14 Environmental Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.15 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.16 Financial Statements for Related Entities . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.17 Reasonable Time and Attention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.18 Use of Proceeds; Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.19 Maintain Copies; Financing Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.20 Existence; Protect the Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.21 Certain Hotel Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 6 - NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 6.1 Debts, Guaranties and Other Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 6.2 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 6.3 Sale of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6.4 Ownership Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6.5 No Change in the Current Business Entity . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6.6 Management Fee Subordinated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6.7 Incur Any Declared Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6.8 Dividends; Dissipation of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6.9 Outside Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 6.10 Inside Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 6.11 Certain Hotel Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 7 - CONDITIONS OF LENDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7.1 Conditions of Lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
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<TABLE>
<S> <C> <C>
(a) Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(b) Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(c) Collateral Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(d) Borrower's Organization Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(e) Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(f) Closing Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(g) Borrower's Counsel Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(h) No Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(i) Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(j) Environmental Engineering Report (Phase I) . . . . . . . . . . . . . . . . . . . . . . . . 25
(k) Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(l) Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(m) Management Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(n) Survey (Current As-Built) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(o) Title Insurance Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(p) Title Insurance Policy; Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(q) Pay-Off Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(r) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(s) Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(t) Franchisor Estoppel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 8 - DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(a) Principal and Interest Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(b) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(c) Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(d) Other Debt to Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(e) Other Debt to Other Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(f) Involuntary Bankruptcy or Receivership Proceedings . . . . . . . . . . . . . . . . . . . . 28
(g) Voluntary Petitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(h) Assignments for Benefit of Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(i) Undischarged Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(j) Attachment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(k) Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(l) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(m) No Assumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(n) Management and Franchise Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.3 Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 9 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 9.2 Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 9.3 Survival of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
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<TABLE>
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Section 9.4 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 9.5 Renewal, Extension or Rearrangement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.6 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.7 Cumulative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.8 Singular and Plural . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.9 Controlling Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.10 Titles of Articles, Sections and Subsections . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.11 Relationship of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.12 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.13 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 9.14 Time of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 9.15 Waiver of Jury Trial; Submission of Jurisdiction . . . . . . . . . . . . . . . . . . . . . 34
Section 9.16 Costs and Fees Related to Enforcement or a Successful Defense. . . . . . . . . . . . . . . 34
Section 9.17 Independent Covenant to Make Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 9.18 Notice of Claim; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 9.19 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 9.20 Disclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE 10 - SPECIAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 10.1 Single Purpose Entity/Separateness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 10.2 Extension of Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
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EXHIBITS
<TABLE>
<S> <C>
Document Exhibit
Legal Description for Property A
Schedule of Environmental Reports 4.14
List of Management Personnel 4.18
Litigation Schedule 4.20
Material Leases 4.21
Debts 6.1
Ownership Interests in Borrower 6.4
</TABLE>
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<PAGE> 7
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement"), is made between BROCK SUITE
GREENVILLE, INC., a Delaware corporation ("Borrower"), and ALLIED CAPITAL
COMMERCIAL CORPORATION and BUSINESS MORTGAGE INVESTORS, INC. (together,
"Lender"), who agree as set forth below.
ARTICLE 1
GENERAL TERMS
Section 1.1 Terms Defined Above. As used in this Agreement, the
terms "Agreement," "Borrower" and "Lender" shall have the meanings indicated
above.
Section 1.2 Certain Definitions. As used in this Agreement, the
following terms shall have the following meanings, unless the context otherwise
requires:
"Affiliate" shall mean (a) any corporation in which Borrower
or any general partner of Borrower (including any member of any
general partner) directly or indirectly owns or controls more than 10%
of the securities issued thereby, (b) any partnership or joint venture
in which Borrower or any general partner of Borrower is a partner or
joint venturer, (c) any trust in which Borrower or any general partner
of Borrower is a trustee or beneficiary, and (d) any entity of any
type which is directly or indirectly controlled by Borrower or any
general partner of Borrower, (e) any general partner in Borrower, or
(f) any employee of Borrower or any of its affiliates, including,
without limitation, the following entities: Brock Suite Hotels,
Inc., Hallwood Realty Partners, L.P., Hallwood Hotels, Inc., Hallwood
Group Incorporated, and Intregra Hotels, Inc.
"Business Day" shall mean a day other than a Saturday, Sunday
or legal holiday for commercial banks in Washington, D.C.
"Closing Date" shall mean the date hereof.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Collateral" shall mean the properties described in the
Collateral Documents as security for the Obligations.
"Collateral Documents" shall mean collectively the documents
required by the Lender to obtain the security interests in the
Collateral, as described in Section 3.1 hereof.
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<PAGE> 8
"Debt" shall mean any and all amounts and/or liabilities owing
from time to time by the Borrower to any Person, including the Lender,
direct or indirect, liquidated or contingent, now existing or
hereafter arising, including without limitation (i) indebtedness for
money borrowed; (ii) unfunded portions of commitments for money to be
borrowed; (iii) the amounts of all standby and commercial letters of
credit and bankers acceptances, matured or unmatured, issued on behalf
of the Borrower; (iv) guaranties of the obligations of any other
Person, whether direct or indirect, whether by agreement to purchase
the indebtedness of any other Person or by agreement for the
furnishing of funds to any other Person through the purchase or lease
of goods, supplies or services (or by way of stock purchase, capital
contribution, advance or loan) for the purpose of paying or
discharging the indebtedness of any other Person, or otherwise; (v)
the present value of all obligations for the payment of rent or hire
of property of any kind (real or personal) under leases or lease
agreements required to be capitalized under generally accepted
accounting principles, and trade payables incurred in the ordinary
course of business or otherwise.
"Default" shall mean the occurrence of any of the events
specified in Article 8 hereof, whether or not any requirement for
notice or lapse of time or other condition precedent has been
satisfied.
"Event of Default" shall mean the occurrence of any of the
events specified in Article 8 hereof, provided that any requirement
for notice or lapse of time or any other condition precedent has been
satisfied.
"Franchise Agreement" shall mean those agreements entered into
by the Brock Suite Hotels, Inc. ("Franchisee") and The Residence Inn
Company, the rights of franchisor now being held by Marriott
International, Inc., including the Franchise Agreement dated January
10, 1985.
"Hotel" shall mean the 96-unit Residence Inn by Marriott, in
Greenville, South Carolina compromising a part of the Property.
"Interest Rate" shall mean the rates set forth in the Note.
"Lien" shall mean any interest in property securing an
obligation owed to, or a claim by, a Person other than the owner of
the property, whether such interest is based on jurisprudence, statute
or contract, and including but not limited to the lien or security
interest arising from a mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt or a lease, consignment
or bailment for security purposes. The term "Lien" shall include
reservations, exceptions, encroachments, easements, servitudes,
usufructs, rights-of-way, covenants, conditions, restrictions, leases
and other title exceptions and encumbrances affecting property. For
the purposes of this Agreement, the Borrower shall be deemed to be the
owner of any property which it has accrued or holds subject to a
conditional sale agreement, financing lease or other arrangement
pursuant to
LOAN AGREEMENT - Page 2
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<PAGE> 9
which title to the property has been retained by or vested in some
other Person for security purposes.
"Loan" shall mean the loan to be made by the Lender to the
Borrower as specified in Section 2.1 hereof.
"Loan Documents" shall mean this Agreement, the Note, the
Collateral Documents, and all other documents concurrently or
hereafter executed and delivered in connection herewith and therewith,
including all amendments, modifications, supplements, and extensions
of or to all such documents.
"Management Agreement" shall mean that certain Management and
Operating Agreement dated as of April 1, 1996 between the Borrower and
Mason Hospitality Services, Inc.
"Mortgage" shall mean the Mortgage, Deed of Trust and Security
Agreement described in Section 3.1 hereof.
"Note" shall mean the promissory note of the Borrower
evidencing the Loan as specified in Section 2.1 hereof.
"Obligations" shall mean any and all amounts and/or
liabilities owing from time to time by the Borrower to the Lender
pursuant to this Agreement, whether in connection with advances made
under the Loan, and whether such amounts or liabilities be liquidated
or unliquidated, now existing or hereafter arising.
"Person" shall mean any individual, corporation, partnership,
joint venture, association, joint stock company, trust, unincorporated
organization, government or any agency or political subdivision
thereof, or any other form of entity.
"Property" shall mean the real property described in EXHIBIT
A and all improvements thereon, including the Hotel.
Section 1.3 Accounting Terms and Determinations. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared in
accordance with generally accepted accounting principles as in effect from time
to time, on a basis consistent (except for changes approved by independent
public accountants for the Borrower) with the most recent financial statements
of the Borrower.
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<PAGE> 10
ARTICLE 2
THE CREDIT
Section 2.1 Commitment to Lend. Subject to and upon the terms
and conditions contained in this Agreement, and relying on the representations
and warranties contained in this Agreement, the Lender agrees to make a loan to
the Borrower in the original aggregate principal amount of SIX MILLION
EIGHT HUNDRED THOUSAND AND NO/100 DOLLARS ($6,800,000.00). The Loan shall be
represented by a promissory note in the original principal amount of
$6,800,000, made by Borrower payable to the order of the Lender, bearing
interest at the Interest Rate and requiring compliance with such other terms as
set forth in the Note.
Section 2.2 Commitment Fee. On or before the Closing Date, the
Borrower shall pay a commitment fee of ONE HUNDRED SEVENTY THOUSAND AND
NO/100 DOLLARS ($170,000.00).
Section 2.3 Nature of Commitment. The Lender's obligation to
make any and all advances on the Loan shall be deemed to be a transaction made
pursuant to a contract to make a loan or extend debt financing or financial
accommodations to the Borrower within the meaning of Sections 365(c)(2) and
365(e)(2)(B) of the Bankruptcy Code of the United States.
ARTICLE 3
SECURITY FOR THE OBLIGATIONS
Section 3.1 Security. The Loan shall be secured by the
following:
(a) A first Mortgage, Deed of Trust and Security Agreement dated
the date hereof on the Property securing the Note.
(b) A first security interest in all of the Borrower's chattel
interests in connection with the Property, including without
limitation all assets of the Property and all other furniture,
fixtures, machinery, equipment, inventories, accounts,
contract rights, general intangibles, licenses, chattel paper,
intellectual property, goodwill and other assets, pursuant to
the Mortgage and UCC financing statements.
(c) An assignment of leases and rents securing the Note.
(d) Assignment of Franchise Agreement.
(e) A Subordination of Management Agreement.
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<PAGE> 11
(f) Such other documents, undertakings and security interests as
may be agreed to by the parties in connection with the Loan.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement, the
Borrower represents and warrants to the Lender (which representations and
warranties shall survive the extensions of credit under this Agreement) as set
forth below.
Section 4.1 Existence.
(a) The Borrower is a corporation duly organized, legally existing
and in good standing under the laws of Delaware, and the
Borrower is duly qualified to do business in the State of
South Carolina and in all other jurisdictions in which the
nature of its business or location of its properties requires
such qualification. The Borrower is exclusively engaged in
the business of owning and operating the Property. The
Borrower has obtained all permits, licenses and other
governmental permits necessary to conduct the business it
transacts.
(b) The chief executive office of the Borrower is located at 3710
Rawlins, Suite 1500, Dallas, Texas 75219 The federal taxpayer
identification number for the Borrower is 75-2644190.
Section 4.2 Power and Authorization. The Borrower is duly
authorized and empowered to execute, deliver and perform this Agreement, the
Note and the other Loan Documents executed by it. All action on the part of
the Borrower requisite for the due creation and execution of this Agreement,
the Note and the other Loan Documents has been duly and effectively taken.
Section 4.3 Binding Obligations. This Agreement, the Note and
the other Loan Documents constitute valid and binding obligations of the
Borrower enforceable in accordance with their terms (except that enforcement
may be subject to any applicable bankruptcy, insolvency or similar laws
generally affecting the enforcement of creditors' rights).
Section 4.4 No Legal Bar or Resultant Lien. This Agreement, the
Note and the other Loan Documents do not and will not violate any provisions of
the Borrower's articles of incorporation, will not violate any contract,
agreement, law, regulation, order, injunction, judgment, decree or writ to
which the Borrower is subject, and will not result in the creation or
imposition of any Lien upon any property of the Borrower, other than as
contemplated by this Agreement.
Section 4.5 No Consent. The Borrower's execution, delivery and
performance of this Agreement, the Note and the other Loan Documents executed
by it do not require the consent
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<PAGE> 12
or approval of any other Person, including without limitation any regulatory
authority or governmental body of the United States or any state thereof or any
political subdivision of the United States or any state thereof.
Section 4.6 Financial Condition. All financial statements of the
Borrower delivered to Lender are true and correct in all material respects,
fairly and accurately present the financial condition of the Borrower, there
are no contingent liabilities not disclosed thereby which would adversely
affect the financial condition of Borrower and to the extent reviewed by an
independent certified public accounting firm, have been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods covered. Since the close of the period covered by the latest
financial statements delivered to Lender with respect to Borrower, there has
been no material adverse change in the assets, liabilities, or financial
condition of Borrower. No event has occurred (including, without limitation,
any litigation or administrative proceedings) and no condition exists or, to
the knowledge of Borrower, is threatened, which (i) might render Borrower
unable to perform its obligations under this Agreement, the Note or the other
Loan Documents, or (ii) would constitute a Default hereunder, or (iii) might
adversely affect the financial condition of the Borrower or the validity or
priority of the lien of any of the Collateral Documents or (iv) might adversely
affect the business or the property of the Borrower or its ability to carry on
business as now conducted. Neither the Borrower nor any entity in which
it has an ownership interest, (x) is a defendant in any suits or legal action,
(y) has any judgments, garnishments or attachments pending against it or (z)
has ever been adjudicated a bankrupt. All of the materials which the Borrower
has submitted to the Lender constitute a complete and accurate presentation of
all facts material to the Lender's agreement to execute this Agreement.
Section 4.7 Solvency. The Borrower will receive a reasonably
equivalent value in exchange for the obligations of the Borrower under this
Agreement, the Note and the other Loan Documents. The execution and
performance of this Agreement, the Note and the other Loan Documents by the
Borrower (i) are not being made with any intent to hinder, delay or defraud any
entity to which the Borrower is indebted; (ii) will not result in the Borrower
becoming insolvent or having an unreasonably small capital for the business in
which it is engaged; and (iii) will not cause the Borrower to incur debts that
would be beyond the ability of the Borrower to pay as such debts mature. For
the purposes of this Section 4.7, "insolvent" shall mean the following: the
sum of the Borrower's debts is greater than all of the Borrower's property at a
fair valuation. Any property transferred, concealed or removed with intent to
hinder, delay or defraud the Borrower's creditors and property which may be
exempted from the debtor's estate under the Federal Bankruptcy Code shall be
excluded from the assets of the Borrower for purposes of determining
insolvency. The Borrower has never been adjudicated a bankrupt or filed a case
under the Federal Bankruptcy Code or had an order for relief entered against it
under the Federal Bankruptcy Code.
Section 4.8 Taxes and Governmental Charges. The Borrower has
filed all tax returns and reports required to be filed and, except to the
extent that the real estate taxes for the year in which this Agreement is
executed are not yet due and payable, has paid all taxes, assessments, fees and
other governmental charges levied upon it or upon its property or income which
are due
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<PAGE> 13
and payable, including interest and penalties, or has provided adequate
reserves for the payment thereof.
Section 4.9 Defaults. The Borrower is not in default under any
indenture, mortgage, deed of trust, lease, agreement or other instrument to
which the Borrower is a party or by which it is bound. The Borrower is current
on all debts, accounts payable and leases.
Section 4.10 Casualties and Condemnation. Since the date of the
most recent financial statements furnished to the Lender, neither the business
nor the property of the Borrower has been materially and adversely affected as
a result of any fire, explosion, earthquake, flood, drought, windstorm,
accident, strike or other labor disturbance, embargo, requisition or taking of
property or cancellation of contracts, permits or concessions by any domestic
or foreign government or any agency thereof, riot, activities of armed forces
or acts of God or of any public enemy, except as disclosed in writing to the
Lender on or prior to the Closing Date. There are no proceedings pending or,
to the best of Borrower's knowledge, threatened for the partial or total
condemnation of the Property.
Section 4.11 Compliance with the Law. The Borrower (a) is not in
violation of any law, judgment, decree, order, ordinance, or governmental rule
or regulation to which the Borrower or the Property is subject; and (b) has
obtained all licenses, permits, franchises, including, without limitation,
certificates of completion and occupancy permits required for the legal use and
occupancy of the Property for its current use, and any applicable liquor
license or other governmental authorization necessary to the ownership of any
of its property or the conduct of its business (collectively, the "Licenses")
and each such License is in full force and effect; in each case, which
violation or failure could reasonably be anticipated to materially and
adversely affect the business, prospects, profits, property or condition
(financial or otherwise) of the Borrower. The Loan evidenced by the Loan
Documents complies with, or is exempt from, applicable state or federal laws,
regulations and other requirements pertaining to usury and any and all other
requirements of any federal, state or local law.
Section 4.12 No Material Misstatements. No information, exhibit,
proposal or report furnished by the Borrower to the Lender in connection with
this Agreement or in the negotiation of this Agreement and the other Loan
Documents contained any material misstatement of fact or omitted to state a
material fact necessary to make the statement contained therein not misleading.
All information in the correspondence and proposals furnished Lender is correct
and complete and all projections presented are reasonable.
Section 4.13 Title to Collateral. Upon closing the Borrower will
have good and indefeasible title to the Collateral, free of all liens and
encumbrances except those created in favor of the Lender and the exceptions
noted in the title commitment or policy applicable to the Property which have
been expressly accepted by Lender in writing prior to Closing. The Borrower
has not heretofore conveyed or agreed to convey or encumber any Collateral in
any way, except in favor of the Lender or as permitted by this Agreement.
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<PAGE> 14
Section 4.14 Environmental Matters. Except as disclosed in the
environmental report described in EXHIBIT 4.14, to the best knowledge of
Borrower, no friable asbestos, or any substance containing asbestos deemed
hazardous by federal or state regulations on the date of this Agreement, has
been installed in the Property, except as otherwise disclosed to the Lender in
writing prior to the Closing Date. To the best knowledge of Borrower, the
Property and the Borrower are not in violation of or subject to any existing,
pending, or threatened investigation or inquiry by any governmental authority
or to any remedial obligations under any applicable laws pertaining to health
or the environment (hereinafter sometimes collectively called "Applicable
Environmental Laws"), including without limitation the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986 (as amended,
hereinafter called "CERCLA"), the Resource Conservation and Recovery Act of
1976, as amended by the Used Oil Recycling Act of 1980, the Solid Waste
Disposal Act Amendments of 1980, and the Hazardous and Solid Waste Amendments
of 1984 (as amended, hereinafter called "RCRA") and all state and local laws,
rules, and regulations, as amended from time to time and, to the best knowledge
of the Borrower, this representation and warranty would continue to be true and
correct following disclosure to the applicable governmental authorities of all
relevant facts, conditions and circumstances, if any, pertaining to the
Property and known to the Borrower. The Borrower has not obtained and is not
required to obtain any permits, licenses or similar authorizations to
construct, occupy, operate or use any buildings, improvements, fixtures and
equipment forming a part of the Property by reason of any Applicable
Environmental Laws. Except as set forth in the environmental reports described
in EXHIBIT 4.14, to the best of the Borrower's knowledge, no hazardous
substances or solid wastes have been disposed of or otherwise released on or to
the Property in violation of Applicable Environmental Laws. The use which the
Borrower makes and intends to make of the Property will not result in the
disposal or other release of any hazardous substance or solid waste on or to
the Property. The terms "hazardous substance" and "release" as used in this
Agreement shall have the meanings specified in CERCLA, and the terms "solid
waste" and "disposal" (or "disposed") shall have the meanings specified in
RCRA; provided, in the event that the laws of the state in which the Property
is located establish a meaning for "hazardous substance," "release," "solid
waste," or "disposal" which is broader than that specified in either CERCLA or
RCRA, such broader meaning shall apply.
Section 4.15 Governmental Requirements. The Property is in
compliance with all current governmental requirements affecting the Property,
including, without limitation, all current coastal zone protection, zoning and
land use regulations, building codes and all restrictions and requirements
imposed by applicable governmental authorities with respect to the construction
of any improvements on the Property and the contemplated use of the Property.
Section 4.16 Continuing Accuracy. All of the representations and
warranties contained in this Article or elsewhere in this Agreement shall be
true through and until the later of the date on which all obligations of
Borrower under this Agreement, the Note and the other Loan Documents are fully
satisfied or Borrower shall promptly notify Lender of any event which would
render any of said representations and warranties untrue or misleading. The
representations and warranties contained in the Closing Certificate executed by
Borrower (which certificate constitutes
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<PAGE> 15
one of the Loan Documents) are true and correct and Borrower shall observe the
covenants contained therein.
Section 4.17 Construction. The Borrower hereby represents and
warrants to the Lender (i) the anticipated use of the Property does not and
will not violate any restrictive covenant applicable to the Property; (ii) the
Borrower has obtained or will obtain all permits and approvals necessary to
make any renovations, repairs or tenant improvements to the Property from all
applicable governmental authorities; and (iii) with respect to any renovations
at the Property, the final renovation budget reviewed and approved by the
Lender contains a true and accurate estimate of the cost of the renovations and
repairs to the Property which will be made by the Borrower.
Section 4.18 Management. The Borrower has attached as EXHIBIT
4.18 hereto a complete list of all people who will at Closing manage the
Borrower and the Property. During the past ten (10) years neither Borrower
nor any other person involved in management of the Borrower has been arrested
or convicted of any material crime nor have any of them been bankrupt or an
officer or director of a bankrupt company, other than Integra, A Hotel and
Restaurant Company, as described in the Chapter 11 plan of reorganization dated
March 8, 1994, which has been disclosed to Lender.
Section 4.19 Side Agreements. There are no "side agreements,"
either written or oral, with any individual or business whereby the management
of the Borrower has agreed to do anything beyond the requirements of formal
written contracts executed by the Borrower.
Section 4.20 Litigation. Except as set forth in EXHIBIT 4.20, the
Borrower has not been made a party to or threatened by any suits, actions,
claims, investigations by governmental bodies, or legal, administrative or
arbitrational proceedings; the Borrower does not know of any basis or grounds
for any such suit or proceeding; there are no outstanding orders, judgments,
writs, injunctions or decrees or any court, government agency or arbitrational
tribunal against or affecting the Borrower or the Property.
Section 4.21 Leases. The Property is not subject to any leases or
operating agreements other than the leases and the operating agreements, if
any, described in EXHIBIT 4.21, and all such leases and agreements are in full
force and effect. No person has any possessory interest in the Property or
right to occupy the same except under and pursuant to the provisions of the
leases and any such operating agreements.
Section 4.22 Subsidiaries. The Borrower has no subsidiaries,
affiliates, partnerships nor any other commonly controlled or related entities
other than as disclosed in writing to Lender.
Section 4.23 Representations Concerning Loan and Property.
Borrower represents, warrants and covenants as follows:
(a) Borrower has no defense to the payment in full of the
Obligations that arises from applicable local, state or
federal laws, regulations or other requirements.
LOAN AGREEMENT - Page 9
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<PAGE> 16
None of the Loan Documents are subject to any right of
rescission, set-off, abatement, diminution, counterclaim or
defense, including the defense of usury, nor will the
operation of any of the terms of any such Loan Documents, or
the exercise of any right thereunder, render any Loan
Documents unenforceable, in whole or in part, or subject to
any right of rescission, set-off, abatement, diminution,
counterclaim or defense, including the defense of usury, and
no such right of rescission, set-off, abatement, diminution,
counterclaim or defense has been, or will be, asserted with
respect thereto.
(b) The Property is in good repair, good order and good condition
and free and clear of any damage that would affect materially
and adversely the value of the Property as security for the
Obligations and the Property has not been materially damaged
by fire, wind or other casualty or physical condition
(including, without limitation, any soil or geological
condition), which damage has not been fully repaired.
(c) All of the improvements which were included in determining the
appraised value of the Property lie wholly within the
boundaries and building restriction lines of the Property, and
no improvements on adjoining properties encroach upon the
Property, and no easements or other encumbrances upon the
Property encroach upon any of the improvements, so as to
affect the value or marketability of the Property except for
immaterial encroachments which do not adversely affect the
security intended to be provided by the Mortgage or the use,
enjoyment, value or marketability of the Property.
(d) The Property (i) is located on a dedicated, public way or
private way pursuant to an irrevocable easement permitting
ingress and egress, which are adequate in relation to the
premises and location on which the Property is located both
for practical ingress and egress and to satisfy applicable
zoning and/or subdivision laws; (ii) is served by public
utilities and services in the surrounding community, including
police and fire protection, public transportation, refuse
removal, public education, and enforcement of safety codes
which are adequate in relation to the premises and location on
which the Property is located; (iii) is serviced by public
water and sewer systems which are adequate in relation to the
premises and location on which the Property is located; (iv)
has parking and other amenities necessary for the operation of
the business currently conducted thereon which are adequate in
relation to the premises and location on which the Property is
located; (v) is a contiguous parcel and a separate tax parcel,
and there are no delinquent taxes or other outstanding charges
adversely affecting the Property; and (vi) is not relied upon
by, and does not rely upon, any building or improvement not
part of the Property to fulfill any zoning, building code or
other governmental or municipal requirement for structural
support or the furnishing of any essential building systems or
utilities, except to the extent of
LOAN AGREEMENT - Page 10
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<PAGE> 17
any valid and existing reciprocal easement agreements shown in
the title insurance policy insuring the lien of the Mortgage.
(e) No action, omission, misrepresentation, negligence, fraud or
similar occurrence has taken place on the part of any person
that would reasonably be expected to result in the failure or
impairment of full and timely coverage under any insurance
policies providing coverage for the Property.
(f) There are no defaults by Borrower beyond any applicable grace
period under any contract or agreement (other than the
Mortgage and the other Loan Documents) that binds Borrower
and/or the Property, including any management, service,
supply, security, maintenance or similar contracts; and
Borrower has no knowledge of any such default for which notice
has not yet been given; and no such agreement is in effect
with respect to the Property that is not capable of being
terminated by Borrower on less than thirty (30) days notice
except as previously disclosed to Lender by delivery of a
copy of all such agreements.
Section 4.24 Agreements.
(a) The Franchise Agreement pursuant to which Borrower or
Franchisee has the right to operate the Hotel under a name
and/or hotel system controlled by such franchisor, is in full
force and effect and there is no default, breach or violation
existing thereunder by any party thereto and no event has
occurred (other than payments due but not yet delinquent)
that, with the passage of time or the giving of notice, or
both, would constitute a default, breach or violation by any
party thereunder.
(b) The Management Agreement is in full force and effect and there
is no default, breach or violation existing thereunder by any
party thereto and no event has occurred (other than payments
due but not yet delinquent) that, with the passage of time or
the giving of notice, or both, would constitute a default,
breach or violation by any party thereunder.
(c) Neither the execution and delivery of the Loan Documents, the
Borrower's performance thereunder, the recordation of this
Mortgage, nor the exercise of any remedies by Lender other
than foreclosure, will adversely affect Borrower's or
Franchisee's rights under the Franchise Agreement, the
Management Agreement, or any of the Licenses, as applicable.
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<PAGE> 18
ARTICLE 5
AFFIRMATIVE COVENANTS
Unless the Lender's prior written consent to the contrary is obtained,
the Borrower shall at all times comply with the covenants contained in this
Article 5, from the date hereof and for so long as any part of the Obligations
is outstanding.
Section 5.1 Financial Statements and Reports. The Borrower shall
promptly furnish to the Lender such information regarding the business and
affairs and financial condition of the Borrower as the Lender may reasonably
request, and, without limiting the generality of the foregoing, beginning with
this fiscal year, the Borrower will furnish or cause to be furnished to the
Lender:
(a) Annual Report of the Borrower - as soon as available and in
any event within one hundred twenty (120) days after the close
of each fiscal year of the Borrower, the unaudited balance
sheet, statement of income and retained earnings,
reconciliation of capital accounts and the statement of cash
flow of the Borrower, each certified to be true and correct by
Borrower, and a one-page management summary and operating
statement of the Property for such year, all as of the end of
such year (together with, as to each of the foregoing, all
supporting schedules), setting forth in each case in
comparative form the corresponding figures for the preceding
fiscal year, from an accounting firm acceptable to Lender.
All national and regional firms are acceptable to Lender.
(b) Operating Statements, Financial Statements and Budget Reports
of the Property - as soon as available,
(i) but in any event within thirty (30) days after the
end of each month year-to-date financial statements
in accordance with generally accepted accounting
principles (including profit and loss and balance
sheets), together with a one-page management summary
and operating statement of the Property for such
month, certified correct by a duly authorized officer
of the Borrower;
(ii) but in any event within forty-five (45) days after
the end of each fiscal quarter of the Borrower, the
unaudited balance sheet of the Property as at the end
of such quarter, the unaudited statement of income of
the Property for such quarter, the unaudited
statement of reconciliation of capital accounts of
the Property for such quarter and the unaudited
statement of cash flow of the Property for such
quarter and a one-page management summary and
operating statement of the Property for such quarter
(together with, as to each of the foregoing, all
supporting
LOAN AGREEMENT - Page 12
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<PAGE> 19
schedules), setting forth in each case in comparative
form the corresponding figures for the preceding
fiscal quarter, certified correct by a duly
authorized officer of the Borrower; and
(iii) but in any event not later than December 31 of each
year, the annual budget reports for the Property and
in-depth projections for the next twelve (12) months
on the Property along with a five (5) year pro forma
in the same format as the financial statements
prepared and certified correct by Borrower.
(c) Tax Returns and Government Filings - as soon as available but
in any event within thirty (30) days after the timely filing
thereof, copies of all material documents filed with
government agencies which are related to the Property
including the federal income tax return of the Borrower,
including all related schedules, and if an extension is timely
filed, a copy of the extension application. Borrower shall
also furnish within thirty (30) days after filing copies of
all material documents filed with government agencies which
are related to any of the other properties owned by Franchisee
and which represent matters in excess of Three Hundred
Thousand Dollars ($300,000.00).
(d) Certificates of No Default - simultaneously with the
furnishing of the financial statements required by Items (a)
and (b) hereof, certificates of the principal financial
officer of the Borrower, certifying that no Default has
occurred, or if a Default has occurred, specifying the nature
and extent thereof and the steps that the Borrower proposes to
take to cure such Default.
(e) Other Information - promptly upon the request of the Lender,
all regular budgets and such other information regarding the
business and affairs and financial condition of the Borrower
as the Lender may reasonably request.
All such financial statements, reports and certificates referred to above shall
be in such detail as the Lender may reasonably request and shall conform to
generally accepted accounting principles applied on a basis consistent with
those of the financial statements described in Section 4.6 hereof, except only
for such changes in accounting principles or practice with which the
independent certified public accountants concur. Furthermore, in order to
satisfy the guidelines, requirements or directives of any national rating
agency for Certificates (as defined in Section 9.20), Lender may require that
all balance sheets and operating statements be audited, at Borrower's expense,
by independent certified public accountants of recognized standing, selected by
Borrower and approved by Lender (which balance sheets and operating statements
shall be without qualification or exception other than those approved by
Lender). All national and regional firms are acceptable to Lender.
Section 5.2 Taxes and Other Liens. The Borrower will file all
tax returns required by law before the due date thereof (as validly extended)
and pay and discharge promptly when due all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or
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<PAGE> 20
upon any of its property as well as all claims of any kind (including claims
for labor, materials, supplies and rent) which, if unpaid, might become a Lien
upon any of the Collateral; provided, however, the Borrower shall not be
required to pay any such tax, assessment, charge, levy or claim if the amount,
applicability or validity thereof shall currently be contested in good faith by
appropriate proceedings diligently conducted and if the contesting party shall
have set up reserves therefor adequate under generally accepted accounting
principles, unless payment of such tax, assessment, charge, levy or claim is a
condition of the contest thereof. The Borrower shall furnish the Lender with
proof of payment of all taxes, assessments, charges, levies or claims against
the Property not later than the date on which penalties might attach thereto,
or in the event that the Borrower contests any such taxes, assessments,
charges, levies or claims in accordance with this Section, the Borrower shall
furnish Lender with a description of the contested matter and all actions taken
by Borrower in connection with such contest.
Section 5.3 Maintenance of Existence. The Borrower will (i)
maintain its corporate existence; (ii) observe and comply (to the extent
necessary so that any failure will not materially and adversely affect the
business of the Borrower) with all valid laws, statutes, codes, acts,
ordinances, orders, judgments, decrees, injunctions, rules, regulations,
certificates, franchises, permits, licenses, authorizations, directions and
requirements (including without limitation applicable statutes, regulations,
orders and restrictions relating to environmental standards or controls or to
energy regulations) of all federal, state, county, municipal and other
governments, departments, commissions, boards, courts, authorities, officials
and officers, domestic or foreign; (iii) maintain its properties (and any
property leased by or consigned to it or held under title retention or
conditional sales contracts) in generally good and workable condition at all
times and make all repairs, replacements, additions, betterments and
improvements to its properties to the extent necessary so that any failure will
not materially and adversely affect the business of the Borrower or the value
of the Collateral; (iv) continue to conduct its business in the manner
currently conducted; and (v) have directors meetings at least once each year at
the Borrower's business offices (Lender shall be notified of each meeting at
least two (2) weeks in advance, and may elect to attend or monitor via
telephone; the expense of which shall be reimbursed by Borrower).
Section 5.4 Further Assurances. The Borrower will promptly (and
in no event later than thirty (30) days after written notice from the Lender is
received) cure any defects in the creation, execution and delivery of this
Agreement, the Note or the other Loan Documents. The Borrower at its expense
will promptly execute and deliver to the Lender upon request all such other and
further documents, agreements and instruments in compliance with or
accomplishment of the covenants and agreements of the Borrower in this
Agreement, the Note or the other Loan Documents or to further evidence and more
fully describe the Collateral, or to correct any omissions in the other Loan
Documents, or more fully state the security obligations set out herein or in
any of the Collateral Documents, or to perfect, protect or preserve any Liens
created pursuant to any of the Collateral Documents, or to make any recordings,
to file any notices, or obtain any consents, as may be necessary or appropriate
in connection with the transactions contemplated by this Agreement.
Section 5.5 Performance of Obligations. The Borrower will repay
the Loan according to the reading, tenor and effect of the Note and this
Agreement. The Borrower and the
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Lender will do and perform every act required of each of them, as the case may
be, by this Agreement, the Note or the other Loan Documents at the time or
times and in the manner specified; provided, that failure of the Lender to do
and perform any act so required of it shall not excuse the failure by Borrower
to do and perform any act so required of it, including without limitation to
pay the Obligations as they become due.
Section 5.6 Reimbursement of Expenses. The Borrower will pay all
reasonable legal fees and expenses of Lender's counsel, title insurance
premiums, brokerage fees, appraisal fees, travel and other expenses incurred by
the Lender in connection with the preparation of this Agreement, the Note and
the other Loan Documents (including any amendments) and the maintenance of the
Loan. The Borrower will, upon request, promptly reimburse the Lender for all
payments expended, advanced or incurred by the Lender to satisfy any obligation
of the Borrower under this Agreement, or to protect the property or business of
the Borrower or to collect the Obligations, or to enforce the rights of the
Lender under this Agreement, the Note and/or the other Loan Documents, which
amounts will include all court costs, attorneys' fees, fees of auditors and
accountants, and investigation expenses reasonably incurred by the Lender in
connection with any such matters, together with interest at the Interest Rate
set forth in the Note on each such amount from the date that the same is
expended, advanced or incurred by the Lender until the date of reimbursement to
the Lender.
Section 5.7 Insurance. Borrower shall procure and maintain for
the benefit of Lender insurance policies in accordance with the terms of the
Mortgage.
Section 5.8 Escrows. Borrower shall maintain the following
escrows with Lender:
(a) On the Closing Date Borrower shall deposit with Lender an
amount deemed necessary by Lender to establish an escrow under
Lender's control for real estate taxes and, at the time of
making each installment payment upon the Obligations, deposit
with Lender one-twelfth (1/12th) of the amount reasonably
estimated by Lender to be necessary to pay taxes and
assessments next becoming due upon the Property in accordance
with the terms of the Mortgage. In the event Borrower fails
to provide evidence to Lender of the payment of the annual
insurance premiums for the Property within fifteen (15) day
prior to the date when due, Lender shall have the right to
require monthly deposits of an amount equal to one-twelfth
(1/12th) of the annual insurance premiums next becoming due.
All such sums may be held by Lender with interest and applied
in such order as Lender may elect to pay upon taxes and
assessments, insurance premiums (if such escrow is required)
or upon delinquent portions of the Obligations.
(b) Borrower shall pay to Lender on the first day of each calendar
quarter an amount equal to three percent (3%) of the Total
Revenues from the Property for the immediately preceding
calendar quarter for replacements and capital repairs required
to be made to the Property during each calendar year (the
"Replacement
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<PAGE> 22
Escrow Fund"). At least thirty (30) days prior to the end of
each calendar year, Borrower shall deliver to Lender for
Lender's review and approval, a capital expenditure budget
(the "Budget") itemizing the replacements and capital repairs
which are anticipated to be made to the Property during the
next immediately succeeding calendar year. Lender may, upon
notice to Borrower, adjust the quarterly amounts required to
be deposited into the Replacement Escrow Fund to a quarterly
amount equal to one-fourth of the total amount specified in
each approved Budget. Lender shall make disbursements from
the Replacement Escrow Fund for items specified in each
approved Budget on a quarterly basis in increments of no less
than $5,000.00 upon delivery by Borrower of Lender's standard
form of draw request accompanied by copies of paid invoices
for the amounts requested and, if required by Lender, lien
waivers and releases from all parties furnishing materials
and/or services in connection with the requested payment and
reimbursement of all out-of-pocket inspection fees incurred by
Lender. Lender may require an inspection of the Property
prior to making a quarterly disbursement in order to verify
completion of replacements and repairs. Following the
occurrence and during the continuance of an Event of Default,
or in the event Lender determines that such disbursements are
necessary to preserve the priority of the liens or security
interests created or granted by the Loan Documents, Lender
shall have the right to make any disbursement from the
Replacement Escrow Fund directly to the party furnishing
materials and/or services. The Replacement Escrow Fund shall
be held in an interest bearing account in Lender's name at a
financial institution selected by Lender in its sole
discretion.
(c) Borrower hereby pledges to Lender any and all monies now or
hereafter deposited in the tax and insurance escrow and the
Replacement Escrow Fund as additional security for the payment
of the Obligations. Such sums shall constitute additional
collateral security for Borrower's obligations secured by this
Loan Agreement and Lender shall have no obligations with
respect to such sums other than to account for the same to
Borrower. Each such escrow shall not constitute a trust fund
and may be commingled with other monies held by Lender. All
earnings or interest on such escrow amounts shall be and
become part of such escrow and shall be disbursed as provided
in this section. Upon any assignment by Lender of this Loan
Agreement, Lender may turn over such sums to the assignee and
thereafter all of Lender's responsibilities with respect
thereto shall terminate. Upon the occurrence and during the
continuance of an Event of Default by Borrower, Lender may
apply funds held under terms of this paragraph, to items for
which such funds are deposited or as a credit against amounts
due on the Obligations. Upon payment of the Obligations and
performance by Borrower of all its obligations under the Loan
Documents, any amount remaining in such escrows shall be
refunded to Borrower.
LOAN AGREEMENT - Page 16
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<PAGE> 23
Section 5.9 Accounts and Records. The Borrower will keep books
of record and accounts in which true and correct entries will be made as to all
material matters of all dealings or transactions in relation to its business
and activities, in accordance with generally accepted accounting principles,
consistently applied except for changes in accounting principles or practices
with which the independent public accountants for Borrower concur.
Section 5.10 Right of Inspection. The Borrower will permit any
officer, employee or agent of the Lender to visit and inspect any of the
property of the Borrower, examine the books of record and accounts of the
Borrower, take copies and extracts therefrom, discuss the affairs, finances and
accounts of the Borrower with the Borrower's officers, accountants and auditors
and conduct credit and background checks with respect to them, all at such
reasonable times and on reasonable notice and as often as the Lender may
reasonably desire. The Borrower shall pay to the Lender all reasonable costs
and expenses incurred by the Lender in connection with such inspection.
Section 5.11 Notice of Certain Events.
(a) The Borrower shall promptly notify the Lender if the Borrower
learns of the occurrence of any event which constitutes a
Default under this Agreement, together with a detailed
statement by a responsible officer of the Borrower of the
steps being taken to cure the effect of such Default.
Borrower shall provide Lender with a copy of any notification
received by Borrower of any default on any loan or lease to
which the Borrower is a party within ten (10) days of
Borrower's receipt.
(b) The Borrower shall notify the Lender within thirty (30) days
of the arising of any litigation or dispute threatened against
or affecting the Borrower which, if adversely determined,
would have a material adverse effect upon the financial
condition or business of the Borrower. In the event of such
litigation, the Borrower will cause such proceedings to be
vigorously contested in good faith and, in the event of any
adverse ruling or decision, the Borrower shall prosecute all
allowable appeals. Lender may (but shall not be obligated
to), without prior notice to Borrower, commence, appear in, or
defend any action or proceeding purporting to affect the Loan,
or the respective rights and obligations of Lender and
Borrower pursuant to this Agreement. Lender may (but shall
not be obligated to) pay all necessary expenses, including
reasonable attorneys' fees and expenses incurred in connection
with such proceedings or actions, which Borrower agrees to
repay to Lender upon demand.
Section 5.12 Indemnification.
(a) The Borrower hereby indemnifies the Lender and holds the
Lender harmless from claims of brokers with whom the Borrower
has dealt in the execution hereof or the consummation of the
transactions contemplated hereby. The Lender hereby
indemnifies the Borrower and holds the Borrower harmless from
LOAN AGREEMENT - Page 17
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<PAGE> 24
claims of brokers with whom the Lender has dealt with in
connection with this Agreement or the consummation of the
transactions contemplated hereby.
(b) The Borrower hereby indemnifies the Lender and holds the
Lender harmless from any and all liabilities, obligations,
losses, damages, penalties, claims, actions, suits, costs and
expenses of whatever kind or nature which may be imposed on,
incurred by or asserted at any time against the Lender in any
way relating to, or arising in connection with, the use or
occupancy of any of the Collateral.
(c) The Borrower hereby indemnifies and fully protects the Lender
from any claim pertaining to any defect in the Property, and
particularly, any failure of the Lender or any agent, officer,
employee or representative of the Lender, to note any defect
in materials or workmanship or of physical conditions or
failure to comply with any plans, specifications, drawings,
ordinances, statutes or other governmental requirements, or to
call to the attention of any person whatsoever, or take any
action, or to demand that any action be taken, with regard to
any such defect or failure or lack of compliance, unless
caused by the gross negligence or willful misconduct of
Lender.
Section 5.13 Compliance with Laws and Covenants. The Borrower
shall observe and comply with all laws, statutes, codes, acts, ordinances,
orders, judgments, decrees, injunctions, rules, regulations, certificates,
franchises, permits, licenses, authorizations, directions and requirements of
all federal, state, county, municipal and other governments, departments,
commissions, boards, courts, authorities, officials and officers domestic or
foreign, applicable to the Borrower or the Property.
Section 5.14 Environmental Indemnity.
(a) The Borrower shall defend, indemnify and hold Lender and its
directors, officers, agents and employees harmless from and
against all claims, demands, causes of action, liabilities,
losses, costs and expenses (including, without limitation,
costs of suit, reasonable attorneys' fees and fees of expert
witnesses) arising from or in connection with (i) the presence
on or under the Property of any hazardous substances or solid
wastes (as defined elsewhere in this Agreement), or any
releases or discharges of any hazardous substances or solid
wastes on, under or from the Property, (ii) any activity
carried on or undertaken on or off the Property, whether prior
to or during the term of this Agreement, and whether by
Borrower or any predecessor in title or any officers,
employees, agents, contractors or subcontractors of Borrower
or any predecessor in title, or any third persons at any time
occupying or present on the Property, in connection with the
handling, use, generation, manufacture, treatment, removal,
storage, decontamination, clean-up, transport or disposal of
any hazardous substances or solid wastes at any time located
or present on or under the
LOAN AGREEMENT - Page 18
RESIDENCE INN/GREENVILLE, SC/67562
<PAGE> 25
Property, or (iii) any breach of any representation, warranty
or covenant under Section 4.14 of this Agreement. The
foregoing indemnity shall further apply to any residual
contamination on or under the Property, or affecting any
natural resources, and to any contamination of any property or
natural resources arising in connection with the generation,
use, handling, storage, transport or disposal of any such
hazardous substances or solid wastes, and irrespective of
whether any of such activities were or will be undertaken in
accordance with applicable laws, regulations, codes and
ordinances. Without prejudice to the survival of any other
agreements of the Borrower hereunder, the provisions of this
Section shall survive the final payment of all Obligations and
the termination of this Agreement and shall continue
thereafter in full force and effect.
(b) The Borrower shall observe and comply with all laws,
ordinances, orders, decrees, rules and regulations of all
federal and state governments relating to environmental
matters, including without limitation the removal from or
under the Property of any hazardous substances or solid wastes
(as defined elsewhere in this Agreement).
Section 5.15 Financial Covenants. For the fiscal year ending
December of 1996, and each calendar quarter thereafter for the immediately
preceding twelve (12)-month period, the Borrower shall maintain a Debt Service
Coverage Ratio of not less than one and twenty-five hundredths (1.25) to one
(1.00). For purposes of this Section, the following terms shall have the
meanings indicated.
(a) "Debt Service Coverage Ratio" shall mean a fraction, the
numerator of which is Net Operating Income and the denominator
of which is Debt Service as hereinafter defined.
(b) "Net Operating Income" shall mean Total Revenues less Total
Operating Expenses.
(c) "Total Revenues" shall mean the actual operating revenues
received from the Property's operation for the applicable
period, as determined by the annual operating statements of
the Property provided to the Lender, and shall include,
without limitation, regular room revenues, food and beverage
revenues, and revenues from parking, telephone and vending
machines; "Total Revenues" shall specifically exclude non-
operating revenues such as proceeds of the sale of capital
assets, proceeds of litigation (other than the collection of
operating debts) and any extraordinary revenues.
(d) "Total Operating Expenses" shall mean the actual operating and
fixed expenses of the Property for the applicable period, as
determined by the annual operating statements of the Property
provided to the Lender, and shall include, without limitation,
(i) all real and personal property taxes and assessments
imposed upon
LOAN AGREEMENT - Page 19
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<PAGE> 26
the subject properties; (ii) all insurance premiums for
insurance incurred in connection with the subject properties,
provided that if insurance on the properties is maintained as
part of a blanket policy covering the properties and other
properties, the insurance premium included in this paragraph
shall be the premium fairly allocable to the subject
properties; and (iii) operating expenses of the subject
properties (unless such expenses are paid by proceeds of
insurance policies) for the management, operation, cleaning,
leasing, marketing, maintenance and repair, properly
chargeable against income in accordance with generally
accepted accounting principals, including, without limitation,
wages and payroll costs, utilities and heating charges,
material costs, maintenance costs, costs of services, water
and sewer charges, license fees and business taxes, and such
other expenses normally considered an industry-wide cost of
operating a similar property, exclusive, however, of (A)
principal and interest payment on the subject Loan, (B)
depreciation and amortization expenses, (C) Borrower's income,
franchise and similar taxes imposed by any governmental
authority, (D) any cost, payment or expense, whether included
in the "operating expenses" or otherwise, to the extent paid
with the proceeds of the Loan or any other loan or by any
tenant of Borrower or any other third party which reimburses
Borrower for any cost or expense, (E) payments in respect of
capital expenditures (including payments of indebtedness for
capital expenditures and payments for capital lease
obligations), and (F) reserves for replacements of capital
items and any other reserves.
For purposes of calculating "net operating income", management
fees shall be presumed to not exceed three percent (3%) of
gross receipts for the applicable period.
(e) "Debt Service" shall mean the total of the actual monthly
payments of principal and interest due on the Loan for the
applicable period.
Section 5.16 Financial Statements for Related Entities. The
Borrower shall provide in a form reasonably acceptable to Lender within one
hundred twenty (120) days of each fiscal year-end, balance sheets and statement
of income and retained earnings on Franchisee.
Section 5.17 Reasonable Time and Attention. The Borrower shall
require sufficient personnel to commit reasonable time and attention to the
operation of the Property and the obligations of Borrower under the Loan.
Section 5.18 Use of Proceeds; Margin Stock. The proceeds of the
Loan hereunder shall be used by the Borrower for the purposes of financing the
purchase of the Property. None of such proceeds will be used for the purpose
of, and the Borrower is not engaged in the business of extending credit for the
purpose of, purchasing or carrying any "margin stock" as defined in Regulation
U of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 221),
or for the purpose of reducing or retiring any indebtedness which was
originally incurred to purchase or
LOAN AGREEMENT - Page 20
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<PAGE> 27
carry a margin stock or for any other purpose which might constitute this
transaction a "purpose credit" within the meaning of said Regulation U. The
Borrower is not engaged principally, or as one of the Borrower's important
activities, in the business of extending credit for the purpose of purchasing
or carrying margin stocks. Neither the Borrower nor any Person acting on
behalf of the Borrower has taken or will take any action which might cause this
Agreement to violate Regulation U or any other regulation of the Board of
Governors of the Federal Reserve System or to violate the Securities Exchange
Act of 1934 or any rule or regulation thereunder, in each case as now in effect
or as the same may hereinafter be in effect.
Section 5.19 Maintain Copies; Financing Statements. The Borrower
shall maintain an original or a true copy of this Agreement and any
modifications hereof, which shall be available for inspection as called for
herein or in the Note; the Borrower shall pay the taxes and costs of, or
incidental to, any recording or filing of any financing statements concerning
the Collateral, and the Borrower agrees that a photographic or other
reproduction of this Agreement or of a financing statement is sufficient as a
financing statement.
Section 5.20 Existence; Protect the Collateral. The Borrower
shall cause to be done all things commercially reasonable to preserve and keep
in full force and effect its existence and rights, to conduct its business in a
prudent manner, and to take all necessary steps to administer, supervise,
preserve and protect the Collateral and to perfect and maintain the Lender's
security interest in the Collateral; the Borrower shall at all times in good
faith carry out all such terms and take all such action as may be necessary or
appropriate to protect the rights of the Lender.
Section 5.21 Certain Hotel Covenants. Borrower further covenants
and agrees with Lender as follows: (a) Borrower shall cause the hotel located
on the Property to be operated pursuant to the Franchise Agreement and the
Management Agreement, (b) Borrower shall: (i) promptly perform and/or observe
all of the covenants and agreements required to be performed and observed by it
under the Franchise Agreement and the Management Agreement and do all things
necessary to preserve and to keep unimpaired its material rights thereunder;
(ii) promptly notify Lender of any default under the Franchise Agreement or the
Management Agreement of which it is aware; (iii) promptly deliver to Lender a
copy of each financial statement, business plan, capital expenditures plan,
notice, report and estimate received by it under the Franchise Agreement or the
Management Agreement; and (iv) promptly enforce the performance and observance
of all of the covenants and agreements required to be performed and/or observed
by the franchisor under the Franchise Agreement and the manager under the
Management Agreement, and (c) Borrower shall maintain the Management Agreement
for the operation of the Property in full force and effect and timely perform
all of Borrower's obligations thereunder and enforce performance of all
obligations of the manager thereunder, and not permit the termination or
material amendment of such Management Agreement unless the prior written
consent of Lender is first obtained. Borrower will enter into and cause the
manager to enter into an assignment and subordination of such Management
Agreement in form satisfactory to Lender, assigning and subordinating the
manager's interest in the Property and all fees and other rights of the manager
pursuant to such Management Agreement to the rights of Lender. Upon an Event
of Default Borrower at Lender's request made at any time while
LOAN AGREEMENT - Page 21
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<PAGE> 28
such Event of Default continues, shall terminate the Management Agreement and
replace the manager with a manager selected by Lender.
ARTICLE 6
NEGATIVE COVENANTS
Unless the Lender's prior written consent to the contrary is obtained,
the Borrower shall at all times comply with the covenants contained in this
Article 6, from the date hereof and for so long as any part of the Obligations
is outstanding.
Section 6.1 Debts, Guaranties and Other Obligations. The
Borrower shall not incur, create, assume or in any manner become or be liable
in respect of any Debt direct or contingent, except for:
(a) The Obligations to the Lender under this Agreement.
(b) Other existing Debt to the Lender.
(c) Trade payables and operating and facility leases from time to
time incurred in the ordinary course of business, and
indebtedness to construction contractors for work done on the
Property.
(d) Taxes, assessments and other government charges which are not
yet due or are being contested in good faith by appropriate
action promptly initiated and diligently conducted, if such
reserve as shall be required by generally accepted accounting
principles shall have been made therefor.
(e) The Debts listed on EXHIBIT 6.1 hereto.
Section 6.2 Liens. The Borrower shall not create, incur, assume
or permit to exist any Lien on the Property without Lender's prior written
consent, except for:
(a) The pledge of the Collateral and any other liens in favor of
the Lender to secure the Obligations of the Borrower to the
Lender under this Agreement.
(b) Any other Liens in favor of the Lender to secure other
existing Debt of the Borrower to the Lender.
(c) Liens for taxes, assessments, and other governmental charges
not yet due or which are being contested in good faith by
appropriate action promptly initiated and diligently
conducted, if such reserve as shall be required by generally
accepted accounting principles shall have been made therefor.
LOAN AGREEMENT - Page 22
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<PAGE> 29
(d) Liens of landlords, vendors, carriers, warehousemen,
mechanics, laborers and materialmen arising by law in the
ordinary course of business for sums either not yet due or
being contested in good faith by appropriate action promptly
initiated and diligently conducted, if such reserve as shall
be required by generally accepted accounting principles shall
have been made therefor.
(e) Inchoate liens arising under ERISA to secure the contingent
liability of the Borrower permitted by this Agreement.
(f) Liens listed in EXHIBIT 6.1, easements granted to public
authorities or utilities for the use and operation of the
Collateral, and other liens consented to in advance by Lender,
in writing, which consent will not be unreasonably withheld,
provided that such liens do not violate the Borrower's
financial covenants under this Loan Agreement and provided
that Lender is given the right of first refusal to finance the
additional indebtedness upon the same terms as the offering
lender.
Section 6.3 Sale of Collateral. The Borrower shall not sell,
encumber, exchange, assign, transfer, convey, lease (except for use and
occupancy by Hotel guests) or dispose of the Collateral or any portion thereof,
nor will the Borrower sell, encumber, transfer or otherwise dispose of all or
substantially all of its assets nor dissolve, merge or dispose of the assets
necessary to own and operate the Property except pursuant to eminent domain
proceedings or, with respect to personal property and equipment, in the
ordinary course of business of prudent hotel management when replaced with
personal property, or equipment of similar quality.
Section 6.4 Ownership Interests. During the term of the Loan,
the ownership interests in the Borrower, as shown on EXHIBIT 6.4 attached
hereto, shall not change in any manner. There shall be no sale, assignment or
transfer of any additional shares of stock, partnership interests or other
ownership interests of Borrower.
Section 6.5 No Change in the Current Business Entity. The
Borrower covenants that there shall be no change in the current business
location or entity.
Section 6.6 Management Fee Subordinated. The Borrower agrees
that the management fee with respect to the Property and all other payments to
the Borrower and its owners shall be subordinated to the payments due Lenders.
Section 6.7 Incur Any Declared Defaults. The Borrower shall not
incur any declared defaults under any other material loan, lease or other
agreements, or any final material judgments.
Section 6.8 Dividends; Dissipation of Assets. The Borrower shall
not:
LOAN AGREEMENT - Page 23
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<PAGE> 30
(a) Declare or pay any cash, stock or other dividend or
distribution on any class of stock or other equity ownership
interest unless the financial covenant(s) set forth in Section
5.15 above will be met in connection therewith and no other
default would be caused thereby, or
(b) Transfer, sell, lease (except for use and occupancy by Hotel
guests), lend or in any other manner convey or dispose of any
equitable, beneficial or legal interest in any of the Property
except pursuant to eminent domain proceedings or, with respect
to personal property and equipment, in the ordinary course of
business of prudent hotel management when replaced with
personal property or equipment of similar quality.
Section 6.9 Outside Fees. The Borrower shall not pay or incur
any brokerage, legal, consulting or similar fee (other than bona fide legal or
accounting fee) related to the Property in excess of Twenty-Five Thousand
Dollars ($25,000) per year.
Section 6.10 Inside Transactions. The Borrower shall not purchase
or sell any property or services or borrow or lend money or property from or
to, or co-invest in any transaction with, any officer, director, employee, any
Affiliate thereof or other Affiliate of the Borrower which are not bona fide,
arms' length transactions.
Section 6.11 Certain Hotel Covenants. Borrower shall not, without
Lender's prior consent; (i) surrender, terminate or cancel the Franchise
Agreement or the Management Agreement; (ii) reduce or consent to the reduction
of the term of the Franchise Agreement or the Management Agreement; (iii)
increase or consent to the increase of the amount of any charges under the
Franchise Agreement or the Management Agreement; or (iv) otherwise modify,
change, supplement, alter or amend, or waive or release any of its rights and
remedies under, the Franchise Agreement or the Management Agreement in any
material respect. Except as expressly set forth in the Management Agreement,
Borrower shall not, without Lender's prior consent, enter into transactions
with any Affiliate, including without limitation, any arrangement providing for
the managing of the Hotel on the Property, the rendering or receipt of services
or the purchase or sale of inventory, except any such transaction in the
ordinary course of business of Borrower if the monetary or business
consideration arising therefrom would be substantially as advantageous to
Borrower as the monetary or business consideration that would obtain in a
comparable transaction with a person not an affiliate of Borrower.
ARTICLE 7
CONDITIONS OF LENDING
Section 7.1 Conditions of Lending. The obligation of the Lender
to make extensions of credit under this Agreement is subject to the accuracy of
each and every representation and warranty of the Borrower made or referred to
in this Agreement, or in any certificate delivered
LOAN AGREEMENT - Page 24
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<PAGE> 31
to the Lender pursuant to or in connection with this Agreement, to the
performance by the Borrower of its obligations to be performed hereunder and
under the Note and the other Loan Documents on or before the date of such
extensions of credit, and to the receipt of the following on or before the
Closing Date:
(a) Agreement. Duly executed counterpart of this Agreement signed
by all the parties hereto.
(b) Note. The duly executed Note signed by the Borrower.
(c) Collateral Documents. Duly executed counterparts of the
Collateral Documents (and any financing statements in
connection therewith) and receipt of the Collateral.
(d) Borrower's Organization Documents. A certificate of the
secretary or assistant secretary of Borrower and Franchisee
setting forth (A) resolutions of its board of directors in
form and substance satisfactory to the Lender with respect to
the authorization of this Agreement, the Note, the Collateral
Documents and the other Loan Documents, (B) the officers
authorized to sign such instruments, and (C) copies of its
articles of incorporation, by-laws and evidence of good
standing.
(e) Fees. Payment of the commitment fee of $170,000 which has
been paid as of the Closing Date.
(f) Closing Statement. A closing statement showing all closing
costs and other initial advances under the Loan.
(g) Borrower's Counsel Opinion. Favorable opinion of Borrower's
Delaware, Texas, and South Carolina counsel in form and
substance satisfactory to the Lender for Borrower and
Franchisee.
(h) No Adverse Change. There shall have occurred no material
adverse changes, either individually or in the aggregate, in
the assets, liabilities, financial conditions, business
operations, affairs or circumstances of the Borrower from
those reflected in the most recent financial statements
furnished to the Lender prior to the Closing Date, except to
the extent that such changes are permitted by this Agreement;
furthermore, no Default shall have occurred and be continuing.
(i) Appraisal. Appraisal of the Property prepared by an
MAI-appraiser selected by Lender having an appraised value of
not less than the amount of the Loan.
LOAN AGREEMENT - Page 25
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<PAGE> 32
(j) Environmental Engineering Report (Phase I). In accordance
with ASTM Designation E 1527-94 Standard Practice for
Environmental Assessments, an environmental report (the
"Report") prepared by a licensed environmental engineer
approved by Lender setting forth such engineer's conclusions
and noting the absence of environmental claims, as otherwise
deemed acceptable to Lender. The Report shall determine
whether or not toxic and hazardous waste, waste products or
substances were, are or could be present on the Property. The
Report shall also indicate the location and jurisdiction of
the Property, historical ownership and use of the Property,
current use of the Property, any information available in
governmental records on previous investigations and litigation
relating to the Property, any adjacent properties which have
been, are or could be potential hazards, locations of
equipment containing PCBs and a conclusion/recommendation
statement.
(k) Inspection. An inspection report on the Property and all
operating systems thereat (including, without limitation,
heating, cooling, water, sewage, electrical, roof, and
structure), in form and substance satisfactory to the Lender
and prepared by a licensed engineer selected by the Lender,
which has been provided to the Lender as of the Closing Date
which report must state that all such systems are in sound
working order.
(l) Insurance Policies. The insurance policies or certificates
otherwise required by this Agreement or the Mortgage.
(m) Management Agreement. A fully executed copy of the Management
Agreement, reviewed and approved by the Lender.
(n) Survey (Current As-Built). All immovable on-site and off-site
improvements shall be shown, delineating and dimensioning
those improvements with pertinent grade and floor elevations
and improvements descriptions, and containing such other
information as may be required by the Lender.
(o) Title Insurance Commitment. Commitment from a title insurance
company approved by Lender to insure the Mortgage on the
Property, subject only to liens, encumbrances and title
exceptions approved by Lender (copies of which must be
attached).
(p) Title Insurance Policy; Opinion. Policy (on ALTA Loan Policy
Form-1990) issued pursuant to the title insurance commitment
insuring the Mortgage as first lien on the Property in the
full amount of the Loan, subject only to liens, encumbrances
and exceptions approved by the Lender. The policy must
provide affirmative lien protection and must include usury,
access, zoning and other customary endorsements. If usury
coverage is not available, the Lender shall require an opinion
letter from Borrower's counsel acceptable to the Lender that
LOAN AGREEMENT - Page 26
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<PAGE> 33
the Loan is not usurious. The Lender shall require
affirmative coverage if and when available against any loss of
lien priority as a result of any law regarding hazardous
wastes or substances affecting the Property.
(q) Pay-Off Letter. A letter from each Person other than the
Borrower who will be paid from proceeds of the Loan, stating
the amount due as of the date of such letter, the per diem
amount accruing thereon, if any, and wire or other payment
instructions.
(r) Taxes. Evidence that the Property is, or will be, separately
assessed for tax purposes and that all ad valorem taxes that
are currently due and payable on the Property have been paid
in full, and information as to tax rates, estimated tax values
and the identities of all taxing authorities.
(s) Leases. Copies of all leases of commercial space in the
Property, together with estoppel letters and non-disturbance,
subordination and attornment agreement from each tenant
thereunder, and the Non- Disturbance Agreement for Ground
Lease, if applicable.
(t) Franchisor Estoppel Receipt of a fully executed Franchise
Agreement and an estoppel certificate and "comfort letter"
from the Hotel Franchise regarding the Franchise Agreement in
form and substance acceptable to Lender.
ARTICLE 8
DEFAULT
Section 8.1 Events of Default. Any of the following events shall
be considered an "Event of Default" as that term is used herein:
(a) Principal and Interest Payments. The Borrower fails to make
payment of any principal or interest installment on the Loan,
or any other Obligation to the Lender within ten (10) days
after written notice from Lender, if such payment is not made
within ten (10) days after the date when due, Lender, may, at
its option, impose a delinquency or late charge on Borrower,
payable upon demand, equal to the greater of (i) five percent
(5%) per annum in excess of the interest rate that would have
been applicable to a then current installment as provided for
elsewhere in the Note, as if such installment had been made
when due, computed from the date such payment was due and
payable to the date of receipt of such installment by Lender
in good and immediately available funds, or (ii) five percent
(5%) of the amount of such past due payments (except for the
"balloon" payment of principal due on the maturity date of the
Note), notwithstanding the date on which such payment is
actually paid to Lender; provided, however, that
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<PAGE> 34
if any such late charge under subsections (i) or (ii) hereof
is not recognized as liquidated damages for such delinquency
(as contemplated by Borrower and Lender), and is deemed to be
interest in excess of the amount permitted to be charged to
Borrower under applicable law, Lender shall be entitled to
collect a late charge only at the highest rate permitted by
law, and any interest actually collected by Lender in excess
of such lawful amount shall be deemed a payment in reduction
of the principal amount then outstanding under the Note;
(b) Representations and Warranties. Any representation or
warranty made by the Borrower proves to have been incorrect in
any material respect as of the date thereof; or any
representation, statement (including financial statements),
certificate or data furnished or made by the Borrower (or any
partner, officer, accountant or attorney of the Borrower)
under this Agreement, proves to have been untrue in any
material respect, as of the date as of which the facts therein
set forth were stated or certified and such default continues
unremedied for a period of thirty (30) days after written
notice thereof being given by the Lender to the Borrower;
(c) Covenants. The Borrower defaults in the observance or
performance of any of the covenants or agreements contained in
this Agreement, the Note or any of the other Loan Documents to
be kept or performed by the Borrower (other than a default
under any other subsections of this Section 8.1), and such
default continues unremedied for a period of thirty (30) days
after written notice thereof being given by the Lender to the
Borrower;
(d) Other Debt to Lender. The Borrower defaults in the payment of
any amounts due to the Lender, or the Lender declares a
default by the Borrower (which has not been cured within any
applicable cure periods) in connection with the observance or
performance of any of the covenants or agreements contained in
any credit agreements, notes, collateral or other documents
relating to any Debt of the Borrower to the Lender, other than
the Obligations incurred pursuant to this Agreement;
(e) Other Debt to Other Lenders. Without implying that such other
Debt is permitted, the Borrower defaults in the payment of any
amounts due to any Person (other than the Lender) or in the
observance or performance of any of the covenants or
agreements contained in any credit agreements, notes, leases,
collateral or other documents relating to any Debt of the
Borrower to any Person (other than the Lender), in excess of
One Hundred Thousand Dollars ($100,000.00), and any grace
period applicable to such default has elapsed;
(f) Involuntary Bankruptcy or Receivership Proceedings. A
receiver, conservator, liquidator or trustee of the Borrower
or of any of its property is appointed by order or decree of
any court or agency or supervisory authority having
LOAN AGREEMENT - Page 28
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<PAGE> 35
jurisdiction; or an order for relief is entered against the
Borrower under the Federal Bankruptcy Code; or the Borrower is
adjudicated bankrupt or insolvent; or any material portion of
the properties of the Borrower is sequestered by court order
and such order remains in effect for more than thirty (30)
days after the Borrower obtains knowledge thereof; or a
petition is filed against the Borrower under any state,
reorganization, arrangement, insolvency, readjustment of debt,
dissolution, liquidation or receivership law of any
jurisdiction, whether now or hereafter in effect, and such
petition is not dismissed within ninety (90) days;
(g) Voluntary Petitions. The Borrower files a case under the
Federal Bankruptcy Code or seeks relief under any provision of
any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any
jurisdiction, whether now or hereafter in effect, or consents
to the filing of any case or petition against it under any
such law;
(h) Assignments for Benefit of Creditors. The Borrower makes an
assignment for the benefit of their creditors, or admits in
writing their inability to pay their debts generally as they
become due, or consents to the appointment of a receiver,
trustee or liquidator of the Borrower or of all or any part of
its property;
(i) Undischarged Judgments. Judgment for the payment of money in
excess of One Hundred Thousand Dollars ($100,000.00) (which is
not covered by insurance) is rendered by any court or other
governmental body against the Borrower, and the Borrower does
not discharge the same or provide for its discharge in
accordance with its terms, or procure a stay of execution
thereof within thirty (30) days from the date of entry
thereof, and within said period of thirty (30) days from the
date of entry thereof or such longer period during which
execution of such judgment shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed during
such appeal while providing such reserves therefor as may be
required under generally accepted accounting principles;
(j) Attachment. A writ or warrant of attachment, seizure or any
similar process shall be issued by any court against the
Property or all or any material portion of the property of the
Borrower, and such writ or warrant of attachment or any
similar process is not released or bonded within thirty (30)
days after its entry;
(k) Condemnation. The Collateral, or any portion thereof, is
condemned or expropriated under power of eminent domain by any
legally constituted governmental authority;
(l) Insurance. The Borrower fails to maintain at any time the
insurance of the Collateral required by this Agreement and the
Collateral Documents.
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<PAGE> 36
(m) No Assumption. If any of the ownership interests of the
Borrower, the Property or Borrower's assets are sold,
exchanged or transferred, the Loan will not be assumable and
all the Obligations shall be immediately due and payable
except for personal property and equipment in the ordinary
course of business of prudent hotel management when replaced
with personal property or equipment of similar quality.
(n) Management and Franchise Agreements. If (i) a default has
occurred and continues beyond any applicable cure period by
Borrower under the Management Agreement (or any successor
management agreement) if such default permits the hotel
manager to terminate or cancel the Management Agreement (or
any successor management agreements); (ii) without Lender's
prior consent, there is any material change in the Franchise
Agreement (or any successor franchise agreement); (iii) a
default has occurred and continues beyond any applicable cure
period under the Franchise Agreement (or any successor
franchise agreement) if such default permits the franchisor to
terminate or cancel the Franchise Agreement (or any successor
franchise agreement); or (iv) Borrower ceases to do business
as a hotel or motel on the Property or terminates such
business for any reason whatsoever (other than temporary
cessation in connection with any renovations to the Property).
Section 8.2 Remedies.
(a) Upon the happening of any Event of Default specified in
Section 8.1, the Lender may by written notice to the Borrower
declare the entire principal amount of all Obligations then
outstanding including interest accrued thereon to be
immediately due and payable without presentment, demand,
protest, notice of protest or dishonor or other notice of
default of any kind, all of which are hereby expressly waived
by the Borrower.
(b) In addition to the foregoing, the Lender may exercise any of
the rights or remedies provided in the Collateral Documents or
avail itself of any other rights and remedies provided by
applicable law.
Section 8.3 Set-Off. Upon the occurrence of any Event of
Default, the Lender shall have the right to set-off any funds of the Borrower
in the possession of the Lender against any amounts then due by the Borrower to
the Lender pursuant to this Agreement.
LOAN AGREEMENT - Page 30
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<PAGE> 37
ARTICLE 9
MISCELLANEOUS
Section 9.1 Notices. Any notice or demand which, by provision of
this Agreement, is required or permitted to be given or served by the Lender to
or on the Borrower shall be deemed to have been sufficiently given and served
for all purposes (if mailed) three calendar days after being deposited,
postage prepaid, in the United States Mail, registered or certified mail, or
(if delivered by express courier) one Business Day after being delivered to
such courier, or (if delivered in person) the same day as delivery, in each
case addressed (until another address or addresses is given in writing by
Borrower to Lender) as follows:
Brock Suite Greenville, Inc.
c/o Hallwood Realty Partners, Inc.
3710 Rawlins, Suite 1500
Dallas, Texas 75219
Attention: John Tuthill
with copies to:
Jenkens & Gilchrist
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
Attention: Thom Bloodworth, Esq.
Any notice or demand which, by any provision of this Agreement, is
required or permitted to be given or served by the Borrower to or on Lender
shall be deemed to have been sufficiently given and served for all purposes (if
mailed) three calendar days after being deposited, postage prepaid, in the
United States Mail, registered or certified mail, or (if delivered by express
courier) one Business Day after being delivered to such courier, or (if
delivered in person) the same day as delivery, in each case addressed (until
another address or addresses are given in writing by Lender to Borrower) as
follows:
Allied Capital Commercial Corporation
Business Mortgage Investors, Inc.
1666 K Street, N.W., 9th Floor
Washington, D.C. 30006
Attention: Crae Ramsey, Vice President
Section 9.2 Invalidity. In the event that any one or more of the
provisions contained in this Agreement, the Note, or the other Loan Documents
shall, for any reason, be held invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement, the Note or the other Loan Documents.
LOAN AGREEMENT - Page 31
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<PAGE> 38
Section 9.3 Survival of Agreements. All representations and
warranties of the Borrower herein, and all covenants and agreements herein not
fully performed before the effective date of this Agreement, shall survive such
date.
Section 9.4 Successors and Assigns.
(a) All covenants and agreements contained by or on behalf of the
Borrower in this Agreement, the Note and the other Loan
Documents shall bind its successors and assigns and shall
inure to the benefit of the Lender and its successors and
assigns.
(b) This Agreement is for the benefit of the Lender and for such
other Person or Persons as may from time to time become or be
the holders of any of the Obligations, and this Agreement
shall be transferrable and negotiable, with the same force and
effect and to the same extent as the Obligations may be
transferrable, it being understood that, upon the transfer or
assignment by the Lender of any of the Obligations, the legal
holder of such Obligations shall have all of the rights
granted to the Lender under this Agreement, Lender agreeing to
provide written notice to Borrower of such transfer.
(c) The Borrower hereby recognizes and agrees that the Lender may,
from time to time, one or more times, transfer all or any
portion of the Obligations to one or more third parties,
Lender agreeing to provide written notice to Borrower of such
transfer. Such transfers may include, but are not limited to,
sales of participation interests in such Obligations in favor
of one or more third party lenders. The Borrower specifically
agrees and consents to all such transfers and assignments and
the Borrower further waives any subsequent notice of and right
to consent to any such transfers and assignments as may be
provided under applicable law. The Borrower additionally
agrees that the purchaser of a participation interest in the
Obligations will be considered as the absolute owner of a
percentage interest of such Obligations and that such a
purchaser will have all of the rights granted to the purchaser
under any participation agreement governing the sale of such a
participation interest. The Borrower further waives any right
of offset that the Borrower may have against the Lender and/or
any purchaser of such a participation interest in the
Obligations, and the Borrower unconditionally agrees that
either the Lender or such a purchaser may enforce Borrower's
Obligations under this Agreement, irrespective of the failure
or insolvency of the Lender or any such purchaser.
Section 9.5 Renewal, Extension or Rearrangement. All provisions
of this Agreement relating to the Note shall apply with equal force and effect
to each and all promissory notes or security instruments hereinafter executed
which in whole or in part represent a renewal, extension for any period,
increase or rearrangement of any part of the Note.
LOAN AGREEMENT - Page 32
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<PAGE> 39
Section 9.6 Waivers. No course of dealing on the part of the
Lender, its officers, employees, consultants or agents, nor any failure or
delay by the Lender with respect to exercising any of its rights, powers or
privileges under this Agreement, the Note, or the other Loan Documents shall
operate as a waiver thereof.
Section 9.7 Cumulative Rights. The rights and remedies of the
Lender under this Agreement, the Note and the other Loan Documents shall be
cumulative, and the exercise or partial exercise of any such right or remedy
shall not preclude the exercise of any other right or remedy.
Section 9.8 Singular and Plural. Words used herein in the
singular, where the context so permits, shall be deemed to include the plural
and vice versa. The definitions of words in the singular herein shall apply to
such words when used in the plural where the context so permits and vice versa.
Section 9.9 Controlling Law. THE LOAN DOCUMENTS SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH THE
REAL PROPERTY ENCUMBERED BY THE MORTGAGE IS LOCATED (WITHOUT REGARD TO ANY
CONFLICT OF LAWS PRINCIPLES) AND THE APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA. BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY COURT
OF COMPETENT JURISDICTION LOCATED IN THE STATE IN WHICH THE PROPERTY IS LOCATED
IN CONNECTION WITH ANY PROCEEDING OUT OF OR RELATING TO THE LOAN DOCUMENTS.
The Borrower and other obligees hereunder agree that service of any summons
and/or complaint, and other process which may be served in any action, may be
made by mailing via registered mail or delivering a copy of such process to the
Borrower at its address specified above, and the Borrower and other obligees
hereunder agree that this submission to jurisdiction and consent to service of
process are reasonable and made for the express benefit of Lender.
Section 9.10 Titles of Articles, Sections and Subsections. All
titles or headings to articles, sections, subsections or other divisions of
this Agreement or the exhibits hereto are only for the convenience of the
parties and shall not be construed to have any effect or meaning with respect
to the other content of such articles, sections, subsections or other
divisions, such other content being controlling as to the agreement between the
parties hereto.
Section 9.11 Relationship of the Parties. This Agreement provides
for financing by Lender to the Borrower and for the payment of interest and
repayment of principal by the Borrower to Lender. The provisions herein for
compliance with financial covenants and delivery of financial statements are
intended solely for the benefit of Lender to protect their interests as lenders
in assuring payments of interest and repayment of principal, and nothing
contained in this Agreement shall be construed as permitting or obligating
Lender to act as financial or business advisors or consultants to the Borrower,
as permitting or obligating Lender to control the Borrower or to conduct the
Borrower's operations, as creating any fiduciary obligation on the part of
Lender to the Borrower, or as creating any joint venture, agency or other
relationship between the parties other than as explicitly and specifically
stated in this Agreement. A Lender is not (and shall not be construed as)
LOAN AGREEMENT - Page 33
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<PAGE> 40
a partner, joint venturer, alter-ego, manager, controlling person, operator or
other business participant of any kind of the Borrower; neither Lender nor the
Borrower intend Lender to assume such status, and, accordingly, Lender shall
not be deemed responsible for (or a participant in) any acts or omissions of
the Borrower. The Borrower represents that it has had the advice of
experienced counsel of its own choosing in connection with the negotiation and
execution of this Agreement and with respect to all matters contained herein.
Section 9.12 Amendment. Neither this Agreement nor any provisions
hereof may be changed, waived, discharged or terminated orally or in any manner
other than by an instrument in writing signed by the party against whom
enforcement of the change, waiver, discharge or termination is sought.
Section 9.13 Entire Agreement. This Agreement sets forth the
entire agreement of the Lender and the Borrower with respect to the Loan, and
supersedes all prior written or oral understandings with respect thereto;
provided, however, that all written and oral representations, warranties and
certifications made by the Borrower to the Lender with respect to the Loan and
the security therefor shall survive the execution of this Agreement.
Section 9.14 Time of the Essence. Time shall be deemed of the
essence with respect to the performance of all of the terms, provisions and
conditions on the part of the Borrower and the Lender to be performed
hereunder.
Section 9.15 Waiver of Jury Trial; Submission of Jurisdiction.
THE BORROWER AND THE LENDER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO WHICH THE BORROWER AND THE LENDER MAY BE PARTIES, ARISING OUT OF
OR IN ANY WAY PERTAINING TO (i) THE NOTE, (ii) THIS AGREEMENT, (iii) THE OTHER
LOAN DOCUMENTS OR (iv) THE PROPERTY AND THE OTHER COLLATERAL. IT IS AGREED AND
UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS
AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST
PARTIES WHO ARE NOT PARTIES TO THIS AGREEMENT. THIS WAIVER IS KNOWINGLY,
WILLINGLY AND VOLUNTARILY MADE BY THE BORROWER AND THE LENDER, AND THE BORROWER
AND THE LENDER HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE
BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY
WAY MODIFY OR NULLIFY ITS EFFECT. THE BORROWER AND THE LENDER FURTHER
REPRESENT THAT EACH HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND
IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN
FREE WILL, AND THAT EACH HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH
COUNSEL.
Section 9.16 Costs and Fees Related to Enforcement or a Successful
Defense. Each party agrees that the nonprevailing party in any suit, action,
claim or other liability to enforce the provisions of this Agreement or any
other document related hereto shall reimburse the prevailing party for
reasonable attorneys' fees and expenses incurred in connection therewith.
LOAN AGREEMENT - Page 34
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<PAGE> 41
Section 9.17 Independent Covenant to Make Payments. The payment
and performance by the Borrower of all obligations due under the Note and the
other Loan Documents executed herewith shall be absolute and unconditional,
irrespective of any defense or any rights of set-off, recoupment or
counterclaim the Borrower might otherwise have against the Lender, and the
Borrower shall pay absolutely all of its obligations hereunder and thereunder,
free of any deductions and without abatement, diminution of set-off; until
payment in full of all of such obligations, the Borrower shall: (a) not suspend
or discontinue any payments required pursuant to the Note or other Loan
Documents executed herewith, and (b) perform and observe all of the other terms
and provisions of such Loan Documents.
Section 9.18 Notice of Claim; Waiver. To allow Lender to mitigate
any alleged breach of this Agreement, the other Loan Documents executed
herewith or Lender's other duties to the Borrower, if any, the Borrower hereby
agrees to give Lender written notice of any claim or defense the Borrower has
against Lender, whether in tort, contract or otherwise, relating to any act or
omission by Lender under this Agreement, the other Loan Documents executed
herewith or the transactions related thereto, or of any defense to the payment
of the obligations hereunder and thereunder for any reason. The Borrower
hereby agrees to provide such notice to Lender within six (6) months after the
Borrower has knowledge of such defense. If the Borrower does not timely
deliver such notice to Lender, then the Borrower shall not assert and shall be
deemed to have waived any such claim or defense.
Section 9.19 Counterparts. This Agreement may be executed in two
or more counterparts, and it shall not be necessary that the signatures of all
parties hereto be contained on any one counterpart hereof; each counterpart
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
Section 9.20 Disclosures.
(a) Lender (and its mortgage servicer and their respective
assigns) shall have the right to disclose in confidence such
financial information regarding Borrower or the Property as
may be necessary (i) to complete any sale or attempted sale of
the Note or participations in the loan (or any transfer of the
mortgage servicing thereof) evidenced by the Note and the Loan
Documents, (ii) to service the Note, or (iii) to furnish
information concerning the payment status of the Note to the
holder or beneficial owner thereof, including, without
limitation, all Loan Documents, financial statements,
projections, internal memoranda, audits, reports, payment
history, appraisals and any and all other information and
documentation in the Lender's files (and such servicer's
files) relating to the Borrower and the Property. This
authorization shall be irrevocable in favor of Lender (and its
mortgage servicer and their respective assigns), and Borrower
waives any claims that it may have against Lender, its
mortgage servicer and its assigns or the party receiving
information from the Lender pursuant hereto regarding
disclosure of information in such Lender's files and further
waives any alleged damages which it may suffer as a result of
such disclosure.
LOAN AGREEMENT - Page 35
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<PAGE> 42
(b) Borrower acknowledges that Lender intends to sell the loan
evidenced by the Note and the Loan Documents or a
participation interest therein to a party who may pool the
loan with a number of other loans and to have the holder of
such loans (such as a special purpose REMIC) issue one or more
classes of Mortgage Backed Pass-Through Certificates (the
"Certificates"), which may be rated by one or more national
rating agencies. The Lender (and its mortgage servicer and
their respective assigns) shall be permitted to share any of
the information referred to in subsection (a) above, whether
obtained before or after the date of the Note, with the
holders of the Certificates, with the investment banking
firms, rating agencies, accounting firms, custodians,
successor mortgage servicers, law firms and other third- party
advisory firms involved with the loan evidenced by the Note
and the Loan Documents or the Certificates. It is understood
that the information provided by Borrower to Lender (or its
mortgage servicer and their respective assigns) or otherwise
received by Lender (or its mortgage servicer and their
respective assigns) in connection with the loan evidenced by
the Loan Documents may ultimately be incorporated into the
offering documents for the Certificates and thus various
investors may also see some or all of the information. Lender
(and its mortgagee servicer and their respective assigns) and
all of the aforesaid third-party advisors and professional
firms shall be entitled to rely on the information supplied
by, or on behalf of, the Borrower.
ARTICLE 10
SPECIAL PROVISIONS
Section 10.1 Single Purpose Entity/Separateness. Borrower
represents, warrants and covenants as follows:
(a) Borrower does not own and will not own any encumbered asset or
property other than (i) the Property, and (ii) incidental
personal property necessary for the ownership or operation of
the Property.
(b) Borrower will not engage in any business other than the
ownership, management and operation of the Property and
Borrower will conduct and operate its business as presently
conducted and operated.
(c) Borrower will not enter into any contract or agreement with
any Affiliate, except upon terms and conditions that are
intrinsically fair and substantially similar to those that
would be available on an arms-length basis with third parties
other than any Affiliate.
(d) Borrower has not incurred and will not incur any indebtedness,
secured or unsecured, direct or indirect, absolute or
contingent (including guaranteeing any obligation), other than
(i) the Obligations, and (ii) trade and operational debt
LOAN AGREEMENT - Page 36
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<PAGE> 43
incurred in the ordinary course of business with trade
creditors and in amounts as are normal and reasonable under
the circumstances. No indebtedness other than the Obligations
may be secured (subordinate or pari passu) by the Property.
(e) Borrower has not made and will not make any loans or advances
to any third party (including any Affiliate), except as
otherwise permitted or provided herein.
(f) Borrower is and will remain solvent and Borrower will pay its
debts from its assets as the same shall become due.
(g) Borrower has done or caused to be done and will do all things
necessary, to preserve its existence, and Borrower will not
amend, modify or otherwise change the partnership certificate,
partnership agreement, articles of incorporation and bylaws,
trust or other organizational documents of Borrower in a
manner which would adversely affect the Borrower's existence
as a single purpose entity.
(h) Borrower will maintain books and records and bank accounts
separate from those of its Affiliates.
(i) Borrower will preserve and keep in full force and effect its
existence, good standing and qualification to do business in
the state in which the Property is located and will be, and at
all times will hold itself out to the public as, a legal
entity separate and distinct from any other entity (including
any Affiliate).
(j) Borrower will maintain adequate capital for the normal
obligations reasonably foreseeable in a business of its size
and character and in light of its contemplated business
operations.
(k) Borrower will not seek the dissolution or winding up, in whole
or in part, of the Borrower nor will Borrower merge with or be
consolidated into any other entity.
(l) Borrower will not commingle the funds and other assets of
Borrower with those of any Affiliate or any other person.
(m) Borrower has and will maintain its assets in such a manner
that it will not be costly or difficult to segregate,
ascertain or identify its individual assets from those of any
Affiliate or any other person.
(n) Borrower does not and will not hold itself out to be
responsible for the debts or obligations of any other person.
(o) Borrower shall obtain and maintain in full force and effect,
and abide by and satisfy the material terms and conditions of,
all material permits, Licenses,
LOAN AGREEMENT - Page 37
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<PAGE> 44
registrations and other authorizations with or granted by any
governmental authorities that may be required from time to
time with respect to the performance of its obligations under
the Loan Documents.
Section 10.2 Extension of Note. Borrower may extend the maturity
date of the Note until May 3, 2003, subject to, and in accordance with, the
terms and conditions set forth below:
(a) Borrower shall give Lender written notice of its
election to extend the maturity date at least sixty (60) days prior to
the original maturity date.
(b) No Event of Default hereunder or under any other
Security Instruments, and no event which with notice or passage of
time, or both, would constitute such an Event of Default, shall have
occurred and be continuing.
(c) The Net Operating Income of the Property as
determined by Lender shall be sufficient to provide at least a 1.70
debt service coverage factor based upon the adjusted debt service
(principal and interest under the Loan).
(d) Borrower shall pay to Lender in immediately available
funds an extension fee equal to one percent (1%) of the outstanding
principal balance of the Loan as of the original Maturity Date.
(e) Borrower shall execute and deliver such modification
agreements and other documents as Lender may reasonably require in
connection with such extension, including endorsements to Lender's
mortgagee title insurance policy, and shall pay all costs and expenses
of Lender in connection with such extension, including reasonable
attorneys' fees.
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<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed as of May 2, 1996.
BORROWER:
BROCK SUITE GREENVILLE, INC.,
a Delaware corporation
/s/ MARK WEIBEL
- ------------------------------
Witness
By: /s/ MELVIN J. MELLE
------------------------------------
Name: Melvin J. Melle
-------------------------------
Title: Vice President
------------------------------
/s/ THOMAS L. BLOODWORTH
- ------------------------------
Witness
LENDER: ALLIED CAPITAL COMMERCIAL CORPORATION,
a Maryland corporation
/s/ AMY MITCHEM
- ------------------------------
Witness
By: /s/ CRAE RAMSEY
------------------------------------
/s/ CHRISTINA ABERNATHY Name: Crae Ramsey
- ------------------------------ -------------------------------
Witness Title: Assistant Vice President
------------------------------
BUSINESS MORTGAGE INVESTORS, INC.,
a Maryland corporation
/s/ AMY MITCHEM
- ------------------------------
Witness
By: /s/ CRAE RAMSEY
------------------------------------
Name: Crae Ramsey
-------------------------------
/s/ CHRISTINA ABERNATHY Title: Assistant Vice President
- ------------------------------ ------------------------------
Witness
LOAN AGREEMENT - Page 39
RESIDENCE INN/GREENVILLE, SC/67562
<PAGE> 46
EXHIBIT "A"
(LEGAL DESCRIPTION)
All that certain piece, parcel or tract of land situate, lying and being in the
State of South Carolina, County of Greenville, in the City of Greenville, as is
more fully shown on a plat entitled "ALTA/ACSM Land Title Survey for McPrice
Court Limited Partnership - Residence Inn (Marriott)" dated September 5, 1995
and prepared by Freeland-Clinkscales & Associates, Inc., containing 3.08 acres,
134,155 sq. ft., and recorded in the RMC Office for Greenville County, South
Carolina, in Plat Book 31-G at Page 2. The property is more particularly
described as follows:
Commencing at the intersection of Orchard Park Drive and McPrice Court;
thence along the western right-of-way of McPrice for the following
bearings and distances S14-25-00E for 38.59 feet to a point, S25-04-00W
for 260.73 feet to a point, S37-21-00W for 18.63 feet to a point,
S15-40-00W for 36.95 feet to an iron pin; said iron pin being the point
of beginning; thence with the right-of-way of McPrice Court, with a
radius of 50.00 feet and a chord bearing and distance of S48-51-40E for
67.89 feet to an iron pin; thence leaving the right-of-way of McPrice
Court along the common line with RIC Properties LTD Realty S01-10-42E for
14.10 feet to an iron pin, thence S52-39-09E for 304.68 feet to an iron
pin thence with the common line of the Marriott Corporation iron pin;
S37-21-15W for 345.00 feet to an iron pin on the Northeastern
right-of-way of Interstate Highway I-385; thence with the right-of-way of
I-385 N52-40-21W for 387.55 feet to an iron pin; thence leaving the
right-of-way of I-385 along the common line with CEA Properties
N37-18-34E for 344.98 feet to an iron pin; thence N60-14-14E for 17.01
feet to an iron pin, being the point of beginning. Said property
containing 3.08 acres.
GREENVILLE COUNTY TAX MAP REFERENCE:
#543.3-1-62
AND all easements appurtenant to the above described property, including that
certain non-exclusive storm drainage easement described in Exhibit "C" to that
certain deed from Alliance Haywood Associates to Orchard park Associates dated
September 28, 1982, and recorded in the RMC Office for Greenville County, South
Carolina in Deed Volume 1175 at page 42.
This being a portion of the same property conveyed to the Mortgagor herein by
Deeds of Daniel B. French, dated May 2, 1996 and recorded on May __, 1996 in
Deed Volume _____ at Page ______, and by Deed of McPrice Court Limited
Partnership, dated May 2, 1996 and recorded on May __, 1996 in Deed Volume ____
at Page ______, in the R.M.C. Office for Greenville County, South Carolina.
<PAGE> 47
EXHIBIT 4.14
SCHEDULE OF ENVIRONMENTAL REPORTS
PHASE I ENVIRONMENTAL SITE ASSESSMENT
DATED NOVEMBER 10, 1995,
PROJECT NOS. 09080039.95B AND 09080040.95E, PREPARED BY EMG.
<PAGE> 48
EXHIBIT 4.18
LIST OF MANAGEMENT PERSONNEL
FOLLOWS THIS COVER PAGE
<PAGE> 49
HUNTINGTON HOSPITALITY GROUP
CORPORATE STAFF RESPONSIBILITIES
MAIN OFFICE NUMBER: (214) 659-0259
MAIN OFFICE FAX NUMBER: (214)257-1175
- --------------------------------------------------------------------------------
President 3325 Kevin M. Keefer
- --------------------------------------------------------------------------------
Accounts Payable 3322 Lyn Beale
3320 Patti Kraemer
- --------------------------------------------------------------------------------
Business Development 3461 Patricia S. Santini
- --------------------------------------------------------------------------------
Computer/PC/Daily Report 3457 Jerry Davis
3327 Marye Ellyn Flaherty
- --------------------------------------------------------------------------------
Credit Cards/Chargebacks 3323 Cindy Russell
- --------------------------------------------------------------------------------
Daily Deposits 3457 Jerry Davis
3323 Cindy Russell
- --------------------------------------------------------------------------------
Forms 3386 Lesa Sorenson
- --------------------------------------------------------------------------------
General Ledger/Financial 3386 Lesa Sorenson
Statement Questions 3467 Julie Kirkland
- --------------------------------------------------------------------------------
3325 Kevin M. Keefer
- --------------------------------------------------------------------------------
3323 Cindy Russell
- --------------------------------------------------------------------------------
GM Reports 3457 Jerry Davis
- --------------------------------------------------------------------------------
G/L & P/L Distribution 3457 Jerry Davis
- --------------------------------------------------------------------------------
Internal Audit 3321 Tim Grantham
- --------------------------------------------------------------------------------
Manager Checks 3457 Jerry Davis
- --------------------------------------------------------------------------------
Night Audit Problems 3327 Marye Ellyn Flaherty
- --------------------------------------------------------------------------------
Payroll 3327 Marye Ellyn Flaherty
- --------------------------------------------------------------------------------
Property Tax 3467 Julie Kirkland
- --------------------------------------------------------------------------------
Sales/Occupancy Tax 3386 Lesa Sorenson
- --------------------------------------------------------------------------------
Property Manager: Mr. David Callahan Mason Hospitality
Ken Mason, President
Owner: Brock Suite Greenville, Inc.
a Delaware corporation
Directors: Charles A. Crocco, Jr.
Anthony J. Gumbiner
Robert L. Lynch
J. Thomas Talbot
Brian M. Troup
Officers: William L. Guzzetti - President
David R. A. Steadman - Executive Vice President
Kenneth F. Mason - Executive Vice President
Melvin J. Melle - Vice President & Secretary
Joseph T. Koenig - Assistant Secretary &
Treasurer
<PAGE> 50
EXHIBIT 4.20
LITIGATION SCHEDULE
None
<PAGE> 51
EXHIBIT 4.21
MATERIAL LEASES
None
<PAGE> 52
EXHIBIT 6.1
DEBTS
FOLLOWS THIS COVER PAGE
<PAGE> 53
EXHIBIT 6.4
OWNERSHIP INTERESTS IN BORROWER
Brock Suite Hotels, Inc. - 100%
<PAGE> 54
ALLIED LOAN NO. ___
PROMISSORY NOTE
$6,800,000.00 May 2, 1996
FOR VALUE RECEIVED the undersigned, BROCK SUITE GREENVILLE, INC., a
Delaware corporation ("Maker"), promises to pay to the order of ALLIED CAPITAL
COMMERCIAL CORPORATION and BUSINESS MORTGAGE INVESTORS, INC., both Maryland
corporations, their successors and assigns (hereinafter collectively referred
to as "Lender"), the principal sum of SIX MILLION EIGHT HUNDRED THOUSAND AND
NO/100 DOLLARS ($6,800,000.00), together with interest as set out herein, at
its offices or such other place as Lender may designate in writing.
Loan Agreement: This Promissory Note (the "Note") is subject to the terms of
a Loan Agreement between the Maker and the Lender dated the date hereof (the
"Loan Agreement"). The Lender is entitled to the benefits of the Loan
Agreement and all of the exhibits thereto, and reference is made thereto for a
description of all rights and remedies thereunder. Neither reference to the
Loan Agreement, nor any provision thereof or security for the other obligations
evidenced hereby, shall affect or impair the absolute and unconditional
obligation of the Maker to pay the principal amount hereof, together with all
interest accrued thereon and expenses, when due. Capitalized terms used herein
and not otherwise defined shall have the meanings set forth in the Loan
Agreement.
Payments:
A. Interest Rate. From date of advance interest shall accrue on
unpaid principal hereunder at the initial rate of twelve percent (12%) per
annum but, commencing June 1, 1996, shall be adjusted on the first day of the
month after each change of the "Prime Rate", as reported in The Wall Street
Journal, based on ( such changed "Prime Rate" in effect on the business day
before the first day of such month, plus ( three and five-tenths percent
(3.5%) per annum; provided, however, the interest rate shall not be less than
twelve percent (12%) per annum or more than seventeen percent (17%) per annum
(the "Interest Rate"). In the event The Wall Street Journal ceases publication
of the Prime Rate, then "Prime Rate" shall mean the prime rate (or base rate)
announced by Riggs National Bank, Washington, D.C. (whether or not such rate
has actually been charged by such bank). In the event such bank discontinues
the practice of announcing the Prime Rate, the "Prime Rate" shall mean the
highest rate charged by such bank on short term, unsecured loans to its most
creditworthy large corporate borrowers. In the event The Wall Street Journal
(i) publishes more than one Prime Rate, the higher or highest of such rates
shall apply, or (ii) publishes a retraction or correction of such rate, the
rate reported in such retraction or correction shall apply.
PROMISSORY NOTE - Page 1 MJM
Residence Inn, Greenville, SC/67562 ---
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<PAGE> 55
B. Payments of Principal and Interest. A payment of interest only
shall be made on June 1, 1996 for the period from the date of advance through
and including May 31, 1996. Commencing July 1, 1996 and continuing through May
1, 2001, principal and interest payments are due on the first day of each month
based on a nineteen (19)-year amortization schedule; provided that, such
installments shall be adjusted monthly to equal an amount necessary to amortize
the outstanding principal balance of the Note as of the first day of each month
(after application of the monthly payment of principal and interest due on such
date) with interest at the monthly adjusted interest rate pursuant to the
preceding paragraph, over the remaining amortization term as of such monthly
adjustment. All remaining indebtedness hereunder shall be due and payable in
full on May 3, 2001.
C. Maturity. This Note matures May 3, 2001.
D. Computation of Interest. All payments of interest due hereunder
shall be computed on the per annum basis of a year of three hundred sixty (360)
days for the actual number of days (including the first day but excluding the
last day) elapsed. In the event Maker fails to pay principal or interest on
this Note for ten (10) days after the date when due, whether by acceleration or
otherwise, Lender, may, at its option, impose a delinquency or late charge on
Maker, payable upon demand, equal to the greater of:
1. Five percent (5%) per annum in excess of the Interest
Rate (the "Default Rate") computed from the date such
payment was due and payable to the date of receipt of
such installment by Lender in good and immediately
available funds, or
2. Five percent (5%) of the amount of such past due payments
(except for the "balloon" payment of principal due on the
maturity date of the Note), notwithstanding the date on
which such payment is actually paid to Lender;
provided, however, that if any such late charge under subsections D.1 or 2
hereof is not recognized as liquidated damages for such delinquency (as
contemplated by Maker and Lender), and is deemed to be interest in excess of
the amount permitted to be charged to Maker under applicable law, Lender shall
be entitled to collect a late charge only at the highest rate permitted by law,
and any interest actually collected by Lender in excess of such lawful amount
shall be deemed a payment in reduction of the principal amount then outstanding
under this Note.
E. Other Payment Provisions. The Maker shall make each payment
hereunder not later than 4:00 P.M. (Eastern time) on the day when due, without
offset, in lawful money of the United States of America to the Lender or its
agent, designee, or assignee in same day funds at Payment Account No.
3933406260, P.O. Box 630796, Baltimore, Maryland 21263- 0796, Attention:
Allied Capital Commercial Corporation or pursuant to a wire transfer to
Lender's designated bank account, or at such place as Lender or its agent,
designee, or assignee may from time to time designate in writing. All payments
will be applied first to costs and fees owing hereunder, second to the payment
of accrued interest and the rest to the payment of principal. If the date for
any payment or prepayment hereunder falls on a day which is not a business day,
then for all purposes of this Note the same shall
PROMISSORY NOTE - Page 2 MJM
Residence Inn, Greenville, SC/67562 ---
Initials
<PAGE> 56
be deemed to have fallen on the next following business day, and such extension
of time shall in such case be included in the computation of payments of
interest.
F. Prepayment. Maker may at any time at its option upon thirty (30)
days' prior written notice to Lender prepay this Note in whole or in part;
provided, however, that Maker shall pay, in addition to such prepayment
(together with interest accrued thereon to the date of prepayment), a
prepayment premium equal to the product of the applicable percentage set forth
below multiplied by the then outstanding principal balance hereof:
<TABLE>
<CAPTION>
If Prepayment is Made
During 12-Month Period
Ending May 3 in the Year Percentage
-------------------------- ----------
<S> <C>
1997 4.0%
1998 3.5%
1999 3.0%
2000 2.0%
2001 1.0%
</TABLE>
Notwithstanding the foregoing, no prepayment premium shall be
applicable to a prepayment made on or after February 3, 2001. Any prepayment
shall be applied to the payment of the outstanding principal balance of this
Note in the inverse order in which principal payments are due hereunder.
If following the occurrence of any Event of Default, Maker shall
tender payment of an amount sufficient to satisfy the Debt at any time prior to
a sale of the Property, either through foreclosure or the exercise of the other
remedies available to Lender under the Mortgage, such tender by Maker shall be
deemed to be a voluntary prepayment under this Note in the amount tendered.
Maker shall, in addition to the entire indebtedness, also pay to Lender the
applicable prepayment consideration specified in this Note. If the prepayment
results from the application to the indebtedness of the casualty, insurance or
condemnation proceeds from the Property, no prepayment consideration will be
imposed. Partial prepayments of principal resulting from the application of
casualty, insurance or condemnation proceeds to the indebtedness shall not
change the amounts of subsequent monthly installments nor change the dates on
which such installments are due, unless Lender shall otherwise agree in
writing.
Collateral: This Note is secured by certain collateral under the terms of the
Loan Agreement.
Assignment: No assignment or transfer of this Note or the obligations
hereunder shall release or otherwise diminish the Maker's obligations hereunder
without the express prior written consent of Lender. Lender may freely assign
its rights hereunder. Lender shall provide written notice of such assignment
to Maker.
PROMISSORY NOTE - Page 3 MJM
Residence Inn, Greenville, SC/67562 ---
Initials
<PAGE> 57
Joint and Several Liability: If more than one party signs this instrument,
then all the undersigned shall be jointly and severally liable hereunder.
Default and Acceleration:
A. Upon an Event of Default, the Loan shall at the option of the
Lender be declared immediately due and payable without presentment, demand,
protest or further notice of any kind (all of which are hereby expressly
waived). In such event the Lender shall be entitled to be paid in full the
balance of any unpaid principal amount plus all accrued and unpaid interest and
any costs to enforce the terms hereof, including reasonable attorneys' fees,
and to any other remedies which may be available herein, in the Loan Agreement
or under any applicable law.
B. No course of dealing between the Lender and any other party hereto
or any failure or delay on the part of the Lender in exercising any rights or
remedies hereunder shall operate as a waiver of any rights or remedies of the
Lender under this or any other applicable instrument. No single or partial
exercise of any rights or remedies hereunder shall operate as a waiver or
preclude the exercise of any other rights or remedies hereunder.
C. Upon an Event of Default, Lender will have the rights and remedies
provided herein and in the Loan Agreement. After deducting all expenses
incidental to or arising from such sale or sales, Lender shall apply the
residue of the proceeds thereof to the payment of the indebtedness, as it shall
deem proper, returning the excess, if any, to the Maker. The Maker hereby
waives all right of appraisal whether before or after sale, and any right of
redemption after sale. The Maker shall have the right to redeem any collateral
up to time of a foreclosure sale by paying the aggregate indebtedness evidenced
hereby, including all unpaid principal and accrued and unpaid interest and all
costs incurred by Lender in enforcing the terms hereof, including reasonable
attorneys' fees.
D. Lender is further empowered to collect or cause to be collected or
otherwise to be converted into money all or any part of the collateral, by suit
or otherwise, and to surrender, compromise, release, renew, extend, exchange or
substitute any item of the collateral in transactions with the Maker or any
third party, irrespective of any assignment thereof by the Maker, and without
prior notice to or any consent of the Maker or any assignee. None of the
rights, remedies, privileges or powers of the Lender expressly provided for
herein shall be exclusive, but each of them shall be cumulative with and in
addition to every other right, remedy, privilege and power now or hereafter
existing in favor of Lender, whether at law or in equity, by statute or
otherwise.
E. The Maker will take all necessary and reasonable steps to
administer, supervise, preserve and protect the collateral; and regardless of
any action taken by Lender, there shall be no duty upon Lender in this respect.
The Maker shall pay all expenses of any nature, whether incurred in or out of
court, and whether incurred before or after this Note shall become due at its
maturity date or otherwise (including but not limited to reasonable attorneys'
fees and costs) which Lender may reasonably deem necessary or proper in
connection with the satisfaction of indebtedness or the administration,
supervision, preservation, protection of (including, but not limited to, the
maintenance of adequate insurance) or the realization upon the collateral.
Lender is authorized to
PROMISSORY NOTE - Page 4 MJM
Residence Inn, Greenville, SC/67562 ---
Initials
<PAGE> 58
pay at any time and from time to time any or all of such expenses, add the
amount of such payment to the amount of principal outstanding and charge
interest thereon at the rate specified herein.
F. The security rights of Lender and its assigns shall not be impaired
by Lender's sale, hypothecation or rehypothecation of this Note or any item of
the collateral, or by any indulgence, including, but not limited to: (1) Any
renewal, extension or modification which Lender may grant with respect to the
indebtedness or any part thereof; or (2) Any surrender, compromise, release,
renewal, extension, exchange or substitution which Lender may grant in respect
of the collateral; or (3) Any indulgence granted in respect of any endorser,
guarantor or surety. The purchaser, assignee, transferee or pledgee of this
Note, the collateral, any guaranty and any other document (or any of them),
sold, assigned, transferred, pledged or repledged by Lender, shall forthwith
become vested with and entitled to exercise all the powers and rights given by
this Note as if said purchaser, assignee, transferee or pledgee were originally
named as Lender in this Note.
Waiver: Except as specifically provided in the Loan Documents, Maker and any
endorsers, sureties or guarantors hereof jointly and severally waive
presentment and demand for payment, notice of intent to accelerate maturity,
notice of acceleration of maturity, protest and notice of protest and
non-payment, all applicable exemption rights, valuation and appraisement,
notice of demand, and all other notices in connection with the delivery,
acceptance, performance, default or enforcement of the payment of this Note and
the bringing of suit and diligence in taking any action to collect any sums
owing hereunder or in proceeding against any of the rights and collateral
securing payment hereof.
Cost and Fees: The Maker agrees that the Lender shall be reimbursed for any
and all costs and fees, including reasonable attorneys' fees and expenses,
incurred by the Lender or its affiliates in connection with (i) any suit,
action or proceeding of the Lender to enforce the provisions of this Note or
any other Loan Document, and (ii) any suit, action, claim or proceeding
relating to this Note or any other Loan Document asserted against the Lender or
its affiliates by any Maker, in connection with which Maker does not prevail
with respect to substantially all of Maker's claims.
Severability: In the event any one or more of the provisions contained in this
Note or any other Loan Document 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 of this Note or such
other Loan Documents, but this Note and such other Loan Document shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein or therein.
Definitions: The term indebtedness as used herein shall mean the indebtedness
evidenced by this Note, including principal, interest and expenses whether
contingent, now due or hereafter to become due, and whether heretofore or
contemporaneously herewith or hereafter contracted, and all other amounts due
under the provisions of the Loan Agreement. The Maker hereby declares,
represents and warrants that it is a business or commercial organization and
that the indebtedness evidenced hereby is made for the purpose of acquiring or
carrying on a business or commercial enterprise within the meaning of the laws
of the state in which the Property is located. The term collateral as used in
this Note shall mean the Property, any funds, guarantees or other property or
rights therein
PROMISSORY NOTE - Page 5 MJM
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Initials
<PAGE> 59
of any nature whatsoever or the proceeds thereof which may have been, are or
hereafter may be hypothecated directly or indirectly by the undersigned or
others in connection with, or as security for the indebtedness or any part
thereof. The collateral and each part thereof shall secure the indebtedness
and each part thereof.
Savings Clause: It is expressly stipulated and agreed to be the intent of
Maker and Lender at all times to comply with applicable state law or applicable
United States federal law (to the extent that it permits Lender to contract
for, charge, take, reserve or receive a greater amount of interest than under
state law) and that this section shall control every other covenant and
agreement in this Note and the other Loan Documents. If the applicable law
(state or federal) is ever judicially interpreted so as to render usurious any
amount called for under this Note or under any of the other Loan Documents, or
contracted for, charged, taken, reserved or received with respect to the
indebtedness evidenced by this Note and the other Loan Documents, or if
Lender's exercise of the option to accelerate the maturity of this Note, or if
any prepayment by Maker results in Maker having paid any interest in excess of
that permitted by applicable law, then it is Maker's and Lender's express
intent that all excess amounts theretofore collected by Lender be credited on
the principal balance of this Note (or, if this Note has been or would thereby
be paid in full, refunded to Maker), and the provisions of this Note and the
other Loan Documents immediately be deemed reformed and the amounts thereafter
collectible hereunder and thereunder reduced, without the necessity of the
execution of any new document, so as to comply with the applicable law, but so
as to permit the recovery of the fullest amount otherwise called for hereunder
and thereunder. All sums paid or agreed to be paid to Lender for the use,
forbearance and detention of the indebtedness evidenced hereby and by the other
Loan Documents shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of such indebtedness
until payment in full so that the rate or amount of interest on account of such
indebtedness does not exceed the maximum rate permitted under applicable law
from time to time in effect and applicable to the indebtedness evidenced hereby
for so long as such indebtedness remains outstanding. Notwithstanding anything
to the contrary contained herein or in any of the other Loan Documents, it is
not the intention of Lender to accelerate the maturity of any interest that has
not accrued at the time of such acceleration or to collect unearned interest at
the time of such acceleration.
Waiver of Trial by Jury: The Maker agrees that any suit, action or proceeding,
whether claim or counterclaim, brought or instituted by the Lender on or with
respect to this Note or any event, transaction or occurrence arising out of or
in any way connected with the Loan Agreement or the dealing of the parties with
respect thereto, shall be tried only by a court and not by a jury. THE MAKER
HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION
OR PROCEEDING. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND
VOLUNTARILY BY MAKER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE
AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE.
LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING
AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY MAKER. The Maker acknowledges and
agrees that the Lender would not enter into the Loan Agreement referenced above
if this waiver of jury trial were not part hereof.
PROMISSORY NOTE - Page 6 MJM
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<PAGE> 60
Controlling Law: THIS NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH THE PROPERTY IS
LOCATED (WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES) AND THE APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. MAKER HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY COURT OF COMPETENT JURISDICTION LOCATED IN THE STATE IN
WHICH THE PROPERTY IS LOCATED IN CONNECTION WITH ANY PROCEEDING OUT OF OR
RELATING TO THIS NOTE. The Maker agrees that service of any summons or
complaint, and other process which may be served in any action, may be made by
mailing via registered mail or delivering a copy of such process to the Maker,
and the Maker hereby agrees that this submission to jurisdiction and consent to
service of process are reasonable and made for the express benefit of Lender.
Entire Agreement: The provisions of this Note and the Loan Documents may be
amended or revised only by an instrument in writing signed by the Maker and
Lender. This Note and all the other Loan Documents embody the final, entire
agreement of Maker and Lender and supersede any and all prior commitments,
agreements, representations and understandings, whether written or oral,
relating to the subject matter hereof and thereof and may not be contradicted
or varied by evidence of prior, contemporaneous or subsequent oral agreements
or discussions of Maker and Lender. There are no oral agreements between Maker
and Lender.
PROMISSORY NOTE - Page 7 MJM
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<PAGE> 61
IN WITNESS WHEREOF, the undersigned has caused this Note to be
executed as of the day and year first above written.
BROCK SUITE GREENVILLE, INC.,
/s/ MARK WEIBEL a Delaware corporation
- ------------------------------
Witness
By: /s/ MELVIN J. MELLE
------------------------------------
Name: Melvin J. Melle
-------------------------------
/s/ THOMAS L. BLOODWORTH Title: Vice President
- ------------------------------ ------------------------------
Witness
PROMISSORY NOTE - Page 8 MJM
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Initials
<PAGE> 1
EXHIBIT 10.25
PROMISSORY NOTE
$476,562.50 Dallas, Texas
FOR VALUE RECEIVED, the undersigned, Anthony J. Gumbiner, an
individual ("Maker"), hereby promises to pay to the order of The Hallwood Group
Incorporated ("Payee"), at 3710 Rawlins, Suite 1500, Dallas, Texas 75219, the
principal sum of $476,562.50, together with interest, as hereinafter described.
The principal from day to day unpaid shall bear interest at a floating
rate per annum which shall from day to day be equal to the lesser of (a) three
quarters of one percent over the prime rate published in the Wall Street
Journal (Southwest Edition)(the "Floating Rate") or (b) the Highest Lawful Rate
(hereinafter defined). Each change in the rate charged hereunder shall,
subject to the terms of this note, become effective, without notice to Maker,
upon the date each change in prime rate is published in the Wall Street
Journal. At each interest payment and at maturity (stated or by acceleration),
the interest then payable shall be calculated from the date hereof on the
principal from day to day unpaid at the Floating Rate over the elapsed term
hereof; provided that (a) any interest previously paid shall be deducted from
the interest then payable; and (b) the total interest payable through such date
shall not exceed the Highest Lawful Rate over such elapsed term hereof.
The principal of and accrued interest on this note is payable in
quarterly installments of $31,250 each January 1, April 1, July 1 and October 1
until paid in full. Each payment shall be applied first to accrued and unpaid
interest and then to principal.
Maker may prepay all or part of the principal or accrued interest at
any time and from time to time, without premium or penalty. All partial
prepayments shall be applied first to accrued and unpaid interest and then to
principal.
The holder hereof may declare the entire unpaid principal of and
accrued interest on this note immediately due and payable, without notice,
demand, or presentment, all of which are hereby waived, foreclose any liens or
security interests securing all or any part hereof, offset against this note
any sum or sums owed by the holder hereof to Maker, or exercise any other right
or remedy to which the holder hereof may be entitled by agreement, at law, or
in equity, if (a) Maker fails or refuses to pay any part of the interest or
principal when due, or (b) Maker shall become insolvent, fail to pay Maker's
debts generally as they become due, or voluntarily or involuntarily be made the
subject of any proceeding provided for by any bankruptcy or similar debtor
relief law. Each right and remedy available to the holder hereof shall be
cumulative of and in addition to each other such right and remedy. No delay on
the part of the holder hereof in the exercise of any right or remedy available
to the holder hereof shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude other or further exercise thereof or exercise
of any other such right or remedy. At the option of the holder hereof, all
past-due
<PAGE> 2
principal and accrued interest shall, from maturity (stated or by acceleration)
until paid, bear simple interest at a rate per annum equal to the lesser of the
Highest Lawful Rate or the sum of the Floating Rate plus five percent (5%),
payable on demand.
If this note is placed in the hands of an attorney for collection, or
if it is collected through any legal proceedings, Maker agrees to pay court
costs, reasonable attorney's fees, and other costs of collection of the holder
hereof.
Regardless of any provision contained herein, the holder hereof shall
never be entitled to receive, collect, or apply, as interest on this note, any
amount in excess of the Highest Lawful Rate, and, in the event the holder
hereof ever receives, collects, or applies as interest, any such excess, such
amount which would be excessive interest shall be deemed a partial prepayment
of principal and treated hereunder as such; and, if the principal hereof is
paid in full, any remaining excess shall forthwith be paid to Maker. In
determining whether or not the interest paid or payable, under any specific
contingency, exceeds the Highest Lawful Rate, Maker and the holder hereof
shall, to the maximum extent permitted under applicable law, (a) treat all
advances hereunder as but a single extension of credit, (b) characterize any
nonprincipal payment as an expense, fee, or premium rather than as interest,
(c) exclude voluntary prepayments and the effects thereof, and (d) "spread" the
total amount of interest throughout the entire contemplated term hereof;
provided that, if the principal hereof is paid in full prior to the end of the
full contemplated term hereof, and if the interest received for the actual
period of existence thereof exceeds the Highest Lawful Rate, the holder hereof
shall refund to Maker the amount of such excess, and, in such event, the holder
hereof shall not be subject to any penalties provided by any laws for
contracting for, charging, taking, reserving, or receiving interest in excess
of the Highest Lawful Rate. As used herein, the term the "Highest Lawful Rate"
means the maximum rate of interest (or, if the context so requires, an amount
calculated at such rate) which the holder hereof is allowed to contract for,
charge, take, reserve, or receive applicable law after taking into account, to
the extent required by applicable law, any and all relevant payments or charges
made in connection with this note. To the extent the laws of the State of
Texas are applicable for purposes of determining the Highest Lawful Rate, such
term shall mean the "indicated rate ceiling" from time to time in effect under
Article 1.04, Title 79, Revised Civil Statutes of Texas, 1925, as amended, or,
if permitted by applicable law and effective upon the giving of the notices
required by such Article 1.04 (or effective upon any other date otherwise
specified by applicable law), the "monthly ceiling," the quarterly ceiling," or
the "annualized ceiling" from time to time in effect under such Article 1.04,
whichever the holder hereof shall elect to substitute for the "indicated rate
ceiling," and vice versa, each such substitution to have the effect provided in
such Article 1.04; and the holder hereof shall be entitled to make such
election from time to time and one or more times and, without notice to Maker,
to leave any such substitute rate in effect for subsequent periods in
accordance with subsection (h)(1) of such Article 1.04. Pursuant to Article
15.10(b) or Chapter 15, Title 79, Revised Civil Statutes of Texas, 1925, as
amended, Maker and the holder hereof expressly agrees that such Chapter 15
shall not govern or in any manner apply to this note or the indebtedness
covered hereby.
Maker, and any other party ever liable for payment of any part hereof
jointly and severally waive presentment and demand for payment, protest, notice
of intention to accelerate, and notice
2
<PAGE> 3
of protest and nonpayment, and agree that their liability on this note shall
not be affected by, and hereby consent to, any renewal or extension in the time
of payment hereof, any indulgences, or any release or change in any security
for the payment of this note.
Should this note be signed or endorsed by more than one person or
entity, all of the obligations contained herein shall be considered the joint
and several obligations of each maker and endorser hereof.
THE VALIDITY, CONSTRUCTION, AND ENFORCEABILITY OF THIS NOTE SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA AND
THE MAKER HEREBY CONSENTS TO THE JURISDICTION OF THE COURTS OF THE STATE OF
TEXAS.
Dated this 25th day of July, 1996.
ANTHONY J. GUMBINER
By: /s/ ANTHONY J. GUMBINER
--------------------------
3
<PAGE> 1
EXHIBIT 10.26
[MERRILL LYNCH LETTERHEAD]
June 4, 1996
The Hallwood Group Incorporated
3710 Rawlins Street, Suite 1500
Dallas, TX 75219-4236
RE: WCMA LINE OF CREDIT INCREASE
Ladies And Gentlemen:
This Letter Agreement will serve to confirm certain agreements of Merrill Lynch
Business Financial Services Inc. ("MLBFS") and The Hallwood Group Incorporated
("Customer") with respect to: (i) that certain WCMA NOTE AND LOAN AGREEMENT NO.
207-07U28 between MLBFS and Customer (including any previous amendments and
extensions thereof), and (ii) all other agreements between MLBFS and Customer
in connection therewith (collectively, the "Loan Documents"). Capitalized terms
used herein and not defined herein shall have the meaning set forth in the Loan
Documents.
Subject to the terms hereof, effective as of the "Effective Date" the Loan
Documents are hereby amended as follows:
1. The term "Maximum WCMA Line of Credit" shall mean an amount equal to the
lesser of: (A) 50% of the immediate liquidation value of all cash, instruments,
securities and other property of whatever kind or description now and hereafter
in or controlled by any Merrill Lynch securities accounts which have been
assigned to MLBFS as security for the Obligations, or (B) $7,000,000.00.
Increases and decreases in the Maximum WCMA Line of Credit may be made by MLBFS
pursuant to said formula at any time or times without notice. However, MLBFS
will not in any event be obligated to make any increase in the Maximum WCMA
Line of Credit pursuant to said formula more than once in any calendar month.
2. The "Line Fee" for the period ending April 30, 1997, is hereby increased to
$35,000.00, of which $10,000.00 (the "Additional Fee") is now due and owing.
Customer hereby authorizes and directs MLBFS to charge the Additional Fee to
WCMA Account No. 207-07U28 on or at any time after the Effective Date.
Except as expressly modified hereby, the Loan Documents shall continue in full
force and effect upon all of their terms and conditions. Nothing herein
shall be deemed to extend the Maturity Date of the WCMA Line of Credit.
Customer acknowledges, warrants and agrees, as a primary inducement to MLBFS to
enter into this Agreement, that: (i) no default or Event of Default has
occurred and is continuing under the Loan Documents; (ii) each of the
warranties of Customer in the Loan Documents are true and correct as of the
date hereof and shall be deemed remade as of the date hereof; (iii) Customer
<PAGE> 2
The Hallwood Group Incorporated
June 4, 1996
Page No. 2
does not have any claim against MLBFS or any of its affiliates arising out of
or in connection with the Loan Documents or any other matter whatsoever; and
(iv) Customer does not have any defense to payment of any amounts owing, or any
right of counterclaim for any reason under, the Loan Documents.
The amendments and agreements in this Letter Agreement will become effective on
the date (the "Effective Date") upon which: (i) Customer shall have executed
and returned the duplicate copy of this Letter Agreement enclosed herewith;
(ii) AN ADDITIONAL 719,682 SHARES OF SHOWBIZ PIZZA TIME, INC. STOCK SHALL BE
RECEIVED AND DEPOSITED INTO PLEDGED COLLATERAL ACCOUNT #207-07U29; (iii) an
officer of MLBFS shall have reviewed and approved this Letter Agreement as
being consistent in all respects with the original internal authorization
hereof; and (iv) to the extent applicable, MLBFS shall have entered such
amendments and agreements in its computer system (which MLBFS agrees to do
promptly after the receipt of such executed duplicate copy). Notwithstanding
the foregoing, if for any reason other than the sole fault of MLBFS the
Effective Date shall not occur within 14 days from the date of this Letter
Agreement, then all of said amendments and agreements herein will, at the sole
option of MLBFS, be void.
Very truly yours,
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
By: /s/ MICHAEL R. CHOCK
-------------------------------------
Michael R. Chock
Credit Services Account Manager
Accepted:
THE HALLWOOD GROUP INCORPORATED
By: /s/ MELVIN J. MELLE
-------------------------------------
Printed Name: Melvin J. Melle
----------------------------
Title: Vice President & C.F.O.
-----------------------------------
<PAGE> 1
EXHIBIT 11
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
1996 1995 1996 1995
------- ------- ------ --------
<S> <C> <C> <C> <C>
PRIMARY:
Average common share outstanding . . . . . . . . . . . . 1,326 1,370 1,325 1,367
Dilutive stock options based on the treasury stock method
using the period end market price . . . . . . . . . . 2 -- 2 --
------- ------- ------ --------
Average common and common share equivalents
outstanding . . . . . . . . . . . . . . . . . . . . . 1,328 1,370 1,327 1,367
======= ======= ====== ========
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 2,704 $ 1,519 $ 2,396 $ 86
======= ======= ====== ========
Net income per share . . . . . . . . . . . . . . . . . . $ 2.04 $ 1.11 $ 1.81 $ 0.06
======= ======= ====== ========
FULLY DILUTED:
Average common and common share equivalents
outstanding - primary . . . . . . . . . . . . . . . . 1,328 1,370 1,327 1,367
======= ======= ====== ========
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 2,704 $ 1,519 $ 2,396 $ 86
======= ======= ====== ========
Net income per share . . . . . . . . . . . . . . . . . . $ 2.04 $ 1.11 $ 1.81 $ 0.06
======= ======= ====== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 7,609
<SECURITIES> 24,424
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 15,526
<CURRENT-ASSETS> 0
<PP&E> 156,248
<DEPRECIATION> 122,186
<TOTAL-ASSETS> 112,890
<CURRENT-LIABILITIES> 0
<BONDS> 48,039
<COMMON> 160
1,000
0
<OTHER-SE> 2,151
<TOTAL-LIABILITY-AND-EQUITY> 112,890
<SALES> 0
<TOTAL-REVENUES> 59,588
<CGS> 0
<TOTAL-COSTS> 53,043
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,420
<INCOME-PRETAX> 3,125
<INCOME-TAX> 421
<INCOME-CONTINUING> 2,704
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,704
<EPS-PRIMARY> 2.04
<EPS-DILUTED> 2.04
</TABLE>
