<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 SEPTEMBER 30, 1998 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 [ ]
1,254,751 shares of Common Stock, $.10 par value per share, were
outstanding at October 31, 1998.
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<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:
Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997 . . . . . . . . . . . . . . . . . . 3-4
Consolidated Statements of Operations for the
Nine Months Ended September 30, 1998 and 1997 . . . . . . 5-6
Consolidated Statements of Operations for the
Three Months Ended September 30, 1998 and 1997 . . . . . . 7-8
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1998 and 1997 . . . . . . 9
Notes to Consolidated Financial Statements . . . . . . . . . 10-16
2 Managements's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . 17-24
PART II - OTHER INFORMATION
---------------------------
1 thru 6 Exhibits, Reports on Form 8-K and Signature Page . . . . . . 25-26
</TABLE>
Page 2
<PAGE> 3
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- -------------
ASSET MANAGEMENT (unaudited)
<S> <C> <C>
REAL ESTATE
Investments in HRP ........................ $ 7,569 $ 7,197
Receivables and other assets .............. 619 1,063
------------- -------------
8,188 8,260
ENERGY
Oil and gas properties, net ............... 10,242 9,589
Current assets of HEP ..................... 2,815 2,657
Noncurrent assets of HEP .................. 1,451 1,859
Receivables and other assets .............. 59 434
------------- -------------
14,567 14,539
------------- -------------
Total asset management assets ......... 22,755 22,799
OPERATING SUBSIDIARIES
TEXTILE PRODUCTS
Inventories ............................... 15,987 17,935
Receivables ............................... 13,119 14,296
Property, plant and equipment, net ........ 8,614 9,057
Other ..................................... 866 938
------------- -------------
38,586 42,226
HOTELS
Properties, net ........................... 32,357 14,168
Receivables and other assets .............. 4,414 1,742
------------- -------------
36,771 15,910
------------- -------------
Total operating subsidiaries assets ... 75,357 58,136
OTHER
Deferred tax asset, net ................... 2,040 2,040
Cash and cash equivalents ................. 1,337 4,737
Other ..................................... 844 1,557
Restricted cash ........................... 759 489
------------- -------------
Total other assets .................... 4,980 8,823
------------- -------------
TOTAL ................................. $ 103,092 $ 89,758
============= =============
</TABLE>
Page 3
<PAGE> 4
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
-------------- --------------
ASSET MANAGEMENT (unaudited)
<S> <C> <C>
REAL ESTATE
Accounts payable and accrued expenses .............................. $ 735 $ 1,295
Loan payable ....................................................... 500 500
-------------- --------------
1,235 1,795
ENERGY
Long-term obligations of HEP ....................................... 4,670 4,731
Current liabilities of HEP ......................................... 3,380 2,793
Loan payable ....................................................... 2,667 3,867
Accounts payable and accrued expenses .............................. 595 548
-------------- --------------
11,312 11,939
-------------- --------------
Total asset management liabilities ............................. 12,547 13,734
OPERATING SUBSIDIARIES
TEXTILE PRODUCTS
Loan payable ....................................................... 10,200 13,800
Accounts payable and accrued expenses .............................. 7,882 7,771
-------------- --------------
18,082 21,571
HOTELS
Loans payable ...................................................... 30,457 12,019
Accounts payable and accrued expenses .............................. 2,007 1,607
-------------- --------------
32,464 13,626
-------------- --------------
Total operating subsidiaries liabilities ....................... 50,546 35,197
OTHER
7% Collateralized Senior Subordinated Debentures ................... 14,824 24,292
10% Collateralized Subordinated Debentures ......................... 6,818 --
Interest and other accrued expenses ................................ 1,046 1,364
-------------- --------------
Total other liabilities ........................................ 22,688 25,656
-------------- --------------
TOTAL LIABILITIES .............................................. 85,781 74,587
REDEEMABLE PREFERRED STOCK
Series B, 250,000 shares issued and outstanding;
stated at redemption value .................................... 1,000 1,000
STOCKHOLDERS' EQUITY
Preferred stock, 250,000 shares issued and outstanding as
Series B .......................................................... -- --
Common stock, issued 1,597,204 shares at both dates;
outstanding 1,254,751 and 1,261,757 shares, respectively ....... 160 160
Additional paid-in capital ......................................... 54,823 54,823
Accumulated deficit ................................................ (29,303) (31,693)
Treasury stock, 342,453 and 335,447 shares, respectively, at cost .. (9,369) (9,119)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY ..................................... 16,311 14,171
-------------- --------------
TOTAL .......................................................... $ 103,092 $ 89,758
============== ==============
</TABLE>
Page 4
<PAGE> 5
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
ASSET MANAGEMENT
REAL ESTATE
Fees ......................................... $ 4,107 $ 3,648
Equity income from investments in HRP ........ 882 625
-------------- --------------
4,989 4,273
Administrative expenses ...................... 1,442 1,427
Depreciation and amortization ................ 504 504
Interest ..................................... 58 120
Provisions for loss .......................... -- 81
-------------- --------------
2,004 2,132
-------------- --------------
Income from real estate operations ....... 2,985 2,141
ENERGY
Gas revenues ................................. 2,830 2,781
Oil revenues ................................. 1,081 1,502
Other income ................................. 56 247
-------------- --------------
3,967 4,530
Depreciation, depletion and amortization ..... 1,206 982
Operating expenses ........................... 1,133 1,075
Administrative expenses ...................... 679 726
Interest ..................................... 411 306
-------------- --------------
3,429 3,089
-------------- --------------
Income from energy operations ............ 538 1,441
-------------- --------------
Income from asset management operations .. 3,523 3,582
OPERATING SUBSIDIARIES
TEXTILE PRODUCTS
Sales ........................................ 63,420 70,139
Cost of sales ................................ 54,847 60,769
Administrative and selling expenses .......... 6,684 6,858
Interest ..................................... 741 775
-------------- --------------
62,272 68,402
-------------- --------------
Income from textile products operations .. 1,148 1,737
</TABLE>
Page 5
<PAGE> 6
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
OPERATING SUBSIDIARIES (CONTINUED) 1998 1997
-------------- --------------
<S> <C> <C>
HOTELS
Sales ................................................ $ 16,013 $ 16,543
Operating expenses ................................... 14,004 13,268
Depreciation and amortization ........................ 2,051 2,000
Interest ............................................. 847 1,106
-------------- --------------
16,902 16,374
-------------- --------------
Income (loss) from hotel operations .............. (889) 169
-------------- --------------
Income from operating subsidiaries ............... 259 1,906
ASSOCIATED COMPANY
Income from investment in ShowBiz .................... -- 19,416
Interest ............................................. -- 607
-------------- --------------
Income from associated company ................... -- 18,809
OTHER
Litigation settlement ................................ 1,025 --
Fee income ........................................... 412 423
Interest on short-term investments and other income .. 142 862
-------------- --------------
1,579 1,285
Administrative expenses .............................. 1,982 2,095
Interest ............................................. 706 2,931
-------------- --------------
2,688 5,026
-------------- --------------
Other loss, net .................................. (1,109) (3,741)
-------------- --------------
Income before income taxes and extraordinary gain .... 2,673 20,556
Income taxes ......................................... 340 9,776
-------------- --------------
Income before extraordinary gain ..................... 2,333 10,780
Extraordinary gain from early extinguishment
of debt ............................................. 107 877
-------------- --------------
NET INCOME ................................................. $ 2,440 $ 11,657
============== ==============
PER COMMON SHARE
BASIC
Income before extraordinary gain ..................... $ 1.82 $ 7.38
Extraordinary gain from early extinguishment
of debt ............................................. 0.08 0.60
-------------- --------------
Net income ....................................... $ 1.90 $ 7.98
============== ==============
ASSUMING DILUTION
Income before extraordinary gain ..................... $ 1.75 $ 7.20
Extraordinary gain from early extinguishment
of debt ............................................. 0.08 0.59
-------------- --------------
Net income ....................................... $ 1.83 $ 7.79
============== ==============
</TABLE>
Page 6
<PAGE> 7
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
ASSET MANAGEMENT
REAL ESTATE
Fees ................................................ $ 1,390 $ 1,120
Equity income from investments in HRP ............... 516 219
-------------- --------------
1,906 1,339
Administrative expenses ............................. 427 313
Depreciation and amortization ....................... 168 168
Provision for loss .................................. -- 81
Interest ............................................ -- 40
-------------- --------------
595 602
-------------- --------------
Income from real estate operations .............. 1,311 737
ENERGY
Gas revenues ........................................ 985 1,071
Oil revenues ........................................ 338 482
Other income (loss) ................................. (18) 23
-------------- --------------
1,305 1,576
Depreciation, depletion and amortization ............ 520 355
Operating expenses .................................. 333 415
Administrative expenses ............................. 233 218
Interest ............................................ 136 82
-------------- --------------
1,222 1,070
-------------- --------------
Income from energy operations ................... 83 506
-------------- --------------
Income from asset management operations ......... 1,394 1,243
OPERATING SUBSIDIARIES
TEXTILE PRODUCTS
Sales ............................................... 17,808 19,655
Cost of sales ....................................... 15,405 17,221
Administrative and selling expenses ................. 2,152 2,200
Interest ............................................ 193 247
-------------- --------------
17,750 19,668
-------------- --------------
Income (loss) from textile products operations .. 58 (13)
</TABLE>
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<PAGE> 8
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
OPERATING SUBSIDIARIES (CONTINUED) 1998 1997
-------------- --------------
<S> <C> <C>
HOTELS
Sales ............................................... $ 5,667 $ 5,107
Operating expenses .................................. 5,024 4,239
Depreciation and amortization ....................... 713 626
Interest ............................................ 346 374
-------------- --------------
6,083 5,239
-------------- --------------
Loss from hotel operations ...................... (416) (132)
-------------- --------------
Loss from operating subsidiaries ................ (358) (145)
OTHER
Fee income .......................................... 137 138
Interest on short-term investments and other income . 20 298
-------------- --------------
157 436
Administrative expenses ............................. 622 718
Interest ............................................ 247 711
-------------- --------------
869 1,429
-------------- --------------
Other loss, net ................................. (712) (993)
-------------- --------------
Income before income taxes .......................... 324 105
Income taxes ........................................ 133 50
-------------- --------------
NET INCOME ................................................ $ 191 $ 55
============== ==============
NET INCOME PER COMMON SHARE
Basic ............................................... $ 0.15 $ 0.04
============== ==============
Assuming Dilution ................................... $ 0.15 $ 0.04
============== ==============
</TABLE>
Page 8
<PAGE> 9
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................. $ 2,440 $ 11,657
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, depletion and amortization ................ 4,817 4,367
Undistributed income from HEP ........................... (1,968) (2,684)
Distributions from HEP .................................. 1,552 1,427
Equity in net (income) of HRP ........................... (882) (625)
Amortization of deferred gain from debenture exchange ... (397) (448)
Extraordinary gain from extinguishment of debt .......... (107) (877)
Equity in net (income) of ShowBiz ....................... -- (1,139)
Gain from sale of investment in ShowBiz ................. -- (18,277)
Net change in deferred tax asset ........................ -- 8,960
Payment of ShowBiz Participation Amount ................. -- (1,256)
Net change in accrued interest on 13.5% Debentures ...... -- 1,313
Provision for loss ...................................... -- 81
Net change in textile products assets and liabilities ... 3,264 (1,941)
Net change in other assets and liabilities .............. (554) 856
Net change in energy assets and liabilities ............. 75 98
-------------- --------------
Net cash provided by operating activities ........... 8,240 1,512
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of hotel properties and related assets ............ (20,378) --
Investments in hotel properties ............................ (1,295) (1,044)
Investments in textile products property and equipment ..... (569) (903)
Net change in restricted cash for investing activities ..... (270) (276)
Investment in HEP by general partner ....................... (171) --
Investments in energy property and equipment ............... (149) (164)
Net proceeds from sale of investment in ShowBiz ............ -- 40,323
Purchase of minority shares of HEC ......................... -- (648)
-------------- --------------
Net cash provided by (used in) investing
activities ...................................... (22,832) 37,288
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank borrowings and loans payable ............ 18,550 1,650
Repayment of bank borrowings and loans payable ............. (4,912) (13,048)
Repurchase of 7% Debentures ................................ (2,146) --
Purchase of common stock for treasury ...................... (250) (8,373)
Payment of preferred stock dividends ....................... (50) (50)
Repurchase of 13.5% Debentures ............................. -- (12,875)
-------------- --------------
Net cash provided by (used in) financing
activities ...................................... 11,192 (32,696)
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......... (3,400) 6,104
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................ 4,737 7,495
-------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ...................... $ 1,337 $ 13,599
============== ==============
</TABLE>
Page 9
<PAGE> 10
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS AND ACCOUNTING POLICIES
Interim Consolidated Financial Statements. The interim consolidated
financial statements of The Hallwood Group Incorporated (the "Company")
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 year ended December 31, 1997.
Accounting Policies. The Company has adopted Statement of Financial
Accounting Standards No. 130 - Reporting Comprehensive Income, effective
January 1, 1998. The Company had no items of other comprehensive income
for the periods presented herein.
In June 1998, SFAS No. 133 - Accounting for Derivative Instruments
and Hedging Activities was issued, which requires companies to recognize
all derivatives as either assets or liabilities in the balance sheet and
measure those instruments at fair value. The changes in the fair value of
a derivative depends on the intended use of the derivative. The Company
currently has hedging contracts in its energy segment as related to oil and
gas activities. The statement is effective for all quarters for fiscal
years beginning after June 15, 1999. The Company has not fully assessed
the impact that will result from adopting SFAS No. 133.
2. INVESTMENTS IN REAL ESTATE AFFILIATE AND ASSOCIATED COMPANY (DOLLAR AMOUNTS
IN THOUSANDS):
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998 AMOUNT AT INCOME FROM INVESTMENTS
------------------------- WHICH CARRIED AT FOR THE NINE MONTHS ENDED
COST OR -------------------------- SEPTEMBER 30,
BUSINESS SEGMENTS AND NUMBER OF ASCRIBED SEPTEMBER 30, DECEMBER 31, -------------------------
DESCRIPTION OF INVESTMENT UNITS VALUE 1998 1997 1998 1997
------------------------- ------------ ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REAL ESTATE AFFILIATE
HALLWOOD REALTY PARTNERS, L.P. (A)
- General partner interest ......... -- $ 8,650 $ 3,955 $ 4,435 $ 30 $ 19
- Limited partner interest ......... 413,040 5,381 3,614 2,762 852 606
----------- ----------- ----------- ----------- -----------
Totals ......................... $ 14,031 $ 7,569 $ 7,197 $ 882 $ 625
=========== =========== =========== =========== ===========
ASSOCIATED COMPANY
SHOWBIZ PIZZA TIME, INC. (B)
- Common stock
Equity in earnings ............. $ 1,139
Gain on sale of shares ......... 18,277
-----------
Totals ......................... $ 19,416
===========
</TABLE>
(A) At September 30, 1998, 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 Company accounts for its
investment in HRP using the equity method of accounting. In addition
to recording its share of net income (loss), the Company also records
its pro rata share of any partner capital transactions reported by
HRP. The carrying value of the Company's investment in HRP includes
such non-cash adjustments for its pro-rata share of HRP's capital
transactions with corresponding adjustments to additional paid-in
capital. The cumulative amount of such adjustments from the original
date of investment through September 30, 1998, resulted in a $49,000
decrease in the carrying value of the HRP investment.
The carrying value of the Company's general partner interest
includes the value of intangible rights to provide asset management
and property management services. The Company amortizes that
portion of the general partner interest ascribed to the management
rights. For the nine months ended September 30, 1998 and 1997 such
amortization was $504,000 in each period.
Page 10
<PAGE> 11
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
As discussed in Note 4, the Company has pledged 89,269 limited
partner units to collateralize a promissory note in the principal
amount of $500,000 and issued a limited negative pledge on all of
the HRP units, including the 89,269 pledged units, to secure the
energy term loan.
The quoted market price and the Company's carrying value per limited
partner unit (Quotron symbol HRY) at September 30, 1998 were $56.00
and $8.75, respectively. The general partner interest is not publicly
traded.
(B) The Company accounted for its investment in ShowBiz Pizza Time, Inc.
("ShowBiz") using the equity method of accounting. For the 1997
nine month period the equity income was $1,139,000. ShowBiz changed
its name in June 1998 to CEC Entertainment, Inc.
In March 1997, the Company completed the sale of its entire
2,632,983 shares of ShowBiz common stock at $15.68 per share, net
of underwriting commissions. A portion of the proceeds from the
sale was used to repay a $7,000,000 line of credit and a $4,000,000
promissory note. The Company reported a gain of $18,277,000 from
the transaction.
3. LITIGATION, CONTINGENCIES AND COMMITMENTS
Reference is made to Note 17 to the consolidated financial statements
contained in Form 10-K for the year ended December 31, 1997. There has
been no significant change since that time.
4. LOANS PAYABLE
Loans payable at the balance sheet dates are detailed below by business
segment (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
-------------- --------------
<S> <C> <C>
Real Estate
Promissory note, 8%, originally due March 1998 (see below) .. $ 500 $ 500
Energy
Term loan, libor + 3.5%, due May 2000 ....................... 2,667 3,867
Textile Products
Revolving credit facility, prime + .25%, due January 2000 ... 10,200 13,800
Hotels
Term loan, 7.5% fixed, due October 2008 ..................... 17,250 --
Term loan, 7.86% fixed, due January 2008 .................... 6,687 6,750
Term loan, 8.20% fixed, due November 2007 ................... 5,220 5,269
Term loan, libor + 7.5%, due October 2005 ................... 1,300 --
-------------- --------------
30,457 12,019
-------------- --------------
Total .................................................... $ 43,824 $ 30,186
============== ==============
</TABLE>
Further information by business segment 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 due March 8, 1998. The
Page 11
<PAGE> 12
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
note is secured by a pledge of 89,269 HRP limited partner units. The
settlement agreement also provided that the noteholder had 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 $8.44 per unit, but in
no event more than an additional $500,000 (the "HRP Participation Amount").
The Company accrued the full amount of $500,000 as a charge to interest
expense, of which $50,000 and $90,000 were recorded in the nine months
ended September 30, 1998 and 1997, respectively.
The Company tendered full payment, including the HRP Participation
Amount totaling $1,000,000, in March 1998, although it reserved its rights
to litigate the validity of an earlier tender that was rejected by the
noteholder. The noteholder refused acceptance of the tendered payment and
returned it to the Company and instituted litigation in the State of
Delaware. The litigation is currently in the discovery phase and a trial
date has not yet been scheduled.
Energy
Term loan. In November 1997, the Company's HEPGP Ltd. partnership
("HEPGP") amended, restated and increased its term loan to $4,000,000 from
the First Union Bank of North Carolina. The term loan is collateralized by
all of the Company's HEP limited partner units and its investment in HEPGP
and Hallwood GP, Inc. HEPGP has also pledged its direct interests in
certain oil and gas properties. Other significant terms include: (i)
maturity date of May 15, 2000; (ii) monthly principal payments of $133,000,
plus interest; (iii) interest rate of libor plus 3.5% (9.09% at September
30, 1998); (iv) a limited negative pledge relating to the Company's HRP
limited partner units; and (v) restrictions on the declaration of
distributions or redemptions of partnership interests. The outstanding
balance at September 30, 1998 was $2,667,000.
Included in the consolidated balance sheets are the Company's share of
long-term obligations of its affiliated entity, Hallwood Energy Partners,
L.P. ("HEP") in the amount of $4,670,000 and $4,731,000 at September 30,
1998 and December 31, 1997, respectively.
Textile Products
Revolving credit facility. In January 1997, the Company's Brookwood
subsidiary entered into a new revolving credit facility in an amount of up
to $14,000,000 ($15,000,000 between April and June 1997) with The Bank of
New York ("BNY"). The facility was amended on April 30, 1998 to
temporarily increase the facility to $17,500,000 for the period between
March and August 1998, and to permanently increase the amount to
$15,000,000 thereafter. Borrowings are collateralized by accounts
receivable, inventory imported under trade letters of credit, certain
finished goods inventory, the machinery and equipment of Brookwood's
subsidiaries and all of the issued and outstanding capital stock of
Brookwood and its subsidiaries. The BNY facility expires on January 7,
2000 and bears interest, at Brookwood's option, at one-quarter percent over
prime (8.50% at September 30, 1998) or libor plus 2.25%. Availability for
direct borrowings and letter of credit obligations under the facility are
limited to the lesser of the facility or the formula borrowing base, as
defined in the agreement. The facility contains covenants, which include
maintenance of certain financial ratios, restrictions on dividends and
repayment of debt or cash transfers to the Company. The outstanding
balance at September 30, 1998 was $10,200,000.
Hotels
Term Loans. In September 1998, the Company formed two new
wholly-owned subsidiaries, Hallwood Hotels - OKC Inc. to acquire the fee
interest in the Embassy Suites hotel in Oklahoma City, Oklahoma for
$18,250,000, and Hallwood Hotels - OKC Mezz, Inc. to acquire a mezzanine
loan related to that fee acquisition. Prior to the fee acquisition, the
Company held a leasehold interest in the hotel. The mortgage loan for
$17,250,000 included the following significant terms: (i) fixed interest
rate of 7.5%; (ii) monthly loan payments of $127,476, based upon a 25-year
amortization schedule, with a maturity date of October 2008; (iii)
prepayment
Page 12
<PAGE> 13
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
permitted after November 2000, subject to yield maintenance provisions and;
(iv) various other financial and non-financial covenants.
The mezzanine loan for $1,300,000 included the following significant
terms: (i) interest rate of libor plus 7.5% (13.15% at September 30, 1998),
subject to an interest rate cap of 15%; (iii) maturity date of October
2005; and (iv) prepayment permitted at any time without penalty, upon
30-day notice to lender.
Term loan. In December 1997, the Company's Brock Suite Greenville,
Inc. subsidiary entered into a new $6,750,000 mortgage loan, collateralized
by the Residence Inn hotel located in Greenville, South Carolina, which
replaced the former term loan. Significant terms include: (i) fixed
interest rate of 7.86%; (ii) monthly loan payments of $51,473 based upon
25-year amortization schedule with a maturity date of January 2008; (iii)
prepayment permitted after December 1999, subject to yield maintenance
provisions and (iv) various other financial and non-financial covenants.
The outstanding balance at September 30, 1998 was $6,687,000.
Term loan. In October 1997, the Company's Brock Suite Tulsa, Inc.
subsidiary entered into a new $5,280,000 mortgage loan collateralized by
the Residence Inn hotel in Tulsa, Oklahoma, which replaced the former term
loan. Significant terms include: (i) fixed interest rate of 8.20%; (ii)
monthly loan payments of $41,454, based upon 25-year amortization
schedule, with a maturity date of November 2007; (iii) prepayment permitted
after October 2001, subject to yield maintenance provisions and; (iv)
various other financial and non-financial covenants. The outstanding
balance at September 30, 1998 was $5,220,000.
5. 7% COLLATERALIZED SENIOR SUBORDINATED DEBENTURES AND 10% COLLATERALIZED
SUBORDINATED DEBENTURES
1993 Exchange Offer. In March 1993, the Company completed an exchange
offer whereby $27,481,000 of its former 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 all 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 BNY.
Between 1994 and 1997, the Company 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. In
January 1998, the Company repurchased 7% Debentures with a face amount of
$2,253,000 for $2,146,000, to fully satisfy the balance of the sinking fund
requirement contained in the indenture. The repurchase resulted in an
extraordinary gain from debt extinguishment of $107,000 in the 1998 first
quarter.
1998 Exchange Offer. On June 17, 1998, the Company announced a
commission-free exchange offer to all holders of 7% Debentures. The
Company offered to exchange 7% Debentures for a new issue of 8.5%
Collateralized Subordinated Debentures, due July 31, 2005, in the ratio of
$100 principal amount of 8.5% Debentures for each $100 principal amount of
7% Debentures tendered. On July 31, 1998 the Company extended the
expiration date to August 28, 1998, and increased the interest rate from
8.5% to 10% for the new issue (the "10% Debentures"). Terms and
conditions of the exchange offer were described in an exchange offer
circular, dated June 22, 1998, and a supplemental modification letter dated
July 31, 1998, both of which were mailed to all holders of 7% Debentures.
The 7% debentureholders tendered $6,467,830, or 31%, of the outstanding
principal amount.
The 10% Debentures were listed on The New York Stock Exchange and
commenced trading on Monday, August 31, 1998. The direct costs of the
exchange offer, in the amount of $113,000, were expensed in the 1998 third
quarter. For accounting purposes, a pro-rata portion of the $1,121,000
unamortized gain attributable to the 7% Debentures, in the amount of
$353,000, was allocated to the 10% Debentures, and will be amortized over
the
Page 13
<PAGE> 14
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
term of the 10% Debentures using the effective interest method, which
decreased the rate for financial reporting to 8.94%.
The 10% Debentures are secured by a first and senior lien on the
capital stock of the Company's Brock Suites Hotels, Inc. subsidiary and by a
subordinate and junior lien on the capital stock of the Brookwood and
Hallwood Hotels, Inc. subsidiaries which are pledged to secure the 7%
Debentures.
Balance sheet amounts are detailed below (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
DESCRIPTION 1998 1997
---------------------------------------- -------------- --------------
<S> <C> <C>
7% Debentures (face amount) ............ $ 14,087 $ 22,808
Unamortized gain from exchange, net of
accumulated amortization ............ 737 1,484
-------------- --------------
14,824 24,292
10% Debentures (face amount) ........... 6,468 --
Unamortized gain from exchange, net of
accumulated amortization ............ 350 --
-------------- --------------
6,818 --
-------------- --------------
Totals ........................... $ 21,642 $ 24,292
============== ==============
</TABLE>
6. INCOME TAXES
The following is a summary of income tax expense (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Federal
Current ....... $ 10 $ 10 $ 40 $ 535
Deferred ...... -- -- -- 8,960
-------------- -------------- -------------- --------------
Sub-total .. 10 10 40 9,495
State ............ 123 40 300 281
-------------- -------------- -------------- --------------
Total ...... $ 133 $ 50 $ 340 $ 9,776
============== ============== ============== ==============
</TABLE>
As a result of the substantial tax gain from the March 1997 sale of
ShowBiz, the Company recorded a related non-cash deferred federal tax
charge of $8,960,000 in the 1997 first quarter, which reflected the
realization of tax benefits from the utilization of the Company's tax net
operating loss carryforwards ("NOLs") and a current federal tax charge of
$500,000 for alternative minimum tax.
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 deferred tax asset (net of valuation allowance) was
$2,040,000 at September 30, 1998. 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 14
<PAGE> 15
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
7. SUPPLEMENTAL DISCLOSURES TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
DESCRIPTION 1998 1997
--------------------------------------------- -------------- --------------
<S> <C> <C>
Supplemental schedule of noncash investing and financing activities:
Exchange of 10% Debentures for 7% Debentures ...................... $ 6,821 $ --
Issuance of treasury stock in exchange for
common shares of ShowBiz:
Investment in ShowBiz .......................................... -- 3,820
Reduction of additional paid-in capital ........................ -- 2,626
-------------- --------------
Reduction in treasury stock .................................... -- 6,446
Repayment of note payable from funds held in
restricted cash ................................................ -- 375
Recording of proportionate share of stockholders'
equity transaction of equity investments ....................... -- 143
Supplemental disclosures of cash payments:
Interest paid ..................................................... $ 3,038 $ 5,550
Income taxes paid ................................................. 446 655
</TABLE>
8. COMPUTATION OF EARNINGS PER SHARE
The following table reconciles the Company's net income to net income
available to common stockholders, and the number of equivalent common
shares used in the calculation of net income for the basic and assuming
dilution methods (in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
DESCRIPTION 1998 1997 1998 1997
--------------------------------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
NET INCOME
Net income, as reported ..................... $ 191 $ 55 $ 2,440 $ 11,657
Less: Dividends on preferred stock .......... -- -- 50 50
-------------- -------------- -------------- --------------
Net income available to common
stockholders .............................. $ 191 $ 55 $ 2,390 $ 11,607
============== ============== ============== ==============
AVERAGE SHARES OUTSTANDING
Outstanding shares - basic .................. 1,255 1,262 1,255 1,455
Stock options ............................... 44 37 52 35
-------------- -------------- -------------- --------------
Outstanding shares - assuming dilution ...... 1,299 1,299 1,307 1,490
============== ============== ============== ==============
NET INCOME PER COMMON SHARE
Basic ....................................... $ 0.15 $ 0.04 $ 1.90 $ 7.98
============== ============== ============== ==============
Assuming dilution ........................... $ 0.15 $ 0.04 $ 1.83 $ 7.79
============== ============== ============== ==============
</TABLE>
Page 15
<PAGE> 16
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
9. HOTEL ACQUISITIONS
In July 1998, the Company completed the purchase of 315 owner's rental
contracts, real estate and certain other assets at The Enclave Suites, a
resort condominium hotel located in Orlando, Florida for $2,100,000. The
acquisition was funded by working capital.
In September 1998, the Company purchased the fee interest in the
Embassy Suites hotel in Oklahoma City, Oklahoma for $18,250,000, which was
financed by term loans. See also Note 4.
Page 16
<PAGE> 17
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 $191,000 for the third quarter
ended September 30, 1998, compared to net income of $55,000 in the 1997
period. The nine month net income was $2,440,000 compared to net income of
$11,657,000 in the 1997 period. Total revenue for the 1998 third quarter
was $26,843,000, compared to $28,113,000 in the prior-year period. For the
nine months, revenue was $89,968,000, compared to $116,186,000 in the
prior-year period. The 1997 nine months results included a gain of
$18,277,000 from the sale of the Company's investment in ShowBiz, partially
offset by a related tax charge (principally non-cash) of $9,485,000.
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 $1,390,000 for the quarter ended September 30,
1998 increased by $270,000, or 24%, from $1,120,000 in the prior-year
period. Fee income of $4,107,000 for the nine months increased by $459,000,
or 13%, from $3,648,000 for the similar period a year ago. Fees are
derived from asset management, property management, leasing and
construction supervision services provided to its Hallwood Realty Partners,
L.P. affiliate, a real estate master limited partnership ("HRP") and
various third parties. The increases are due primarily to increased
leasing fees and brokerage fees earned from various third parties.
The equity income from investments in HRP represents the Company's
recognition of its pro rata share of the income reported by HRP and
amortization of negative goodwill. For the 1998 third quarter, the Company
reported income of $516,000 compared to income of $219,000 in the period a
year ago. The comparative nine month amounts were income of $882,000 in
1998 and $625,000 in 1997. The three and nine month increase resulted
principally from HRP's improved operating performance in 1998, partially
offset by an extraordinary loss from early extinguishment of debt.
Expenses. Administrative expenses of $427,000 and $1,442,000 , in the
1998 third quarter and nine month periods, increased from $313,000 and
$1,427,000 in the comparable 1997 periods, due to higher leasing
commissions paid in connection with higher leasing fees earned.
Amortization expense of $168,000 for the third quarter and $504,000
for the nine months in both the 1998 and 1997 periods relate to HRC's
general partner investment in HRP to the extent allocated to management
rights.
Interest expense decreased to $-0- from $40,000 in the third quarter
and to $58,000 from $120,000 in the nine month period for 1998 and 1997,
respectively, primarily due to reduced charges in the 1998 periods for the
HRP Participation Amount discussed in Note 4.
The provision for loss of $81,000 in the 1997 third quarter relates to
the uncollectibility of a tenant receivable deposit from the December 1995
sale of the United Kingdom office-retail property.
ENERGY.
Revenue. After the Company's successful completion of the tender
offer for the minority shares of Hallwood Energy Corporation ("HEC") and
the subsequent merger of HEC in November 1996, it effectively acquired
ownership of the assets formerly held by HEC. Following the merger,
certain HEC assets were transferred to two wholly owned entities. The two
entities, in addition to other energy assets which remain with the Company,
constitute the Company's
Page 17
<PAGE> 18
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
investment in the energy industry. The general partner interest in HEP
entitles the general partner to interests in HEP's properties ranging from
2% to 25%. The Company also owns an approximate 6.5% interest in HEP
limited partner units. The Company and its energy subsidiaries account for
their ownership of HEP using the proportionate consolidation method of
accounting, whereby they record their proportionate share of HEP's revenues
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 ("HCRC"), which HEP
accounts for under the equity method.
Gas revenue for the 1998 third quarter decreased $86,000, or 8%, to
$985,000 from $1,071,000. For the nine months, gas revenue increased
$49,000, or 2%, to $2,830,000 from $2,781,000. The increase in gas revenue
for the nine months was due primarily to an increase in production to
1,386,000 mcf from 1,158,000 mcf, partially offset by a decrease in the
average gas price to $2.04 from $2.40 per mcf. Oil revenue for the 1998
third quarter decreased $144,000, or 30%, to $338,000 from $482,000. For
the nine months, oil revenue declined by $421,000, or 28%, to $1,081,000
from $1,502,000. The decrease for the nine months was attributable to a
decrease in the average price per barrel to $13.51 from $20.30, partially
offset by an increase in production to 80,000 barrels from 74,000 barrels.
The increase in oil and gas production is primarily due to the acquisition
of a volumetric production payment during May 1998.
Other income (loss) consists primarily of acquisition fee and interest
income, as well as a share of HEP's interest income, facilities income from
two gathering systems in New Mexico, pipeline revenue, equity in income of
affiliates and miscellaneous income or expense. The decreases in other
income to $(18,000) for the 1998 quarter from $23,000 in the 1997 period
and to $56,000 for the 1998 nine month period from $247,000 in the 1997
period are primarily due to a decrease in HEP's equity in earnings of
affiliate, due to property impairments taken by HEP's affiliate in 1998, of
which $188,000 relates to the Company.
Expenses. Depreciation, depletion and amortization increased to
$520,000 for the 1998 third quarter and $1,206,000 for the nine months
compared to $355,000 and $982,000 in the 1997 periods. The increases for
the periods are attributable to increased depletion in 1998 due to a higher
depletion rate caused by the increase in production and higher capitalized
costs.
Operating expenses decreased by $82,000 to $333,000 for the 1998 third
quarter from $415,000 in the prior-year quarter and increased by $58,000 to
$1,133,000 for the nine months from $1,075,000 as a result of increased
production taxes resulting from the increased production described above.
Administrative expenses increased by $16,000 for the 1998 third
quarter to $233,000 from $218,000 in the 1997 quarter and decreased by
$45,000 to $679,000 for the 1998 nine month period from $726,000 in 1997
due to a decrease in allocated internal overhead.
Interest expense increased by $54,000 to $136,000 for the 1998 third
quarter compared to $82,000 in 1997 and increased by $105,000 to $411,000
for the 1998 nine month period, compared to $306,000 in 1997, due to an
increase in the Company's term loan in November 1997 and an increase in the
pro rata share of HEP's interest expense due to HEP's higher outstanding
debt in 1998.
Operating Subsidiaries. The business segments of the Company's
operating subsidiaries consist of textile products and hotels.
TEXTILE PRODUCTS.
Revenue. Sales of $17,808,000 decreased $1,847,000, or 9%, in the
1998 third quarter, compared to $19,655,000 in the 1997 quarter. The
comparative nine month sales decreased $6,719,000, or 10%, to $63,420,000
in 1998 from $70,139,000 in 1997. Sales by the distribution businesses
were lower in the 1998 periods than in 1997, due to decreased demand for
textile products in consumer markets, which was partially offset by
increased sales of industrial products.
Page 18
<PAGE> 19
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This appears to be the result of a high level of U.S. consumer spending on
durable goods versus nondurable, unusual weather patterns affecting
outerwear sales and availability of lower priced Asian imports. The
decrease in sales at the processing plants in the three and nine month
periods was 2%.
Expenses. Cost of sales of $15,405,000 in 1998 decreased $1,816,000,
or 11%, from $17,221,000 in the 1997 third quarter and decreased $5,922,000,
or 10%, to $54,847,000 from $60,769,000 for the nine months. The decrease
in cost of sales was principally the result of the decrease of sales
revenue. The increased gross profit margin for the 1998 third quarter
(13.5% versus 12.4%) and the nine-month periods (13.5% versus 13.4%)
resulted from higher gross profit margins at the processing plants due to
operating efficiencies.
Administrative and selling expenses of $2,152,000 decreased by
$48,000 in the 1998 third quarter from $2,200,000 for the comparable 1997
period, and decreased $174,000 for the 1998 nine-month period to $6,684,000
from $6,858,000 for the comparable 1997 period. The decreases are due to
reduced operating expenses associated with the decrease in sales revenue.
Interest expense decreased by $54,000 to $193,000 for the 1998 third
quarter from $247,000 in 1997, and decreased by $34,000 for the 1998 nine
months to $741,000 from $775,000 in 1997 due to lower average borrowings
during the periods.
HOTELS
Revenue. Sales of $5,667,000 in the 1998 third quarter increased by
$560,000, or 11%, from the 1997 amount of $5,107,000. The 1998 nine-month
hotel sales of $16,013,000 decreased by $530,000, or 3%, compared to
$16,543,000 for the 1997 period. The sales increase in the 1998 third
quarter was primarily due to management fee revenues from The Enclave
Suites, a resort condominium hotel, acquired in July 1998. The sales
decline for the nine months was primarily due to an extensive renovation
project and adverse weather conditions at the Longboat Key Holiday Inn,
partially offset by revenues from The Enclave Suites. For the remaining
hotel properties, the average daily rate declined 3.0% and the average
occupancy level declined 0.4% in the 1998 nine months compared to the 1997
period.
Expenses. Operating expenses of $5,024,000 for the 1998 third quarter
were up $785,000, or 19%, from $4,239,000 in 1997. The 1998 nine month
hotel operating expenses increased by $736,000 to $14,004,000, compared to
$13,268,000 for the 1997 period. The increases for the three month and
nine month periods was primarily attributable to operating expenses at The
Enclave Suites property.
Depreciation and amortization expense increased by $87,000 to $713,000
for the 1998 third quarter from $626,000 in the 1997 period. Depreciation
and amortization for the 1998 and 1997 nine month periods were $2,051,000
and $2,000,000, respectively. The increase is attributable to The Enclave
Suites and the acquisition of the fee interest in the Oklahoma City Embassy
Suites.
Interest expense decreased by $28,000 to $346,000 for the 1998 third
quarter from $374,000 in 1997 and decreased by $259,000 to $847,000 for the
nine month period from $1,106,000, principally due to the refinancing of
the mortgage loans in the 1997 fourth quarter on the Residence Inn hotels
in Tulsa, Oklahoma and Greenville, South Carolina at more favorable
interest rates, partially offset by additional interest costs from the
September 1998 term loans to acquire the fee interest in the Oklahoma City
Embassy Suites hotel.
ASSOCIATED COMPANY
Revenue. The 1997 nine month period income of $18,809,000 includes
$1,139,000 from the Company's pro-rata share of ShowBiz results using the
equity method of accounting prior to the sale, and a gain of $18,277,000
from the sale of its investment. In March 1997 the Company sold its entire
2,632,983 ShowBiz shares at $15.68 per share, net of underwriting
commissions. See Note 2.
Page 19
<PAGE> 20
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Expenses. Interest expense of $607,000 for the 1997 nine months was
primarily attributable to the settlement of litigation involving the
ShowBiz Participation Amount with the Integra Unsecured Creditors Trust.
The Company had recorded the potential amount of $1,675,000 for the ShowBiz
Participation Amount associated with the $4,000,000 promissory note in the
1997 first quarter, which was adjusted to the settlement amount in the 1997
third quarter.
OTHER
Revenue. In May 1998, the Company favorably settled a 1996 litigation
claim involving its former merchant banking activities for $1,025,000 in
cash, which was reported as income in the 1998 second quarter. Fee income
in the 1998 third quarter of $137,000 and $412,000 for the nine months
compares to the 1997 amounts of $138,000 and $423,000, respectively.
Interest on short-term investments and other income decreased by $278,000
to $20,000 for the 1998 third quarter and decreased by $720,000 to
$142,000 for the 1998 nine months from $298,000 and $862,000, respectively.
The decreases were primarily attributable to lower interest income earned
on the Company's short-term investments, and lower rental income from the
subleasing of executive office space formerly occupied by the Company's
affiliated entity, Integra-A Hotel and Restaurant Company, which expired in
May 1998.
Expenses. Administrative expenses of $622,000 for the 1998 third
quarter decreased by $96,000, or 13%, from the prior year amount of
$718,000, and declined in the 1998 nine month period by $113,000, or 5%, to
$1,982,000, compared to the prior year amount of $2,095,000. The 1998 nine
month expenses reflect lower consulting and accounting fees, partially
offset by compensation expense recorded upon the acquisition of certain
unexercised stock options and costs of the debenture Exchange Offer.
Interest expense in the amount of $247,000 for the 1998 third quarter
decreased by $464,000 from the prior year amount of $711,000 and decreased
by $2,225,000 for the 1998 nine months to $706,000 from the prior year
amount of $2,931,000. The decreases were primarily due to (i) repurchase
of $12,875,000 of its 13.5% Debentures pursuant to a self-tender offer in
June 1997; (ii) redemption of the remaining $14,287,000 balance of its
outstanding 13.5% Debentures in December 1997; (iii) repurchase of 7%
Debentures with a face amount of $2,253,000 in January 1998, to satisfy the
balance of a sinking fund requirement contained in the indenture; (iv)
offset by the completion of the August 1998 Exchange Offer, which exchanged
$6,468,000 of 7% Debentures for 10% Debentures. See Note 5.
Income taxes. Income taxes were $133,000 for the 1998 third quarter
and $50,000 in the 1997 quarter. The 1998 quarter included a $10,000
federal current charge and $123,000 for state taxes, compared to the 1997
third quarter which included a $10,000 federal current charge and $40,000
for state taxes. The 1998 nine month period income taxes of $340,000
included a $40,000 federal current charge and $300,000 for state taxes.
The 1997 nine month period income taxes of $9,776,000 included an
$8,960,000 non-cash federal deferred tax charge, a federal current charge
of $535,000 for alternative minimum tax (both charges primarily relating
to the ShowBiz sale) and $281,000 for state taxes. The 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. See Note 6.
As of September 30, 1998, the Company had approximately $115,000,000
of tax net operating loss carryforwards ("NOLs") and temporary differences
to reduce future federal income tax liability, including $42,944,000 of
NOLs which expire in the 1998 calendar year. Based upon the Company's
current expectations and available tax planning strategies, management has
determined that taxable income will more likely than not be sufficient to
utilize approximately $6,000,000 of the NOLs prior to their ultimate
expiration in the year 2011.
Management believes that the Company has certain tax planning
strategies available, which include the potential sale of 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 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 utilization of the NOLs. Management
periodically re-evaluates its tax planning
Page 20
<PAGE> 21
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
strategies based upon changes in facts and circumstances and, accordingly,
considers potential adjustments to the valuation allowance of the deferred
tax asset. 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.
Extraordinary gain from early extinguishment of debt. The Company
recognized an extraordinary gain from debt extinguishment of $107,000 in
the 1998 first quarter from the purchase of 7% Debentures having a face
amount of $2,253,000 for a discounted amount of $2,146,000. During the
1997 second quarter, the Company recognized an extraordinary gain of
$877,000, which was attributable to the partial repurchase of 13.5%
Debentures pursuant to the self-tender offer completed in June 1997.
Page 21
<PAGE> 22
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 September 30, 1998
totaled $1,337,000.
The Company's real estate segment generates funds principally from its
property management and leasing activities, without significant additional
capital costs. All of the HRP limited partnership units are subject to a
limited negative pledge on the Company's energy term loan. If the Company
pledges designated HRP units, as defined, having a market value up to
$2,000,000, the negative pledge can be released. Additionally, a portion of
the HRP units have been pledged to secure a $500,000 promissory note.
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, the Company reports its share of the long-term obligations of its
HEP affiliate which was $4,670,000 at September 30, 1998. HEP's borrowings are
secured by a first lien on approximately 80% in value of HEP's oil and gas
properties. HEP's unused borrowing capacity under the revolving credit
agreement was $12,300,000 at September 30, 1998. HEPGP amended, restated and
increased its term loan to $4,000,000 in November 1997 which had a balance of
$2,667,000 at September 30, 1998. The term loan contains a provision which
prohibits HEPGP from making any distribution to the Company during the term of
the loan which matures in May 2000.
In February 1998, HEP closed its public offering of 1.8 million Class C
units priced at $10.00 per unit. Proceeds to HEP, net of underwriting
discounts and expenses, were approximately $16,517,000. HEP used $14,000,000
of the net proceeds to repay borrowings and applied the remaining amount
towards the repayment of HEP's outstanding contract settlement obligation.
Brookwood maintains a revolving line of credit facility with The Bank of
New York, which is collateralized by accounts receivable, certain inventory and
equipment. At September 30, 1998, Brookwood had $3,943,000 of unused borrowing
capacity on its line of credit. The Company received a $500,000 cash dividend
from Brookwood on its preferred stock in April 1998 and received an additional
$284,000 cash dividend in September 1998. Future dividends will be paid as
permitted by the revolver, which allows for dividends to be paid to the extent
of 80% of cash flow after capital expenditures.
The Company's hotel segment generates cash flow from operating six hotels
(one Holiday Inn and one condominium hotel 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 has recently renovated the Longboat Key Holiday Inn hotel with part of
the financing provided by the owner, and has been informed by Marriott that
substantial renovations will have to be made to each of the three Residence Inn
hotels prior to the renewal of their franchise in January 2000. Considering
the magnitude of the costs to maintain the current Marriott franchises, the
Company has applied for membership in the Best Western International system.
The costs associated with upgrades required by Best Western are expected to
average $1,000,000 per hotel property. The Company believes it can finance the
upgrades through lease financing agreements. In July 1998, the Company
acquired the owner's rental contracts, real estate, certain other assets and a
contract to manage a resort condominium hotel in Orlando, Florida. In
September 1998, the Company acquired the fee interest in the Embassy Suites
hotel in Oklahoma City, Oklahoma for $18,250,000, which was financed by
$18,550,000 in term loans. See Note 4.
Management believes that it will have sufficient funds for operations and
to satisfy its obligations.
Information Systems and the Year 2000. The Company realizes that many of
the world's information systems and/or computer programs currently do not have
the ability to recognize four digit date code fields and accordingly, they do
not have the ability to distinguish a year that begins with "20" instead of the
familiar "19". If not corrected, many computer applications could fail, become
unstable, stop working altogether, or create erroneous or incorrect results.
Therefore, many companies and organizations are spending considerable resources
to update and modify their systems for year 2000 compliance.
Page 22
<PAGE> 23
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company developed a program to review and modify, where necessary, its
computers and computer programming (information technology systems) to process
transactions and/or operate in the year 2000 and beyond. Additionally, the
Company is in the process of identifying and assessing its non-information
technology systems, which are generally more difficult to assess because they
often contain embedded technology that may be subject to year 2000 problems.
The Company has identified three of its primary systems which are vulnerable to
the year 2000 issue: (1) General Ledger/Accounts Payable. These systems were
modified by the vendor at no cost to the Company during the third quarter of
1998 and are now year 2000 compliant; (2) Shareholder and Debentureholder
Services. Such services are processed through outside transfer agent
providers, who have indicated that their most critical systems have already
been tested, although additional systems will be tested through the first part
of 1999. These systems will be modified by the vendors at no cost to the
Company; (3) Payroll. Such services are processed through an outside payroll
vendor. The Company has purchased updated year 2000 compliant software from
the vendor and it will be installed in the fourth quarter of 1998 at minimal
cost to the Company.
As a diversified holding company operating in four industry segments, the
Company relies heavily on the accounting and reporting information provided by
its subsidiaries and affiliated companies. All have established year 2000
programs to ensure compliance and the Company continues to monitor their status
to determine that all necessary modifications are completed and tested.
Provided below is a summary of the year 2000 programs of subsidiaries and
affiliated companies:
Real Estate. The Company's HRP affiliate has identified four primary
systems which are subject to the year 2000 issue: (1) General Ledger/Accounts
Payable/Accounts Receivable. These systems were modified by the vendor at no
cost to HRP and are now year 2000 compliant; (2) Commercial Lease
Administration. This system is year 2000 compliant; (3) K-1 Processing.
HRP's current K-1 tax reporting system is not year 2000 compliant. HRP has
selected a tested and compliant system which will be installed in 1999 at
minimal cost; (4) Payroll. HRP has purchased year 2000 compliant software
from its outside payroll vendor and it will be installed in the fourth quarter
of 1998 at minimal cost.
Energy. The Company's HEP affiliate has substantially completed its
assessment phase and has identified the information technology systems which
must be updated and is in the process of completing their remediation, testing
and implementation. In particular, its reservoir engineering software must be
updated or replaced. Assessment of HEP's non-information technology systems is
not yet completed, although HEP believes that most of these systems can be
brought into compliance on schedule. HEP's preliminary estimate of the cost of
its year 2000 compliance program for both its information technology and
non-information technology systems indicates that such costs will not be
material.
Textile Products. The Company's Brookwood subsidiary has identified three
primary systems which are subject to the year 2000 issue: (1) General
Ledger/Accounts Payable/Accounts Receivable/Inventory. Brookwood has purchased
a year 2000 compliant system for its converting business which is currently
being installed and tested. The system will be fully operational by the 1999
second quarter. (2) Payroll. Kenyon's time-clock payroll system is not
presently year 2000 compliant, although it is anticipated that updated software
will be installed and tested by the 1999 second quarter at minimal cost to
Kenyon. (3) Factory Production. Kenyon has determined that substantially all
of its machinery and equipment is not date-sensitive. Further testing is
ongoing, although no year 2000 problems are anticipated.
Hotels. The Company's hotel segment has identified four primary systems.
(1) General Ledger/Accounts Payable. The day-to-day accounting functions at
the hotel properties are out-sourced to a third party vendor. The vendor has
installed and is currently testing a new software system that is year 2000
compliant. It is anticipated that the software will be fully operational by
the 1999 first quarter at no cost to the Company. (2) Reservations. The
Company is currently working with the various franchisors to ensure year 2000
compliance and proper interfacing of all computer software, and is not aware of
any compliance problems. (3) Payroll. The day-to-day payroll functions at
the hotel properties are out-sourced to a third party vendor. The vendor has
installed and is currently testing a new software system that is year 2000
compliant. It is anticipated that the software will be fully operational by
the 1999 first quarter at no cost to the Company. (4) Facilities. Physical
inspections at the hotels are ongoing to determine that any date sensitive
equipment is year 2000 compliant. Other than the telephone systems,
substantially all equipment is already year 2000 compliant and it is
anticipated that all physical
Page 23
<PAGE> 24
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
systems, including telephone systems, will be year 2000 compliant by the 1999
second quarter at an anticipated cost of less than $100,000.
Additionally, the Company is surveying all of its significant service
providers and other external parties to determine their compliance with the
year 2000 issue and what impact, if any, their efforts will have on the
Company's business and operations. The Company anticipates completing its
survey of service providers and vendors by the 1999 first quarter.
The Company will utilize both internal and external resources to achieve
year 2000 compliance. The Company estimates that its identification and
assessment activities are approximately 75% complete. And that its remediation
is approximately 50% complete. As described earlier, the Company expects all
of its internal efforts will be completed by the second quarter of 1999.
However, there can be no guarantee that the Company will be able to identify
all potential year 2000 problems or to fully remediate all year 2000 problems
on a timely basis. The Company anticipates completing the year 2000 project by
June 30, 1999.
In the event that a system will not be year 2000 compliant, the Company
will assess the potential risk and, to the extent it is feasible, transfer its
business to an alternate vendor. The failure to correct a material year 2000
problem could result in an interruption, or failure of, certain normal business
activities or operations. Such failures could materially and adversely affect
the Company's results of operations, liquidity, and financial condition. Due
to the year end uncertainty inherent in the year 2000 problem, resulting in
part from the uncertainty of year 2000 readiness of third party vendors, the
Company is unable to determine at this time whether the consequences of year
2000 failures will have a material impact on the Company's results of
operations, liability, or financial condition. The Company believes, however,
that its year 2000 compliance plan and time line provides adequate staffing,
resources and time to mitigate and proactively respond to any unforeseen year
2000 problems in a timely manner. The Company plans to devote all resources
that would be required to resolve any such issues in a timely manner that might
arise from matters not previously considered.
The total costs for the Company and its hotel and textile products
subsidiaries (excluding the unconsolidated real estate and energy affiliates,
of which the Company must only bear a proportionate share) are estimated to be
less than $200,000. The cost of year 2000 compliance and the estimated date of
completion of necessary modifications are based on the Company's best
estimates, which were derived from various assumptions of future events,
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially
from those anticipated.
Page 24
<PAGE> 25
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
PART II - OTHER INFORMATION
<TABLE>
<CAPTION>
Item
<S> <C> <C>
1 Legal Proceedings
Reference is made to Note 3 to the Company's consolidated financial
statements of this Form 10-Q.
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) 10.31 - Promissory note and related mortgage and security
agreement in the original amount of $17,250,000, dated
September 11, 1998, between Hallwood Hotels - OKC,
Inc., as Maker, and WMF Capital Corp., as Lender, filed
herewith.
10.32 - Promissory note and related loan agreement in the
original amount of $1,300,000, dated September 11,
1998, between Hallwood Hotels - OKC Mezz, Inc., as
Maker, and Commercial Mortgage Investment Trust, Inc.,
as Lender, filed herewith.
(ii) 27 - Financial Data Schedule
(b) Reports on Form 8-K None
</TABLE>
Page 25
<PAGE> 26
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: November 13, 1998 By: /s/ Melvin J. Melle
-----------------------------------------
Melvin J. Melle, Vice President
(Duly Authorized Officer and
Principal Financial and
Accounting Officer)
Page 26
<PAGE> 27
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -------------------------------------------------------
<S> <C>
(i) 10.31 - Promissory note and related mortgage and security
agreement in the original amount of $17,250,000, dated
September 11, 1998, between Hallwood Hotels - OKC,
Inc., as Maker, and WMF Capital Corp., as Lender, filed
herewith.
10.32 - Promissory note and related loan agreement in the
original amount of $1,300,000, dated September 11,
1998, between Hallwood Hotels - OKC Mezz, Inc., as
Maker, and Commercial Mortgage Investment Trust, Inc.,
as Lender, filed herewith.
(ii) 27 - Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.31
PROMISSORY NOTE
$17,250,000.00 September 11, 1998
FOR VALUE RECEIVED, the undersigned, HALLWOOD HOTELS-OKC, INC. a
Delaware corporation ("Maker") the principal place of business of which is 3710
Rawlins, Suite 1500, Dallas, Texas 75219 (herein referred to as "Maker"),
promises to pay to the order of WMF CAPITAL CORP., a Delaware corporation
("Lender" and also sometimes "Payee"), having its principal office at 121 West
Trade Street, 27th Floor, Charlotte, North Carolina 28202, or at such other
place as Lender may designate to Maker in writing from time to time, the
principal amount of SEVENTEEN MILLION TWO HUNDRED FIFTY THOUSAND and 00/100
DOLLARS ($17,250,000.00) in lawful money of the United States of America, with
interest thereon to be computed on the unpaid principal balance at the rate of
seven and five tenths (7.5%) percent per annum (the "Note Rate"), together with
all other amounts due hereunder and under the other Loan Documents (as defined
herein), and to be paid in installments as follows:
ARTICLE 1. TERMS OF PAYMENT
(a) A payment of interest only on the date hereof for the period
from and including the date hereof through the last day of the current month;
(b) A constant payment of $127,475.98 (such amount hereinafter the
"Monthly Payment Amount"), on the first day of November, 1998, and on the first
day of each calendar month thereafter up to and including the first day of
September, 2008 (each a "Payment Date"); and the balance of said principal
amount, together with all accrued and unpaid interest thereon, shall be due and
payable on the first day of October, 2008 (the "Maturity Date"). Interest on
the principal amount of this Note shall be calculated on the basis of a 360 day
year and based on the actual number of days elapsed for any period in which
interest is being calculated. Solely for the purpose of making any payment
hereunder, but not for the purpose of calculating the amount thereof or the
application/allocation thereof to principal and interest, if the first (1st)
day of a given month is not a Business Day (as hereinafter defined), then the
Payment Date for such month shall be the next succeeding Business Day. All
amounts due under this Note shall be payable without setoff, counterclaim or
any other deduction whatsoever. Business Day, as used herein, shall mean a day
other than (i) a Saturday or Sunday, or (ii) any other day on which commercial
banks in New York City are not permitted or required to be open for general
banking business.
(c) Payments in federal funds immediately available at the place
designated for payment received by Lender prior to 2:00 p.m. local time on a
day on which Lender is open for business at said place of payment shall be
credited prior to close of business, while other payments may, at the option of
Lender, not be credited until immediately available to Lender in federal funds
at the place designated for payment prior to 2:00 p.m. local time at said place
of payment on a day on which Lender is open for business. Each such monthly
installment shall be applied first, to the payment of accrued interest, second,
to any amounts hereafter advanced by Lender hereunder or under any other Loan
Document, third, to any late fees, any Yield Maintenance Premium (as
hereinafter defined), and other amounts payable to Lender, and, last, to
reduction of principal.
<PAGE> 2
ARTICLE 2. DEFEASANCE
(a) Maker may not prepay this note, in whole or in part, except as
otherwise specifically provided herein. In the event that Maker wishes to have
the Security Property (as hereinafter defined) released from the lien of the
Security Instrument (as hereinafter defined), Maker's sole option shall be a
Defeasance (as hereinafter defined) upon satisfaction of the terms and
conditions set forth in this Article 2. Notwithstanding anything to the
contrary herein, this Note may be prepaid in whole but not in part without
premium or penalty on any Payment Date during the three (3) months prior to the
Maturity Date provided (i) written notice of such prepayment is received by
Payee not more than ninety (90) days and not less than thirty (30) days prior
to the date of such prepayment and (ii) such prepayment is accompanied by all
interest accrued hereunder through and including the date of such prepayment
and all other sums due hereunder or under the other Loan Documents. If, upon
any such permitted prepayment, the aforesaid prior written notice has not been
timely received by Payee, there shall be due a prepayment fee equal to an
amount equal to the lesser of (x) thirty (30) days' interest computed at the
Note Rate on the outstanding principal balance of this Note so prepaid and (ii)
interest computed at the Note Rate on the outstanding principal balance of this
Note so prepaid that would have been payable for the period from, and
including, the date of prepayment through the Maturity Date as though such
prepayment had not occurred.
(b) Partial prepayments of this Note shall be permitted solely and
only from Lender's election to apply insurance or condemnation proceeds to
reduce the outstanding principal balance of this Note as provided in the
Security Instrument, in which event no prepayment fee or premium shall be due
unless, at the time either of Lender's receipt of such proceeds or the
application of such proceeds to the outstanding principal balance of this Note,
an Event of Default, or an event which, with notice or the passage of time, or
both, would constitute an Event of Default, shall have occurred, which default
or Event of Default is unrelated to the applicable casualty or condemnation, in
which event a Yield Maintenance Premium (as hereinafter defined) shall be due
and payable based upon the amount of the prepayment. Any such partial payments
of principal shall be applied to the unpaid principal balance evidenced hereby
but such application shall not reduce the amount of the fixed monthly
installments required to be paid pursuant to Article 1(b), above. Except as
otherwise expressly provided in this Article 2(b), the Yield Maintenance
Premium provided above shall be due, to the extent permitted by applicable law,
under any and all circumstances in which all or any portion of this Note is
paid prior to the Maturity Date, whether such prepayment is voluntary or
involuntary, including, without limitation, even if such prepayment results
from Lender's exercise of its rights upon Maker's default and acceleration of
the Maturity Date of this Note (irrespective of whether foreclosure proceedings
have been commenced), and shall be in addition to any other amounts due
hereunder or under any of the other Loan Documents. No tender of a prepayment
of this Note with respect to which a Yield Maintenance Premium is due shall be
effective unless such prepayment is accompanied by the Yield Maintenance
Premium. No principal amount repaid or defeased may be reborrowed.
(c) In the event that this Note shall have been declared due and
payable by Lender pursuant to Article 4 hereof or the provisions of any other
Loan Document due to a default by Maker prior to the second (2nd) anniversary
of the first Payment Date (the "Lock-out Expiration Date"), then there shall
also then be immediately due and payable a sum equal to the interest which
would have accrued on the principal balance of this Note at the Note Rate from
the date of such acceleration to the Lock-out Expiration Date, together with
the Yield Maintenance Premium and the indebtedness evidenced by this Note. As
used herein, the term "Yield Maintenance Premium" shall mean an amount equal to
the greater of (i) one percent (1.0%) of
2
<PAGE> 3
the principal amount being prepaid, and (ii) the present value of a series of
payments each equal to the Payment Differential (as hereinafter defined) and
payable on each Payment Date over the remaining original term of this Note and
on the Maturity Date, discounted at the Reinvestment Yield (as hereinafter
defined) for the number of months remaining as of the date of such prepayment
to each such Payment Date and the Maturity Date. As used herein, the term
"Payment Differential" shall mean an amount equal to (A) the Note Rate less the
Reinvestment Yield, divided by (B) twelve (12) and multiplied by (C) the
principal sum outstanding under this Note after application of the constant
monthly payment due under this Note on the date of such prepayment, each such
other Payment Date and the Maturity Date, provided that such an amount shall in
no event be less than zero. As used herein, the term "Reinvestment Yield"
shall mean an amount equal to the lesser of (1) the yield on the U.S. Treasury
issue (primary issue) with a maturity date closest to the Maturity Date, or (2)
the yield on the U.S. Treasury issue (primary issue) with a term equal to the
remaining average life of the indebtedness evidenced by this Note, with each
such yield being based on the bid price for such issue as published in the Wall
Street Journal on the date that is fourteen (14) days prior to (x) the date of
such prepayment set forth in the notice of prepayment or (y) the date of
acceleration or of the repayment of the indebtedness evidenced hereby, on
whichever date such bid price is less (or, if such bid price is not published
on that date, the next preceding date on which such bid price is so published)
and converted to a monthly compounded nominal yield. In the event that any
Yield Maintenance Premium or other prepayment fee is due hereunder, Lender
shall deliver to Maker a statement setting forth the amount and determination
of the Yield Maintenance Premium, or such other prepayment fee and, provided
that Lender shall have in good faith applied the formula described above, Maker
shall not have the right to challenge the calculation or the method of
calculation set forth in any such statement in the absence of manifest error,
which calculation may be made by Lender on any day during the fifteen (15) day
period preceding the date of such prepayment. Lender shall not be obligated or
required to have actually reinvested the prepaid principal balance at the
Reinvestment Yield or otherwise as a condition to receiving the Yield
Maintenance Premium. For the purposes of this Article 2, the term "prepayment
fee or premium" shall be deemed to and is intended to refer to one or all of
the Yield Maintenance Premium and the amount calculated pursuant to the first
sentence of this Article 2(c).
(d) At any time after the later of (i) the Lock-out Expiration
Date, and/or (ii) the date which is two years after the "startup day," within
the meaning of Section 860G(a) (9) of the Internal Revenue Code of 1986, as
amended from time to time or any successor statute (the "Code"), of a "real
estate mortgage investment conduit," within the meaning of Section 860D of the
Code, that holds this Note, provided no Event of Default has occurred hereunder
or under any of the other Loan Documents, Lender shall cause the release of the
Security Property from the lien of the Security Instrument and the other Loan
Documents (a "Defeasance") upon the satisfaction of the following conditions:
(i) Maker shall give not more than 90 days or fewer than
60 days prior written notice to Lender specifying the
date Maker intends for the Defeasance to be
consummated (the "Release Date"), which date shall be
a Payment Date.
(ii) All principal, accrued and unpaid interest and all
other sums due under this Note and all other amounts
due under the other Loan Documents up to the Release
Date, including, without limitation, all costs and
expenses incurred by Lender or its agents in
connection with such Defeasance (including, without
limitation, any reasonable legal fees and expenses
3
<PAGE> 4
incurred in connection with obtaining and reviewing
the Defeasance Collateral (as defined herein) and the
preparation of the Defeasance Security Agreement (as
defined herein) and related documentation) shall be
paid in full on or prior to the Release Date.
(iii) Lender shall receive from Maker on or prior to the
Release Date:
(A) An amount in immediately available funds (the
"Defeasance Deposit") equal to the then
principal balance of this Note plus an
amount, if any, which, together with the
outstanding principal balance of this Note,
shall be sufficient to enable Lender, through
means and sources customarily employed and
available to Lender, to purchase for the
account of Maker, direct, non-callable
obligations of the United States of America
that provide for payments prior, but as close
as possible, to all successive monthly
Payment Dates occurring after the Release
Date, with each such payment being equal to
or greater than the amount of the
corresponding installment of principal and
interest required to be paid under this Note
(including all amounts due on the Maturity
Date) for the balance of the term hereof (the
"Defeasance Collateral"), each of which shall
be duly endorsed by the holder thereof as
directed by Lender or accompanied by a
written instrument of transfer in form and
substance satisfactory to Lender in its sole
discretion (including, without limitation,
such instruments as may be required by the
depository institution holding such
securities or by the issuer thereof, as the
case may be, to effectuate book-entry
transfers and pledges through the book-entry
facilities of such institution) in order to
perfect upon the delivery of the Defeasance
Security Agreement a first priority security
interest in the Defeasance Collateral in
favor of Lender in conformity with all
applicable state and federal laws governing
the granting of such security interests.
(B) A pledge and security agreement, in form and
substance satisfactory to Lender in its sole
discretion, creating a first priority
security interest in favor of Lender in the
Defeasance Collateral (the "Defeasance
Security Agreement"), which shall provide,
among other things, that (x) any excess
received by Lender from the Defeasance
Collateral over the amounts payable by Maker
hereunder shall be refunded to Maker promptly
after each monthly Payment Date and (y) Maker
authorizes and directs that all payments from
the Defeasance Collateral shall be paid
directly to Lender and applied to satisfy
Maker's obligation under this Note.
(C) A certificate of Maker certifying that all of
the requirements set forth in this Article
2(d) have been satisfied.
(D) An opinion of counsel for Maker in form and
substance and delivered by counsel
satisfactory to Lender in its sole discretion
stating, among other things, that Lender has
a perfected first priority security interest
in the Defeasance Deposit and
4
<PAGE> 5
Defeasance Collateral and that the Defeasance
Security Agreement is enforceable against
Maker in accordance with its terms.
(E) Such other certificates, opinions, documents
or instruments as Lender may reasonably
require.
(F) All fees, costs, expenses and charges
incurred by Lender in connection with the
Defeasance of the Security Property and the
purchase of the Defeasance Collateral,
including, without limitation, all costs and
expenses incurred by Lender or its agents in
connection with the release of the Security
Property, review of the proposed Defeasance
Collateral and preparation of the Defeasance
Security Agreement and related documentation,
and any revenue, documentary, stamp,
intangible or other taxes, charges or fees
due in connection with transfer of the Note,
assumption of the Note, or substitution of
collateral for the Security Property shall be
paid on or before the Release Date. Lender
shall be entitled to deduct all such fees,
costs, expenses and charges from the
Defeasance Deposit to the extent of any
excess of the Defeasance Deposit, without
limiting Maker's obligations with respect
thereto.
(iv) Conditioned upon compliance with the requirements of
this Article 2(d), the Security Property shall be
released from the lien of the Security Instrument and
the other Loan Documents, and the Defeasance
Collateral shall constitute collateral which shall
secure this Note and all other obligations under the
Loan Documents. Lender will, at Maker's expense,
execute and deliver any agreements reasonably
requested by Maker to release the lien of the
Security Instrument from the Security Property.
(v) Maker hereby authorizes and directs Lender to use the
Defeasance Deposit to purchase for the account of
Maker the Defeasance Collateral, as set forth above.
(vi) Upon the release of the Security Property in
accordance with this Article 2(d), Maker shall, at
the request of Lender, assign all its obligations and
rights under this Note, together with the pledged
Defeasance Collateral, to a newly created,
special-purpose, bankruptcy-remote entity which
complies with the terms of the Security Instrument as
may be established or designated by Lender at Maker's
sole cost and expense and approved by Lender in its
sole discretion. Such successor entity shall execute
an assumption agreement in form and substance
satisfactory to Lender in its sole discretion
pursuant to which it shall assume Maker's obligations
under this Note and the Defeasance Security
Agreement. As conditions to such assignment and
assumption, Maker shall (x) deliver to Lender an
opinion of counsel in form and substance and
delivered by counsel satisfactory to Lender in its
sole discretion stating, among other things, that
such assumption agreement is enforceable against
Maker and such successor entity in accordance with
its terms and that this Note and the
5
<PAGE> 6
Defeasance Security Agreement, as so assumed, are
enforceable against such successor entity in
accordance with their respective terms, and (y) pay
all costs and expenses incurred by Lender or its
agents in connection with such assignment and
assumption (including, without limitation, the review
of the proposed transferee and the preparation of the
assumption agreement and related documentation).
Upon such assumption, Maker shall be relieved of its
obligations hereunder, under the other Loan Documents
other than the Environmental Indemnity Agreement (as
hereinafter defined) and under the Defeasance
Security Agreement.
ARTICLE 3. EXCULPATION
(a) Notwithstanding anything in the Loan Documents to the
contrary, but subject to the qualifications hereinbelow set forth, Lender
agrees that:
(i) Maker shall be liable upon the indebtedness evidenced
hereby and for the other obligations arising under
the Loan Documents to the full extent (but only to
the extent) of the security therefor, the same being
all properties (whether real or personal), rights,
estates and interests now or at any time hereafter
securing the payment of this Note and/or the other
obligations of Maker under the Loan Documents
(collectively, the "Security Property").
(ii) Judicial or other proceedings brought by Lender
against Maker upon an Event of Default shall be
limited to the preservation, enforcement and
foreclosure, or any thereof, of the liens, security
titles, estates, assignments, rights and security
interests now or at any time hereafter securing the
payment of this Note and/or the other obligations of
Maker under the Loan Documents, and, except with
respect to the liability described below in this
Article; no attachment, execution or other writ of
process shall be sought, issued or levied upon any
assets, properties or funds of Maker other than the
Security Property.
(iii) In the event of a foreclosure of such liens, security
titles, estates, assignments, rights or security
interests securing the payment of this Note and/or
the other obligations of Maker under the Loan
Documents, no judgment for any deficiency upon the
indebtedness evidenced hereby shall be sought or
obtained by Lender against Maker, except with respect
to the liability described below in this Article;
PROVIDED, HOWEVER, THAT, NOTWITHSTANDING THE
FOREGOING PROVISIONS OF THIS SECTION, MAKER SHALL BE
FULLY AND PERSONALLY LIABLE AND SUBJECT TO LEGAL
ACTION:
(A) for proceeds paid under any insurance
policies (or paid as a result of any other
claim or cause of action against any person
or entity) by reason of damage, loss or
destruction to all or any portion of the
Security Property, to the full extent of such
proceeds not previously delivered to Lender,
but which, under the terms of the Loan
Documents, should have been delivered to
Lender,
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<PAGE> 7
(B) for proceeds or awards resulting from the
condemnation or other taking in lieu of
condemnation of all or any portion of the
Security Property, or any of them, to the
full extent of such proceeds or awards not
previously delivered to Lender, but which,
under the terms of the Loan Documents, should
have been delivered to Lender,
(C) for all tenant security deposits or other
refundable deposits paid to or held by Maker
or any other person or entity in connection
with leases of all or any portion of the
Security Property which are not applied in
accordance with the terms of the applicable
lease or other agreement,
(D) for rent and other payments received from
tenants under leases of all or any portion of
the Security Property paid more than one
month in advance,
(E) for rents, issues, profits and revenues of
all or any portion of the Security Property
received or applicable to a period after the
occurrence of any Event of Default or any
event which, with notice or the passage of
time, or both, would constitute an Event of
Default hereunder or under the Loan Documents
which are not either applied to the ordinary
and necessary expenses of owning and
operating the Security Property or paid to
Lender,
(F) for waste committed on the Security Property
by, or damage to the Security Property as a
result of the intentional misconduct or gross
negligence of, Maker or any of its
principals, officers, general partners or
members, any guarantor, any indemnitor, or
any agent or employee of any such persons, or
any removal of the Security Property in
violation of the terms of the Loan Documents,
to the full extent of the losses or damages
incurred by Lender on account of such
occurrence,
(G) for failure to pay any valid taxes,
assessments, mechanic's liens, materialmen's
liens or other liens which could create liens
on any portion of the Security Property which
would be superior to the lien or security
title of the Security Instrument or the other
Loan Documents, to the full extent of the
amount claimed by any such lien claimant
except, with respect to any such taxes or
assessments, to the extent that funds have
been deposited with Lender pursuant to the
terms of the Security Instrument specifically
for the applicable taxes or assessments and
not applied by Lender to pay such taxes and
assessments,
(H) for all obligations and indemnities of Maker
under the Loan Documents relating to
hazardous or toxic substances or compliance
with environmental laws and regulations to
the full extent of any losses or damages
(including, but not limited to, those
resulting from diminution in value of any
Security Property) incurred by Lender as a
result of the existence of such hazardous or
toxic substances or failure to comply with
environmental laws or regulations, and
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<PAGE> 8
(I) for fraud or material misrepresentation or
failure to disclose a material fact by Maker
or any of its principals, officers, general
partners or members, any guarantor, any
indemnitor or any agent, employee or other
person authorized or apparently authorized to
make statements, representations or
disclosures on behalf of Maker, any
principal, officer, general partner or member
of Maker, any guarantor or any indemnitor, to
the full extent of any losses, damages and
expenses of Lender on account thereof.
References herein to particular sections of the Loan Documents shall
be deemed references to such sections as affected by other provisions of the
Loan Documents relating thereto. Nothing contained in this Article shall (x)
be deemed to be a release or impairment of the indebtedness evidenced by this
Note or the other obligations of Maker under the Loan Documents or the lien of
the Loan Documents upon the Security Property, or (y) preclude Lender from
foreclosing the Loan Documents in case of any default or from enforcing any of
the other rights of Lender except as stated in this Article, or (z) release,
relieve, reduce, waive, limit or impair in any way whatsoever any obligation of
any party to the Indemnity and Guaranty Agreement and Hazardous Substances
Indemnity Agreement each of even date executed and delivered in connection with
the indebtedness evidenced by this Note.
(b) Notwithstanding anything to the contrary in this Note, the
Security Instrument or any of the other Loan Documents, Lender shall not be
deemed to have waived any right which Lender may have under Section 506(a),
506(b), 1111(b) or any other provisions of the U.S. Bankruptcy Code to file a
claim for the full amount of the indebtedness evidenced hereby or secured by
the Security Instrument or any of the other Loan Documents or to require that
all collateral shall continue to secure all of the indebtedness owing to Lender
in accordance with this Note, the Security Instrument and the other Loan
Documents.
ARTICLE 4. DEFAULT
(a) It is hereby expressly agreed that should any default occur in
the payment of principal or interest as stipulated above and such payment is
not made within seven (7) days after the date such payment is due (except that
no grace or notice period is provided for the payment of principal and interest
due on the Maturity Date), or should any other "Event of Default" or any
default not cured within any applicable grace or notice period occur under any
other Loan Document, then an event of default (an "Event of Default") shall
exist hereunder, and in such event the indebtedness evidenced hereby, including
all sums advanced or accrued hereunder or under any other Loan Document, and
all unpaid interest accrued thereon, shall, at the option of Lender and without
notice to Maker, at once become due and payable and may be collected forthwith,
whether or not there has been a prior demand for payment and regardless of the
stipulated date of maturity.
(b) In the event that any payment is not received by Lender on the
date when due (subject to the applicable grace period), then in addition to any
default interest payments due hereunder, Maker shall also pay to Lender a late
charge in an amount equal to five percent (5.0%) of the amount of such overdue
payment. So long as any Event of Default exists, regardless of whether or not
there has been an acceleration of the indebtedness evidenced hereby, and at all
times after maturity of the indebtedness evidenced hereby (whether by
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<PAGE> 9
acceleration or otherwise), interest shall accrue on the outstanding principal
balance of this Note from (i) the date of the occurrence of any such Event of
Default or, in the case of any monetary Event of Default, the due date of the
payment giving rise to such Event of Default, through and including (ii) the
date such Event of Default is cured or, in the case of any monetary Event of
Default, the full amount of the payment due is credited or the outstanding
principal amount evidenced hereby, together with all interest accrued and
unpaid thereon and all other amounts payable under and with respect to the Loan
Documents is paid and credited, at a rate per annum equal to the lesser of (a)
four percent (4.0%) in excess of the Note Rate, or (b) the maximum rate of
interest, if any, which may be charged or collected from Maker under applicable
law (the "Default Interest Rate"), and such default interest shall be
immediately due and payable. Maker acknowledges that it would be extremely
difficult or impracticable to determine Lender's actual damages resulting from
any late payment or default, and such late charges and default interest are
reasonable estimates of those damages and do not constitute a penalty.
(c) The remedies of Lender in this Note or in the Loan Documents,
or at law or in equity, shall be cumulative and concurrent, and may be pursued
singly, successively or together in Lender's discretion. In the event this
Note, or any part hereof, is collected by or through an attorney-at-law, Maker
agrees to pay all costs of collection including, but not limited to, reasonable
attorneys' fees and disbursements.
(d) The indebtedness evidenced by this Note and the obligations
created hereby are secured by, among other things, that certain mortgage, deed
of trust, or deed to secure debt and security agreement (the "Security
Instrument") from Maker to Lender, dated as the date hereof, concerning
property located in Oklahoma County, Oklahoma. The Security Instrument
together with this Note and all other documents to or of which Lender is a
party or beneficiary now or hereafter evidencing, securing, guaranteeing,
modifying or otherwise relating to the indebtedness evidenced hereby, are
herein referred to collectively as the "Loan Documents". All of the terms and
provisions of the Loan Documents are incorporated herein by reference. Some of
the Loan Documents are to be filed for record on or about the date hereof in
the appropriate public records.
(e) Time is of the essence with respect to this Note and the
provisions herein contained.
ARTICLE 5. LIMIT OF VALIDITY
The provisions of this Note and of all agreements between Maker and
Lender, whether now existing or hereafter arising and whether written or oral,
are hereby expressly limited so that in no contingency or event whatsoever,
whether by reason of demand or acceleration of the maturity of this Note or
otherwise, shall the amount paid, or agreed to be paid to Lender for the use,
forbearance or detention of the money loaned under this Note ("Interest")
exceed the maximum amount permissible under applicable law. If, from any
circumstance whatsoever, performance or fulfillment of any provision hereof or
of any agreement between Maker and Lender shall, at the time performance or
fulfillment of such provision shall be due, exceed the limit for Interest
prescribed by law or otherwise transcend the limit of validity prescribed by
applicable law, then ipso facto the obligation to be performed or fulfilled
shall be reduced to such limit and if, from any circumstance whatsoever, Lender
shall ever receive anything of value deemed Interest by applicable law in
excess of the maximum lawful amount, an amount equal to any excessive Interest
shall be applied to the reduction of the principal balance owing under this
Note in the inverse order of its maturity (whether or not then due) or, at the
option of
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<PAGE> 10
Lender, be paid over to Maker, and not to the payment of Interest. All
Interest (including, but not limited to, any amounts or payments deemed to be
Interest) paid or agreed to be paid to Lender shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout the
full period until payment in full of the principal balance of this Note so that
the Interest thereof for such full period will not exceed the maximum amount
permitted by applicable law. This Article 5 will control all agreements
between Maker and Lender.
ARTICLE 6. NO WAIVER: AMENDMENT
No failure to accelerate the debt evidenced hereby by reason of
default hereunder, acceptance of a partial or past due payment, or indulgences
granted from time to time shall be construed (a) as a novation of this Note or
as a reinstatement of the indebtedness evidenced hereby or as a waiver of such
right of acceleration or of the right of Lender thereafter to insist upon
strict compliance with the terms of this Note, or (b) to prevent the exercise
of such right of acceleration or any other right granted hereunder or by any
applicable laws; and Maker hereby expressly waives the benefit of any statute
or rule of law or equity now provided, or which may hereafter be provided,
which would produce a result contrary to or in conflict with the foregoing. No
extension of the time for the payment of this Note or any installment due
hereunder made by agreement with any person or any guarantor now or hereafter
liable for the payment of this Note shall operate to release, discharge,
modify, change or affect the original liability of Maker under this Note,
either in whole or in part, unless Lender agrees otherwise in writing. This
Note may not be waived, changed, modified or discharged orally, but only by an
agreement in writing signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought.
ARTICLE 7. WAIVERS
Presentment for payment, demand, protest and notice of demand, intent
to accelerate, acceleration, protest and nonpayment and all other notices are
hereby waived by Maker. Maker hereby, for itself and any other person or
entity claiming by, through, under or on behalf of Maker, further waives and
renounces, to the fullest extent permitted by law, all rights to the benefits
of any moratorium, reinstatement, marshaling, forbearance, stay, extension,
redemption, exemption and homestead now or hereafter provided by the
Constitution and laws of the United States of America and of each state
thereof, both as to itself and in and to all of its property, real and
personal, against the enforcement and collection of the obligations evidenced
by this Note or the other Loan Documents.
ARTICLE 8. USE OF FUNDS
Maker hereby warrants, represents and covenants that no funds
disbursed hereunder shall be used for personal, family or household purposes,
but only for commercial and business uses and purposes as represented,
disclosed and certified to Payee by Maker prior to the date hereof.
ARTICLE 9. ENFORCEABILITY
This Note shall be interpreted, construed and enforced according to
the laws of the state in which the Security Property is located. The terms and
provisions hereof shall be binding upon and inure to the benefit of Maker and
Lender and their respective heirs, executors, legal representatives,
successors, successors-in-title and assigns, whether by voluntary action of the
parties or by operation of law. As used herein, the terms "Maker" and "Lender"
shall be
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<PAGE> 11
deemed to include their respective heirs, executors, legal representatives,
successors, successors-in-title and assigns, whether by voluntary action of the
parties or by operation of law. If Maker consists of more than one person or
entity, each shall be jointly and severally liable to perform the obligations
of Maker under this Note. All personal pronouns used herein, whether used in
the masculine, feminine or neuter gender, shall include all other genders; the
singular shall include the plural and vice versa. Titles of articles and
paragraphs are for convenience only and in no way define, limit, amplify or
describe the scope or intent of any provisions hereof. This Note and the other
Loan Documents contain the entire agreements between the parties hereto
relating to the subject matter hereof and thereof, and all prior agreements
relative hereto and thereto which are not contained herein or therein are
terminated.
ARTICLE 10. UNCONDITIONAL PAYMENT
Maker is and shall be obligated to pay principal, interest and any and
all other amounts which become payable hereunder or under the other Loan
Documents absolutely and unconditionally and without any abatement,
postponement, diminution or deduction and without any reduction for
counterclaim or setoff. In the event that at any time any payment received by
Lender hereunder shall be deemed by a court of competent jurisdiction to have
been a voidable preference or fraudulent conveyance under any bankruptcy,
insolvency or other debtor relief law, then the obligation to make such payment
shall survive any cancellation or satisfaction of this Note or return thereof
to Maker and shall not be discharged or satisfied with any prior payment
thereof or cancellation of this Note, but shall remain a valid and binding
obligation enforceable in accordance with the terms and provisions hereof, and
such payment shall be immediately due and payable upon demand.
ARTICLE 11. WAIVER OF JURY TRIAL
MAKER HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE
OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT
THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS NOTE, THE
SECURITY INSTRUMENT AND THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR
OTHER ACTION ARISING IN CONNECTION THEREWITH. 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.
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<PAGE> 12
Maker's Tax Identification No.:
75-2777877
WMF Loan No.: 999-20189
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
12
<PAGE> 13
IN WITNESS WHEREOF, Maker has executed this Note under seal as of the
date first above written.
HALLWOOD HOTELS-OKC, INC.,
a Delaware corporation
By:
------------------------------------
Melvin J. Melle
Vice President
<PAGE> 14
MORTGAGE AND SECURITY AGREEMENT
HALLWOOD HOTELS-OKC, INC.,
MORTGAGOR
WMF CAPITAL CORP.,
MORTGAGEE
DATED: AS OF SEPTEMBER 11, 1998
THIS INSTRUMENT AFFECTS REAL AND PERSONAL PROPERTY SITUATED IN THE
STATE OF OKLAHOMA, COUNTY OF OKLAHOMA, KNOWN BY THE STREET ADDRESS OF 1815 SOUTH
MERIDIAN.
A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE, A POWER OF SALE MAY
ALLOW THE MORTGAGEE TO TAKE THE MORTGAGED PROPERTY AND SELL IT WITHOUT GOING TO
COURT IN FORECLOSURE ACTION UPON DEFAULT BY MORTGAGOR UNDER THIS MORTGAGE.
Record and Return to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019-6099
Attention: George Chung, Esq.
WMF Loan No. 999-20189
<PAGE> 15
THIS MORTGAGE AND SECURITY AGREEMENT (this "Mortgage") is made as of
the 11th day of September, 1998, by HALLWOOD HOTELS-OKC, INC., a Delaware
corporation ("Mortgagor"), having a principal place of business at 3710 Rawlins,
Suite 1500, Dallas, Texas 75219, in favor of WMF CAPITAL CORP., a Delaware
corporation ("Mortgagee"), whose address is 121 West Trade Street, 27th Floor,
Charlotte, North Carolina 28202.
W I T N E S S E T H:
THAT FOR AND IN CONSIDERATION OF THE SUM OF TEN AND NO/100 DOLLARS
($10.00), AND OTHER VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH
IS HEREBY ACKNOWLEDGED, MORTGAGOR HEREBY IRREVOCABLY MORTGAGES, GRANTS,
BARGAINS, SELLS, CONVEYS, TRANSFERS, PLEDGES, SETS OVER AND ASSIGNS, AND GRANTS
A SECURITY INTEREST, TO MORTGAGEE, ITS SUCCESSORS AND ASSIGNS, WITH POWER OF
SALE, in all of Mortgagor's estate, right, title and interest in, to and under
any and all of the following described property, whether now owned or hereafter
acquired (collectively, the "Property"):
A. All that certain real property situated at 1815 South Meridian,
Oklahoma City, County of Oklahoma, State of Oklahoma, more particularly
described on Exhibit A attached hereto and incorporated herein by this reference
(the "Real Estate"), together with all of the easements, rights, privileges,
franchises, tenements, hereditaments and appurtenances now or hereafter
thereunto belonging or in any way appertaining and all of the estate, right,
title, interest, claim and demand whatsoever of Mortgagor therein or thereto,
either at law or in equity, in possession or in expectancy, now or hereafter
acquired;
B. All structures, buildings and improvements of every kind and
description now or at any time hereafter located or placed on the Real Estate
(the "Improvements");
C. All furniture, furnishings, fixtures, goods, equipment, inventory or
personal property owned by Mortgagor and now or hereafter located on, attached
to or used in and about the Improvements, including, but not limited to, all
machines, engines, boilers, dynamos, elevators, stokers, tanks, cabinets,
awnings, screens, shades, blinds, carpets, draperies, lawn mowers, and all
appliances, plumbing, heating, air conditioning, lighting, ventilating,
refrigerating, disposal and incinerating equipment, and all fixtures and
appurtenances thereto, and such other goods and chattels and personal property
owned by Mortgagor as are now or hereafter used or furnished in operating the
Improvements, or the activities conducted therein, and all building materials
and equipment hereafter situated on or about the Real Estate or Improvements,
and all warranties and guaranties relating thereto, and all additions thereto
and substitutions and replacements therefor (exclusive of any of the foregoing
owned or leased by tenants of space in the Improvements);
D. All easements, rights-of-way, strips and gores of land, vaults,
streets, ways, alleys, passages, sewer rights, air rights and other development
rights now or hereafter located on the Real Estate or under or above the same or
any part or parcel thereof, and all estates, rights, titles, interests,
tenements, hereditaments and appurtenances, reversions and remainders
whatsoever, in any way belonging, relating or appertaining to the Real Estate
and/or Improvements or any part thereof, or which hereafter shall in any way
belong, relate or be appurtenant thereto, whether now owned or hereafter
acquired by Mortgagor;
E. All water, ditches, wells, reservoirs and drains and all water,
ditch, well, reservoir and drainage rights which are appurtenant to, located on,
under or above or used in connection
<PAGE> 16
with the Real Estate or the Improvements, or any part thereof, whether now
existing or hereafter created or acquired;
F. All crops, timber, trees, shrubs, flowers and landscaping features
now or hereafter located on or above the Real Estate;
G. All cash funds, deposit accounts and other rights and evidence of
rights to cash, now or hereafter created or held by Mortgagee pursuant to this
Mortgage or any other of the Loan Documents (as hereinafter defined), including,
without limitation, all funds now or hereafter on deposit in the Impound
Account, the Repair and Remediation Reserve, the Replacement Reserve and the
Payment Reserve (each as hereafter defined);
H. All leases (including, without limitation, oil, gas and mineral
leases), licenses, concessions and occupancy agreements of all or any part the
Real Estate or the Improvements (each, a "Lease" and collectively, "Leases") now
or hereafter entered into and all rents, royalties, issues, profits, revenue,
income and other benefits (collectively, the "Rents and Profits") of the Real
Estate or the Improvements, now or hereafter arising from the use or enjoyment
of all or any portion thereof or from any present or future Lease or other
agreement pertaining thereto or arising from any of the Contracts (as
hereinafter defined) or any of the General Intangibles (as hereinafter defined)
and all cash or securities deposited to secure performance by the tenants,
lessees or licensees (each, a "Tenant" and collectively, "Tenants"), as
applicable, of their obligations under any such Leases, whether said cash or
securities are to be held until the expiration of the terms of said Leases or
applied to one or more of the installments of rent coming due prior to the
expiration of said terms, subject to, however, the provisions contained in
Section 1.11 herein below;
I. That certain license agreement dated July 15, 1991 between Embassy
Suites, Inc., as franchisor, and Hallwood Hotels, Inc., as franchisee, and
thereafter assigned to Hallwood Hotels-OKC Inc., as successor franchisee,
(hereinafter the "Franchise Agreement"), and all contracts and agreements now or
hereafter entered into covering any part of the Real Estate or the Improvements
(collectively, the "Contracts") and all revenue, income and other benefits
thereof, including, without limitation, management agreements, service
contracts, maintenance contracts, equipment leases, personal property leases and
any contracts or documents relating to construction on any part of the Real
Estate or the Improvements (including plans, drawings, surveys, tests, reports,
bonds and governmental approvals) or to the management or operation of any part
of the Real Estate or the Improvements;
J. All present and future monetary deposits given by Mortgagor to any
public or private utility with respect to utility services furnished to any part
of the Real Estate or the Improvements;
K. All present and future funds, accounts, instruments, accounts
receivable, documents, causes of action, claims, general intangibles (including
without limitation, trademarks, trade names, servicemarks and symbols now or
hereafter used by Mortgagor in connection with any part of the Real Estate or
the Improvements, all names by which the Real Estate or the Improvements may be
operated or known, all rights to carry on business under such names, and all
rights, interest and privileges which Mortgagor has or may have as developer or
declarant under any covenants, restrictions or declarations now or hereafter
relating to the Real Estate or the Improvements) and all notes or chattel paper
now or hereafter arising from or by virtue of any transactions related to the
Real Estate or the Improvements (collectively, the "General Intangibles");
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<PAGE> 17
L. All water taps, sewer taps, certificates of occupancy, permits,
licenses, franchises, certificates, consents, approvals and other rights and
privileges now or hereafter obtained in connection with the Real Estate or the
Improvements and all present and future warranties and guaranties relating to
the Improvements or to any equipment, fixtures, furniture, furnishings, personal
property or components of any of the foregoing now or hereafter located or
installed on the Real Estate or the Improvements;
M. All right, title and interest of Mortgagor in and to all building
materials, supplies and equipment now or hereafter placed on the Real Estate or
in the Improvements and all architectural renderings, models, drawings, plans,
specifications, studies and data now or hereafter relating to the Real Estate or
the Improvements;
N. All right, title and interest of Mortgagor in any insurance policies
or binders now or hereafter relating to the Property including any unearned
premiums thereon;
O. All right, title and interest of Mortgagor in and to all proceeds,
products, substitutions and accessions (including claims and demands therefor)
of the conversion, voluntary or involuntary, of any of the foregoing into cash
or liquidated claims, including, without limitation, proceeds of insurance and
condemnation awards;
P. All other or greater rights and interests of every nature in the
Real Estate or the Improvements and in the possession or use thereof and income
therefrom, whether now owned or hereafter acquired by Mortgagor; and
Q. All revenues, receipts, income, accounts, accounts receivable and
other receivables including, without limitation, revenues receipts, income,
receivables and accounts relating to or arising from rentals, rent equivalent
income, income and profits from guest rooms, meeting rooms, food and beverage
facilities, vending machines, telephone and television systems, guest laundry,
the provision or sale of other goods and services, and any other items of
revenue, receipts or other income as identified in the Uniform System of
Accounts for Hotels, 8th Edition, International Association of Hospitality
Accountants (1986), as from time to time amended.
FOR THE PURPOSES OF SECURING:
(1) The debt evidenced by that certain promissory note (such promissory
note, together with any and all renewals, modifications, consolidations and
extensions thereof, is hereinafter referred to as the "Note") of even date with
this Mortgage, made by Mortgagor to the order of Mortgagee in the original
principal amount of Seventeen Million Two Hundred Fifty Thousand and No/100
Dollars ($17,250,000.00), together with interest as therein provided, with a
maturity date of October 1, 2008 ("Maturity Date");
(2) The full and prompt payment and performance of all of the
provisions, agreements, covenants and obligations herein contained and contained
in any other agreements, documents or instruments now or hereafter evidencing,
securing, guarantying or otherwise relating to the indebtedness evidenced by the
Note, including, but not limited to, the Hazardous Substances Indemnity
Agreement (as hereinafter defined) (the Note, this Mortgage, and such other
agreements, documents and instruments, together with any and all renewals,
amendments, extensions and modifications thereof, are hereinafter collectively
referred to as the "Loan Documents") and the payment of all other sums therein
covenanted to be paid;
3
<PAGE> 18
(3) Any and all additional advances made by Mortgagee to protect or
preserve the Property or the lien or security interest created hereby on the
Property, or for taxes, assessments or insurance premiums as hereinafter
provided or for performance of any of Mortgagor's obligations hereunder or under
the other Loan Documents or for any other purpose provided herein or in the
other Loan Documents (whether or not the original Mortgagor remains the owner of
the Property at the time of such advances); and
(4) Any and all other indebtedness now owing or which may hereafter be
owing by Mortgagor to Mortgagee, including, without limitation, all prepayment
fees, however and whenever incurred or evidenced, whether express or implied,
direct or indirect, absolute or contingent, or due or to become due, and all
renewals, modifications, consolidations, replacements and extensions thereof.
(All of the sums referred to in Paragraphs (1) through (4) above are
herein sometimes referred to as the "secured indebtedness" or the "indebtedness
secured hereby" or the "Debt").
TO HAVE AND TO HOLD the Property unto Mortgagee, its successors and
assigns forever, for the purposes and uses herein set forth.
PROVIDED, HOWEVER, that if the Debt, shall have been paid at the time
and in the manner stipulated therein and all other sums payable hereunder and
all other Debt shall have been paid and all other covenants contained in the
Loan Documents shall have been performed, then, in such case, this Mortgage
shall be satisfied and the estate, right, title and interest of Mortgagee in the
Property shall cease, and upon payment to Mortgagee of all costs and expenses
incurred for the preparation of the release hereinafter referenced and all
recording costs if allowed by law, Mortgagee shall release this Mortgage and the
lien hereof by proper instrument.
ARTICLE I
COVENANTS OF MORTGAGOR
For the purpose of further securing the Debt and for the protection of
the security of this Mortgage, for so long as the Debt or any part thereof
remains unpaid, Mortgagor covenants and agrees as follows:
1.1 Warranties of Mortgagor. Mortgagor, for itself and its successors
and assigns, does hereby represent, warrant and covenant to and with Mortgagee,
its successors and assigns, that:
(a) Mortgagor has good and marketable fee simple title to the
Property, subject only to those matters expressly set forth as exceptions to or
subordinate matters in the title insurance policy insuring the lien of this
Mortgage which Mortgagee has agreed to accept, excepting therefrom all
preprinted and/or standard exceptions (the "Permitted Exceptions"), and has full
power and lawful authority to grant, bargain, sell, convey, assign, transfer and
mortgage its interest in the Property in the manner and form hereby done or
intended. Mortgagor will preserve its interest in and title to the Property and
will forever warrant and defend the same to Mortgagee against any and all claims
whatsoever and will forever warrant and defend the validity and priority of the
lien and security interest created herein against the claims of all
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persons and parties whomsoever, subject to the Permitted Exceptions. The
foregoing warranty of title shall survive the foreclosure of this Mortgage and
shall inure to the benefit of and be enforceable by Mortgagee in the event
Mortgagee acquires title to the Property pursuant to any foreclosure;
(b) No bankruptcy or insolvency proceedings are pending or
contemplated by Mortgagor or, to the best knowledge of Mortgagor, against
Mortgagor or by or against any endorser or cosigner of the Note, or any
guarantor or indemnitor under any guaranty or indemnity agreement executed in
connection with the Note or the loan evidenced thereby and secured hereby;
(c) All reports, certificates, affidavits, statements and other
data furnished by or on behalf of Mortgagor to Mortgagee in connection with the
loan evidenced by the Note are true and correct in all material respects and do
not omit to state any fact or circumstance necessary to make the statements
contained therein not misleading;
(d) The execution, delivery and performance of this Mortgage, the
Note and all of the other Loan Documents have been duly authorized by all
necessary action to be, and are, binding and enforceable against Mortgagor in
accordance with the respective terms thereof and do not contravene, result in a
breach of or constitute (upon the giving of notice or the passage of time or
both) a default under the partnership agreement, articles of incorporation or
other organizational documents of Mortgagor or any contract or agreement of any
nature to which Mortgagor is a party or by which Mortgagor or any of its
property may be bound and do not violate or contravene any law, order, decree,
rule or regulation to which Mortgagor is subject;
(e) The Real Estate and the Improvements, and the intended use
thereof by Mortgagor comply in all material respects with all applicable
restrictive covenants, zoning ordinances, subdivision and building codes, flood
disaster laws, applicable health and environmental laws and regulations and all
other ordinances, orders or requirements issued by any state, federal or
municipal authorities having or claiming jurisdiction over the Property. The
Real Estate and Improvements constitute a separate tax parcel for purposes of ad
valorem taxation. The Real Estate and Improvements do not require any rights
over, or restrictions against, other property in order to comply with any of the
aforesaid governmental ordinances, orders or requirements.
(f) All utility services necessary and sufficient for the full use,
occupancy, operation and disposition of the Real Estate and the Improvements for
their intended purposes are available to the Property, including water, storm
sewer, sanitary sewer, gas, electric, cable and telephone facilities, through
public rights-of-way or perpetual private easements approved by Mortgagee;
(g) All streets, roads, highways, bridges and waterways necessary
for access to and full use, occupancy, operation and disposition of the Real
Estate and the Improvements have been completed, have been dedicated to and
accepted by the appropriate municipal authority and are open and available to
the Real Estate and the Improvements without further condition or cost to
Mortgagor;
(h) All curb cuts, driveways and traffic signals shown on the
survey delivered to Mortgagee prior to the execution and delivery of this
Mortgage are existing and have been fully approved by the appropriate
governmental authority;
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(i) There are no judicial, administrative, mediation or arbitration
actions, suits or proceedings pending or threatened against or affecting
Mortgagor, (and, if Mortgagor is a partnership, any of its general partners) or
the Property which, if adversely determined, would materially impair either the
Property or Mortgagor's ability to perform the covenants or obligations required
to be performed under the Loan Documents;
(j) The Property is free from delinquent water charges, sewer
rents, taxes and assessments;
(k) As of the date of this Mortgage, the Property is free from
unrepaired damage caused by fire, flood, accident or other casualty;
(l) As of the date of this Mortgage, no part of the Real Estate or
the Improvements has been taken in condemnation, eminent domain or like
proceeding nor is any such proceeding pending or to Mortgagor's knowledge and
belief, threatened or contemplated;
(m) Mortgagor possesses all franchises, patents, copyrights,
trademarks, trade names, licenses and permits adequate for the conduct of its
business substantially as now conducted;
(n) Except as disclosed in the Engineering Report hereinafter
referred to in Article 1.35, the Improvements are structurally sound, in good
repair and free of defects in materials and workmanship and have been
constructed and installed in substantial compliance with the plans and
specifications relating thereto. All major building systems located within the
Improvements, including, without limitation, the heating and air conditioning
systems and the electrical and plumbing systems, are in good working order and
condition;
(o) Mortgagor has delivered to Mortgagee a true, correct and
complete copy of all Contracts and all amendments thereto or modifications
thereof;
(p) Each Contract constitutes the legal, valid and binding
obligation of Mortgagor and, to the best of Mortgagor's knowledge and belief, is
enforceable against any other party thereto. No default exists, or with the
passing of time or the giving of notice or both would exist, under any Contract
which would, in the aggregate, have a material adverse effect on Mortgagor or
the Property;
(q) No Contract provides any party with the right to obtain a lien
or encumbrance upon the Property superior to the lien of this Mortgage;
(r) Mortgagor and the Property are free from any past due
obligations for sales and payroll taxes;
(s) There are no security agreements or financing statements
affecting any of the Property other than (i) as disclosed in writing by
Mortgagor to Mortgagee prior to the date hereof and (ii) the security agreements
and financing statements created in favor of Mortgagee;
(t) The Property forms no part of any property owned, used or
claimed by Mortgagor as a residence or business homestead and is not exempt from
forced sale under the laws of the State in which the Property is located.
Mortgagor hereby disclaims and renounces each and every claim to all or any
portion of the Property as a homestead;
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(u) Neither Mortgagor, any indemnitor or guarantor of Mortgagor's
obligations under the Loan Documents, nor any general partners, shareholder,
member or principal of Mortgagor, indemnitor or guarantor, has ever been
convicted of a crime or is currently the subject of any pending or threatened
criminal investigation or proceeding;
(v) Mortgagor has delivered a true, correct and complete schedule
(the "Rent Roll") of all Leases affecting the Property as of the date hereof,
which accurately and completely sets forth in all material respects for each
Lease, the following: the name of the Tenant, the Lease expiration date,
extension and renewal provisions, the base rent payable, the security deposit
held thereunder and any other material provisions of such Lease;
(w) Each Lease constitutes the legal, valid and binding obligation
of Mortgagor and, to the best of Mortgagor's knowledge and belief, is
enforceable against the Tenant thereof. No default exists, or with the passing
of time or the giving of notice or both would exist, under any Lease which
would, in the aggregate, have a material adverse effect on Mortgagor or the
Property;
(x) No Tenant under any Lease has, as of the date hereof, paid rent
more than thirty (30) days' in advance, and the rents under such Leases have not
been waived, released, or otherwise discharged or compromised;
(y) All work to be performed by Mortgagor under the Leases has been
substantially performed, all contributions to be made by Mortgagor to the
Tenants thereunder have been made and all other conditions precedent to each
such Tenant's obligations thereunder have been satisfied;
(z) Each Tenant under a Lease has entered into occupancy of the
demised premises;
(aa) Mortgagor has delivered to Mortgagee true, correct and
complete copies of all Leases described in the Rent Roll;
(bb) To the best of Mortgagor's knowledge and belief, each Tenant
is free from bankruptcy, reorganization or arrangement proceedings or a general
assignment for the benefit of creditors;
(cc) No Lease provides any party with the right to obtain a lien or
encumbrance upon the Property superior to the lien of this Mortgage; and
(dd) Mortgagor is not a "foreign person" within the meaning of
Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended, and the
related Treasury Department regulations, including temporary regulations.
1.2 Defense of Title. If, while this Mortgage is in force, the title to
the Property or the interest of Mortgagee therein shall be the subject, directly
or indirectly, of any action at law or in equity, or be attached directly or
indirectly, or endangered, clouded or adversely affected in any manner,
Mortgagor, at Mortgagor's expense, shall take all necessary and proper steps for
the defense of said title or interest, including the employment of counsel
approved by Mortgagee, the prosecution or defense of litigation, and the
compromise or discharge of claims made against said title or interest.
Notwithstanding the foregoing, in the event that Mortgagee
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determines that Mortgagor is not adequately performing its obligations under
this Section, Mortgagee may, without limiting or waiving any other rights or
remedies of Mortgagee hereunder, take such steps, with respect thereto as
Mortgagee shall deem necessary or proper and any and all costs and expenses
incurred by Mortgagee in connection therewith, together with interest thereon at
the Default Interest Rate (as defined in the Note) from the date incurred by
Mortgagee until actually paid by Mortgagor, shall be immediately paid by
Mortgagor on demand and shall be secured by this Mortgage and by all of the
other Loan Documents securing all or any part of the Debt.
1.3 Performance of Obligations. Mortgagor shall pay when due the
principal of and the interest on the indebtedness evidenced by the Note.
Mortgagor shall also pay all charges, fees and other sums required to be paid by
Mortgagor as provided in the Loan Documents, and shall observe, perform and
discharge all obligations, covenants and agreements to be observed, performed or
discharged by Mortgagor set forth in the Loan Documents in accordance with their
terms. Further, Mortgagor shall promptly and strictly perform and comply with
all covenants, conditions, obligations and prohibitions required of Mortgagor in
connection with any other document or instrument affecting title to the
Property, or any part thereof, regardless of whether such document or instrument
is superior or subordinate to this Mortgage.
1.4 Insurance. Mortgagor shall, at Mortgagor's expense, maintain in
force and effect on the Property at all times while this Mortgage continues in
effect the following insurance:
(a) Insurance against loss or damage to the Property by fire,
windstorm, tornado and hail and against loss and damage by such other, further
and additional risks as may be now or hereafter embraced by an "all-risk" or
"special form" type of insurance policy. The amount of such insurance shall be
not less than one hundred percent (100%) of the full replacement cost (insurable
value) of the Improvements (as established by an MAI appraisal), without
reduction for depreciation. The determination of the replacement cost amount
shall be adjusted annually to comply with the requirements of the insurer
issuing such coverage or, at Mortgagee's election, by reference to such indices,
appraisals or information as Mortgagee determines in its reasonable discretion
in order to reflect increased value due to inflation. Absent such annual
adjustment, each policy shall contain inflation guard coverage insuring that the
policy limit will be increased over time to reflect the effect of inflation.
Full replacement cost, as used herein, means, with respect to the Improvements,
the cost of replacing the Improvements without regard to deduction for
depreciation, exclusive of the cost of excavations, foundations and footings
below the lowest basement floor. Mortgagor shall also maintain insurance against
loss or damage to furniture, furnishing, fixtures, equipment and other items
(whether personalty or fixtures) included in the Property and owned by Mortgagor
from time to time to the extent applicable. Each policy or policies shall
contain a replacement cost endorsement and either an agreed amount endorsement
(to avoid the operation of any co-insurance provisions) or a waiver of any
co-insurance provisions, all subject to Mortgagee's approval. The maximum
deductible shall be $10,000.00.
(b) Commercial General Liability Insurance against claims for
personal injury, bodily injury, death and property damage occurring on, in or
about the Real Estate or the Improvements in amounts not less than $1,000,000.00
per occurrence and $2,000,000.00 in the aggregate plus umbrella coverage in an
amount not less than $2,000,000. Mortgagee hereby retains the right to
periodically review the amount of said liability insurance being maintained by
Mortgagor and to require an increase in the amount of said liability insurance
should Mortgagee deem an increase to be reasonably prudent under then existing
circumstances.
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(c) Boiler and machinery insurance is required if steam boilers or
other pressure-fired vessels are in operation at the Property. Minimum liability
coverage per accident must equal the greater of the replacement cost (insurable
value) of the Improvements housing such boiler or pressure-fired machinery or
$2,000,000.00 single limit "per occurrence" for bodily injury and property
damage. If one or more HVAC units is in operation at the Property, "Systems
Breakdowns" coverage shall be required, as determined by Mortgagee. Minimum
liability coverage per accident must equal the value of such unit(s).
(d) If the Improvements or any part thereof are situated in an area
designated by the Federal Emergency Management Agency ("FEMA") as a special
flood hazard area (Zone A or Zone V), flood insurance in an amount equal to the
lesser of: (a) the minimum amount required, under the terms of coverage, to
compensate for any damage or loss on a replacement basis (or the unpaid balance
of the Debt if replacement cost coverage is not available for the type of
building insured); or (b) the maximum insurance available under the appropriate
National Flood Insurance Administration program. The maximum deductible shall be
$3,000.00 per building or a higher minimum amount as required by FEMA or other
applicable law.
(e) During the period of any construction, renovation or alteration
of the existing Improvements which exceeds the lesser of 10% of the principal
amount of the Note or $500,000, at Mortgagee's request, a completed value, "All
Risk" Builder's Risk form or "Course of Construction" insurance policy in
nonreporting form, in an amount approved by Mortgagee, may be required. During
the period of any construction of any addition to the existing Improvements, a
completed value, "All Risk" Builder's Risk form or "Course of Construction"
insurance policy in non-reporting form, in an amount approved by Mortgagee,
shall be required.
(f) When required by applicable law, ordinance or other regulation,
Worker's Compensation and Employer's Liability Insurance covering all persons
subject to the worker's compensation laws of the state in which the Property is
located.
(g) Business income (loss of rents) insurance in amounts sufficient
to compensate Mortgagor for all Rents and Profits or income during a period of
not less than twelve (12) months. The amount of coverage shall be adjusted
annually to reflect the Rents and Profits or income payable during the
succeeding twelve (12) month period.
(h) Such other insurance on the Property or on any replacements or
substitutions thereof or additions thereto as may from time to time be required
by Mortgagee against other insurable hazards or casualties which at the time are
commonly insured against in the case of property similarly situated including,
without limitation, Sinkhole, Mine Subsidence, Earthquake and Environmental
insurance, due regard being given to the height and type of buildings, their
construction, location, use and occupancy.
All such insurance shall (i) be with insurers fully licensed and
authorized to do business in the state within which the Premises is located and
who have and maintain a rating of at least (A) A from Standard & Poor's, or
equivalent or (B) A -VIII or higher from A.M. Best, (ii) contain the complete
address of the Premises (or a complete legal description), (iii) be for terms of
at least one year, with premium prepaid, and (vi) be subject to the approval of
Mortgagee as to insurance companies, amounts, content, forms of policies, method
by which premiums are paid and expiration dates, and (v) include a standard,
non-contributory, mortgagee clause naming EXACTLY:
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WMF/Capital Corp.,
Its Successors and Assigns ATIMA
WMF/Huntoon Paige Associates Limited
P.O. Box 2915
Edison, New Jersey 08818-2915
Attention: Loan Administration
(a) as an additional insured under all liability insurance policies,
(b) as the first mortgagee on all property insurance policies and (c) as the
loss payee on all loss of rents or loss of business income insurance policies.
Mortgagor shall, as of the date hereof, deliver to Mortgagee
evidence that said insurance policies have been prepaid as required above and
certified copies of such insurance policies and original certificates of
insurance signed by an authorized agent of the applicable insurance companies
evidencing such insurance satisfactory to Mortgagee. Mortgagor shall renew all
such insurance and deliver to Mortgagee certificates and policies evidencing
such renewals at least thirty (30) days before any such insurance shall expire.
Mortgagor further agrees that each such insurance policy: (i) shall provide for
at least thirty (30) days' prior written notice to Mortgagee prior to any policy
reduction or cancellation for any reason other than non-payment of premium and
at least ten (10) days' prior written notice to Mortgagee prior to any
cancellation due to non-payment of premium; (ii) shall contain an endorsement or
agreement by the insurer that any loss shall be payable to Mortgagee in
accordance with the terms of such policy notwithstanding any act or negligence
of Mortgagor which might otherwise result in forfeiture of such insurance; (iii)
shall waive all rights of subrogation against Mortgagee; (iv) in the event that
the Real Estate or the Improvements constitutes a legal non-conforming use under
applicable building, zoning or land use laws or ordinances, shall include an
ordinance or law coverage endorsement which will contain Coverage A: "Loss Due
to Operation of Law" (with a minimum liability limit equal to Replacement Cost
With Agreed Value Endorsement), Coverage B: "Demolition Cost" and Coverage C:
"Increased Cost of Construction" coverage; and (v) may be in the form of a
blanket policy provided that, in the event that any such coverage is provided in
the form of a blanket policy, Mortgagor hereby acknowledges and agrees that
failure to pay any portion of the premium therefor which is not allocable to the
Property or by any other action not relating to the Property which would
otherwise permit the issuer thereof to cancel the coverage thereof, would
require the Property to be insured by a separate, single-property policy. The
blanket policy must properly identify and fully protect the Property as if a
separate policy were issued for 100% of Replacement Cost at the time of loss and
otherwise meet all of Mortgagee's applicable insurance requirements set forth in
this Section 1.4. The delivery to Mortgagee of the insurance policies or the
certificates of insurance as provided above shall constitute an assignment of
all proceeds payable under such insurance policies relating to the Property by
Mortgagor to Mortgagee as further security for the Debt. In the event of
foreclosure of this Mortgage, or other transfer of title to the Property in
extinguishment in whole or in part of the Debt, all right, title and interest of
Mortgagor in and to all proceeds payable under such policies then in force
concerning the Property shall thereupon vest in the purchaser at such
foreclosure, or in Mortgagee or other transferee in the event of such other
transfer of title. Approval of any insurance by Mortgagee shall not be a
representation of the solvency of any insurer or the sufficiency of any amount
of insurance. In the event Mortgagor fails to provide, maintain, keep in force
or deliver and furnish to Mortgagee the policies of insurance required by this
Mortgage or evidence of their renewal as required herein, Mortgagee may, but
shall not be obligated to, procure such insurance and Mortgagor shall pay all
amounts advanced by Mortgagee therefor, together with interest thereon at the
Default Interest Rate from and after the date advanced by Mortgagee until
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actually repaid by Mortgagor, promptly upon demand by Mortgagee. Any amounts so
advanced by Mortgagee, together with interest thereon, shall be secured by this
Mortgage and by all of the other Loan Documents securing all or any part of the
Debt. Mortgagee shall not be responsible for nor incur any liability for the
insolvency of the insurer or other failure of the insurer to perform, even
though Mortgagee has caused the insurance to be placed with the insurer after
failure of Mortgagor to furnish such insurance. Mortgagor shall not obtain
insurance for the Property in addition to that required by Mortgagee without the
prior written consent of Mortgagee, which consent will not be unreasonably
withheld provided that (i) Mortgagee is a named insured on such insurance, (ii)
Mortgagee receives complete copies of all policies evidencing such insurance,
and (iii) such insurance complies with all of the applicable requirements set
forth herein.
1.5 Payment of Taxes. Mortgagor shall pay or cause to be paid, except
to the extent provision is actually made therefor pursuant to Section 1.6 of
this Mortgage, all taxes and assessments which are or may become a lien on the
Property or which are assessed against or imposed upon the Property. Mortgagor
shall furnish Mortgagee with receipts (or if receipts are not immediately
available, with copies of canceled checks evidencing payment with receipts to
follow promptly after they become available) showing payment of such taxes and
assessments at least fifteen (15) days prior to the applicable delinquency date
therefor. Notwithstanding the foregoing, Mortgagor may in good faith, by
appropriate proceedings and upon notice to Mortgagee, contest the validity,
applicability or amount of any asserted tax or assessment so long as (a) such
contest is diligently pursued, (b) Mortgagee determines, in its subjective
opinion, that such contest suspends the obligation to pay the tax and that
nonpayment of such tax or assessment will not result in the sale, loss,
forfeiture or diminution of the Property or any part thereof or any interest of
Mortgagee therein, and (c) prior to the earlier of the commencement of such
contest or the delinquency date of the asserted tax or assessment, Mortgagor
deposits in the Impound Account (as hereinafter defined) an amount determined by
Mortgagee to be adequate to cover the payment of such tax or assessment and a
reasonable additional sum to cover possible interest, costs and penalties;
provided, however, that Mortgagor shall promptly cause to be paid any amount
adjudged by a court of competent jurisdiction to be due, with all interest,
costs and penalties thereon, promptly after such judgment becomes final; and
provided, further, that in any event each such contest shall be concluded, the
taxes, assessments, interest, costs and penalties shall be paid prior to the
date any writ or order is issued under which the Property may be sold, lost or
forfeited.
1.6 Tax and Insurance Impound Account. Mortgagor shall establish and
maintain at all times while this Mortgage continues in effect an impound account
(the "Impound Account") with Mortgagee for payment of real estate taxes and
assessments and insurance on the Property and as additional security for the
Debt. Simultaneously with the execution hereof, Mortgagor shall deposit in the
Impound Account an amount determined by Mortgagee to be necessary to ensure that
there will be on deposit with Mortgagee an amount which, when added to the
monthly payments subsequently required to be deposited with Mortgagee hereunder
on account of real estate taxes, assessments and insurance premiums, will result
in there being on deposit with Mortgagee in the Impound Account an amount
sufficient to pay the next due annual installment of real estate taxes and
assessment on the Property at least one (1) month prior to the due date thereof
(if paid in one installment) and the next due annual insurance premiums with
respect to the Property at least one (1) month prior to the delinquency date
thereof (if paid in one installment). Commencing on the first monthly payment
date under the Note and continuing thereafter on each monthly payment date under
the Note, Mortgagor shall pay to Mortgagee, concurrently with and in addition to
the monthly payment due under the Note and until the Note and all other Debt is
fully paid and performed, deposits in an amount equal to
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one-twelfth (1/12) of the amount of the annual real estate taxes and assessments
that will next become due and payable on the Property, plus one-twelfth (1/12)
of the amount of the annual premiums that will next become due and payable on
insurance policies which Mortgagor is required to maintain hereunder, each as
estimated and determined by Mortgagee. So long as no Event of Default (as
hereinafter defined), or event which with the passage of time, the giving of
notice, or both, would constitute an Event of Default (a "Default") hereunder or
under the other Loan Documents has occurred and is continuing, all sums in the
Impound Account shall be held by Mortgagee in the Impound Account to pay said
taxes, assessments and insurance premiums in one installment before the same
become delinquent. Mortgagor shall be responsible for ensuring the receipt by
Mortgagee, at least thirty (30) days prior to the respective due date for
payment thereof, of all bills, invoices and statements for all taxes,
assessments and insurance premiums to be paid from the Impound Account, and so
long as no Default or Event of Default hereunder or under the other Loan
Documents has occurred and is continuing, Mortgagee shall pay the governmental
authority or other party entitled thereto directly to the extent funds are
available for such purpose in the Impound Account. In making any payment from
the Impound Account, Mortgagee shall be entitled to rely on any bill, statement
or estimate procured from the appropriate public office or insurance company or
agent without any inquiry into the accuracy of such bill, statement or estimate
and without any inquiry into the accuracy, validity, enforceability or
contestability of any tax, assessment, valuation, sale, forfeiture, tax lien or
title or claim thereof. The Impound Account shall not, unless otherwise
explicitly required by applicable law, be or be deemed to be escrow or trust
funds, but, at Mortgagee's option and in Mortgagee's discretion, may either be
held in a separate account or be commingled by Mortgagee with the general funds
of Mortgagee. No interest on the funds contained in the Impound Account shall be
paid by Mortgagee to Mortgagor. The Impound Account is solely for the protection
of Mortgagee and entails no responsibility on Mortgagee's part beyond the
payment of taxes, assessments and insurance premiums following receipt of bills,
invoices or statements therefor in accordance with the terms hereof and beyond
the allowing of due credit for the sums actually received. If the total funds in
the Impound Account shall exceed the amount of payments actually applied by
Mortgagee for the purposes of the Impound Account, such excess may be credited
by Mortgagee on subsequent payments to be made hereunder or, at the option of
Mortgagee, refunded to Mortgagor. If, however, the Impound Account shall not
contain sufficient funds to pay the sums required when the same shall become due
and payable, Mortgagor shall, within ten (10) days after receipt of written
notice thereof, deposit with Mortgagee the full amount of any such deficiency.
If the Mortgagor shall fail to deposit with Mortgagee the full amount of such
deficiency as provided above, Mortgagee shall have the option, but not the
obligation, to make such deposit and all amounts so deposited by Mortgagee,
together with interest thereon at the Default Interest Rate from the date
incurred by Mortgagee until actually paid by Mortgagor, shall be immediately
paid by Mortgagor on demand and shall be secured by this Mortgage and by all of
the other Loan Documents securing all or any part of the Debt.
1.7 Intentionally Deleted.
1.8 Replacement Reserve; Security Interest Reserves.
(a) At Mortgagee's option, as additional security for the Debt,
Mortgagor shall establish and maintain at all times while this Mortgage
continues in effect a repair reserve (the "Replacement Reserve") with Mortgagee
for payment of certain non-recurring types of costs and expenses incurred by
Mortgagor for the repair, replacement and maintenance of the interior of the
Property, including without limitation, furniture, fixtures and equipment and
exterior work to the Property, including without limitation, performance of work
to the roofs,
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chimneys, gutters, downspouts, paving, curbs, driveways, ramps, balconies,
porches, patios, exterior walls, exterior doors and doorways, windows, elevators
and mechanical and HVAC equipment (collectively, the "Repairs") provided such
costs and expenses are incurred for repairs (i) not incurred for ordinary
maintenance or wear and tear at the Property and (ii) categorized under
generally accepted accounting principles as a capital expense and not as an
operating expense. Commencing on the first Payment Date under the Note and
continuing thereafter on each monthly Payment Date under the Note, the Mortgagor
shall pay Mortgagee, concurrently with and in addition to the Monthly Payment
Amount, due under the Note and until the Note and all other Debt is fully paid
and performed, a deposit to the Replacement Reserve in an amount equal to
$25,396.94 per month. So long as no Default or Event of Default hereunder or
under the other Loan Documents has occurred and is continuing, all sums in the
Replacement Reserve shall be held by Mortgagee in the Replacement Reserve to pay
the costs and expenses of Repairs. So long as no Default or Event of Default
hereunder or under the other Loan Documents has occurred and is continuing,
Mortgagee shall, to the extent funds are available for such purpose in the
Replacement Reserve, disburse to Mortgagor the amount paid or incurred by
Mortgagor in performing such Repairs within ten (10) days following: (a) the
receipt by Mortgagee of a written request from Mortgagor for disbursement from
the Replacement Reserve and a certification by Mortgagor in the form attached
hereto as Exhibit B that the applicable item of Repair has been completed, (b)
the delivery to Mortgagee of invoices, receipts or other evidence satisfactory
to Mortgagee verifying the cost of performing the Repairs; (c) for disbursement
requests in excess of $10,000.00, the delivery to Mortgagee of affidavits, lien
waivers or other evidence reasonably satisfactory to Mortgagee showing that all
materialmen, laborers, subcontractors and any other parties who might or could
claim statutory or common law liens and have furnished material or labor to the
Property have been paid all amounts due for labor and materials furnished to the
Property; (d) for disbursement requests in excess of $10,000.00, delivery to
Mortgagee of a certification from an inspecting architect or other third party
acceptable to Mortgagee describing the completed Repairs and verifying the
completion of the Repairs and the value of the completion of the Repairs and the
value of the completed Repairs; (e) for disbursement requests in excess of
$10,000.00, delivery to Mortgagee of a new certificate of occupancy for the
portion of the Improvements covered by such Repairs, if said new certificate of
occupancy is required by law, or a certification by Mortgagor that no new
certificate of occupancy is required; and (f) the receipt by Mortgagee of an
administrative fee in the amount of $150.00. Mortgagee shall not be required to
make advances from the Replacement Reserve more frequently than once in any
ninety (90) day period. In making any payment from the Replacement Reserve,
Mortgagee shall be entitled to rely on such request from Mortgagor without any
inquiry into the accuracy, validity or contestability of any such amount.
Mortgagee may, at Mortgagor's expense, make or cause to be made during the term
of this Mortgage an annual inspection at the Property to determine the need, as
determined by Mortgagee in its reasonable judgment, for further Repairs of the
Property. In the event that such inspection reveals that further Repairs of the
Property are required, Mortgagee shall provide Mortgagor with a written
description of the required Repairs and Mortgagor shall complete such Repairs to
the reasonable satisfaction of Mortgagee within ninety (90) days after the
receipt of such description from Mortgagee, or such later date as may be
approved by Mortgagee in its sole discretion. Interest on the funds contained in
the Replacement Reserve shall be credited to Mortgagor as provided in Section
4.31 hereof. The Replacement Reserve is solely for the protection of Mortgagee
and entails no responsibility on Mortgagee's part beyond the payment of the
costs and expenses described in this Section in accordance with the terms hereof
and beyond the allowing of due credit for the sums actually received. In the
event that the amounts on deposit or available in the Replacement Reserve are
inadequate to pay the cost of the Repairs, Mortgagor shall pay the amount of
such deficiency.
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(b) As additional security for the payment and performance by
Mortgagor of all duties, responsibilities and obligations under the Note and the
other Loan Documents, Mortgagor hereby unconditionally and irrevocably assigns,
conveys, pledges, mortgages, transfers, delivers, deposits, sets over and
confirms unto Mortgagee, and hereby grants to Mortgagee a security interest in,
(i) the Impound Account, the Payment Reserve, the Repair and Remediation
Reserve, the Replacement Reserve and any other reserve or escrow account
established pursuant to the terms hereof or of any other Loan Document
(collectively, the "Reserves"), (ii) the accounts into which the Reserves have
been deposited, (iii) all insurance of said accounts, (iv) all accounts,
contract rights and general intangibles or other rights and interests pertaining
thereto, (v) all sums now or hereafter therein or represented thereby, (vi) all
replacements, substitutions or proceeds thereof, (vii) all instruments and
documents now or hereafter evidencing the Reserves or such accounts, (viii) all
powers, options, rights, privileges and immunities pertaining to the Reserves
(including the right to make withdrawals therefrom), and (ix) all proceeds of
the foregoing. The Impound Account, the Payment Reserve, the Repair and
Remediation Reserve, the Replacement Reserve and any other Reserve shall not,
unless otherwise explicitly required by applicable law, be or be deemed to be
escrow or trust funds, but at Mortgagee's option and in Mortgagee's discretion,
may either be held in a separate account or be commingled by Mortgagee with the
general funds of Mortgagee. Mortgagor hereby authorizes and consents to the
account into which the Reserves have been deposited being held in Mortgagee's
name or the name of any entity servicing the Note for Mortgagee and hereby
acknowledges and agrees, that Mortgagee, or at Mortgagee's election, such
servicing agent, shall have exclusive control over said account. Notice of the
assignment and security interest granted to Mortgagee herein may be delivered by
Mortgagee at any time to the financial institution wherein the Reserves have
been established, and Mortgagee, or such servicing entity, shall have possession
of all passbooks or other evidences of such accounts. Mortgagor hereby assumes
all risk of loss with respect to amounts on deposit in the Reserves. Mortgagor
hereby knowingly, voluntarily and intentionally stipulates, acknowledges and
agrees that the advancement of the funds from the Reserves as set forth herein
is at Mortgagor's direction and is not the exercise by Mortgagee of any right of
set-off or other remedy upon a Default or an Event of Default. Mortgagor hereby
waives all right to withdraw funds from the Reserves. If an Event of Default
shall occur hereunder or under any other of the Loan Documents, then Mortgagee
may, without notice or demand on Mortgagor, at its option: (A) withdraw any or
all of the funds (including, without limitation, interest) then remaining in the
Reserves and apply the same, after deducting all costs and expenses of
safekeeping, collection and delivery (including, but not limited to, attorneys'
fees, costs and expenses) to the indebtedness evidenced by the Note or any other
obligations of Mortgagor under the other Loan Documents in such manner or as
Mortgagee shall deem appropriate in its sole discretion, and the excess, if any,
shall be paid to Mortgagor, (B) exercise any and all rights and remedies of a
secured party under any applicable Uniform Commercial Code, and/or (C) exercise
any other remedies available at law or in equity. No such use or application of
the funds contained in the Reserves shall be deemed to cure any Default or Event
of Default hereunder or under the other Loan Documents. Upon assignment of this
Mortgage by Mortgagee, any funds in the Reserves shall be turned over to the
assignee and any responsibility of Mortgagee, as assignor, with respect thereto
shall terminate. Upon the earlier to occur of full payment of the Debt, the
completion or payment of the purpose for which each Reserve is kept to the
satisfaction of the Mortgagee or at such earlier time as Mortgagee may elect,
the balance of any Reserve then in Mortgagee's possession shall be paid over to
Mortgagor and no other party shall have any right or claim thereto.
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1.9 Casualty and Condemnation. Mortgagor shall give Mortgagee prompt
written notice of the occurrence of any casualty affecting, or the institution
of any proceedings for eminent domain or for the condemnation of, the Property
or any portion thereof. All insurance proceeds on the Property, and all causes
of action, claims, compensation, awards and recoveries for any damage,
condemnation or taking of all or any part of the Property or for any damage or
injury to it for any loss or diminution in value of the Property, are hereby
assigned to and shall be paid to Mortgagee. Mortgagee may participate in any
suits or proceedings relating to any such proceeds, causes of action, claims,
compensation, awards or recoveries. Mortgagee is hereby authorized, in its own
name or in Mortgagor's name, to adjust any loss covered by insurance or any
condemnation claim or cause of action, and to settle or compromise any claim or
cause of action in connection therewith, and Mortgagor shall from time to time
deliver to Mortgagee any instruments required to permit such participation;
provided, however, that so long as no Default or Event of Default shall have
occurred and be continuing. Mortgagee shall not have the right to participate in
the adjustment of any loss which is not in excess of the lesser of (i) ten
percent (10%) of the then outstanding principal balance of the Note and (ii)
$250,000.00. Mortgagee shall apply any sums received by it under this Section
first to the payment of all of its costs and expenses (including, but not
limited to, legal fees and disbursements) incurred in obtaining those sums, and
then, as follows:
(a) In the event that less than sixty percent (60%) of the
Improvements located on the Real Estate have been taken or destroyed, then if:
(1) no Default or Event of Default is then continuing hereunder
or under any of the other Loan Documents, and
(2) the Property can, in Mortgagee's judgment, with diligent
restoration or repair, be returned to a condition at least equal to the
condition thereof that existed prior to the casualty or partial taking
causing the loss or damage within the earlier to occur of (i) six (6)
months after the receipt of insurance proceeds or condemnation awards
by either Mortgagor or Mortgagee and (ii) sixty (60) days prior to the
stated maturity date of the Note, and
(3) all necessary governmental approvals can be obtained to
allow the rebuilding and reoccupancy of the Property as described in
Section 1.9(a)(2) above, and
(4) there are sufficient sums available (through insurance
proceeds or condemnation awards and contributions by Mortgagor, the
full amount of which shall at Mortgagee's option have been deposited
with Mortgagee) for such restoration or repair (including, without
limitation, for any costs and expenses of Mortgagee to be incurred in
administering said restoration or repair) and for payment of principal
and interest to become due and payable under the Note during such
restoration or repair, and
(5) the economic feasibility of the Improvements after such
restoration or repair will be such that income from their operation is
reasonably anticipated to be sufficient to pay operating expenses of
the Property and debt service on the Debt in full with the same
coverage ratio considered by Mortgagee in its determination to make the
loan secured hereby including an assessment of the impact of the
termination of any Leases due to such casualty or condemnation, and
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(6) in the event that the insurance proceeds or condemnation
awards received as a result of such casualty or partial taking exceed
the lesser of (i) five percent (5%) of the then outstanding principal
balance of the Note and (ii) $150,000, Mortgagor shall have delivered
to Mortgagee, at Mortgagor's sole cost and expense, an appraisal report
in form and substance satisfactory to Mortgagee appraising the value of
the Property as proposed to be restored or repaired to be not less than
the appraised value of the Property considered by Mortgagee in its
determination to make the loan secured hereby, and
(7) Mortgagor so elects by written notice delivered to
Mortgagee within five (5) days after settlement of the aforesaid
insurance or condemnation claim,
then, Mortgagee shall, solely for the purposes of such restoration or repair,
advance so much of the remainder of such sums as may be required for such
restoration or repair, and any funds deposited by Mortgagor therefor, to
Mortgagor in the manner and upon such terms and conditions as would be required
by a prudent interim construction lender, including, but not limited to, the
prior approval by Mortgagee of plans and specifications, contractors and form of
construction contracts and the furnishing to Mortgagee of permits, bonds, lien
waivers, invoices, receipts and affidavits from contractors and subcontractors
in form and substance satisfactory to Mortgagee in its discretion, with any
remainder being applied by Mortgagee for payment of the Debt in whatever order
Mortgagee directs in its absolute discretion.
(b) In all other cases, namely, in the event that sixty percent
(60%) or more of the Improvements located on the Real Estate have been taken or
destroyed or Mortgagor does not elect to restore or repair the Property pursuant
to clause (a) above, or otherwise fails to meet the requirements of clause (a)
above, then in any of such events, Mortgagee shall elect, in Mortgagee's
absolute discretion and without regard to the adequacy of Mortgagee's security,
to do either of the following: (1) accelerate the maturity date of the Note and
declare any and all Debt to be immediately due and payable and apply the
remainder of such sums received pursuant to this Section to the payment of the
Debt in whatever order Mortgagee directs in its absolute discretion, with any
remainder being paid to Mortgagor, or (2) notwithstanding that Mortgagor may
have elected not to restore or repair the Property pursuant to the provisions of
Section 1.9(a)(7) above, require Mortgagor to restore or repair the Property in
the manner and upon such terms and conditions as would be required by a prudent
interim construction lender, including, but not limited to the deposit by
Mortgagor with Mortgagee, within thirty (30) days after demand therefor, of any
deficiency necessary in order to assure the availability of sufficient funds to
pay for such restoration or repair, including Mortgagee's costs and expenses to
be incurred in connection therewith, the prior approval by Mortgagee of plans
and specifications, contractors and form of construction contracts and the
furnishing to Mortgagee of permits, bonds, lien waivers, invoices, receipt and
affidavits from contractors and subcontractors in form and substance
satisfactory to Mortgagee in its discretion, and apply the remainder of such
sums toward such restoration and repair, with any balance thereafter remaining
being applied by Mortgagee for payment of the Debt in whatever order Mortgagee
directs in its absolute discretion.
Any reduction in the Debt resulting from Mortgagee's application of any sums
received by it hereunder shall take effect only when Mortgagee actually receives
such sums and elects to apply such sums to the Debt and, in any event, the
unpaid portion of the Debt shall remain in full force and effect and Mortgagor
shall not be excused in the payment thereof. Partial payments received by
Mortgagee, as described in the preceding sentence, shall be applied first
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to the final payment due under the Note and thereafter to installments due under
the Note in the inverse order of their due date. If Mortgagor elects or
Mortgagee directs Mortgagor to restore or repair the Property after the
occurrence of a casualty or partial taking of the Property as provided above,
Mortgagor shall promptly and diligently, at Mortgagor's sole cost and expense
and regardless of whether the insurance proceeds or condemnation award, as
appropriate, shall be sufficient for the purpose, restore, repair, replace and
rebuild the Property as nearly as possible to its value, condition and character
immediately prior to such casualty or partial taking in accordance with the
foregoing provisions and Mortgagor shall pay to Mortgagee all costs and expenses
of Mortgagee incurred in administering said rebuilding, restoration or repair,
provided the Mortgagee makes such proceeds or award available for such purpose.
Mortgagor agrees to execute and deliver from time to time such further
instruments as may be requested by Mortgagee to confirm the foregoing assignment
to Mortgagee of any award, damage, insurance proceeds, payment or other
compensation. Mortgagee is hereby irrevocably constituted and appointed the
attorney-in-fact of Mortgagor (which power of attorney shall be irrevocable so
long as any Debt is outstanding, shall be deemed coupled with an interest, shall
survive the voluntary or involuntary dissolution of Mortgagor and shall not be
affected by any disability or incapacity suffered by Mortgagor subsequent to the
date hereof), with full power of substitution, subject to the terms of this
Section, to settle for, collect and receive any such awards, damages, insurance
proceeds, payments or other compensation from the parties or authorities making
the same, to appear in and prosecute any proceedings therefor and to give
receipts and acquittances therefor.
1.10 Mechanics' Liens. Mortgagor shall pay when due all claims and
demands of mechanics, materialmen, laborers and others for any work performed or
materials delivered for the Real Estate or Improvements; provided, however,
that, Mortgagor shall have the right to contest in good faith any such claim or
demand, so long as it does so diligently, by appropriate proceedings and without
prejudice to Mortgagee and provided that neither the Property nor any interest
therein would be in any danger of sale, loss or forfeiture as a result of such
proceeding or contest. In the event Mortgagor shall contest any such claim or
demand, Mortgagor shall promptly notify Mortgagee of such contest and thereafter
shall, upon Mortgagee's request, promptly provide a bond, cash deposit or other
security satisfactory to Mortgagee to protect Mortgagee's interest and security
should the contest be unsuccessful. If Mortgagor shall fail to immediately
discharge or provide security against any such claim or demand as aforesaid,
Mortgagee may do so and any and all expenses incurred by Mortgagee, together
with interest thereon at the Default Interest Rate from the date incurred by
Mortgagee until actually paid by Mortgagor, shall be immediately paid by
Mortgagor on demand and shall be secured by this Mortgage and by all of the
other Loan Documents securing all or any part of the indebtedness evidenced by
the Note.
1.11 Rents and Profits. As additional and collateral security for the
payment of the Debt and cumulative of any and all rights and remedies herein
provided for, Mortgagor hereby absolutely and presently assigns to Mortgagee all
existing and future Rents and Profits. Mortgagor hereby grants to Mortgagee the
sole, exclusive and immediate right, without taking possession of the Property,
to demand, collect (by suit or otherwise), receive and give valid and sufficient
receipts for any and all of said Rents and Profits, for which purpose Mortgagor
does hereby irrevocably make, constitute and appoint Mortgagee its
attorney-in-fact with full power to appoint substitutes or a trustee to
accomplish such purpose (which power of attorney shall be irrevocable so long as
any Debt is outstanding, shall be deemed to be coupled with an interest, shall
survive the voluntary or involuntary dissolution of Mortgagor and shall not be
affected by any disability or incapacity suffered by Mortgagor subsequent to the
date hereof). Mortgagee shall be without liability for any loss which may arise
from a failure or inability to collect Rents
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and Profits, proceeds or other payments. However, until the occurrence of an
Event of Default under this Mortgage, Mortgagor shall have a license to collect
and receive the Rents and Profits when due and prepayments thereof for not more
than one month prior to due date thereof. Upon the occurrence of an Event of
Default hereunder, Mortgagor's license shall automatically terminate without
notice to Mortgagor and Mortgagee may thereafter, without taking possession of
the Property, collect the Rents and Profits itself or by an agent or receiver.
The license granted to the Mortgagor to receive rents shall be on the condition
and with the understanding and agreement that the Mortgagor shall hold same, as
well as the right and license to receive same, as a trust fund to be applied,
and the Mortgagor hereby covenants to so apply same, first to the payment of
taxes and assessments upon the Mortgaged Property before penalty or interest are
due thereon, secondly to the cost of insurance and maintenance and repairs on
the Mortgaged Property and thirdly to the indebtedness secured by this Mortgage,
before using any part of the same for any purpose. From and after the
termination of such license, Mortgagor shall be the agent of Mortgagee in
collection of the Rents and Profits and all of the Rents and Profits so
collected by Mortgagor shall be held in trust by Mortgagor for the sole and
exclusive benefit of Mortgagee and Mortgagor shall, within one (1) business day
after receipt of any Rents and Profits, pay the same to Mortgagee to be applied
by Mortgagee as hereinafter set forth. Neither the demand for or collection of
Rents and Profits by Mortgagee shall constitute any assumption by Mortgagee of
any obligations under any agreement relating thereto. Mortgagee is obligated to
account only for such Rents and Profits as are actually collected or received by
Mortgagee. Mortgagor irrevocably agrees and consents that the respective payors
of the Rents and Profits shall, upon demand and notice from Mortgagee of an
Event of Default hereunder, pay said Rents and Profits to Mortgagee without
liability to determine the actual existence of any Event of Default claimed by
Mortgagee. Mortgagor hereby waives any right, claim or demand which Mortgagor
may now or hereafter have against any such payor by reason of such payment of
Rents and Profits to Mortgagee, and any such payment shall discharge such
payor's obligation to make such payment to Mortgagor. All Rents and Profits
collected or received by Mortgagee shall be applied against all expenses of
collection, including, without limitation, attorneys' fees, against costs of
operation and management of the Property and against the Debt, in whatever order
or priority as to any of the items so mentioned as Mortgagee directs in its sole
subjective discretion and without regard to the adequacy of its security.
Neither the exercise by Mortgagee of any rights under this Section nor the
application of any Rents and Profits to the Debt shall cure or be deemed a
waiver of any Event of Default hereunder. The assignment of Rents and Profits
hereinabove granted shall continue in full force and effect during any period of
foreclosure or redemption with respect to the Property. Mortgagor has executed
an Assignment of Leases and Rents dated of even date herewith (the "Assignment")
in favor of Mortgagee covering all of the right, title and interest of
Mortgagor, as landlord, lessor or licensor, in and to any leases, licenses and
occupancy agreements relating to all or portions of the Property. All rights and
remedies granted to Mortgagee under the Assignment shall be in addition to and
cumulative of all rights and remedies granted to Mortgagee hereunder.
1.12 Leases and Licenses.
(a) Mortgagor covenants and agrees that it shall not enter into
any Lease affecting 1000 square feet or more of the Property or having a term of
more than 3 years without the prior written approval of Mortgagee, which
approval shall not be unreasonably withheld. The request for approval of each
such proposed new Lease shall be made to Mortgagee in writing and Mortgagor
shall furnish to Mortgagee (and any loan servicer specified from time to time by
Mortgagee): (i) such biographical and financial information about the proposed
Tenant as Mortgagee may require in conjunction with its review, (ii) a copy of
the
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proposed form of Lease, and (iii) a summary of the material terms of such
proposed Lease (including, without limitation, rental terms and the term of the
proposed Lease and any options). It is acknowledged that Mortgagee intends to
include among its criteria for approval of any such proposed Lease the
following: (i) such Lease shall be with a bona-fide arm's-length tenant; (ii)
such Lease shall not contain any rental or other concessions which are not then
customary and reasonable for similar properties and leases in the market area of
the land; (iii) such Lease shall provide that the Tenant pays for its expenses;
(iv) the rental shall be at least at the market rate then prevailing for similar
properties and Leases in the market areas of the Real Estate; and (v) such lease
shall contain subordination and attornment provisions in form and content
acceptable to Mortgagee.
(b) Prior to execution of any Leases of space in the Improvements
after the date hereof, Mortgagor shall submit to Mortgagee, for Mortgagee's
prior approval, which approval shall not be unreasonably withheld, a copy of the
form Lease Mortgagor plans to use in leasing space in the Improvements. All
Leases of space in the Improvements shall be on terms consistent with the terms
for similar leases in the market area of the Real Estate, shall provide for free
rent only if the same is consistent with prevailing market conditions and shall
provide for market rents then prevailing in the market area of the Real Estate.
Such Leases shall also provide for security deposits in reasonable amounts.
Mortgagor shall also submit to Mortgagee for Mortgagee's approval, which
approval shall not be unreasonably withheld, prior to the execution thereof, any
proposed Lease of the Improvements or any portion thereof that differs
materially and adversely from the aforementioned form Lease. Mortgagor shall not
execute any Lease for all or a substantial portion of the Property, except for
an actual occupancy by the Tenant thereunder, and shall at all times promptly
and faithfully perform, or cause to be performed, all of the covenants,
conditions and agreements contained in all Leases with respect to the Property,
now or hereafter existing, on the part of the landlord, lessor or licensor
thereunder to be kept and performed. Mortgagor shall furnish to Mortgagee,
within ten (10) days after a request by Mortgagee to do so, but in any event by
January 1 of each year, a current Rent Roll certified by Mortgagor as being true
and correct containing the names of all Tenants with respect to the Property,
the terms of their respective Leases, the spaces occupied and the rentals or
fees payable thereunder and the amount of each tenant's security deposit. Upon
the request of Mortgagee, Mortgagor shall deliver to Mortgagee a copy of each
such Lease. Mortgagor shall not do or suffer to be done any act that might
result in a default by the landlord, lessor or licensor under any such Lease or
allow the Tenant thereunder to withhold payment or rent and, except as otherwise
expressly permitted by the terms of Section 1.12 hereof, shall not further
assign any such Lease or any such rents. Mortgagor, at no cost or expense to
Mortgagee, shall enforce, short of termination, the performance and observance
of each and every condition and covenant of each of the parties under such
Leases. Mortgagor shall not, without the prior written consent of Mortgagee:
modify any of the Leases, terminate or accept the surrender of any Leases, waive
or release any other party from the performance or observance of any obligation
or condition under such Leases; except in the normal course of business in a
manner which is consistent with sound and customary leasing and management
practices for similar properties in the community in which the Property is
located. Mortgagor shall not permit the prepayment of any rents under any of the
Leases for more than one (1) month prior to the due date thereof.
(c) Each Lease executed after the date hereof affecting any of the
Real Estate or the Improvements must provide, in a manner approved by Mortgagee,
that the Tenant will recognize as its landlord, lessor or licensor, as
applicable, and attorn to any person succeeding to the interest of Mortgagor
upon any foreclosure of this Mortgage or deed in lieu of foreclosure. Each such
Lease shall also provide that, upon request of said successor-in-interest, the
Tenant
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shall execute and deliver an instrument or instruments confirming its
attornment as provided for in this Section; provided, however, that neither
Mortgagee nor any successor-in-interest shall be bound by any payment of rental
for more than one (1) month in advance, or any amendment or modification of said
Lease made without the express written consent of Mortgagee or said
successor-in-interest.
(d) Upon the occurrence of an Event of Default under this
Mortgage, whether before or after the whole principal sum secured hereby is
declared to be immediately due or whether before or after the institution of
legal proceedings to foreclose this Mortgage, forthwith, upon demand of
Mortgagee, Mortgagor shall surrender to Mortgagee and Mortgagee shall be
entitled to take actual possession of the Property or any part thereof
personally, or by its agent or attorneys. In such event, Mortgagee shall have,
and Mortgagor hereby gives and grants to Mortgagee, the right, power and
authority to make and enter into Leases with respect to the Property or portions
thereof for such rents and for such periods of occupancy and upon conditions and
provisions as Mortgagee may deem desirable in its sole discretion, and Mortgagor
expressly acknowledges and agrees that the term of any such Lease may extend
beyond the date of any foreclosure sale at the Property; it being the intention
of Mortgagor that in such event Mortgagee shall be deemed to be and shall be the
attorney-in-fact of Mortgagor for the purpose of making and entering into Leases
of parts or portions of the Property for the rents and upon the terms,
conditions and provisions deemed desirable to Mortgagee in its sole discretion
and with like effect as if such Leases had been made by Mortgagor as the owner
in fee simple of the Property free and clear of any conditions or limitations
established by this Mortgage. The power and authority hereby given and granted
by Mortgagor to Mortgagee shall be deemed to be coupled with an interest, shall
not be revocable by Mortgagor so long as any Debt is outstanding, shall survive
the voluntary or involuntary dissolution of Mortgagor and shall not be affected
by any disability or incapacity suffered by Mortgagor subsequent to the date
hereof. In connection with any action taken by Mortgagee pursuant to this
Section, Mortgagee shall not be liable for any loss sustained by Mortgagor
resulting from any failure to let the Property, or any part thereof, or from any
other act or omission of Mortgagee in managing the Property, nor shall Mortgagee
be obligated to perform or discharge any obligation, duty or liability under any
Lease covering the Property or any part thereof or under or by reason of this
instrument or the exercise of rights or remedies hereunder. Mortgagor shall, and
does hereby, indemnify Mortgagee for, and hold Mortgagee harmless from, any and
all claims, actions, demands, liabilities, loss or damage which may or might be
incurred by Mortgagee under any such Lease or under this Mortgage or by the
exercise of rights or remedies hereunder and from any and all claims and demands
whatsoever which may be asserted against Mortgagee by reason of any alleged
obligations or undertakings on its part to perform or discharge any of the
terms, covenants or agreements contained in any such Lease other than those
finally determined to have resulted solely from the gross negligence or willful
misconduct of Mortgagee. Should Mortgagee incur any such liability, the amount
thereof, including, without limitation, costs, expenses and attorneys' fees,
together with interest thereon at the Default Interest Rate from the date
incurred by Mortgagee until actually paid by Mortgagor, shall be immediately due
and payable to Mortgagee by Mortgagor on demand and shall be secured hereby and
by all of the other Loan Documents securing all or any part of the Debt. Nothing
in this Section shall impose on Mortgagee any duty, obligation or responsibility
for the control, care, management or repair of the Property, or for the carrying
out of any of the terms and conditions of any such Lease nor shall it operate to
make Mortgagee responsible or liable for any waste committed on the Property by
the Tenants or by any other parties or for any dangerous or defective condition
of the Property, or for any negligence in the management, upkeep, repair or
control of the Property. Mortgagor hereby assents to, ratifies and confirms any
and all actions of Mortgagee with respect to the Property taken under this
Section.
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1.13 Alienation and Further Encumbrances.
(a) Mortgagor acknowledges that Mortgagee has relied upon the
principals of Mortgagor and their experience in owning and operating the
Property and properties similar to the Property in connection with the closing
of the loan evidenced by the Note. Accordingly, except as specifically allowed
hereinbelow in this Section and notwithstanding anything to the contrary
contained in Section 4.6 hereof, in the event that the Property or any part
thereof or interest therein shall be sold, conveyed, disposed of, alienated,
hypothecated, leased (except to Tenants of space in the Improvements in
accordance with the provisions of Section 1.12 hereof), assigned, pledged,
mortgaged, further encumbered or otherwise transferred or Mortgagor shall be
divested of its title to the Property or any interest therein, in any manner or
way, whether voluntarily or involuntarily, without the prior written consent of
Mortgagee being first obtained, which consent may be withheld in Mortgagee's
sole discretion, then, the same shall constitute an Event of Default hereunder
and Mortgagee shall have the right, at its option, to declare any or all of the
Debt, irrespective of the maturity date specified in the Note, immediately due
and payable and to otherwise exercise any of its other rights and remedies
contained in Article III hereof. For the purposes of this Section: (i) in the
event either Mortgagor or any of its general partners or managing members is a
corporation or trust, the sale, conveyance, transfer or disposition of more than
10% of the issued and outstanding capital stock of Mortgagor or any of its
general partners or of the beneficial interest of such trust (or the issuance of
new shares of capital stock in Mortgagor or any of its general partners or
members so that immediately after such issuance the total capital stock then
issued and outstanding is more than 110% of the total immediately prior to such
issuance) shall be deemed to be a transfer of an interest in the Property, and
(ii) in the event Mortgagor or any general partner or member of Mortgagor is a
limited or general partnership, a joint venture or a limited liability company,
a change in the ownership interests in any general partner, any joint venturer
or any member, either voluntarily, involuntarily or otherwise, or the sale,
conveyance, transfer, disposition, alienation, hypothecation or encumbering of
all or any portion of the interest of any such general partner, joint venturer
or member in Mortgagor or such general partner (whether in the form of a
beneficial or partnership interest or in the form of a power of direction,
control or management, or otherwise), shall be deemed to be a transfer of an
interest in the Property. Notwithstanding the foregoing, however, (i) limited
partnership interests in Mortgagor or in any general partner or member of
Mortgagor shall be freely transferable without the consent of Mortgagee, (ii)
any involuntary transfer caused by the death of Mortgagor or any general
partner, shareholder, joint venturer, or beneficial owner of a trust shall not
be an Event of Default under this Mortgage so long as Mortgagor is
reconstituted, if required, following such death and so long as those persons
responsible for the management of the Property remain unchanged as a result of
such death or any replacement management is approved by Mortgagee and (iii)
gifts for estate planning purposes of any individual's interests in Mortgagor or
in any of Mortgagor's general partners, managing members or joint venturers to
the spouse or any lineal descendant of such individual, or to a trust for the
benefit of any one or more of such individual, spouse or lineal descendant,
shall not be an Event of Default under this Mortgage so long as Mortgagor is
reconstituted, if required, following such gift and so long as those persons
responsible for the management of the Property and Mortgagor remain unchanged
following such gift or any replacement management is approved by Mortgagee.
(b) Notwithstanding the foregoing provisions of this Section,
Mortgagee shall consent to a one time sale, conveyance or transfer of the
Property in its entirety (hereinafter, "Sale") to any person or entity provided,
in each instance, that each of the following terms and conditions are satisfied:
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(1) No Default or Event of Default is then continuing
hereunder or under any of the other Loan Documents;
(2) Mortgagor gives Mortgagee written notice of the terms of
such prospective Sale not less than sixty (60) days before the date on
which such Sale is scheduled to close and, concurrently therewith,
gives Mortgagee all such information concerning the proposed transferee
of the Property (hereinafter, "Buyer") as Mortgagee would require in
evaluating an initial extension of credit to a borrower and pays to
Mortgagee a non-refundable application fee in the amount of $5,000.00.
Mortgagee shall have the right to approve or disapprove the proposed
Buyer. In determining whether to give or withhold its approval of the
proposed Buyer, Mortgagee shall consider the Buyer's experience and
track record in owning and operating facilities similar to the
Property, the Buyer's financial strength, the Buyer's general business
standing and the Buyer's relationships and experience with contractors,
vendors, tenants, lenders and other business entities; provided,
however, that, notwithstanding Mortgagee's agreement to consider the
foregoing factors in determining whether to give or withhold such
approval, such approval shall be given or withheld based on what
Mortgagee determines to be commercially reasonable in Mortgagee's sole
discretion and, if given, may be given subject to such conditions as
Mortgagee may deem commercially reasonable;
(3) Mortgagor or the Buyer pays Mortgagee, concurrently with
the closing of such Sale, a non-refundable assumption fee in an amount
equal to all out-of-pocket costs and expenses, including, without
limitation, attorneys' fees, incurred by Mortgagee in connection with
the Sale plus an amount equal to one percent (1.0%) of the then
outstanding principal balance of the Note;
(4) The Buyer assumes and agrees to pay the Debt subject to
the provisions of Section 4.27 hereof and, prior to or concurrently
with the closing of such Sale, the Buyer executes, without any cost or
expense to Mortgagee, such documents and agreements as Mortgagee shall
reasonably require to evidence and effectuate said assumption and
delivers such legal opinions as Mortgagee may require;
(5) A party associated with the Buyer approved by Mortgagee in
its sole discretion assumes the obligations of the current indemnitor
under its guaranty or indemnity agreement and such party associated
with the Buyer executes, without any cost or expense to Mortgagee, a
new guaranty or indemnity agreement in form and substance satisfactory
to Mortgagee and delivers such legal opinions as Mortgagee may require;
(6) Mortgagor and the Buyer execute, without any cost or
expense to Mortgagee, new financing statements or financing statement
amendments and any additional documents reasonably requested by
Mortgagee;
(7) Mortgagor or the Buyer delivers to Mortgagee, without any
cost or expense to Mortgagee, such endorsements to Mortgagee's title
insurance policy, hazard insurance endorsements or certificates and
other similar materials as Mortgagee may deem necessary at the time of
the Sale, all
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in form and substance satisfactory to Mortgagee, including, without
limitation, an endorsement or endorsements to Mortgagee's title
insurance policy insuring the lien of this Mortgage, extending the
effective date of such policy to the date of execution and delivery
(or, if later, of recording) of the assumption agreement referenced
above in subparagraph (4) of this Section with no additional exceptions
added to such policy, except for those previously approved by
Mortgagee, and insuring that fee simple title to the Property is vested
in the Buyer;
(8) Mortgagor executes and delivers to Mortgagee, without any
cost or expense to Mortgagee, a release of Mortgagee, its officers,
directors, employees and agents, from all claims and liability relating
to the transactions evidenced by the Loan Documents through and
including the date of the closing of the Sale, which agreement shall be
in form and substance satisfactory to Mortgagee and shall be binding
upon the Buyer;
(9) Subject to the provisions of Section 4.27 hereof, such
Sale is not construed so as to relieve Mortgagor of any personal
liability under the Note or any of the other Loan Documents for any
acts or events occurring or obligations arising prior to or
simultaneously with the closing of such Sale and Mortgagor executes,
without any cost or expense to Mortgagee, such documents and agreements
as Mortgagee shall reasonably require to evidence and effectuate the
ratification of said personal liability. Mortgagor shall be released
from and relieved of any personal liability under the Note or any of
the other Loan Documents for any acts or events occurring or
obligations arising after the closing of such Sale which are not caused
by or arising out of any acts or events occurring or obligations
arising prior to or simultaneously with the closing of such Sale; and
(10) Such Sale is not construed so as to relieve any current
indemnitor of its obligations under any guaranty or indemnity agreement
for any acts or events occurring or obligations arising prior to or
simultaneously with the closing of such Sale, and each such current
indemnitor executes, without any cost or expense to Mortgagee, such
documents and agreements as Mortgagee shall reasonably require to
evidence and effectuate the ratification of each such guaranty and
indemnity agreement. Each such current indemnitor shall be released
from and relieved of any of its obligations under any guaranty or
indemnity agreement executed in connection with the loan secured hereby
for any acts or events occurring or obligations arising after the
closing of such Sale which are not caused by or arising out of any acts
or events occurring or obligations arising prior to or simultaneously
with the closing of such Sale; and
(11) The Buyer shall furnish, if the Buyer is a corporation,
partnership or other entity, all appropriate papers evidencing the
Buyer's capacity and good standing, and the qualification of the
signers to execute the assumption of the Debt, which papers shall
include certified copies of all documents relating to the organization
and formation of the Buyer and of the entities, if any, which are
partners of the Buyer. The Buyer and such constituent partners, members
or shareholders of Buyer (as the case may be), as Mortgagee shall
require, shall be single purpose, "bankruptcy remote" entities, whose
formation documents shall be approved by counsel to Mortgagee. One
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individual recommended by the Mortgagor and approved by Mortgagee shall
serve as an independent director of the Buyer (if the Buyer is a
corporation) or the Buyer's corporate general partner or as independent
member or, in Mortgagee's discretion, as manager, of Buyer if the Buyer
is a limited liability company. The consent of such independent
director shall be required for, among other things, any merger,
consolidation, dissolution, bankruptcy or insolvency of such
independent party or of the Buyer.
1.14 Payment of Utilities, Assessments, Charges, Etc. Mortgagor shall
pay or cause to be paid when due all utility charges which are incurred by
Mortgagor or which may become a charge or lien against any portion of the
Property for gas, electricity, water and sewer services furnished to the Real
Estate and/or the Improvements and all other assessments or charges of a similar
nature, or assessments payable pursuant to any restrictive covenants, whether
public or private, affecting the Real Estate and/or the Improvements or any
portion thereof, whether or not such assessments or charges are or may become
liens thereon.
1.15 Access Privileges and Inspections. Mortgagee and the agents,
representatives and employees of Mortgagee shall, subject to the rights of
tenants, have full and free access to the Real Estate and the Improvements and
any other location where books and records concerning the Property are kept at
all reasonable times for the purposes of inspecting the Property and of
examining, copying and making extracts from the books and records of Mortgagor
relating to the Property. Mortgagor shall lend assistance to all such agents,
representatives and employees of Mortgagee.
1.16 Waste; Alteration of Improvements. Mortgagor shall not commit,
suffer or permit any waste on the Property nor take any actions that might
invalidate any insurance carried on the Property. Mortgagor shall maintain the
Property in good condition and repair. No part of the Improvements may be
removed, demolished or materially altered, without the prior written consent of
Mortgagee. Without the prior written consent of Mortgagee, Mortgagor shall not
commence construction of any improvements on the Real Estate other than
improvements required for the maintenance or repair of the Property.
1.17 Zoning. Without the prior written consent of Mortgagee, Mortgagor
shall not seek, make, suffer, consent to or acquiesce in any change in the
zoning or conditions of use of the Real Estate or the Improvements. Mortgagor
shall comply with and make all payments required under the provisions of any
covenants, conditions or restrictions affecting the Real Estate or the
Improvements. Mortgagor shall comply with all existing and future requirements
of all governmental authorities having jurisdiction over the Property. Mortgagor
shall keep all licenses, permits, franchises and other approvals necessary for
the operation of the Property in full force and effect. Mortgagor shall operate
the Property as a hotel for so long as the Debt is outstanding. If, under
applicable zoning provisions, the use of all or any part of the Real Estate or
the Improvements is or becomes a nonconforming use, Mortgagor shall not cause or
permit such use to be discontinued or abandoned without the prior written
consent of Mortgagee. Further, without Mortgagee's prior written consent,
Mortgagor shall not file or subject any part of the Real Estate or the
Improvements to any declaration of condominium or co-operative or convert any
part of the Real Estate or the Improvements to a condominium, co-operative or
other form of multiple ownership and governance.
1.18 Financial Statements and Books and Records. Mortgagor shall keep
accurate books and records of account of the Property and its own financial
affairs sufficient to permit the preparation of financial statements therefrom
in accordance with generally accepted
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accounting principles. Mortgagee and its duly authorized representatives shall
have the right to examine, copy and audit Mortgagor's records and books of
account at all reasonable times. So long as this Mortgage continues in effect,
Mortgagor shall provide to Mortgagee, in addition to any other financial
statements required hereunder or under any of the other Loan Documents, the
following financial statements and information, all of which must be certified
to Mortgagee as being true and correct by Mortgagor or the person or entity to
which they pertain, as applicable, be prepared in accordance with generally
accepted accounting principles consistently applied, and be in form and
substance acceptable to Mortgagee and in the case of the items of subsection
(d), be audited by a certified public accountant satisfactory to Mortgagee:
(a) copies of all tax returns filed by Mortgagor, within thirty
(30) days after the date of filing;
(b) monthly operating statements for the Property within ten (10)
days after the end of each month during the first twelve months of the term of
the loan secured hereby;
(c) quarterly operating statements for the Property, within thirty
(30) days after the end of each calendar quarter;
(d) annual balance sheets for the Property and annual financial
statements for Mortgagor, each principal or general partner in Mortgagor, and
each indemnitor and guarantor under any indemnity or guaranty executed in
connection with the loan secured hereby, within ninety (90) days after the end
of each calendar year;
(e) annual occupancy summary for the Mortgaged Property setting
forth the occupancy rates, average daily room rates and room revenues for each
month of the preceding calendar year, as well as annual averages of the same,
and such other information as may customarily be reflected thereon or reasonably
requested by Mortgagee; and
(f) such other information with respect to the Property,
Mortgagor, the principals or general partners in Mortgagor, and each indemnitor
and guarantor under any indemnity or guaranty executed in connection with the
loan secured hereby, which may be requested from time to time by Mortgagee,
within a reasonable time after the applicable request.
If any of the aforementioned materials are not furnished to Mortgagee
within the applicable time periods or Mortgagee is dissatisfied with the
contents of any of the foregoing, in addition to any other rights and remedies
of Mortgagee contained herein, Mortgagee shall have the right, but not the
obligation, to obtain the same by means of an audit by an independent certified
public accountant selected by Mortgagee, in which event Mortgagor agrees to pay,
or to reimburse Mortgagee for, any expense of such audit and further agrees to
provide all necessary information to said accountant and to otherwise cooperate
in the making of such audit.
1.19 Further Documentation; Secondary Market Transaction. Mortgagor
shall, on the request of Mortgagee and at the expense of Mortgagor: (a) promptly
correct any defect, error or omission which may be discovered in the contents of
this Mortgage or in the contents of any of the other Loan Documents; (b)
promptly execute, acknowledge, deliver and record or file such further
instruments (including, without limitation, further mortgages, deeds of trust,
security deeds, security agreements, financing statements, continuation
statements and
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assignments of rents or leases) and promptly do such further acts as may be
necessary, desirable or proper to correct any such default, error or omission or
to carry out more effectively the purposes of this Mortgage and the other Loan
Documents and to subject to the liens and security interests hereof and thereof
any property intended by the terms hereof and thereof to be covered hereby and
thereby, including specifically, but without limitation, any renewals,
additions, substitutions, replacements or appurtenances to the Property; (c)
promptly execute, acknowledge, deliver, procure and record or file any document
or instrument (including specifically any financing statement) deemed advisable
by Mortgagee to protect, continue or perfect the liens or the security interests
hereunder against the rights or interests of third persons; and (d) promptly
furnish to Mortgagee, upon Mortgagee's request, a duly acknowledged written
statement and estoppel certificate addressed to such party or parties as
directed by Mortgagee and in form and substance supplied by Mortgagee, setting
forth all amounts due under the Note, stating whether any Default or Event of
Default has occurred hereunder, stating whether any offsets or defenses exist
against the Debt and containing such other matters as Mortgagee may reasonably
require; provided that the provisions of any such documents do not materially
increase the financial burdens of Mortgagor under the Loan Documents.
(b) Mortgagor acknowledges that Mortgagee and its successors and
assigns may effectuate a Secondary Market Transaction (hereinafter defined).
Mortgagor shall cooperate in good faith with Mortgagee in effecting any such
Secondary Market Transaction and shall cooperate in good faith to implement all
requirements imposed by any rating agency involved in any Secondary Market
Transaction including, without limitation, all structural or other changes to
the Debt, modifications to any documents evidencing or securing the loan;
provided, however, that the Mortgagor shall not be required to modify any
documents evidencing or securing the Debt which would modify (A) the interest
rate payable under the Note, (B) the stated maturity of the Note, (C) the
amortization of principal of the Note, or (D) any other material economic term
of the Debt. Mortgagor shall provide such information, and documents relating to
Mortgagor, any guarantor or indemnitor, the Property and any tenants of the
Improvements as Mortgagee may reasonably request in connection with such
Secondary Market Transaction. Mortgagor shall make available to Mortgagee all
information concerning its business and operations that Mortgagee may reasonably
request. Mortgagee shall be permitted to share all such information with the
investment banking firms, rating agencies, accounting firms, law firms and other
third-party advisory firms involved with the Loan Documents or the applicable
Secondary Market Transaction. It is understood that the information provided by
Mortgagor to Mortgagee may ultimately be incorporated into the offering
documents for the Secondary Market Transaction and thus various investors may
also see some or all of the information. Mortgagee 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, Mortgagor and Mortgagor indemnifies
Mortgagee as to any losses, claims, damages or liabilities that arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in such information or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated in such information or necessary in order to make the statements in such
information, or in light of the circumstances under which they were made, not
misleading. Mortgagee may publicize the existence of the Debt in connection with
its marketing for a Secondary Market Transaction or otherwise as part of its
business development. For purposes hereof, a "Secondary Market Transaction"
shall be (a) any sale of the Mortgage, Note and other Loan Documents to one or
more investors as a whole loan; (b) a participation of the Debt to one or more
investors, (c) any deposit of the Mortgage, Note and other Loan Documents with a
trust or other entity which may sell certificates or other instruments to
investors evidencing an ownership interest in the assets
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of such trust or other entity, or (d) any other sale or transfer of the Debt or
any interest therein to one or more investors.
1.20 Payment of Costs; Reimbursement to Mortgagee. Mortgagor shall pay
all costs and expenses of every character incurred in connection with the
closing of the loan evidenced by the Note and secured hereby or otherwise
attributable or chargeable to Mortgagor as the owner of the Property, including,
without limitation, appraisal fees, recording fees, documentary, stamp, mortgage
or intangible taxes, except the Oklahoma Mortgage Registration Tax, which shall
be paid by Mortgagee, brokerage fees and commissions, title policy premiums and
title search fees, uniform commercial code/tax lien/litigation search fees,
escrow fees and attorneys' fees. If Mortgagor defaults in any such payment,
which default is not cured within any applicable grace or cure period, Mortgagee
may pay the same and Mortgagor shall reimburse Mortgagee on demand for all such
costs and expenses incurred or paid by Mortgagee, together with such interest
thereon at the Default Interest Rate from and after the date of Mortgagee's
making such payment until reimbursement thereof by Mortgagor. Any such sums
disbursed by Mortgagee, together with such interest thereon, shall be additional
indebtedness of Mortgagor secured by this Mortgage and by all of the other Loan
Documents securing all or any part of the Debt. Further, Mortgagor shall
promptly notify Mortgagee in writing of any litigation or threatened litigation
affecting the Property, or any other demand or claim which, if enforced, could
impair or threaten to impair Mortgagee's security hereunder. Without limiting or
waiving any other rights and remedies of Mortgagee hereunder, if Mortgagor fails
to perform any of its covenants or agreements contained in this Mortgage or in
any of the other Loan Documents and such failure is not cured within any
applicable grace or cure period, or if any action or proceeding of any kind
(including, but not limited to, any bankruptcy, insolvency, arrangement,
reorganization or other debtor relief proceeding) is commenced which might
adversely affect Mortgagee's interest in the Property or Mortgagee's right to
enforce its security, then Mortgagee may, at its option, with or without notice
to Mortgagor, make any appearances, disburse any sums and take any actions as
may be necessary or desirable to protect or enforce the security of this
Mortgage or to remedy the failure of Mortgagor to perform its covenants and
agreements (without, however, waiving any default of Mortgagor). Mortgagor
agrees to pay on demand all expenses of Mortgagee incurred with respect to the
foregoing (including, but not limited to, reasonable fees and disbursements of
counsel), together with interest thereon at the Default Interest Rate from and
after the date on which Mortgagee incurs such expenses until reimbursement
thereof by Mortgagor. Any such expenses so incurred by Mortgagee, together with
interest thereon as provided above, shall be additional indebtedness of
Mortgagor secured by this Mortgage and by all of the other Loan Documents
securing all or any part of the Debt. The necessity for any such actions and of
the amounts to be paid shall be determined by Mortgagee in its discretion.
Mortgagee is hereby empowered to enter and to authorize others to enter upon the
Property or any part thereof for the purpose of performing or observing any such
defaulted term, covenant or condition without thereby becoming liable to
Mortgagor or any person in possession holding under Mortgagor. Mortgagor hereby
acknowledges and agrees that the remedies set forth in this Section 1.20 shall
be exercisable by Mortgagee, and any and all payments made or costs or expenses
incurred by Mortgagee in connection therewith shall be secured hereby and shall
be, on demand, repaid by Mortgagor with interest thereon at the Default Interest
Rate, notwithstanding the fact that such remedies were exercised and such
payments made and costs incurred by Mortgagee after the filing by Mortgagor of a
voluntary case or the filing against Mortgagor of an involuntary case pursuant
to or within the meaning of the Title 11 United States Code, or after any
similar action pursuant to any other debtor relief law (whether statutory,
common law, case law or otherwise) of any jurisdiction whatsoever, now or
hereafter, in effect, which may be or become applicable to Mortgagor, Mortgagee,
any guarantor or indemnitor, the Debt or any of the Loan Documents. Mortgagor
hereby
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indemnifies and holds Mortgagee harmless from and against all loss, cost and
expenses with respect to any Event of Default hereof, any liens (i.e.,
judgments, mechanics' and materialmen's liens, or otherwise), charges and
encumbrances filed against the Property, and from any claims and demands for
damages or injury, including claims for property damage, personal injury or
wrongful death, arising out of or in connection with any accident or fire or
other casualty on the Real Estate or the Improvements or any nuisance made or
suffered thereon, including, in any case, attorneys' fees, costs and expenses as
aforesaid, whether at pretrial, trial or appellate level, and such indemnity
shall survive payment in full of the Debt. This Section shall not be construed
to require Mortgagee to incur any expenses, make any appearances or take any
actions.
1.21 Security Interest. This Mortgage is also intended to encumber and
create a security interest in, and Mortgagor hereby grants to Mortgagee a
security interest in all sums on deposit with Mortgagee pursuant to the
provisions of Sections 1.6, 1.7, 1.8 and 1.35 hereof or any other Section hereof
and all fixtures, chattels, accounts, equipment, inventory, contract rights,
general intangibles and other personal property included within the Property,
all renewals, replacements of any of the aforementioned items, or articles in
substitution therefor or in addition thereto or the proceeds thereof (said
property is hereinafter referred to collectively as the "Collateral"), whether
or not the same shall be attached to the Real Estate or the Improvements in any
manner. It is hereby agreed that to the extent permitted by law, all of the
foregoing property is to be deemed and held to be a part of and affixed to the
Real Estate and the Improvements. The foregoing security interest shall also
cover Mortgagor's leasehold interest in any of the foregoing property which is
leased by Mortgagor. Notwithstanding the foregoing, all of the foregoing
property shall be owned by Mortgagor and no leasing or installment sales or
other financing or title retention agreement in connection therewith shall be
permitted without the prior written approval of Mortgagee. Mortgagor shall, from
time to time upon the request of Mortgagee, supply Mortgagee with a current
inventory of all of the property in which Mortgagee is granted a security
interest hereunder, in such detail as Mortgagee may require. Mortgagor shall
promptly replace all of the Collateral subject to the lien or security interest
of this Mortgage when worn or obsolete with Collateral comparable to the worn
out or obsolete Collateral when new and will not, without the prior written
consent of Mortgagee, remove from the Real Estate or the Improvements any of the
Collateral subject to the lien or security interest of this Mortgage except such
as is replaced by an article of equal suitability and value as above provided,
owned by Mortgagor free and clear of any lien or security interest except that
created by this Mortgage and the other Loan Documents and except as otherwise
expressly permitted by the terms of Section 1.13 of this Mortgage. All of the
Collateral shall be kept at the location of the Real Estate except as otherwise
required by the terms of the Loan Documents. Mortgagor shall not use any of the
Collateral in violation of any applicable statute, ordinance or insurance
policy.
1.22 Security Agreement. This Mortgage constitutes a security agreement
between Mortgagor and Mortgagee with respect to the Collateral in which
Mortgagee is granted a security interest hereunder, and, cumulative of all other
rights and remedies of Mortgagee hereunder, Mortgagee shall have all of the
rights and remedies of a secured party under any applicable Uniform Commercial
Code. Mortgagor hereby agrees to execute and deliver on demand and hereby
irrevocably constitutes and appoints Mortgagee the attorney-in-fact of Mortgagor
to execute and deliver and, if appropriate, to file with the appropriate filing
officer or office such security agreements, financing statements, continuation
statements or other instruments as Mortgagee may request or require in order to
impose, perfect or continue the perfection of the lien or security interest
created hereby. Except with respect to Rents and Profits to the extent
specifically provided herein to the contrary, Mortgagee shall have the right
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of possession of all cash, securities, instruments, negotiable instruments,
documents, certificates and any other evidences of cash or other property or
evidences of rights to cash rather than property, which are now or hereafter a
part of the Property and Mortgagor shall promptly deliver the same to Mortgagee,
endorsed to Mortgagee, without further notice from Mortgagee. Mortgagor agrees
to furnish Mortgagee with notice of any change in the name, identity,
organizational structure, residence, or principal place of business or mailing
address of Mortgagor within ten (10) days of the effective date of any such
change. Upon the occurrence of any Event of Default, Mortgagee shall have the
rights and remedies as prescribed in the Mortgage, or as prescribed by general
law, or as prescribed by any applicable Uniform Commercial Code, all at
Mortgagee's election. Any disposition of the Collateral may be conducted by an
employee or agent of Mortgagee. Any person, including both Mortgagor and
Mortgagee, shall be eligible to purchase any part or all of the Collateral at
any such disposition. Expenses of retaking, holding, preparing for sale, selling
or the like (including, without limitation, Mortgagee's attorneys' fees and
legal expenses), together with interest thereon at the Default Interest Rate
from the date incurred by Mortgagee until actually paid by Mortgagor, shall be
paid by Mortgagor on demand and shall be secured by this Mortgage and by all of
the other Loan Documents securing all or any part of the Debt. Mortgagee shall
have the right to enter upon the Real Estate and the Improvements or any real
property where any of the property which is the subject of the security interest
granted herein is located to take possession of, assemble and collect the same
or to render it unusable, or Mortgagor, upon demand of Mortgagee, shall assemble
such property and make it available to Mortgagee at the Real Estate, a place
which is hereby deemed to be reasonably convenient to Mortgagee and Mortgagor.
If notice is required by law, Mortgagee shall give Mortgagor at least ten (10)
days' prior written notice of the time and place of any public sale of such
property or of the time of or after which any private sale or any other intended
disposition thereof is to be made, and if such notice is sent to Mortgagor, as
the same is provided for the mailing of notices herein, it is hereby deemed that
such notice shall be and is reasonable notice to Mortgagor. No such notice is
necessary for any such property which is perishable, threatens to decline
speedily in value or is of a type customarily sold on a recognized market. Any
sale made pursuant to the provisions of this Section shall be deemed to have
been a public sale conducted in a commercially reasonable manner if held
contemporaneously with the foreclosure sale as provided in Section 3.1(e) hereof
upon giving the same notice with respect to the sale of the Property hereunder
as is required under said Section 3.1(e). Furthermore, to the extent permitted
by law, in conjunction with and in addition to or in substitution for the rights
and remedies available to Mortgagee pursuant to any applicable Uniform
Commercial Code:
(a) In the event of a foreclosure sale, the Property may, at the
option of Mortgagee, be sold as a whole; and
(b) It shall not be necessary that Mortgagee take possession of
the aforementioned Collateral, or any part thereof, prior to the time that any
sale pursuant to the provisions of this Section is conducted and it shall not be
necessary that said Collateral, or any part thereof, be present at the location
of such sale; and
(c) Mortgagee may appoint or delegate any one or more persons as
agent to perform any act or acts necessary or incident to any sale held by
Mortgagee, including the sending of notices and the conduct of the sale, but in
the name and on behalf of Mortgagee.
The name and address of Mortgagor (as Debtor under any applicable Uniform
Commercial Code) are:
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HALLWOOD HOTELS-OKC, INC.
3710 Rawlins, Suite 1500
Dallas, Texas 75219
The name and address of Mortgagee (as Secured Party under any
applicable Uniform Commercial Code) are:
WMF Capital Corp.
121 West Trade Street, 27th Floor
Charlotte, North Carolina 28202
1.23 Easements and Rights-of-Way. Mortgagor shall not grant any
easement or right-of-way with respect to all or any portion of the Real Estate
or the Improvements without the prior written consent of Mortgagee. The
purchaser at any foreclosure sale hereunder may, at its discretion, disaffirm
any easement or right-of-way granted in violation of any of the provisions of
this Mortgage and may take immediate possession of the Property free from, and
despite the terms of, such grant of easement or right-of-way. If Mortgagee
consents to the grant of an easement or right-of-way, Mortgagee agrees to grant
such consent provided that Mortgagee is paid a standard review fee together with
all other expenses, including, without limitation, attorneys' fees, incurred by
Mortgagee in the review of Mortgagor's request and in the preparation of
documents effecting the subordination of this Mortgage to the same.
1.24 Compliance with Laws. Mortgagor shall at all times comply with all
statutes, ordinances, orders, regulations and other governmental or
quasi-governmental requirements and private covenants now or hereafter relating
to the ownership, construction, use or operation of the Property, including, but
not limited to, those concerning employment and compensation of persons engaged
in operation and maintenance of the Property and any environmental or ecological
requirements, even if such compliance shall require structural changes to the
Property; provided, however, that, Mortgagor may, upon providing Mortgagee with
security satisfactory to Mortgagee, proceed diligently and in good faith to
contest the validity or applicability of any such statute, ordinance, regulation
or requirement so long as during such contest the Property shall not be subject
to any lien, charge, fine or other liability and shall not be in danger of being
forfeited, lost or closed. Mortgagor shall not use or occupy, or allow the use
or occupancy of, the Property in any manner which violates any Lease to the
Property or any applicable law, rule, regulation or order or which constitutes a
public or private nuisance or which makes void, voidable or cancelable, or
increases the premium of, any insurance then in force with respect thereto.
1.25 Additional Taxes. In the event of the enactment after this date of
any law of the state where the Property is located or of any other governmental
entity deducting from the value of the Property for the purpose of taxation any
lien or security interest thereon, or imposing upon Mortgagee the payment of the
whole or any part of the taxes or assessments or charges of liens herein
required to be paid by Mortgagor, or changing in any way the laws relating to
the taxation of mortgages or security agreements or debts secured by mortgages
or security agreements or the interest of the Mortgagee or secured party in the
property covered thereby, or the manner of collection of such taxes, so as to
adversely affect this Mortgage or the Debt or Mortgagee, then, and in any such
event, Mortgagor, upon demand by Mortgagee, shall pay such taxes, assessments,
charges or liens, or reimburse Mortgagee therefor; provided, however, that if in
the opinion of counsel for Mortgagee (a) it might be unlawful to require
Mortgagor to make such payment, or (b) the making of such payment might result
in the
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imposition of interest beyond the maximum amount permitted by law, then and in
either such event, Mortgagee may elect, by notice in writing given to Mortgagor,
to declare all of the Debt to be and become due and payable in full thirty (30)
days from the giving of such notice.
1.26 Secured Indebtedness. It is understood and agreed that this
Mortgage shall secure payment of not only the Debt but also any and all
substitutions, replacements, renewals and extensions of the Note, any and all
indebtedness and obligations arising pursuant to the terms hereof and any and
all indebtedness and obligations arising pursuant to the terms of any of the
other Loan Documents, all of which indebtedness is equally secured with and has
the same priority as any amounts advanced as of the date hereof. It is agreed
that any future advances made by Mortgagee to or for the benefit of Mortgagor
from time to time under this Mortgage or the other Loan Documents and whether or
not such advances are obligatory or are made at the option of Mortgagee, or
otherwise, made for any purpose, within twenty (20) years from the date hereof,
and all interest accruing thereon, shall be equally secured by this Mortgage and
shall have the same priority as all amounts, if any, advanced as of the date
hereof and shall be subject to all of the terms and provisions of this Mortgage.
The total amount of the indebtedness including future advances, secured hereby
may increase or decrease from time to time.
1.27 Mortgagor's Waivers. To the full extent permitted by law,
Mortgagor agrees that Mortgagor shall not at any time insist upon, plead, claim
or take the benefit or advantage of any law now or hereafter in force providing
for any stay, moratorium or extension, or any law now or hereafter in force
providing for the reinstatement of the Debt prior to any sale of the Property to
be made pursuant to any provisions contained herein or prior to the entering of
any decree, judgment or order of any court of competent jurisdiction, or any
right under any statute to redeem all or any part of the Property so sold.
Mortgagor, for Mortgagor and Mortgagor's successors and assigns, and for any and
all persons ever claiming any interest in the Property, to the full extent
permitted by law, hereby knowingly, intentionally and voluntarily with and upon
the advice of competent counsel: (a) waives, releases, relinquishes and forever
forgoes all rights of stay of execution, reinstatement and notice of election or
intention to mature or declare due the Debt (except such notices as are
specifically provided for herein); (b) waives, releases, relinquishes and
forever forgoes all right to a marshaling of the assets of Mortgagor, including
the Property, to a sale in the inverse order of alienation, or to direct the
order in which any of the Property shall be sold in the event of foreclosure of
the liens and security interests hereby created and agrees that any court having
jurisdiction to foreclose such liens and security interests may order the
Property sold as an entirety; and (c) waives, releases, relinquishes and forever
forgoes all rights and periods of redemption provided under applicable law. If
the Mortgagee elects to foreclose this Mortgage by judicial proceedings,
appraisement of the Mortgaged Property is waived, or not waived, at the option
of the Mortgagee, such option to be exercised at or prior to the time judgment
is rendered in any judicial foreclosure hereof. To the full extent permitted by
law, Mortgagor shall not have or assert any right under any statute or rule of
law pertaining to the exemption of homestead or other exemption under any
federal, state or local law now or hereafter in effect, the administration of
estates of decedents or other matters whatever to defeat, reduce or affect the
right of Mortgagee under the terms of this Mortgage to a sale of the Property,
for the collection of the Debt without any prior or different resort for
collection, or the right of Mortgagee under the terms of this Mortgage to the
payment of the Debt out of the proceeds of sale of the Property in preference to
every other claimant whatever. Further, Mortgagor hereby knowingly,
intentionally and voluntarily, with and upon the advice of competent counsel,
waives, releases, relinquishes and forever forgoes all present and future
statutes of limitations as a defense to any action to enforce the provisions of
this Mortgage or to collect any of the Debt the fullest extent permitted by law.
Mortgagor covenants
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and agrees that upon the commencement of a voluntary or involuntary bankruptcy
proceeding by or against Mortgagor, Mortgagor shall not seek a supplemental stay
or otherwise shall not seek pursuant to 11 U.S.C. Section 105 or any other
provision of Title 11 United States Code, or any other debtor relief law
(whether statutory, common law, case law, or otherwise) of any jurisdiction
whatsoever, now or hereafter in effect, which may be or become applicable, to
stay, interdict, condition, reduce or inhibit the ability of Mortgagee to
enforce any rights of Mortgagee against any guarantor or indemnitor of the
secured obligations or any other party liable with respect thereto by virtue of
any indemnity, guaranty or otherwise.
1.28 SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.
(a) MORTGAGOR, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY
KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT
COUNSEL, (i) SUBMITS TO PERSONAL JURISDICTION IN THE STATE IN WHICH THE PROPERTY
IS LOCATED OVER ANY SUIT, ACTION OR PROCEEDING BY ANY PERSON ARISING FROM OR
RELATING TO THE NOTE, THIS MORTGAGE OR ANY OTHER OF THE LOAN DOCUMENTS, (ii)
AGREES THAT ANY SUCH ACTION, SUIT OR PROCEEDING MAY BE BROUGHT IN ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION OVER THE COUNTY IN WHICH THE PROPERTY IS
LOCATED, (iii) SUBMITS TO THE JURISDICTION OF SUCH COURTS, AND, (iv) TO THE
FULLEST EXTENT PERMITTED BY LAW, AGREES THAT IT WILL NOT BRING ANY ACTION, SUIT
OR PROCEEDING IN ANY OTHER FORUM (BUT NOTHING HEREIN SHALL AFFECT THE RIGHT OF
MORTGAGEE TO BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM).
(b) MORTGAGEE AND MORTGAGOR, TO THE FULL EXTENT PERMITTED BY LAW,
HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF
COMPETENT COUNSEL, WAIVE, RELINQUISH AND FOREVER FORGO THE RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY
RELATING TO THE DEBT OR ANY CONDUCT, ACT OR OMISSION OF MORTGAGEE OR MORTGAGOR,
OR ANY OF THEIR DIRECTORS, OFFICERS, PARTNERS, MEMBERS, EMPLOYEES, AGENTS OR
ATTORNEYS, OR ANY OTHER PERSONS AFFILIATED WITH MORTGAGEE OR MORTGAGOR, IN EACH
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.
1.29 Attorney-in-Fact Provisions. With respect to any provision of this
Mortgage or any other Loan Document whereby Mortgagor grants to Mortgagee a
power-of-attorney, provided no Default or Event of Default has occurred under
this Mortgage, Mortgagee shall first give Mortgagor written notice at least
three (3) days prior to acting under such power, which notice shall demand that
Mortgagor first take the proposed action within such period and advising
Mortgagor that if it fails to do so, Mortgagee will so act under the power;
provided, however, that, in the event that a Default or an Event of Default has
occurred, or if necessary to prevent imminent death, serious injury, damage,
loss, forfeiture or diminution in value to the Property or any surrounding
property or to prevent any adverse affect on Mortgagee's interest in the
Property, Mortgagee may act immediately and without first giving such notice. In
such event, Mortgagee will give Mortgagor notice of such action as soon
thereafter as reasonably practical.
1.30 Management. The management of the Property shall be by either: (a)
Mortgagor or an entity affiliated with Mortgagor approved by Mortgagee for so
long as Mortgagor or said
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affiliated entity is managing the Property in a first class manner; or (b) a
professional property management company approved by Mortgagee. Such management
by an affiliated entity or a professional property management company shall be
pursuant to a written agreement approved by Mortgagee. In no event shall any
manager be removed or replaced or the terms of any management agreement modified
or amended without the prior written consent of Mortgagee. After an Event of
Default or a default under any management contract then in effect, which default
is not cured within any applicable grace or cure period, Mortgagee shall have
the right to terminate, or to direct Mortgagor to terminate, such management
contract upon thirty (30) days' notice and to retain, or to direct Mortgagor to
retain, a new management agent approved by Mortgagee. All Rents and Profits
generated by or derived from the Property shall first be utilized solely for
current expenses directly attributable to the ownership and operation of the
Property, including, without limitation, current expenses relating to
Mortgagor's liabilities and obligations with respect to this Mortgage and the
other Loan Documents, and none of the Rents and Profits generated by or derived
from the Property shall be diverted by Mortgagor and utilized for any other
purposes unless all such current expenses attributable to the ownership and
operation of the Property have been fully paid and satisfied.
1.31 Hazardous Waste and Other Substances.
(a) Mortgagor hereby represents and warrants to Mortgagee that, as
of the date hereof: (i) to the best of Mortgagor's knowledge, information and
belief, the Property is not in direct or indirect violation of any local, state
or federal law, rule or regulation pertaining to environmental regulation,
contamination or clean-up (collectively, "Environmental Laws"), including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (42 U.S.C. Section 9601 et seq. and 40 CFR Section 302.1
et seq.), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section
6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251
et seq. and 40 CFR Section 116.1 et seq.), those relating to lead based paint,
and the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et seq.),
and the regulations promulgated pursuant to said laws, all as amended; (ii) no
hazardous, toxic or harmful substances, wastes, materials, pollutants or
contaminants (including, without limitation, asbestos, lead based paint,
polychlorinated biphenyls, petroleum products, flammable explosives, radioactive
materials, radon, infectious substances or raw materials which include hazardous
constituents) or any other substances or materials which are included under or
regulated by Environmental Laws (collectively, "Hazardous Substances") are
located on, in or under or have been handled, generated, stored, processed or
disposed of on or released or discharged from the Property (including
underground contamination) except for those substances used by Mortgagor in the
ordinary course of its business and in compliance with all Environmental Laws;
(iii) the Property is not subject to any private or governmental lien or
judicial or administrative notice or action relating to Hazardous Substances;
(iv) there are no existing or closed underground storage tanks or other
underground storage receptacles for Hazardous Substances on the Property; (v)
Mortgagor has received no notice of, and to the best of Mortgagor's knowledge
and belief, there exists no investigation, action, proceeding or claim by any
agency, authority or unit of government or by any third party which could result
in any liability, penalty, sanction or judgment under any Environmental Laws
with respect to any condition, use or operation of the Property nor does
Mortgagor know of any basis for such a claim; and (vi) Mortgagor has received no
notice of and, to the best of Mortgagor's knowledge and belief, there has been
no claim by any party that any use, operation or condition of the Property has
caused any nuisance or any other liability or adverse condition on any other
property nor does Mortgagor know of any basis for such a claim.
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(b) Mortgagor shall keep or cause the Property to be kept free
from Hazardous Substances (except those substances used by Mortgagor in the
ordinary course of its business and in compliance with all Environmental Laws)
and in compliance with all Environmental Laws, shall not install or use any
underground storage tanks, shall expressly prohibit the use, generation,
handling, storage, production, processing and disposal of Hazardous Substances
by all tenants of space in the Improvements, and, without limiting the
generality of the foregoing, during the term of this Mortgage, shall not install
in the Improvements or permit to be installed in the Improvements asbestos or
any substance containing asbestos.
(c) Mortgagor shall promptly notify Mortgagee if Mortgagor
shall become aware of the possible existence of any Hazardous Substances on the
Property or if Mortgagor shall become aware that the Property is or may be in
direct or indirect violation of any Environmental Laws. Further, immediately
upon receipt of the same, Mortgagor shall deliver to Mortgagee copies of any and
all orders, notices, permits, applications, reports, and other communications,
documents and instruments pertaining to the actual, alleged or potential
presence or existence of any Hazardous Substances at, on, about, under, within,
near or in connection with the Property. Mortgagor shall, promptly and when and
as required by Mortgagee, at Mortgagor's sole cost and expense, take all actions
as shall be necessary or advisable for the clean-up of any and all portions of
the Property or other affected property, including, without limitation, all
investigative, monitoring, removal, containment and remedial actions in
accordance with all applicable Environmental Laws (and in all events in a manner
satisfactory to Mortgagee), and shall further pay or cause to be paid, at no
expense to Mortgagee, all clean-up, administrative and enforcement costs of
applicable governmental agencies which may be asserted against the Property. In
the event Mortgagor fails to do so, Mortgagee may, but shall not be obligated
to, cause the Property or other affected property to be freed from any Hazardous
Substances or otherwise brought into conformance with Environmental Laws and any
and all costs and expenses incurred by Mortgagee in connection therewith,
together with interest thereon at the Default Interest Rate from the date
incurred by Mortgagee until actually paid by Mortgagor, shall be immediately
paid by Mortgagor on demand and shall be secured by this Mortgage and by all of
the other Loan Documents securing all or any part of the Debt. Mortgagor hereby
grants to Mortgagee and its agents and employees access to the Property and a
license to remove any items deemed by Mortgagee to be Hazardous Substances and
to do all things Mortgagee shall deem necessary to bring the Property in
conformance with Environmental Laws. Mortgagor covenants and agrees, at
Mortgagor's sole cost and expense, to indemnify, defend (at trial and appellate
levels, and with attorneys, consultants and experts acceptable to Mortgagee),
and hold Mortgagee harmless from and against any and all liens, damages, losses,
liabilities, obligations, settlement payments, penalties, assessments,
citations, directives, claims, litigation, demands, defenses, judgments, suits,
proceedings, costs, disbursements or expenses of any kind or of any nature
whatsoever (including, without limitation, reasonable attorneys', consultants'
and experts' fees and disbursements actually incurred in investigating,
defending, settling or prosecuting any claim, litigation or proceeding)
(collectively, "Costs") which may at any time be imposed upon, incurred by or
asserted or awarded against Mortgagee or the Property, and arising directly or
indirectly from or out of: (i) the presence, release or threat of release of any
Hazardous Substances on, in, under or affecting all or any portion of the
Property or any surrounding areas, regardless of whether or not caused by or
within the control of Mortgagor; (ii) the violation of any Environmental Laws
relating to or affecting the Property, whether or not caused by or within the
control of Mortgagor; (iii) the failure by Mortgagor to comply fully with the
terms and conditions of this Section 1.31; (iv) the breach of any representation
or warranty contained in this Section 1.31; or (v) the enforcement of this
Section 1.31, including, without limitation, the cost of assessment, containment
and/or removal of any and all Hazardous Substances from all
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or any portion of the Property or any surrounding areas, the cost of any actions
taken in response to the presence, release or threat of release of any Hazardous
Substances on, in, under or affecting any portion of the Property or any
surrounding areas to prevent or minimize such release or threat of release so
that it does not migrate or otherwise cause or threaten danger to present or
future public health, safety, welfare or the environment, and costs incurred to
comply with the Environmental Laws in connection with all or any portion of the
Property or any surrounding areas. The indemnity set forth in this Section
1.31(c) shall also include any diminution in the value of the security afforded
by the Property or any future reduction in the sales price of the Property by
reason of any matter set forth in this Section 1.31(c). Mortgagee's rights under
this Section shall survive payment in full of the Debt and shall be in addition
to all other rights of Mortgagee under this Mortgage, the Note and the other
Loan Documents. All Costs shall be immediately reimbursable to Mortgagee when
and as incurred and, in the event of any litigation, claim or other proceeding,
without any requirement of waiting for the ultimate outcome of such litigation,
claim or other proceedings, and Mortgagor shall pay to Mortgagee any and all
Costs within ten (10) days after written notice from Mortgagee itemizing the
amounts thereof incurred to the date of such notice (together with copies of
applicable invoice). In addition to any other remedy available for the failure
of Mortgage to periodically pay such Costs, such Costs, if not paid within such
10-day period, shall bear interest at the Default Interest Rate (as defined in
the Note).
(d) Upon Mortgagee's request, at any time after the occurrence of
an Event of Default hereunder or at such other time as Mortgagee has reasonable
grounds to believe that Hazardous Substances are or have been released, stored
or disposed of on or around the Property or that the Property may be in
violation of the Environmental Laws, Mortgagor shall provide, at Mortgagor's
sole cost and expense, an inspection or audit of the Property prepared by a
hydrogeologist or environmental engineer or other appropriate consultant
approved by Mortgagee indicating the presence or absence of Hazardous Substances
on the Property or an inspection or audit of the Improvements prepared by an
engineering or consulting firm approved by Mortgagee indicating the presence or
absence of friable asbestos or substances containing asbestos on the Property.
If Mortgagor fails to provide such inspection or audit within thirty (30) days
after such request, Mortgagee may order the same, and Mortgagor hereby grants to
Mortgagee and its employees and agents access to the Property and a license to
undertake such inspection or audit. The cost of such inspection or audit,
together with interest thereon at the Default Interest Rate from the date
incurred by Mortgagee until actually paid by Mortgagor, shall be immediately due
and payable to Mortgagee by Mortgagor on demand and shall be secured hereby and
by all of the other Loan Documents securing all or any part of the Debt.
(e) Reference is made to that certain Hazardous Substances
Indemnity Agreement of even date herewith by and among Mortgagor, Indemnitor and
Mortgagee (the "Hazardous Indemnity Agreement"). The provisions of this Mortgage
and the Hazardous Indemnity Agreement shall be read together to maximize the
coverage with respect to the subject matter thereof, as determined by Mortgagee.
(f) If, prior to the date hereof, it was determined that the
Property contains Lead Based Paint, Mortgagor had prepared an assessment report
describing the location and condition of the Lead Based Paint (a "Lead Based
Paint Report"). If, at any time hereafter, Lead Based Paint is suspected of
being present on the Property, Mortgagor agrees, at its sole cost and expense
and within twenty (20) days thereafter, to cause to be prepared a Lead Based
Paint Report prepared by an expert, and in form, scope and substance, acceptable
to Mortgagee.
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(g) Mortgagor agrees that if it has been, or if at any time
hereafter it is, determined that the Property contains Lead Based Paint, on or
before thirty (30) days following (i) the date hereof, if such determination was
made prior to the date hereof or (ii) such determination, if such determination
is hereafter made, as applicable, Mortgagor shall, at its sole cost and
expenses, develop and implement, and thereafter diligently and continuously
carry out (or cause to be developed and implemented and thereafter diligently
and continually to be carried out), an operations, abatement and maintenance
plan for the Lead Based Paint on the Property, which plan shall be prepared by
an expert, and be in form, scope and substance, acceptable to Mortgagee
(together with any Lead Based Paint Report, the "O&M Plan"). (If an O&M Plan has
been prepared prior to the date hereof, Mortgagor agrees to diligently and
continually carry out (or cause to be carried out) the provisions thereof).
Compliance with the O&M Plan shall require or be deemed to require, without
limitation, the proper preparation and maintenance of all records, papers and
forms required under the Environmental Laws.
(h) Mortgagor agrees that if it has been, or if at any time
hereafter it is, determined that the Property contains asbestos containing
materials ("ACM's"), on or before thirty (30) days following (i) the date
hereof, if such determination was made prior to the date hereof or (ii) such
determination, if such determination is hereafter made, as applicable, Mortgagor
shall, at its sole cost and expenses, develop and implement, and thereafter
diligently and continuously carry out (or cause to be developed and implemented
and thereafter diligently and continually to be carried out), an operations and
maintenance program (the "Maintenance Program") designed by an environmental
consultant, satisfactory to the Mortgagee, with respect to ACM's consistent with
"Guidelines for Controlling Asbestos-Containing Materials in Buildings" (USEPA,
1985) and other relevant guidelines, and such Maintenance Program will hereafter
continuously remain in effect until the Debt is repaid in full. In furtherance
of the foregoing, Mortgagor shall inspect and maintain all ACM's on a regular
basis and ensure that all ACM's shall be maintained in a condition that prevents
exposure of residents to ACM's at all times. Without limiting the generality of
the preceding sentence, Mortgagee may reasonably require (i) periodic notices or
reports to Mortgagee in form, substance and at such intervals as Mortgagee may
specify, (ii) an amendment to such Maintenance Program to address changing
circumstances, laws or other matters, (iii) at Mortgagor's sole expense,
supplemental examination of the Property by consultants specified by Mortgagee,
and (iv) variation of the Maintenance Program in response to the reports
provided by any such consultants.
1.32 Indemnification; Subrogation.
(a) Mortgagor shall indemnify, defend and hold Mortgagee harmless
against: (i) any and all claims for brokerage, leasing, finders or similar fees
which may be made relating to the Property or the secured indebtedness, and (ii)
any and all liability, obligations, losses, damages, penalties, claims, actions,
suits, costs and expenses (including Mortgagee's reasonable attorneys' fees,
together with reasonable appellate counsel fees, if any) of whatever kind or
nature which may be asserted against, imposed on or incurred by Mortgagee in
connection with the secured indebtedness, this Mortgage, the Property, or any
part thereof, or the exercise by Mortgagee of any rights or remedies granted to
it under this Mortgage; provided, however, that nothing herein shall be
construed to obligate Mortgagor to indemnify, defend and hold harmless Mortgagee
from and against any and all liabilities, obligations, losses, damages,
penalties, claims, actions, suits, costs and expenses enacted against, imposed
on or incurred by Mortgagee by reason of Mortgagee's willful misconduct or gross
negligence.
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(b) If Mortgagee is made a party defendant to any litigation or
any claim is threatened or brought against Mortgagee concerning the secured
indebtedness, this Mortgage, the Property, or any part thereof, or any interest
therein, or the construction, maintenance, operation or occupancy or use
thereof, then Mortgagor shall indemnify, defend and hold Mortgagee harmless from
and against all liability by reason of said litigation or claims, including
reasonable attorneys' fees (together with reasonable appellate counsel fees, if
any) and expenses incurred by Mortgagee in any such litigation or claim, whether
or not any such litigation or claim is prosecuted to judgment. If Mortgagee
commences an action against Mortgagor to enforce any of the terms hereof or to
prosecute any breach by Mortgagor of any of the terms hereof or to recover any
sum secured hereby, Mortgagor shall pay to Mortgagee its reasonable attorneys'
fees (together with reasonable appellate counsel fees, if any) and expenses. The
right to such attorneys' fees (together with reasonable appellate counsel fees,
if any) and expenses shall be deemed to have accrued on the commencement of such
action, and shall be enforceable whether or not such action is prosecuted to
judgment. If Mortgagor breaches any term of this Mortgage, Mortgagee may engage
the services of an attorney or attorneys to protect its rights hereunder, and in
the event of such engagement following any breach by Mortgagor, Mortgagor shall
pay Mortgagee reasonable attorneys' fees (together with reasonable appellate
counsel fees, if any) and expenses incurred by Mortgagee, whether or not an
action is actually commenced against Mortgagor by reason of such breach. All
references to "attorneys" in this Subsection and elsewhere in this Mortgage
shall include without limitation any attorney or law firm engaged by Mortgagee
and Mortgagee's in-house counsel, and all references to "fees and expenses" in
this Subsection and elsewhere in this Mortgage shall include without limitation
any fees of such attorney or law firm and any allocation charges and allocation
costs of Mortgagee's in-house counsel.
(c) A waiver of subrogation shall be obtained by Mortgagor from
its insurance carrier and, consequently, Mortgagor waives any and all right to
claim or recover against Mortgagee, its officers, employees, agents and
representatives, for loss of or damage to Mortgagor, the Property, Mortgagor's
property or the property of others under Mortgagor's control from any cause
insured against or required to be insured against by the provisions of this
Mortgage.
1.33 Negative Covenants with Respect to Indebtedness, Operations and
Fundamental Changes of Mortgagor. Mortgagor hereby represents, warrants and
covenants, as of the date hereof and until such time as the Debt is paid in
full, that Mortgagor:
(a) will not, nor will any partner, limited or general, member or
shareholder thereof, as applicable, amend, modify or otherwise change its
partnership certificate, partnership agreement, articles of incorporation,
by-laws, operating agreement, articles of organization, or other formation
agreement or document, as applicable, in any material term or manner, or in a
manner which adversely affects Mortgagor's existence as a single purpose entity;
(b) will not enter into any transaction of merger or
consolidation, or liquidate or dissolve itself (or suffer any liquidation or
dissolution), or acquire by purchase or otherwise all or substantially all the
business or assets of, or any stock or other evidence of beneficial ownership
of, any entity;
(c) has not and will not guarantee, pledge its assets for the
benefit of, or otherwise become liable on or in connection with any obligation
of any other person or entity;
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(d) does not own and will not own any asset other than (i) the
Property, and (ii) incidental personal property necessary for the operation of
the Property;
(e) is not engaged and will not engage, directly or indirectly, in
any business other than the ownership, management and operation of the Property;
(f) will not enter into any contract or agreement with any general
partner, principal or Affiliate (as hereinafter defined) of the Mortgagor or any
Affiliate of the general partner of the Mortgagor 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 an
Affiliate;
(g) has not incurred and will not incur any debt, secured or
unsecured, direct or contingent (including guaranteeing any obligation), other
than (i) the Debt, and (ii) trade payables or accrued expenses incurred in the
ordinary course of business of operating the Property; no other debt may be
secured (senior, subordinate or pari passu) by the Property;
(h) has not made and will not make any loans or advances to any
third party (including any Affiliate);
(i) is and will be solvent and pay its debt from its assets as the
same shall become due;
(j) has done or caused to be done and will do all things necessary
to preserve its existence, and will not, nor will any partner, limited or
general, or shareholder thereof, amend, modify or otherwise change its
partnership certificate, partnership agreement, articles of incorporation or
bylaws in a manner which adversely affects the Mortgagor's existence as a single
purpose entity;
(k) will conduct and operate its business as presently conducted
and operated;
(l) will maintain financial statements, books and records and bank
accounts separate from those of its Affiliates, including its general partners;
(m) 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 thereof, including the general partner or any Affiliate of the general
partner of the Mortgagor);
(n) will file its own tax returns, however, if consolidated tax
returns are filed, the returns will reflect, by footnote or otherwise, that
Borrower and the return filer are separate entities;
(o) 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;
(p) will not seek the dissolution or winding up, in whole or in
part, of the Mortgagor;
(q) will not commingle the funds and other assets of Mortgagor
with those of any general partner, any Affiliate or any other person;
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(r) has and will maintain its assets in such a manner that it is
not costly or difficult to segregate, ascertain or identify its individual
assets from those of any Affiliate or any other person;
(s) does not and will not hold itself out to be responsible for
the debts or obligations of any other person;
(t) will not do any act which would make it impossible to carry on
the ordinary business of Mortgagor;
(u) will not possess or assign the Property or incidental personal
property necessary for the operation of the Property for other than a business
or company purpose;
(v) will not sell, encumber or otherwise dispose of all or
substantially all of the Property or incidental personal property necessary for
the operation of the Property;
(w) will not hold title to Mortgagor's assets other than in
Mortgagor's name; and
(x) will not institute proceedings to be adjudicated bankrupt or
insolvent; or consent to the institution of bankruptcy or insolvency proceedings
against it; or file a petition seeking, or consent to, reorganization or relief
under any applicable federal or state law relating to bankruptcy; or consent to
the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of the Mortgagor or a substantial part of Mortgagor's
property; or make any assignment for the benefit of creditors; or admit in
writing its inability to pay its debts generally as they become due; or take any
action in furtherance of any such action.
1.34 Covenants Regarding Hallwood Hotels-OKC Mezz, Inc. By execution
hereof, Hallwood Hotels-OKC Mezz, Inc. (Hallwood Hotels-OKC Mezz, Inc. and any
successor or assignee are hereinafter the "Sole Shareholder") agrees that it:
(a) shall at all times act as the sole shareholder of Mortgagor
with all of the rights, powers, obligations and liabilities of a shareholder
pursuant to the certificate of incorporation and bylaws of Mortgagor and shall
take any and all actions and do any and all things necessary or appropriate to
the accomplishment of same and will engage in no other business.
(b) shall not institute proceedings to be adjudicated bankrupt or
insolvent; or consent to the institution of bankruptcy or insolvency proceedings
against it; or file a petition seeking, or consent to, reorganization or relief
under any applicable federal or state law relating to bankruptcy; or consent to
the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of the Sole Shareholder or a substantial part of its
property; or make any assignment for the benefit of creditors; or admit in
writing its inability to pay its debts generally as they become due; or take any
corporate action in furtherance of any such action.
(c) shall not (a) liquidate or dissolve the Sole Shareholder in
whole or in part and (b) consolidate, merge or enter into any form of
consolidation with or into any other entity, nor convey, transfer or lease its
assets substantially as an entirety to any person or entity nor permit any
entity to consolidate, merge or enter into any form of consolidation with or
into the Sole Shareholder, nor convey, transfer or lease its assets
substantially as an entirety to any person or entity.
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(d) shall maintain its principal executive office and telephone
and facsimile numbers separate from that of any Affiliate and shall
conspicuously identify such office and numbers as its own and shall use its own
stationary, invoices and checks which reflect its address, telephone number and
facsimile number, as appropriate;
(e) shall maintain its corporate records and books and accounts
separate from those of any Affiliate or any other entity and shall prepare
unaudited quarterly and annual financial statements, and said financial
statements shall be in compliance with generally accepted accounting principles
and shall be in form reasonably acceptable to Mortgagee and its successors
and/or assigns;
(f) shall maintain its own separate bank accounts and correct,
complete and separate books of account;
(g) shall hold itself out to the public (including any Affiliate's
creditors) under the Sole Shareholder's own name and as a separate and distinct
corporate entity and not as a department, division or otherwise of any
Affiliate;
(h) shall observe all customary formalities regarding the
corporate existence of the Sole Shareholder, including holding meetings of or
obtaining the consent of its board of directors, as appropriate, and its
stockholders and maintaining current accurate minute books separate from those
of any Affiliate;
(i) shall act solely in its own corporate name and through its own
duly authorized officers and agents and no Affiliate shall be appointed or act
as agent of the Sole Shareholder in its capacity as sole shareholder of
Mortgagor;
(j) shall make investments in the name of the Sole Shareholder
directly by the Sole Shareholder or on its behalf by brokers engaged and paid by
the Sole Shareholder or its agents;
(k) except as required by Mortgagee or any successor to Mortgagee
in connection with any extension of credit by Mortgagee or any successor to
Mortgagee to Mortgagor (or any refinancing, increase, modification,
consolidation or extension of any such extension of credit), shall not guaranty
or assume or hold itself out or permit itself to be held out as having
guaranteed or assumed any liabilities of any partner of Mortgagor or any
Affiliate other than Mortgagor, nor shall the Sole Shareholder make any loan,
except as permitted in the applicable organizational documents of Mortgagor;
(l) represents and warrants that the Sole Shareholder is and
expects to remain solvent and shall pay its own liabilities, indebtedness and
obligations of any kind, including all administrative expenses, from its own
separate assets;
(m) represents and warrants that assets of the Sole Shareholder
shall be separately identified, maintained and segregated and the Sole
Shareholder's assets shall at all times be held by or on behalf of the Sole
Shareholder and if held on behalf of the Sole Shareholder by another entity,
shall at all times be kept identifiable (in accordance with customary usages) as
assets owned by the Sole Shareholder (this restriction requires, among other
things, that corporate funds shall not be commingled with those of any Affiliate
and it shall maintain all accounts in its own name and with its own tax
identification number, separate from those of any Affiliates);
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(n) shall not intentionally take any action if, as a result of
such action, the Sole Shareholder would be required to register as an investment
company under the Investment Company Act of 1940, as amended;
(o) shall at all times be adequately capitalized to engage in the
transactions contemplated at its formation;
(p) represents and warrants that all data and records (including
computer records) used by the Sole Shareholder or any Affiliate in the
collection and administration of any loan shall reflect the Sole Shareholder's
ownership interest therein; and
(q) represents and warrants that none of the Sole Shareholder's
funds shall be invested in securities issued by any Affiliate.
"Affiliate" means any person or entity other than the Sole Shareholder
(i) which owns beneficially, directly or indirectly, more than 50 percent of the
outstanding shares of common stock of the Sole Shareholder or which is otherwise
in control of the Sole Shareholder, (ii) of which more than 50 percent of the
outstanding voting securities are owned beneficially, directly or indirectly, by
any entity described in clause (i) above, or (iii) which is controlled by an
entity described in clause (i) above; provided that for the purposes of this
definition the term "control" and "controlled by" shall have the meanings
assigned to them in Rule 405 under the Securities Act of 1933, as amended.
1.35. Repair and Remediation Reserve. Prior to the execution of this
Mortgage, Mortgagee has caused the Property to be inspected and such inspection
has revealed that the Property is in need of certain maintenance, repairs and/or
remedial or corrective work. Contemporaneously with the execution hereof,
Mortgagor has established with the Mortgagee a reserve in the amount of
$28,750.00 (the "Repair and Remediation Reserve") by depositing such amount with
Mortgagee. Mortgagor shall cause each of the items described in Exhibit C
attached hereto and made a part hereof and as more particularly described in
that certain Engineering Report entitled Structural Assessment Report, dated
August 4, 1998 and prepared by Lexington Group International Inc. (the "Deferred
Maintenance") to be completed, performed, remediated and corrected to the
satisfaction of Mortgagee and as necessary to bring the Property into compliance
with all applicable laws, ordinances, rules and regulations on or before the
expiration of 90 days after the effective date hereof, as such time period may
be extended by Mortgagee in its sole discretion. So long as no Default or Event
of Default hereunder or under the other Loan Documents has occurred and is
continuing, all sums in the Repair and Remediation Reserve shall be held by
Mortgagee in the Repair and Remediation Reserve to pay the costs and expenses of
completing the Deferred Maintenance. So long as no default hereunder or under
the other Loan Documents has occurred and is continuing, Mortgagee shall, to the
extent funds are available for such purpose in the Repair and Remediation
Reserve, disburse to Mortgagor the amount paid or incurred by Mortgagor in
completing, performing, remediating or correcting the Deferred Maintenance upon
(a) the receipt by Mortgagee of a written request from Mortgagor for
disbursement from the Repair and Remediation Reserve and a certification by
Mortgagor in the form annexed hereto as Exhibit B that the applicable item of
Deferred Maintenance has been completed in accordance with the terms of this
Mortgage, (b) delivery to Mortgagee of invoices, receipts or other evidence
satisfactory to Mortgagee verifying the costs of the Deferred Maintenance to be
reimbursed,
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(c) delivery to Mortgagee of a certification from an inspecting architect,
engineer or other consultant reasonably acceptable to Mortgagee describing the
completed work, verifying the completion of the work and the value of the
completed work and, if applicable, certifying that the Property is, as a result
of such work, in compliance with all applicable laws, ordinances rules and
regulations relating to the Deferred Maintenance so performed, (d) delivery to
Mortgagee of affidavits, lien waivers or other evidence reasonably satisfactory
to Mortgagee showing that all materialmen, laborers, subcontractors and any
other parties who might or could claim statutory or common law liens and are
furnishing or have furnished materials or labor to the Property have been paid
all amounts due for such labor and materials furnished to the Property, and (e)
the receipt by Mortgagee of an administrative fee in the amount of $150.00.
Mortgagee shall not be required to make advances from the Repair and Remediation
Reserve more frequently than once in any ninety (90) day period. In making any
payment from the Repair and Remediation Reserve, Mortgagee shall be entitled to
rely on such request from Mortgagor without any inquiry into the accuracy,
validity or contestability of any such amount. In no event may Mortgagor be
entitled to reimbursement of any costs with respect to each item of Deferred
Maintenance in excess of the applicable amounts in the Repair and Remediation
Reserve. No interest on the funds contained in the Repair and Remediation
Reserve shall be paid by Mortgagee to Mortgagor. The Repair and Remediation
Reserve is solely for the protection of Mortgagee and entails no responsibility
on Mortgagee's part beyond the payment of the costs and expenses described in
this paragraph in accordance with the terms hereof and beyond the allowing of
due credit for the sums actually received. In the event that the amounts on
deposit or available in the Repair and Remediation Reserve are inadequate to pay
the costs of the Deferred Maintenance, Mortgagor shall pay the amount of such
deficiency. Mortgagor hereby grants to Mortgagee a power-of-attorney, coupled
with an interest, to cause the Deferred Maintenance to be completed, performed,
remediated and corrected to the satisfaction of Mortgagee upon Mortgagor's
failure to do so in accordance with the terms and conditions of this Mortgage,
and to apply the amounts on deposit in the Repair and Remediation Reserve to the
costs associated therewith, all as Mortgagee may determine in its sole and
absolute discretion but without obligation to do so.
ARTICLE II
EVENTS OF DEFAULT
2.1 Events of Default. The occurrence of any of the following events
(each, an "Event of Default") shall be an Event of Default hereunder:
(a) Mortgagor fails to punctually perform any covenant, agreement,
obligation, term or condition under the Note, this Mortgage or any other Loan
Document which requires payment of any money to Mortgagee at the time or within
any applicable grace period set forth therein or herein, or if no time or grace
period is set forth, then within seven (7) days of the date such payment is due
or following demand if there is no due date.
(b) Mortgagor fails to provide insurance as required by Section 1.4
hereof or fails to perform any covenant, agreement, obligation, term or
condition set forth in Sections 1.5, 1.15, 1.31, 1.33 or 1.35 hereof.
(c) Mortgagor fails to perform any other covenant, agreement,
obligation, term or condition set forth herein other than those otherwise
described in this Section 2.1 and, to the extent such failure or default is
susceptible of being cured, the continuance of such failure or default for
thirty (30) days after written notice thereof from Mortgagee to Mortgagor;
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provided, however, that if such default is susceptible of cure but such cure
cannot be accomplished with reasonable diligence within said period of time, and
if Mortgagor commences to cure such default promptly after receipt of notice
thereof from Mortgagee, and thereafter prosecutes the curing of such default
with reasonable diligence, such period of time shall be extended for such period
of time as may be necessary to cure such default with reasonable diligence, but
not to exceed an additional sixty (60) days.
(d) Any representation or warranty made herein, in or in connection
with any application or commitment relating to the loan evidenced by the Note,
or in any of the other Loan Documents to Mortgagee by Mortgagor, by any
principal or general partner in Mortgagor or by any indemnitor or guarantor
under any indemnity or guaranty executed in connection with the loan secured
hereby is determined by Mortgagee to have been false or misleading in any
material respect at the time made.
(e) There shall be a sale, conveyance, disposition, alienation,
hypothecation, leasing, assignment, pledge, mortgage, granting of a security
interest in or other transfer or further encumbrancing of the Property,
Mortgagor or its general partners, or any portion thereof or any interest
therein, in violation of Section 1.13 hereof.
(f) An Event of Default or default occurs under any of the other
Loan Documents which has not been cured within any applicable grace or cure
period therein provided.
(g) Mortgagor, any principal or general partner in Mortgagor or any
indemnitor or guarantor under any indemnity or guaranty executed in connection
with the loan secured hereby becomes insolvent, or shall make a transfer in
fraud of creditors, or shall make an assignment for the benefit of creditors,
shall file a petition in bankruptcy, shall voluntarily be adjudicated insolvent
or bankrupt or shall admit in writing the inability to pay debts as they mature,
shall petition or apply to any tribunal for or shall consent to or shall not
contest the appointment of a receiver, trustee, custodian or similar officer for
Mortgagor, for any such principal or general partner of Mortgagor or for any
such indemnitor or guarantor or for a substantial part of the assets of
Mortgagor, of any such principal or general partner of Mortgagor or of any such
indemnitor or guarantor, or shall commence any case, proceeding or other action
under any bankruptcy, reorganization, arrangement, readjustment or debt,
dissolution or liquidation law or statute of any jurisdiction, whether now or
hereafter in effect.
(h) A petition is filed or any case, proceeding or other action is
commenced against Mortgagor, against any principal or general partner of
Mortgagor or against any indemnitor or guarantor under any indemnity or guaranty
executed in connection with the loan secured hereby seeking to have an order for
relief entered against it as debtor or seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or its debts or other
relief under any law relating to bankruptcy, insolvency, arrangement,
reorganization, receivership or other debtor relief under any law or statute of
any jurisdiction whether now or hereafter in effect or a court of competent
jurisdiction enters an order for relief against Mortgagor, against any principal
or general partner of Mortgagor or against any indemnitor or guarantor under any
indemnity or guaranty executed in connection with the loan secured hereby, as
debtor, or an order, judgment or decree is entered appointing, with or without
the consent of Mortgagor, of any such principal or general partner of Mortgagor
or of any such indemnitor or guarantor, a receiver, trustee, custodian or
similar officer for Mortgagor, for any such principal or general partner of
Mortgagor or for any such indemnitor or guarantor, or for any substantial part
of any of the properties of Mortgagor, of any such principal or general
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partner of Mortgagor or of any such indemnitor or guarantor, and if any such
event shall occur, such petition, case, proceeding, action, order, judgment or
decree shall not be dismissed within sixty (60) days after being commenced.
(i) The Property or any part thereof shall be taken on execution or
other process of law in any action against Mortgagor.
(j) Mortgagor abandons all or a portion of the Property.
(k) The holder of any lien or security interest on the Property
(without implying the consent of Mortgagee to the existence or creation of any
such lien or security interest), whether superior or subordinate to this
Mortgage or any of the other Loan Documents, declares a default and such default
is not cured within any applicable grace or cure period set forth in the
applicable document or such holder institutes foreclosure or other proceedings
for the enforcement of its remedies thereunder.
(l) The Property, or any part thereof, is subjected to actual or
threatened waste or to removal, demolition or material alteration so that the
value of the Property is materially diminished thereby and Mortgagee determines
(in its subjective determination) that it is not adequately protected from any
loss, damage or risk associated therewith.
(m) Any dissolution, termination, partial or complete liquidation,
merger or consolidation of Mortgagor, any of its principals or any general
partner.
(n) General Partner fails to perform any covenant, agreement,
obligation, terms or condition of Section 1.34 hereof.
(o) If a default occurs under the Franchise Agreement or the
Assignment of Franchise Agreement which remains uncured after the giving of any
required notice and the expiration of any applicable cure period, or if the
Franchise Agreement expires or terminates and is not immediately replaced with
another franchise agreement acceptable to Mortgagee in its sole and absolute
discretion.
ARTICLE III
REMEDIES
3.1 Remedies Available. If there shall occur an Event of Default under
this Mortgage, then this Mortgage is subject to foreclosure as provided by law
and Mortgagee may, at its option, to the fullest extent permitted by law,
exercise any or all of the following rights, remedies and recourses, either
successively or concurrently:
(a) Acceleration. Accelerate the maturity date of the Note and
declare any or all of the Debt to be immediately due and payable without any
presentment, demand, protest, notice, or action of any kind whatever (each of
which is hereby expressly waived by Mortgagor), whereupon the same shall become
immediately due and payable. Upon any such acceleration, payment of such
accelerated amount shall constitute a prepayment of the principal balance of the
Note and any applicable prepayment fee provided for in the Note shall then be
immediately due and payable.
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(b) Entry on the Property. Either in person or by agent, with or
without bringing any action or proceeding, or by a receiver appointed by a court
and without regard to the adequacy of its security, enter upon and take
possession of the Property, or any part thereof, without force or with such
force as is permitted by law and without notice or process or with such notice
or process as is required by law unless such notice and process is waivable, in
which case Mortgagor hereby waives such notice and process, and do any and all
acts and perform any and all work which may be desirable or necessary in
Mortgagee's judgment to complete any unfinished construction on the Real Estate,
to preserve the value, marketability or rentability of the Property, to increase
the income therefrom, to manage and operate the Property or to protect the
security hereof and all sums expended by Mortgagee therefor, together with
interest thereon at the Default Interest Rate, shall be immediately due and
payable to Mortgagee by Mortgagor on demand and shall be secured hereby and by
all of the other Loan Documents securing all or any part of the Debt.
(c) Collect Rents and Profits. With or without taking possession of
the Property, sue or otherwise collect the Rents and Profits, including those
past due and unpaid.
(d) Appointment of Receiver. Upon, or at any time prior or after,
initiating the exercise of any power of sale, instituting any judicial
foreclosure or instituting any other foreclosure of the liens and security
interests provided for herein or any other legal proceedings hereunder, make
application to a court of competent jurisdiction for appointment of a receiver
for all or any part of the Property, as a matter of strict right and without
notice to Mortgagor and without regard to the adequacy of the Property for the
repayment of the Debt or the solvency of Mortgagor or any person or persons
liable for the payment of the Debt, and Mortgagor does hereby irrevocably
consent to such appointment, waives any and all notices of and defenses to such
appointment and agrees not to oppose any application therefor by Mortgagee, but
nothing herein is to be construed to deprive Mortgagee of any other right,
remedy or privilege Mortgagee may now have under the law to have a receiver
appointed, provided, however, that, the appointment of such receiver, trustee or
other appointee by virtue of any court order, statute or regulation shall not
impair or in any manner prejudice the rights of Mortgagee to receive payment of
the Rents and Profits pursuant to other terms and provisions hereof. Any such
receiver shall have all of the usual powers and duties of receivers in similar
cases, including, without limitation, the full power to hold, develop, rent,
lease, manage, maintain, operate and otherwise use or permit the use of the
Property upon such terms and conditions as said receiver may deem to be prudent
and reasonable under the circumstances as more fully set forth in Section 3.3
below. Such receivership shall, at the option of Mortgagee, continue until full
payment of all of the Debt or until title to the Property shall have passed by
foreclosure sale under this Mortgage or deed in lieu of foreclosure.
(e) Foreclosure. Immediately commence an action to foreclose this
Mortgage or to specifically enforce its provisions or any of the Debt pursuant
to the statutes in such case made and provided and sell the Property or cause
the Property to be sold in accordance with the requirements and procedures
provided by said statutes in a single parcel or in several parcels at the option
of Mortgagee.
(1) In the event foreclosure proceedings are filed by
Mortgagee, all expenses incident to such proceeding, including, but not
limited to, attorneys' fees and costs, shall be paid by Mortgagor and
secured by this Mortgage and by all of the other Loan Documents
securing all or any part of the Debt. The Debt and all other
obligations secured by this Mortgage, including, without limitation,
interest at the Default Interest Rate (as defined in the Note), any
prepayment charge, fee or premium required to be paid under the Note in
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order to prepay principal (to the extent permitted by applicable law),
attorneys' fees and any other amounts due and unpaid to Mortgagee under
the Loan Documents, may be bid by Mortgagee in the event of a
foreclosure sale hereunder. In the event of a judicial sale pursuant to
a foreclosure decree, it is understood and agreed that Mortgagee or its
assigns may become the purchaser of the Property or any part thereof.
(2) Mortgagee may, by following the procedures and satisfying
the requirements prescribed by applicable law, foreclose on only a
portion of the Property and, in such event, said foreclosure shall not
affect the lien of this Mortgage on the remaining portion of the
Property foreclosed.
(f) Judicial Remedies. Proceed by suit or suits, at law or in
equity, instituted by or on behalf of Mortgagee, upon written request of
Mortgagee, to enforce the payment of the Debt or the other obligations of
Mortgagor hereunder or pursuant to the Loan Documents, to foreclose the liens
and security interests of this Mortgage as against all or any part of the
Property, and to have all or any part of the Property sold under the judgment or
decree of a court of competent jurisdiction. This remedy shall be cumulative of
any other non-judicial remedies available to Mortgagee with respect to the Loan
Documents. Proceeding with the request or receiving a judgment for legal relief
shall not be or be deemed to be an election of remedies or bar any available
non-judicial remedy of Mortgagee.
(g) Sale of Property. (i) Mortgagee, shall have and is hereby
granted the power to sell the Property or any part thereof at public auction, in
such manner, at such time, and place, upon such terms and conditions, as may be
required or permitted by Title 46 Oklahoma Statutes Section 40 et. seq.,
Oklahoma Power of Sale Mortgage Foreclosure Act, as the same may be modified
from time-to-time, or other applicable law, consisting of advertisement in a
newspaper of general circulation in the jurisdiction and for such period as
applicable law may require and at such other times and by such other methods, if
any, as may be required by law to convey the Property in fee simple by trustee's
deed with special warranty of title to and at the cost of the purchaser, who
shall not be liable to see to the application of the purchase money. The
proceeds or avails of any sale made under or by virtue of this paragraph,
together with any other sums which then may be held by Mortgagee under this
Mortgage, whether under the provisions of this paragraph or otherwise, shall be
applied as provided in Section 3.2 hereof. Mortgagee and any receiver or
custodian of the Property or any part thereof shall be liable to account for
only those rents, issues, proceeds and profits actually received by it.
(ii) Mortgagee, as applicable, may adjourn from time to time any
sale by it to be made under or by virtue of this Mortgage by announcement at the
time and place appointed for such sale or for such adjourned sale or sales and,
except as otherwise provided by any applicable law, Mortgagee, without further
notice or publication, may make such sale at the time and place to which the
same shall be so adjourned.
(iii) Upon the completion of any sale or sales under or by virtue
of this paragraph, Mortgagee, or any officer of any court empowered to do so,
shall execute and deliver to the accepted purchaser or purchasers a good and
sufficient instrument, or good and sufficient instruments, granting, conveying,
assigning and transferring all estate, right, title and interest in and to the
property and rights sold. Nevertheless, Mortgagor, if so requested by Mortgagee,
shall ratify and confirm any such sale or sales by executing and delivering to
Mortgagee, or to such purchaser or purchasers all such instruments as may be
advisable, in the sole judgment of Mortgagee, for such purpose, and as may be
designated in such request. Any
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such sale or sales made under or by virtue or this paragraph, whether made under
the power of sale herein granted or under or by virtue of judicial proceedings
or a judgment or decree of foreclosure and sale, shall operate to divest all the
estate, right, title, interest, claim and demand whatsoever, whether at law or
in equity, of Mortgagor in and to the property and rights so sold, and shall, to
the fullest extent permitted under law, be a perpetual bar both at law and in
equity against Mortgagor and against any and all persons claiming or who may
claim the same, or any party thereof, from, through or under Mortgagor.
(iv) In the event of any sale made under or by virtue of this
Mortgage (whether made under the power of sale herein granted or under or by
virtue of judicial proceedings or a judgment or decree of foreclosure and sale),
the entire Debt relative to the Property, immediately thereupon shall, anything
in the Note, this Mortgage or any other of the Loan Documents to the contrary
notwithstanding, become due and payable.
(v) Upon any sale under or by virtue of this Mortgage (whether made
under the power of sale herein granted or under or by virtue of judicial
proceedings or a judgment or decree of foreclosure and sale), Mortgagee may bid
for and acquire the Property or any part thereof and in lieu of paying cash
therefor may make settlement for the purchase price by crediting the Debt to and
against the net sales price after deducting therefrom the expenses of the sale
and the costs of the action.
(vi) No recovery of any judgment by Mortgagee and no levy of an
execution under any judgment upon the Property or any part thereof or upon any
other property of Mortgagor shall release the lien of this Mortgage upon the
Property or any part thereof, or any liens, rights, powers or remedies of
Mortgagee hereunder, but such liens, rights, powers and remedies of Mortgagee
shall continue unimpaired until the entire Debt is paid in full.
(h) Other. Exercise any other right or remedy available hereunder,
under any of the other Loan Documents or at law or in equity.
3.2 Application of Proceeds. To the fullest extent permitted by law,
the proceeds of any sale under this Mortgage shall be applied to the extent
funds are so available to the following items in such order as Mortgagee in its
discretion may determine:
(a) To payment of the costs, expenses and fees of taking possession
of the Property, and of holding, operating, maintaining, using, leasing,
repairing, improving, marketing and selling the same and of otherwise enforcing
Mortgagee's right and remedies hereunder and under the other Loan Documents,
including, but not limited to, receivers' fees, court costs, attorneys',
accountants', appraisers', managers' and other professional fees, title charges
and transfer taxes.
(b) To payment of all sums expended by Mortgagee under the terms of
any of the Loan Documents and not yet repaid, together with interest on such
sums at the Default Interest Rate.
(c) To payment of the Debt and all other obligations secured by
this Mortgage, including, without limitation, interest at the Default Interest
Rate and, to the extent permitted by applicable law, any prepayment fee, charge
or premium required to be paid under the Note in order to prepay principal, in
any order that Mortgagee chooses in its sole discretion.
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The remainder, if any, of such funds shall be disbursed to Mortgagor or
to the person or persons legally entitled thereto.
3.3 Right and Authority of Receiver or Mortgagee in the Event of
Default; Power of Attorney. Upon the occurrence of an Event of Default
hereunder, which default is not cured within any applicable grace or cure
period, and entry upon the Property pursuant to Section 3.1(b) hereof or
appointment of a receiver pursuant to Section 3.1(d) hereof, and under such
terms and conditions as may be prudent and reasonable under the circumstances in
Mortgagee's or the receiver's sole discretion, all at Mortgagor's expense,
Mortgagee or said receiver, or such other persons or entities as they shall
hire, direct or engage, as the case may be, may do or permit one or more of the
following, successively or concurrently: (a) enter upon and take possession and
control of any and all of the Property; (b) take and maintain possession of all
documents, books, records, papers and accounts relating to the Property; (c)
exclude Mortgagor and its agents, servants and employees wholly from the
Property; (d) manage and operate the Property; (e) preserve and maintain the
Property; (f) make repairs and alterations to the Property; (g) complete any
construction or repair of the Improvements, with such changes, additions or
modifications of the plans and specifications or intended disposition and use of
the Improvements as Mortgagee may in its sole discretion deem appropriate or
desirable to place the Property in such condition as will, in Mortgagee's sole
discretion, make it or any part thereof readily marketable or rentable; (h)
conduct a marketing or leasing program with respect to the Property, or employ a
marketing or leasing agent or agents to do so, directed to the leasing or sale
of the Property under such terms and conditions as Mortgagee may in its sole
discretion deem appropriate or desirable; (i) employ such contractors,
subcontractors, materialmen, architects, engineers, consultants, managers,
brokers, marketing agents, or other employees, agents, independent contractors
or professionals, as Mortgagee may in its sole discretion deem appropriate or
desirable to implement and effectuate the rights and powers herein granted; (j)
execute and deliver, in the name of Mortgagee as attorney-in-fact and agent of
Mortgagor or in its own name as Mortgagee, such documents and instruments as are
necessary or appropriate to consummate authorized transactions; (k) enter into
such leases, whether of real or personal property, or tenancy agreements, under
such terms and conditions as Mortgagee may in its sole discretion deem
appropriate or desirable; (l) collect and receive the Rents and Profits from the
Property; (m) eject Tenants or repossess personal property, as provided by law,
for breaches of the conditions of their Leases; (n) sue for unpaid Rents and
Profits, payments, income or proceeds in the name of Mortgagor or Mortgagee; (o)
maintain actions in forcible entry and detainer, ejectment for possession and
actions in distress for rent; (p) compromise or give acquittance for Rents and
Profits, payments, income or proceeds that may become due; (q) delegate or
assign any and all rights and powers given to Mortgagee by this Mortgage; and
(r) do any acts which Mortgagee in its sole discretion deems appropriate or
desirable to protect the security hereof and use such measures, legal or
equitable, as Mortgagee may in its sole discretion deem appropriate or desirable
to implement and effectuate the provisions of this Mortgage. This Mortgage shall
constitute a direction to and full authority to any lessee, or other third party
who has heretofore dealt or contracted or may hereafter deal or contract with
Mortgagor or Mortgagee, at the request of Mortgagee, to pay all amounts owing
under any Lease, contract, concession, license or other agreement to Mortgagee
without proof of the Event of Default relied upon. Any such lessee or third
party is hereby irrevocably authorized to rely upon and comply with (and shall
be fully protected by Mortgagor in so doing) any request, notice or demand by
Mortgagee for the payment to Mortgagee of any Rents and Profits or other sums
which may be or thereafter become due under its Lease, contract, concession,
license or other agreement, or for the performance of any undertakings under any
such Lease, contract, concession, license or other agreement, and shall have no
right or duty to inquire whether any Event of Default under this Mortgage or
under any of the other Loan Documents has actually occurred or is then existing.
Mortgagor hereby
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constitutes and appoints Mortgagee, its assignees, successors, transferees and
nominees, as Mortgagor's true and lawful attorney-in-fact and agent, with full
power of substitution in the Property, in Mortgagor's name, place and stead, to
do or permit any one or more of the foregoing described rights, remedies, powers
and authorities, successively or concurrently, and said power of attorney shall
be deemed a power coupled with an interest and irrevocable so long as any Debt
is outstanding. Any money advanced by Mortgagee in connection with any action
taken under this Section 3.3, together with interest thereon at the Default
Interest Rate from the date of making such advancement by Mortgagee until
actually paid by Mortgagor, shall be a demand obligation owing by Mortgagor to
Mortgagee and shall be secured by this Mortgage and by every other instrument
securing the secured indebtedness.
3.4 Occupancy After Foreclosure. In the event there is a foreclosure
sale hereunder and at the time of such sale, Mortgagor or Mortgagor's
representatives, successors or assigns, or any other persons claiming any
interest in the Property by, through or under Mortgagor (except tenants of space
in the Improvements subject to Leases entered into prior to the date hereof),
are occupying or using the Property, or any part thereof, then, to the extent
not prohibited by applicable law, each and all shall, at the option of Mortgagee
or the purchaser at such sale, as the case may be, immediately become the tenant
of the purchaser at such sale, which tenancy shall be a tenancy from day-to-day,
terminable at the will of either landlord or tenant, at a reasonable rental per
day based upon the value of the Property occupied or used, such rental to be due
daily to the purchaser. Further, to the extent permitted by applicable law, in
the event the tenant fails to surrender possession of the Property upon the
termination of such tenancy, the purchaser shall be entitled to institute and
maintain an action for unlawful detainer of the Property in the appropriate
court of the county in which the Real Estate is located.
3.5 Notice to Account Debtors. Mortgagee may, at any time after an
Event of Default notify the account debtors and obligors of any accounts,
chattel paper, negotiable instruments or other evidences of indebtedness, to
Mortgagor included in the Property to pay Mortgagee directly. Mortgagor shall at
any time or from time to time upon the request of Mortgagee provide to Mortgagee
a current list of all such account debtors and obligors and their addresses.
3.6 Cumulative Remedies. All remedies contained in this Mortgage are
cumulative and Mortgagee shall also have all other remedies provided at law and
in equity or in any other Loan Documents. Such remedies may be pursued
separately, successively or concurrently at the sole subjective direction of
Mortgagee and may be exercised in any order and as often as occasion therefor
shall arise. No act of Mortgagee shall be construed as an election to proceed
under any particular provisions of this Mortgage to the exclusion of any other
provision of this Mortgage or as an election of remedies to the exclusion of any
other remedy which may then or thereafter be available to Mortgagee. No delay or
failure by Mortgagee to exercise any right or remedy under this Mortgage shall
be construed to be a waiver of that right or remedy or of any Event of Default
hereunder. Mortgagee may exercise any one or more of its rights and remedies at
its option without regard to the adequacy of its security.
3.7 Payment of Expenses. Mortgagor shall pay on demand all of
Mortgagee's expenses incurred in any efforts to enforce any terms of this
Mortgage, whether or not any lawsuit is filed and whether or not foreclosure is
commenced but not completed, including, but not limited to, legal fees and
disbursements, foreclosure costs and title charges, together with interest
thereon from and after the date incurred by Mortgagee until actually paid by
Mortgagor at the Default Interest Rate, and the same shall be secured by this
Mortgage and by all of the other Loan Documents securing all or any part of the
Debt.
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ARTICLE IV
MISCELLANEOUS TERMS AND CONDITIONS
4.1 Time of Essence. Time is of the essence with respect to all
provisions of this Mortgage.
4.2 Release of Mortgage. If all of the Debt be paid, then and in that
event only, all rights under this Mortgage shall terminate except for those
provisions hereof which by their terms survive, and the Property shall become
wholly clear of the liens, security interests, conveyances and assignments
evidenced hereby, which shall be released by Mortgagee in due form at
Mortgagor's cost. No release of this Mortgage or the lien hereof shall be valid
unless executed by Mortgagee.
4.3 Certain Rights of Mortgagee. Without affecting Mortgagor's
liability for the payment of any of the Debt, Mortgagee may from time to time
and without notice to Mortgagor: (a) release any person liable for the payment
of the Debt; (b) extend or modify the terms of payment of the Debt; (c) accept
additional real or personal property of any kind as security or alter,
substitute or release any property securing the Debt; (d) recover any part of
the Property; (e) consent in writing to the making of any subdivision map or
plat thereof; (f) join in granting any easement therein; or (g) join in any
extension agreement of the Mortgage or any agreement subordinating the lien
hereof.
4.4 Waiver of Certain Defenses. No action for the enforcement of the
lien hereof or of any provision hereof shall be subject to any defense which
would not be good and available to the party interposing the same in an action
at law upon the Note or any of the other Loan Documents.
4.5 Notices. All notices, demands, requests or other communications to
be sent by one party to the other hereunder or required by law shall be in
writing and shall be deemed to have been validly given or served by delivery of
the same in person to the intended addressee, or by depositing the same with
Federal Express or another reputable private courier service for next business
day delivery, or by depositing the same in the United States mail, postage
prepaid, registered or certified mail, return receipt requested, in any event
addressed to the intended addressee at its address set forth on the first page
of this Mortgage or at such other address as may be designated by such party as
herein provided. All notices, demands and requests to be sent to Mortgagee shall
be addressed to it at the address set forth above ATTENTION: LESLIE FAIRBANKS,
SENIOR VICE PRESIDENT, CONTRACT FINANCE, and Commercial Mortgage Investment
Trust, Inc., 11601 Wilshire Boulevard, Suite 2440, Los Angeles, California
90025, attention Chip Sellers,Vice President. All notices, demands and requests
shall be effective upon such personal delivery, or one (1) business day after
being deposited with the private courier service, or two (2) business days after
being deposited in the United States mail as required above. Rejection or other
refusal to accept or the inability to deliver because of changed address of
which no notice was given as herein required shall be deemed to be receipt of
the notice, demand or request sent. By giving to the other party hereto at least
fifteen (15) days' prior written notice thereof in accordance with the
provisions hereof, the parties hereto shall have the right from time to time to
change their respective addresses and each shall have the right to specify as
its address any other address within the United States of America.
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4.6 Successors and Assigns. The terms, provisions, indemnities,
covenants and conditions hereof shall be binding upon Mortgagor and the
successors and assigns of Mortgagor, including all successors in interest of
Mortgagor in and to all or any part of the Property, and shall inure to the
benefit of Mortgagee, its directors, officers, shareholders, employees and
agents and their respective successors and assigns and shall constitute
covenants running with the land. All references in this Mortgage to Mortgagor or
Mortgagee shall be deemed to include all such parties' successors and assigns,
and the term "Mortgagee" as used herein shall also mean and refer to any lawful
holder or owner, including pledgees and participants, of any of the Debt. If
Mortgagor consists of more than one person or entity, each will be jointly and
severally liable to perform the obligations of Mortgagor. Mortgagee shall have
the right to transfer, sell and assign its interest in this Mortgage and the
other Loan Documents to any person or entity. In addition, if the Loan becomes
the collateral for or an asset of any securitization, Mortgagor acknowledges and
agrees that the successors and assigns of Mortgagee include, without limitation,
any issuer of the securities issued in connection with the securitization and
any trustee for the holders of such securities, and in the event that any
servicer undertakes the obligations of such trustee, Mortgagor acknowledges that
any rights, obligations and benefits of Mortgagee hereunder and under the other
Loan Documents shall inure to the benefit of such servicer as a result of the
delegation of authority by such trustee to such servicer.
4.7 Severability. A determination that any provision of this Mortgage
is unenforceable or invalid shall not affect the enforceability or validity of
any other provision, and any determination that the application of any provision
of this Mortgage to any person or circumstance is illegal or unenforceable shall
not affect the enforceability or validity of such provision as it may apply to
any other persons or circumstances.
4.8 Gender. Within this Mortgage, words of any gender shall be held and
construed to include any other gender, and words in the singular shall be held
and construed to include the plural, and vice versa, unless the context
otherwise requires.
4.9 Waiver: Discontinuance of Proceedings. Mortgagee may waive any
single Event of Default by Mortgagor hereunder without waiving any other prior
or subsequent Event of Default. Mortgagee may remedy any Event of Default by
Mortgagor hereunder without waiving the Event of Default remedied. Neither the
failure by Mortgagee to exercise, nor the delay by Mortgagee in exercising, any
right, power or remedy upon any Event of Default by Mortgagor hereunder shall be
construed as a waiver of such Event of Default or as a waiver of the right to
exercise any such right, power or remedy at a later date. No single or partial
exercise by Mortgagee of any right, power or remedy hereunder shall exhaust the
same or shall preclude any other or further exercise thereof, and every such
right, power or remedy hereunder may be exercised at any time and from time to
time. No modification or waiver of any provision hereof nor consent to any
departure by Mortgagor therefrom shall in any event be effective unless the same
shall be in writing and signed by Mortgagee, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
given. No notice to nor demand on Mortgagor in any case shall of itself entitle
Mortgagor to any other or further notice or demand in similar or other
circumstances. Acceptance by Mortgagee of any payment in an amount less than the
amount then due on any of the Debt shall be deemed an acceptance on account only
and shall not in any way affect the existence of an Event of Default hereunder.
In case Mortgagee shall have proceeded to invoke any right, remedy or recourse
permitted hereunder or under the other Loan Documents and shall thereafter elect
to discontinue or abandon the same for any reason, Mortgagee shall have the
unqualified right to do so and, in such an event, Mortgagor and Mortgagee shall
be restored to their former positions with
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respect to the Debt, the Loan Documents, the Property and otherwise, and the
rights, remedies, recourses and powers of Mortgagee shall continue as if the
same had never been invoked.
4.10 Section Headings. The headings of the sections and paragraphs of
this Mortgage are for convenience of reference only, are not to be considered a
part hereof and shall not limit or otherwise affect any of the terms hereof.
4.11 Governing Law. This Mortgage will be governed by and construed in
accordance with the laws of the State in which the Real Estate is located
provided that to the extent any of such laws may now or hereafter be preempted
by Federal law, in which case such Federal law shall so govern and be
controlling; and provided further that the laws of the state in which the Real
Estate is located shall govern as to the creation, priority and enforcement of
liens and security interests in property located in such state.
4.12 Counting of Days. The term "days" when used herein shall mean
calendar days. If any time period ends on a Saturday, Sunday or holiday
officially recognized by the state within which the Real Estate is located, the
period shall be deemed to end on the next succeeding business day. The term
"business day" when used herein shall mean a weekday, Monday through Friday,
except a legal holiday or a day on which banking institutions are authorized by
law to be closed.
4.13 Relationship of the Parties. The relationship between Mortgagor
and Mortgagee is that of a borrower and a lender only and neither of those
parties is, nor shall it hold itself out to be, the agent, employee, joint
venturer or partner of the other party.
4.14 Application of the Proceeds of the Note. To the extent that
proceeds of the Note are used to pay indebtedness secured by any outstanding
lien, security interest, charge or prior encumbrance against the Property, such
proceeds have been advanced by Mortgagee at Mortgagor's request and Mortgagee
shall be subrogated to any and all rights, security interests and liens owned by
any owner or holder of such outstanding liens, security interests, charges or
encumbrances, irrespective of whether said liens, security interests, charges or
encumbrances are released.
4.15 Unsecured Portion of Indebtedness. If any part of the Debt cannot
be lawfully secured by this Mortgage or if any part of the Property cannot be
lawfully subject to the lien and security interest hereof to the full extent of
such indebtedness, then all payments made shall be applied on said indebtedness
first in discharge of that portion thereof which is unsecured by this Mortgage.
4.16 Cross Default. An Event of Default hereunder shall be a default
under each of the other Loan Documents.
4.17 Interest After Sale. In the event the Property or any part thereof
shall be sold upon foreclosure as provided hereunder, to the extent permitted by
law, the sum for which the same shall have been sold shall, for purposes of
redemption (pursuant to the laws of the state in which the Property is located),
bear interest at the Default Interest Rate.
4.18 Inconsistency with Other Loan Documents. In the event of any
inconsistency between the provisions hereof and the provisions in any of the
other Loan Documents, it is intended that the provisions selected by Mortgagee
in its sole subjective discretion shall be controlling.
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4.19 Construction of this Document. This document may be construed as a
mortgage, security deed, deed of trust, chattel mortgage, conveyance,
assignment, security agreement, pledge, financing statement, hypothecation or
contract, or any one or more of the foregoing, in order to fully effectuate the
liens and security interests created hereby and the purposes and agreements
herein set forth.
4.20 No Merger. It is the desire and intention of the parties hereto
that this Mortgage and the lien hereof do not merge in fee simple title to the
Property. It is hereby understood and agreed that should Mortgagee acquire any
additional or other interests in or to the Property or the ownership thereof,
then, unless a contrary intent is manifested by Mortgagee as evidenced by an
appropriate document duly recorded, this Mortgage and the lien hereof shall not
merge in such other or additional interests in or to the Property, toward the
end that this Mortgage may be foreclosed as if owned by a stranger to said other
or additional interests.
4.21 Rights With Respect to Junior Encumbrances. Any person or entity
purporting to have or to take a junior mortgage or other lien upon the Property
or any interest therein shall be subject to the rights of Mortgagee to amend,
modify, increase, vary, alter or supplement this Mortgage, the Note or any of
the other Loan Documents and to extend the maturity date of the Debt and to
increase the amount of the Debt and to waive or forebear the exercise of any of
its rights and remedies hereunder or under any of the other Loan Documents and
to release any collateral or security for the Debt, in each and every case
without obtaining the consent of the holder of such junior lien and without the
lien or security interest of this Mortgage losing its priority over the rights
of any such junior lien.
4.22 Mortgagee May File Proofs of Claim. In the case of any
receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment,
composition or other proceedings affecting Mortgagor or the principals or
general partners in Mortgagor, or their respective creditors or property,
Mortgagee, to the extent permitted by law, shall be entitled to file such proofs
of claim and other documents as may be necessary or advisable in order to have
the claims of Mortgagee allowed in such proceedings for the entire Debt at the
date of the institution of such proceedings and for any additional amount which
may become due and payable by Mortgagor hereunder after such date.
4.23 Fixture Filing. This Mortgage shall be effective from the date of
its recording as a financing statement filed as a fixture filing with respect to
all goods constituting part of the Property which are or are to become fixtures.
4.24 After-Acquired Property. All property acquired by Mortgagor after
the date of this Mortgage which by the terms of this Mortgage shall be subject
to the lien and the security interest created hereby, shall immediately upon the
acquisition thereof by Mortgagor and without further mortgage, conveyance or
assignment become subject to the lien and security interest created by this
Mortgage. Nevertheless, Mortgagor shall execute, acknowledge, deliver and record
or file, as appropriate, all and every such further mortgages, security
agreements, financing statements, assignments and assurances, as Mortgagee shall
require for accomplishing the purposes of this Mortgage.
4.25 No Representation. By accepting delivery of any item required to
be observed, performed or fulfilled or to be given to Mortgagee pursuant to the
Loan Documents, including, but not limited to, any officer's certificates
balance sheet, statement of profit and loss or other financial statement,
survey, appraisal or insurance policy, Mortgagee shall not be deemed to have
warranted, consented to, or affirmed the sufficiency, legality, effectiveness or
legal effect
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of the same, or of any term, provision or condition thereof, and such acceptance
of delivery thereof shall not be or constitute any warranty, consent or
affirmation with respect thereto by Mortgagee.
4.26 Counterparts. This Mortgage may be executed in any number of
counterparts, each of which shall be effective only upon delivery and thereafter
shall be deemed an original, and all of which shall be taken to be one and the
same instrument, for the same effect as if all parties hereto had signed the
same signature page. Any signature page of this Mortgage may be detached from
any counterpart of this Mortgage without impairing the legal effect of any
signatures thereon and may be attached to another counterpart of this Mortgage
identical in form hereto but having attached to it one or more additional
signature pages.
4.27 Personal Liability. Notwithstanding anything to the contrary
contained in this Mortgage, the liability of Mortgagor and its officer,
directors, general partners, managers, members and principals for the Debt and
for the performance of the other agreements, covenants and obligations contained
herein and in the other Loan Documents shall be limited as set forth in Article
3 of the Note.
4.28 Recording and Filing. Mortgagor will cause the Loan Documents and
all amendments and supplements thereto and substitutions therefor to be
recorded, filed, re-recorded and re-filed in such manner and in such places as
Mortgagee shall reasonably request, and will pay on demand all such recording,
filing, re-recording and re-filing taxes, fees and other charges. Mortgagor
shall reimburse Mortgagee, or its servicing agent, for the costs incurred in
obtaining a tax service company to verify the status of payment of taxes and
assessments on the Property.
4.29 Entire Agreement and Modification. This Mortgage and the other Loan
Documents contain the entire agreements between the parties relating to the
subject matter hereof and thereof and all prior agreements relative hereto and
thereto which are not contained herein or therein are terminated. This Mortgage
and the other Loan Documents may not be amended, revised, waived, discharged,
released or terminated orally but only by a written instrument or instruments
executed by the party against which enforcement of the amendment, revision,
waiver, discharge, release or termination is asserted. Any alleged amendment,
revision, waiver, discharge, release or termination which is not so documented
shall not be effective as to any party.
4.30 Maximum Interest. The provisions of this Mortgage and of all
agreements between Mortgagor and Mortgagee, whether now existing or hereafter
arising and whether written or oral, are hereby expressly limited so that in no
contingency or event whatsoever, whether by reason of demand or acceleration of
the maturity of the Note or otherwise, shall the amount paid, or agreed to be
paid ("Interest"), to Mortgagee for the use, forbearance or retention of the
money loaned under the Note exceed the maximum amount permissible under
applicable law. If, from any circumstance whatsoever, performance or fulfillment
of any provision hereof or of any agreement between Mortgagor and Mortgagee
shall, at the time performance or fulfillment of such provision shall be due,
exceed the limit for Interest prescribed by law or otherwise transcend the limit
of validity prescribed by applicable law, then ipso facto the obligation to be
performed or fulfilled shall be reduced to such limit and if, from any
circumstance whatsoever, Mortgagee shall ever receive anything of value deemed
Interest by applicable law in excess of the maximum lawful amount, an amount
equal to any excessive Interest shall be applied to the reduction of the
principal balance owing under the Note in the inverse order of its maturity
(whether or not then due) or at the option of Mortgagee be paid
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over to Mortgagor, and not to the payment of Interest. All Interest (including
any amounts or payments deemed to be Interest) paid or agreed to be paid to
Mortgagee shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full period until payment in full
of the principal balance of the Note so that the Interest thereon for such full
period will not exceed the maximum amount permitted by applicable law. This
paragraph will control all agreements between Mortgagor and Mortgagee. 4.31
Interest Payable by Mortgagee. Mortgagee shall cause funds in the Replacement
Reserve to be deposited into an interest bearing account of the type customarily
maintained by Mortgagee or its servicing agent for the investment of similar
reserves, which account may not yield the highest interest rate then available.
Interest payable on such amounts shall be computed based on the daily
outstanding balance in the Replacement Reserve. Such interest shall be
calculated on a simple, non-compounded interest basis based solely on
contributions made to the Replacement Reserve by Mortgagor. All interest earned
on amounts contributed to the Replacement Reserve shall be retained by Mortgagee
and added to the balance in the Replacement Reserve and shall be disbursed for
payment of the items for which other funds in the Replacement Reserve are to be
disbursed.
4.32 Further Stipulations. The additional covenants, agreements and
provisions set forth herein and made a part hereof, if any, shall be a part of
this Mortgage and shall, in the event of any conflict between such further
stipulations and any of the other provisions of this Mortgage, be deemed to
control.
4.33 Intentionally deleted.
4.35 Intentionally deleted.
4.36 Dissemination of Information. If Mortgagee determines at any time
to sell, transfer or assign the Note, this Mortgage and the other Loan
Documents, and any or all servicing rights with respect thereto, or to grant
participations therein (the "Participations") or issue mortgage pass-through
certificates or other securities evidencing a beneficial interest in a rated or
unrated public offering or private placement (the "Securities"), Mortgagee may
forward to each purchaser, transferee, assignee, servicer, participant,
investor, and/or their respective successors in such Participations and/or
Securities (collectively, the "Investor") and/or any Rating Agency rating such
Securities, each prospective Investor and each of the foregoing's respective
counsel, all documents and information that Mortgagee now has or may hereafter
acquire relating to the Debt and to Mortgagor, any Guarantor, any Indemnitor and
the Property, which shall have been furnished by Mortgagor, any Guarantor,
and/or any Indemnitor, as Mortgagee determines necessary or desirable.
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Mortgagor has executed this Mortgage as of the day
and year first above written.
MORTGAGOR:
HALLWOOD HOTELS-OKC, INC.,
a Delaware corporation
By:
-----------------------------------
Melvin J. Melle
Vice President
Consented and Agreed to
as to the provisions of
Section 1.34
HALLWOOD HOTELS-OKC MEZZ, INC.,
a Delaware corporation
By:
------------------------------
Name:
Title:
<PAGE> 71
STATE OF )
)SS
COUNTY OF )
This instrument was acknowledged before me this __ day of September,
1998 by ________________ as ________________ of HALLWOOD HOTELS-OKC, INC., a
Delaware corporation
----------------------
Notary Public
My commission expires:
(SEAL)
----------------------
<PAGE> 72
EXHIBIT A
Property description
<PAGE> 73
EXHIBIT B
MORTGAGOR'S CERTIFICATE
The undersigned is the _____________ of ________, the general partner
of _________________ (the "Mortgagor") and has made due investigation as to the
matters hereinafter set forth and does hereby certify the following to induce
WMF CAPITAL CORP., (the "Mortgagee") to advance the aggregate sum of
$__________________ (the "Disbursement") [from the Replacement Reserve or Repair
and Remediation Reserve or Environmental Reserve] to the Mortgagor pursuant to
the terms of that certain Mortgage and Security Agreement, dated as of _____ __,
199_, between the Mortgagee and the Mortgagor (together with any amendments,
modifications, supplements and replacements thereof or therefor, the
"Mortgage"), dated ____________, pursuant to that certain Disbursement request
which is being submitted to the Mortgagee. (Capitalized terms used and not
otherwise define shall have the respective meanings given to them in the
Mortgage.)
1. No default beyond any applicable notice and/or grace period exists
under the Mortgage or under any of the other Loan Documents.
2. The [Repairs, Deferred Maintenance or Environmental Work] relative
to the Disbursement have been delivered or provided to Mortgagor and are
properly, completely and permanently installed on or about the Property or
otherwise properly completed, as applicable.
3. All of the statements, invoices, receipts and information delivered
in connection with the Disbursement request being submitted to the Mortgagee in
connection herewith are true and correct as of the date hereof, and the amount
requested in said Disbursement request accurately reflects the precise amounts
due and payable during the period covered by such Disbursement request. All of
the funds to be received pursuant to such Disbursement request shall be used
solely for the purpose of reimbursing the Mortgagor for items previously paid.
4. Nothing has occurred subsequent to the date of the Mortgage which
has or may result in the creation of any lien, charge or encumbrance upon the
Real Estate or the Improvements or any part thereof, or anything affixed thereto
or used in connection therewith, or which has or may substantially and adversely
impair the ability of the Mortgagor to make any payments of principal and
interest on the Note or the ability of the Mortgagor to meet its obligations
under the Mortgage.
5. None of the labor, materials, overhead or other items of expense
specified in the Disbursement request submitted herewith has previously been the
basis of any Disbursement request by the Mortgagor or any payment by the
Mortgagee and, when added to all sums previously disbursed by Mortgagee on
account of the [Deferred Maintenance, Repairs or Environmental Work], do not
exceed the costs of all [Deferred Maintenance, Repairs or Environmental Work]
services completed, installed and/or delivered, as applicable, to the date of
that certificate.
6. The amount remaining in the [Account] allocated to the payment of
items on the [Deferred Maintenance, Repairs or Environmental Work] will be
sufficient to pay in full the entire remaining cost of [Deferred Maintenance,
Repairs or Environmental Work] required to be completed in accordance with the
Mortgage.
<PAGE> 74
7. All work required permits and approvals required to complete the
work which work is now in process or was previously completed have been
obtained.
8. All conditions to the Disbursement to be made in accordance with the
Disbursement request submitted herewith have been met in accordance with the
terms of the Mortgage.
By:
--------------------------
2
<PAGE> 75
EXHIBIT C
<TABLE>
<S> <C>
Repair/replace elevator $23,000.00
----------
x 1.25
----------
Total $28,750.00
</TABLE>
<PAGE> 1
EXHIBIT 10.32
PROMISSORY NOTE
$1,300,000.00
September 11, 1998
Loan No.: 9807
FOR VALUE RECEIVED, HALLWOOD HOTELS-OKC MEZZ, INC., as maker,
having its principal place of business at 3710 Rawlins, Suite 1500, Dallas,
Texas 75219 ("Borrower"), hereby unconditionally promises to pay to the order
of COMMERCIAL MORTGAGE INVESTMENT TRUST, INC., a Virginia corporation, as
payee, having an address at 11601 Wilshire Boulevard, Suite 2440, Los Angeles,
California 90025 ("Lender"), or at such other place as the holder hereof may
from time to time designate in writing, the principal sum of One Million Three
Hundred Thousand and No/100 Dollars ($1,300,000.00) in lawful money of the
United States of America with interest thereon to be computed from the date of
this Note at the Applicable Interest Rate (defined below), adjusted with
respect to each Interest Period (defined below), and to be paid as follows:
ARTICLE 1. PAYMENT TERMS
(a) On the date hereof, a payment of interest only in the
amount of $9,497.22 with respect to the period commencing on the date of this
Note and ending on and including the last day of the calendar month in which
this Note is executed;
(b) On the first day of November, 1998 and on the first day of
each calendar month thereafter up to and including the first day of September,
2005, a payment of interest in arrears accruing on the then unpaid principal
balance of this Note at the Applicable Interest Rate plus a principal payment in
accordance with Schedule A attached hereto; each of the payments to be applied
as follows:
(i) first, to the payment of interest computed at the
Applicable Interest Rate; and
(ii) the balance toward the reduction of the principal
sum;
and the balance of the principal sum and all interest thereon shall be due and
payable on the first day of October, 2005 (the "Maturity Date"). Interest on the
principal sum of this Note shall be calculated on the basis of a three hundred
sixty (360) day year and the actual number of days elapsed for any period for
which interest is being calculated. Interest shall commence to accrue under this
Note upon the disbursement by Lender of proceeds of this Note into the escrow
for the closing of the loan evidenced by this Note (the "Loan"). Interest for
any partial calendar month in which the Closing Date occurs shall be deducted
from the funds disbursed by Lender on the Closing Date.
ARTICLE 2. INTEREST
(a) The term "Applicable Interest Rate" as used in this Note
shall mean from the date hereof through and including the Maturity Date, an
interest rate (the "Rate") equal to LIBOR (defined below) plus seven and fifty
percent (7.50%) per annum.
<PAGE> 2
The term "LIBOR" means the rate per annum which is equal to the London Interbank
Offered Rate reported from time to time by Telerate News Service which is
reported as of such date on page 3750, at which foreign branches of major United
States banks offer United States dollar deposits to other banks for a one-month
period in the London interbank market at approximately 11:00 a.m., London time,
on the second (2nd) full Eurodollar Business Day (defined below) next preceding
the first Business Day (defined below) of each Interest Period (defined below).
If such interest rate shall cease to be available from Telerate News Services,
LIBOR shall be determined from such financial reporting service as Lender shall
reasonably determine and use with respect to its other loan facilities on which
interest is determined on LIBOR. If two or more such rates appear on Telerate
page 3750 or other applicable pages, the rate in respect of such Interest Period
will be the arithmetic mean of such offered rates, absent manifest error. The
term "Eurodollar Business Day" means any day other than a Saturday, Sunday or
other day on which banks in New York, New York are authorized or required to
close but excluding therefrom any day on which commercial banks are not open for
dealings in U.S. dollar deposits in the London interbank market. The term
"Interest Period" means the period from and including the first day of a
calendar month during the term of this Note through and including the last day
of such calendar month; provided, however, the first Interest Period shall
commence on the date hereof and end on the last day of the current month, and
the last Interest Period shall end on the Maturity Date.
(b) For each Interest Period, Lender shall calculate the
interest payable for such Interest Period at the applicable Interest Rate on the
unpaid principal balance as of the first Business Day of the Interest Period,
and no adjustments to such payment amount shall be made on account of principal
payments made during the Interest Period after the first Business Day thereof.
Lender's determination of LIBOR as in effect from time to time, and Lender's
calculations of interest payable for an Interest Period, shall be conclusive and
binding absent manifest error.
(c) Borrower agrees to reimburse Lender on the date hereof for
the cost of an eighty-four (84) month interest rate cap for the LIBOR benchmark
of 7.50%.
ARTICLE 3. EXCULPATION
Notwithstanding anything in the Loan Documents to the contrary, but subject to
the qualifications hereinbelow set forth, Lender agrees that:
Borrower shall be liable upon the indebtedness evidenced hereby and for the
other obligations arising under the Loan Documents to the full extent (but only
to the extent) of the security therefor, the same being all the Property (as
defined below) securing the payment of this Note and/or the other obligations of
Borrower under the Loan Documents.
Judicial or other proceedings brought by Lender against Borrower upon an Event
of Default shall be limited to the preservation, enforcement and foreclosure, or
any thereof, of the liens, security titles, estates, assignments, rights and
security interests now or at any time hereafter securing the payment of this
Note and/or the other obligations of Borrower under the Loan Documents, and,
except with respect to the liability described below in this Article; no
attachment, execution or other writ of process shall be sought, issued or levied
upon any assets, properties or funds of Borrower other than the Property.
In the event of a foreclosure of such liens, security titles, estates,
assignments, rights or security interests securing the payment of this Note
and/or the other obligations of Borrower
-2-
<PAGE> 3
under the Loan Documents, no judgment for any deficiency upon the indebtedness
evidenced hereby shall be sought or obtained by Lender against Borrower, except
with respect to the liability described below in this Article; PROVIDED,
HOWEVER, THAT, NOTWITHSTANDING THE FOREGOING PROVISIONS OF THIS SECTION, MAKER
SHALL BE FULLY AND PERSONALLY LIABLE AND SUBJECT TO LEGAL ACTION:
(a) any fraud or any material misrepresentation by Borrower in
connection with the Loan or the Property, or any misappropriation by Borrower of
any funds deriving from the Property;
(b) the filing by Borrower or the Company, or the filing
against Borrower or the Company by Guarantor, of any proceeding for relief under
any federal or state bankruptcy, insolvency or receivership laws or any
assignment for the benefit of creditors made by Borrower or the Company;
(c) any breach by the Company of the bankruptcy-remote
covenants set forth in Section 4.20 of the Loan Agreement;
(d) any default under the Senior Loan Documents which is
personal to the Company and not curable by Lender following a foreclosure of the
collateral for the Loan;
(e) any default by Borrower under Section 5.13 of the Loan
Agreement;
(f) any modification, amendment or other change in the
Company's organizational documents or Borrower's organizational documents
without the prior written consent of Lender except for such change as permitted
under the Loan Agreement and the Senior Loan Documents;
(g) any modification, amendment or other change in the notice
provisions under the Senior Loan Documents to eliminate Lender as a party to
receive notices under the Senior Loan Documents or to change Lender's address
thereunder without the prior written consent of Lender; or
(h) any termination, replacement or other change in the
Property's property manager without the prior written consent of Lender, except
when required by the Senior Loan.
References herein to particular sections of the Loan Documents shall be deemed
references to such sections as affected by other provisions of the Loan
Documents relating thereto. Nothing contained in this Article shall (x) be
deemed to be a release or impairment of the indebtedness evidenced by this Note
or the other obligations of Borrower under the Loan Documents or the lien of the
Loan Documents upon the Property, or (y) preclude Lender from foreclosing the
Loan Documents in case of any default or from enforcing any of the other rights
of Lender except as stated in this Article, or (z) release, relieve, reduce,
waive, limit or impair in any way whatsoever any obligation of any party to the
Indemnity and Guaranty Agreement and Hazardous Substances Indemnity Agreement
each of even date executed and delivered in connection with the indebtedness
evidenced by this Note.
-3-
<PAGE> 4
NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS NOTE, THE SECURITY INSTRUMENT
OR ANY OF THE OTHER LOAN DOCUMENTS, LENDER SHALL NOT BE DEEMED TO HAVE WAIVED
ANY RIGHT WHICH LENDER MAY HAVE UNDER SECTION 506(a), 506(b), 1111(b) OR ANY
OTHER PROVISIONS OF THE U.S. BANKRUPTCY CODE TO FILE A CLAIM FOR THE FULL AMOUNT
OF THE INDEBTEDNESS EVIDENCED HEREBY OR SECURED BY THE SECURITY INSTRUMENT OR
ANY OF THE OTHER LOAN DOCUMENTS OR TO REQUIRE THAT ALL COLLATERAL SHALL CONTINUE
TO SECURE ALL OF THE INDEBTEDNESS OWING TO LENDER IN ACCORDANCE WITH THIS NOTE,
THE SECURITY INSTRUMENT AND THE OTHER LOAN DOCUMENTS.
ARTICLE 4. DEFAULT AND ACCELERATION
(a) The whole of the principal sum of this Note, (b) interest,
default interest, late charges and other sums, as provided in this Note, the
Security Instrument or the Other Security Documents (defined below), (c) all
other monies agreed or provided to be paid by Borrower in this Note, the
Security Instrument or the Other Security Documents, (d) all sums advanced
pursuant to the Security Instrument to protect and preserve the Property and the
lien and the security interest created thereby, and (e) all sums advanced and
costs and expenses incurred by Lender in connection with the Debt (defined
below) or any part thereof, any renewal, extension, or change of or substitution
for the Debt or any part thereof, or the acquisition or perfection of the
security therefor, whether made or incurred at the request of Borrower or Lender
(all the sums referred to in (a) through (e) above shall collectively be
referred to as the "Debt") shall without notice become immediately due and
payable at the option of Lender if any payment required in this Note is not paid
on or prior to the date when due or on the happening of any other default, after
the expiration of any applicable notice and grace periods, herein or under the
terms of the Security Instrument or any of the Other Security Documents
(collectively, an "Event of Default").
ARTICLE 5. DEFAULT INTEREST
Borrower does hereby agree that upon the occurrence of an
Event of Default, Lender shall be entitled to receive and Borrower shall pay
interest on the entire unpaid principal sum at a rate equal to the lesser of (a)
four percent (4%) plus the Applicable Interest Rate and (b) the maximum interest
rate which Borrower may by law pay (the "Default Rate"). The Default Rate shall
be computed from the occurrence of the Event of Default until the earlier of the
date upon which the Event of Default is cured or the date upon which the Debt is
paid in full. Interest calculated at the Default Rate shall be added to the
Debt, and shall be deemed secured by the Security Instrument. This clause,
however, shall not be construed as an agreement or privilege to extend the date
of the payment of the Debt, nor as a waiver of any other right or remedy
accruing to Lender by reason of the occurrence of any Event of Default.
ARTICLE 6. PREPAYMENT
(a) The principal balance of this Note may be prepaid in whole
or in part, upon not less than thirty (30) days and not more than forty (40)
days prior written notice to Lender specifying the date on which prepayment is
to be made (the "Prepayment Date"), which Prepayment Date must be on or before
the nineteenth (19th) day of a calendar month, and upon payment of:
(i) all accrued interest to and including the Prepayment
Date;
-4-
<PAGE> 5
(ii) all interest which would have accrued on the
principal balance of this Note so prepaid after the
Prepayment Date to and including the twentieth
(20th) day of the calendar month in which the
Prepayment Date occurs (the "Interest Shortfall
Payment");
(iii) in the case of a partial prepayment, the principal
amount so prepaid may only be $500,000.00 or a
multiple thereof; and
(iv) in the case of a prepayment of the entire principal
balance of this Note, all other sums due under this
Note, the Security Instrument and all Other Security
Documents.
(b) If any notice of prepayment is given under this Article 5,
the principal balance of this Note and the other sums required under this
prepayment section shall be due and payable on the Prepayment Date. Lender shall
not be obligated to accept any prepayment of the principal balance of this Note
unless it is accompanied by all sums due in connection therewith.
(c) If a Default Prepayment (defined below) occurs, Borrower
shall pay to Lender the entire Debt, including, without limitation, the Interest
Shortfall Payment, if applicable. For purposes of this Note, the term "Default
Prepayment" shall mean a prepayment of the principal amount of this Note made
after the occurrence of any Event of Default or an acceleration of the Maturity
Date under any circumstances, including, without limitation, a prepayment
occurring in connection with reinstatement of the Security Instrument provided
by statute under foreclosure proceedings or exercise of a power of sale, any
statutory right of redemption exercised by Borrower or any other party having a
statutory right to redeem or prevent foreclosure, any sale in foreclosure or
under exercise of a power of sale or otherwise.
ARTICLE 7. SECURITY
This Note is secured by the Security Instrument and the Other Security
Documents. The term "Security Instrument" as used in this Note shall mean the
Assignment of Interests and Security Agreement dated the date hereof given by
Borrower to (or for the benefit of) Lender covering all of Borrower's ownership
of Hallwood Hotels-OKC, Inc., a Delaware corporation (the "Property"). The term
"Other Security Documents" as used in this Note shall mean all and any of the
documents other than this Note or the Security Instrument now or hereafter
executed by Borrower and/or others and by or in favor of Lender, which wholly or
partially secure or guarantee payment of this Note. Whenever used, the singular
number shall include the plural, the plural number shall include the singular,
and the words "Lender" and "Borrower" shall include their respective successors,
assigns, heirs, executors and administrators.
All of the terms, covenants and conditions contained in the
Security Instrument and the Other Security Documents are hereby made part of
this Note to the same extent and with the same force as if they were fully set
forth herein.
ARTICLE 8. SAVINGS CLAUSE
This Note is subject to the express condition that at no time
shall Borrower be obligated or required to pay interest on the principal balance
due hereunder at a rate which could subject Lender to either civil or criminal
liability as a result of being in excess of the maximum interest rate which
Borrower is permitted by applicable law to contract or agree to
-5-
<PAGE> 6
pay. If by the terms of this Note, Borrower is at any time required or obligated
to pay interest on the principal balance due hereunder at a rate in excess of
such maximum rate, the Applicable Interest Rate or the Default Rate, as the case
may be, shall be deemed to be immediately reduced to such maximum rate and all
previous payments in excess of the maximum rate shall be deemed to have been
payments in reduction of principal and not on account of the interest due
hereunder. All sums paid or agreed to be paid to Lender for the use,
forbearance, or detention of the Debt, shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full stated term of the Note until payment in full so that the rate or amount of
interest on account of the Debt does not exceed the maximum lawful rate of
interest from time to time in effect and applicable to the Debt for so long as
the Debt is outstanding.
ARTICLE 9. LATE CHARGE
If any sum payable under this Note is not paid on or prior to
the seventh (7th) calendar day after the date on which it is due, Borrower shall
pay to Lender upon demand an amount equal to the lesser of five percent (5%) of
the unpaid sum or the maximum amount permitted by applicable law to defray the
expenses incurred by Lender in handling and processing the delinquent payment
and to compensate Lender for the loss of the use of the delinquent payment and
the amount shall be secured by the Security Instrument and the Other Security
Documents.
ARTICLE 10. NO ORAL CHANGE
This Note may not be modified, amended, waived, extended,
changed, discharged or terminated orally or by any act or failure to act on the
part of Borrower or Lender, but only by an agreement in writing signed by the
party against whom enforcement of any modification, amendment, waiver,
extension, change, discharge or termination is sought.
ARTICLE 11. JOINT AND SEVERAL LIABILITY
If Borrower consists of more than one person or party, the
obligations and liabilities of each person or party shall be joint and several.
ARTICLE 12. WAIVERS
Borrower and all others who may become liable for the payment
of all or any part of the Debt do hereby severally waive presentment and demand
for payment, notice of dishonor, protest and notice of protest and non-payment
and all other notices of any kind. No release of any security for the Debt or
extension of time for payment of this Note or any installment hereof, and no
alteration, amendment or waiver of any provision of this Note, the Security
Instrument or the Other Security Documents made by agreement between Lender or
any other person or party shall release, modify, amend, waive, extend, change,
discharge, terminate or affect the liability of Borrower, and any other person
or entity who may become liable for the payment of all or any part of the Debt,
under this Note, the Security Instrument or the Other Security Documents. No
notice to or demand on Borrower shall be deemed to be a waiver of the obligation
of Borrower or of the right of Lender to take further action without further
notice or demand as provided for in this Note, the Security Instrument or the
Other Security Documents. If Borrower is a partnership, the agreements contained
herein shall remain in full force and effect, notwithstanding any changes in the
individuals or entities comprising the partnership, and the term "Borrower," as
used herein, shall include any alternate
-6-
<PAGE> 7
or successor partnership, but any predecessor partnership and its partners shall
not thereby be released from any liability. If Borrower is a corporation, the
agreements contained herein shall remain in full force and effect
notwithstanding any changes in the shareholders comprising, or the officers and
directors relating to, the corporation, and the term "Borrower" as used herein,
shall include any alternate or successor corporation, but any predecessor
corporation shall not be relieved of liability hereunder. If Borrower is a
limited liability company, the agreements herein contained shall remain in full
force and effect, notwithstanding any changes in the individuals or entities
comprising the limited liability company and the term "Borrower," as used
herein, shall include any alternate or successor limited liability company, but
any predecessor limited liability company and its members shall not be released
from any liability. (Nothing in the foregoing sentence shall be construed as a
consent to, or a waiver of, any prohibition or restriction on transfers of
interests in such partnership, corporation or limited liability company which
may be set forth in the Security Instrument or any Other Security Document.)
ARTICLE 13. TRANSFER
Upon the transfer of this Note, Borrower hereby waiving notice
of any such transfer, Lender may deliver all the collateral mortgaged, granted,
pledged or assigned pursuant to the Security Instrument and the Other Security
Documents, or any part thereof, to the transferee who shall thereupon become
vested with all the rights herein or under applicable law given to Lender with
respect thereto, and Lender shall thereafter forever be relieved and fully
discharged from any liability or responsibility in the matter; but Lender shall
retain all rights hereby given to it with respect to any liabilities and the
collateral not so transferred.
ARTICLE 14. WAIVER OF TRIAL BY JURY
BORROWER HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM,
WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE
LOAN EVIDENCED BY THIS NOTE, THE APPLICATION FOR THE LOAN EVIDENCED BY THIS
NOTE, THIS NOTE, THE SECURITY INSTRUMENT OR THE OTHER SECURITY DOCUMENTS OR ANY
ACTS OR OMISSIONS OF LENDER, ITS OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN
CONNECTION THEREWITH.
ARTICLE 15. AUTHORITY
Borrower (and the undersigned representative of Borrower, if
any) represents that Borrower has full power, authority and legal right to
execute and deliver this Note, the Security Instrument and the Other Security
Documents and that this Note, the Security Instrument and the Other Security
Documents constitute valid and binding obligations of Borrower.
ARTICLE 16. APPLICABLE LAW
This Note shall be deemed to be a contract entered into
pursuant to the laws of the Commonwealth of Virginia and shall in all respects
be governed, construed, applied and enforced in accordance with the internal
laws of the Commonwealth of Virginia without reference to conflicts of laws
principles.
-7-
<PAGE> 8
ARTICLE 17. SERVICE OF PROCESS
(a) (i) Borrower will maintain a place of business or an agent
for service of process in the Commonwealth of Virginia and give prompt notice to
Lender of the address of such place of business and of the name and address of
any new agent appointed by it, as appropriate. Borrower further agrees that the
failure of its agent for service of process to give it notice of any service of
process will not impair or affect the validity of such service or of any
judgment based thereon. If, despite the foregoing, there is for any reason no
agent for service of process of Borrower available to be served, and if it at
that time has no place of business in the Commonwealth of Virginia, then
Borrower irrevocably consents to service of process by registered or certified
mail, postage prepaid, to it at its address given in or pursuant to the first
paragraph hereof.
(ii) Borrower initially and irrevocably designates CT
Corporation System, with offices on the date hereof
at 5511 Staple Mill Road, Richmond, VA 23228, to
receive for and on behalf of Borrower service of
process in the Commonwealth of Virginia with respect
to this Note.
(b) With respect to any claim or action arising hereunder or
under the Security Instrument or the Other Security Documents, Borrower (a)
irrevocably submits to the nonexclusive jurisdiction of the courts of the
Commonwealth of Virginia and the United States District Court located in the
Commonwealth of Virginia, and appellate courts from any thereof, and (b)
irrevocably waives any objection which it may have at any time to the laying on
venue of any suit, action or proceeding arising out of or relating to this Note
brought in any such court, irrevocably waives any claim that any such suit,
action or proceeding brought in any such court has been brought in an
inconvenient forum.
(c) Nothing in this Note will be deemed to preclude Lender
from bringing an action or proceeding with respect hereto in any other
jurisdiction.
ARTICLE 18. COUNSEL FEES
In the event that it should become necessary to employ counsel
to collect the Debt or to protect or foreclose the security therefor, Borrower
also agrees to pay all reasonable fees and expenses of Lender, including,
without limitation, reasonable attorney's fees for the services of such counsel
whether or not suit be brought.
ARTICLE 19. NOTICES
All notices or other written communications hereunder shall
be deemed to have been properly given (i) upon delivery, if delivered in person
or by facsimile transmission with receipt acknowledged by the recipient thereof
and confirmed by telephone by sender, (ii) one (1) Business Day (defined below)
after having been deposited for overnight delivery with any reputable overnight
courier service, or (iii) three (3) Business Days after having been deposited
in any post office or mail depository regularly maintained by the U.S. Postal
Service and sent by registered or certified mail, postage prepaid, return
receipt requested, addressed to the parties at the respective addresses set
forth at the head of this Note or addressed as such party may from time to time
designate by written notice to the other parties.
-8-
<PAGE> 9
Either party by notice to the other may designate additional
or different addresses for subsequent notices or communications.
"Business Day" shall mean a day upon which commercial banks
are not authorized or required by law to close in the Commonwealth of Virginia.
ARTICLE 20. MISCELLANEOUS
(a) Wherever pursuant to this Note (i) Lender exercises any
right given to it to approve or disapprove, (ii) any arrangement or term is to
be satisfactory to Lender, or (iii) any other decision or determination is to be
made by Lender, the decision of Lender to approve or disapprove, all decisions
that arrangements or terms are satisfactory or not satisfactory and all other
decisions and determinations made by Lender, shall be in the sole and absolute
discretion of Lender and shall be final and conclusive, except as may be
otherwise expressly and specifically provided herein.
(b) Wherever pursuant to this Note it is provided that
Borrower pay any costs and expenses, such costs and expenses shall include, but
not be limited to, legal fees and disbursements of Lender, whether with respect
to retained firms, the reimbursement for the expenses of in-house staff, or
otherwise.
ARTICLE 21. DEFINITIONS
The terms set forth below are defined in the following
Sections of this Note:
(a) Applicable Interest Rate: Article 2;
(b) Borrower: Preamble, Articles 6 and 11;
(c) Business Day: Article 18;
(d) Debt: Article 3;
(e) Default Prepayment: Article 5, Section (c);
(f) Default Rate: Article 4;
(g) Event of Default: Article 3;
(h) Interest Shortfall Payment: Article 5, Subsection (a)(ii);
(i) Lender: Preamble and Article 6;
(j) LIBOR: Article 2;
(k) Loan: Article 1, Section (b);
(l) Maturity Date: Article 1, Section (b);
(m) Other Security Documents: Article 6;
(n) Prepayment Date: Article 5, Section (a);
(o) Security Instrument: Article 6.
-9-
<PAGE> 10
IN WITNESS WHEREOF, Borrower has duly executed this Note as of
the day and year first above written.
Borrower
HALLWOOD HOTELS-OKC MEZZ, INC.,
a Delaware corporation
By:
-------------------------------
Melvin J. Melle
Vice President
<PAGE> 11
ACKNOWLEDGMENT
STATE OF )
) SS.
COUNTY OF )
On ______________, before me, ________________, a Notary Public,
personally appeared ________________, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person whose name is subscribed to
the within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity, and that by his/her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
------------------------------
Notary Public
<PAGE> 12
Loan No.: 9807
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is made as of this 11th day of
September, 1998 between HALLWOOD HOTELS-OKC MEZZ, INC. a Delaware corporation
("Borrower"), whose address is 3710 Rawlins, Suite 1500, Dallas, Texas 75219 and
Commercial Mortgage Investment Trust Inc., a Virginia corporation, whose address
is 11601 Wilshire Boulevard, Suite 2440, Los Angeles, California 90025
("Lender").
RECITALS
A. Lender has agreed to make a loan (the "LOAN") to Borrower subject to
the terms and conditions contained herein. The Loan is evidenced by that certain
Promissory Note of even date herewith in the original principal amount of One
Million Three Hundred Thousand and No/100 Dollars ($1,300,000.00) (the note and
all amendments thereto and substitutions therefor are hereinafter referred to as
the "Note"). The terms and provisions of the Note are hereby incorporated herein
by reference in this Agreement.
B. Borrower is or on the Closing Date (as hereafter defined) will be
the sole owner of Hallwood Hotels-OKC, Inc., Corporation (the "Company"). The
Company owns certain real property described on Exhibit A hereto, located at
1815 South Meridian, Oklahoma City, Oklahoma 73108 commonly known as The Embassy
Suites Hotel (the "Property").
C. The Property and all other improvements now or hereafter located on
the Property (the "Improvements") are collectively called the "Project".
D. Borrower's obligations under the Loan will be secured by, among
other things, a collateral assignment of its entire interest in the Company
(collectively, the "Assignment"). This Agreement, the Note, the Assignment, the
Environmental Indemnity (hereinafter defined) and any other documents evidencing
or securing the Loan or executed in connection therewith, and any modifications,
renewals and extensions thereof, are referred to herein collectively as the
"Loan Documents."
NOW, THEREFORE, in consideration of the foregoing and the mutual
conditions and agreements contained herein the parties agree as follows:
ARTICLE I.
THE LOAN
1.1. FUNDING. On the Closing Date, Lender shall disburse to Borrower
the net proceeds of the Loan after deducting therefrom all costs, expenses, fees
and charges of Lender payable by Borrower hereunder. "Closing Date" means the
date of disbursement of the Loan proceeds.
1.2. LOAN TERM. The Loan shall mature on October 1, 2005 (the "Maturity
Date").
1.3. INTEREST RATE. Borrower shall pay interest on the outstanding
principal balance of the Loan at the rates set forth in the Note.
<PAGE> 13
ARTICLE II.
SECURITY
2.1. COLLATERAL. The Loan and all other indebtedness and obligations
under the Loan Documents shall be secured by the following (collectively the
"Collateral"): (a) the Assignment, (b) the other Loan Documents, and (c) any
other collateral or security described in this Agreement or required by Lender
in connection with the Loan.
ARTICLE III.
CONDITIONS PRECEDENT
Lender's obligation to disburse the Loan is subject to satisfaction of
all of the following conditions.
3.1. SENIOR LOAN.
(a) The Company shall have obtained a loan (the "Senior Loan") in the
principal amount of $17,250,000.00 from WMF Capital Corp. or its designee
("Senior Lender"). The Senior Loan shall (i) bear interest at a rate of not more
than 7.50% per annum, (ii) have principal and interest payments which amortize
principal based on a 25 year schedule, (iii) have a term of not less than ten
(10) years, and (iv) be secured by, among other things, a Mortgage encumbering
the Project. Lender shall have received copies of all documents which evidence
and secure the Senior Loan (collectively the "Senior Loan Documents"). The
Senior Loan Documents shall not contain provisions cross-defaulting or
cross-collateralizing the Senior Loan with any other loans.
(b) Lender and Senior Lender shall have executed an agreement
("Recognition Agreement") agreeing and stating that: (i) the Senior Loan is not
in default; (ii) that the granting of the Assignment does not constitute a
default under the Senior Loan; (iii) Lender has the right (but not the
obligation) to cure monetary defaults within the cure periods available to the
Company under the Senior Loan Documents; (iv) a default of the Loan will not
result in a default of the Senior Loan; and (v) Lender, or its designee, will be
permitted to succeed to the Borrower's interests in the Company.
The Senior Loan Documents and the Recognition Agreement shall be
satisfactory to Lender in form and substance.
3.2. LOAN DOCUMENTS. Lender shall have received the following Loan
Documents, all in form and substance satisfactory to Lender:
(a) the Note;
(b) the Assignment of Interests and Security Agreement;
(c) such Uniform Commercial Code financing statements as Lender may
require;
(d) a hazardous materials indemnity agreement (the "Environmental
Indemnity");
(e) an agreement of Hallwood Hotels, Inc. (the "Guarantor") regarding
certain liability described therein;
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(f) an instruction letter to the financial institution holding the
Project operating accounts in the form of Exhibit B hereto;
(g) this Agreement; and
(h) the Recognition Agreement.
3.3. [INTENTIONALLY DELETED]
3.4. APPRAISAL. Lender shall have received a copy of an appraisal
report for the Property prepared for Senior Lender by an independent MAI
appraiser in accordance with the Financial Institutions Reform, Recovery and
Enforcement Act ("FIRREA") and the regulations promulgated pursuant to such act.
The FIRREA appraisal shall be acceptable to Lender.
3.5. TITLE. Lender shall have received a copy of Borrower's title
insurance policy, acceptable to Lender, subject only to exceptions to title
approved by Lender and containing endorsements required by Lender including
zoning, non-imputation, and extended coverage endorsements.
3.6. ENVIRONMENTAL REPORT. Lender shall have received a Phase I
Environmental audit of the Property. The audit shall (i) be addressed to Lender;
(ii) state that Lender may rely thereon; and (iii) be acceptable to Lender in
its sole discretion.
3.7. LEASES. Lender shall have received and approved the leases of the
Project ("Leases"). Borrower shall submit for Lender's approval the form lease
the Company proposes to use, if any.
3.8. ADDITIONAL ITEMS. Lender shall have received such other items as
Lender may reasonably require.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
As an inducement to Lender to disburse the Loan, Borrower hereby
represents and warrants as follows, which representations and warranties shall
be true as of the date hereof and shall remain true throughout the term of the
Loan:
4.1. BORROWER EXISTENCE. Borrower is the shareholder of Hallwood
Hotels-OKC, Inc., a duly formed, validly existing and in good standing
corporation under the laws of the State of Delaware with its principal place of
business at 3710 Rawlins, Suite 1500, Dallas, Texas 75219. Borrower is in good
standing under the laws of the State of Oklahoma and is authorized to transact
business in the State of Oklahoma. The Loan Documents have each been duly
authorized, executed and delivered and each constitutes the duly authorized,
valid and legally binding obligation of Borrower and the Guarantor, as the case
may be, enforceable against Borrower and the Guarantor, as the case may be, in
accordance with their respective terms.
4.2. COMPANY AND GUARANTOR.
4.2.1. COMPANY. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware with its
principal place of business at
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3710 Rawlins, Suite 1500, Dallas, Texas 7219. Borrower is the sole owner of all
interests in the Company.
4.2.2. OWNERSHIP OF BORROWER. Hallwood Hotels Inc., a Delaware
corporation owns all of the interests in Borrower and is the Guarantor herein.
4.3. AUTHORITY. Melvin D. Melle shall have the authority to make all
material business decisions (including a sale or refinance) for Borrower during
the term of the loan pursuant to the Incorporation Documents.
4.4. CORPORATE DOCUMENTS. A true and complete copy of the articles of
incorporation, by-laws and resolutions of Borrower and all other documents
creating and governing Borrower (collectively, the "Incorporation Documents")
have been furnished to Lender. There are no other agreements, oral or written,
among any of the shareholders of Borrower relating to Borrower. The
Incorporation Documents were duly executed and delivered, are in full force and
effect, and binding upon and enforceable in accordance with their terms. The
Incorporation Documents constitute the entire understanding among the
shareholders of Borrower. No breach exists under the Incorporation Documents and
no act has occurred and no condition exists which, with the giving of notice or
the passage of time would constitute a breach under the Incorporation Documents.
4.5. OTHER AGREEMENTS. Borrower is not in default under any contract,
agreement or commitment to which it is a party. The execution, delivery and
compliance with the terms and provisions of this Agreement and the other Loan
Documents will not (i) to the best of Borrower's knowledge, violate any
provisions of law or any applicable regulation, order or other decree of any
court or governmental entity, or (ii) conflict or be inconsistent with, or
result in any default under, any contract, agreement or commitment to which
Borrower is bound. Borrower has delivered to Lender copies of any agreements
(including leases) between Borrower and any affiliate related in any way to the
Project and any other agreements materially affecting the use and operation of
the Project.
4.6. PROPERTY. Fee simple title to the Property is owned by the Company
free and clear of all liens, claims, encumbrances, covenants, conditions and
restrictions, security interests and claims of others, except for exceptions
which have been approved in writing by Lender. To the best of Borrower's
knowledge, the Project is in compliance with all zoning requirements, building
codes, subdivision improvement agreements, and all covenants, conditions and
restrictions of record. The zoning and subdivision approval of the Project and
the right and ability to, use or operate the Improvements are not in any way
dependent on or related to any real estate other than the Property. To the best
of Borrower's knowledge, there are no, nor are there any alleged or asserted,
violations of law, regulations, ordinances, codes, permits, licenses,
declarations, covenants, or restrictions of record, or other agreements relating
to the Project or the Improvements, or any part thereof.
4.7. PROPERTY ACCESS. The Property is accessible through fully improved
and dedicated roads accepted for maintenance and public use by the public
authority having jurisdiction.
4.8. UTILITIES. All utility services necessary and sufficient for the
use or operation of the Project are available including water, storm, sanitary
sewer, gas, electric and telephone facilities.
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<PAGE> 16
4.9. FLOOD HAZARDS/WETLANDS. The Property is not situated in an area
designated as having special flood hazards as defined by the Flood Disaster
Protection Act of 1973, as amended, or as a wetlands by any governmental entity
having jurisdiction over the Property.
4.10. TAXES/ASSESSMENTS. There are no unpaid or outstanding real estate
or other taxes or assessments on or against the Project or any part thereof,
except general real estate taxes for 1998 not yet due or payable. Copies of the
current general real estate tax bills with respect to the Project have been
delivered to Lender. Said bills cover the entire Project and do not cover or
apply to any other property. To the best of Borrower's knowledge, there is no
pending or contemplated action pursuant to which any special assessment may be
levied against any portion of the Project.
4.11. EMINENT DOMAIN. There is no eminent domain or condemnation
proceeding pending or, to the best of Borrower's knowledge, threatened, relating
to the Project.
4.12. LITIGATION. Except as set forth in Exhibit C, there is no
litigation, arbitration or other proceeding or governmental investigation
pending or, to the best of Borrower's knowledge, threatened against or relating
to the Company, Borrower, any stockholder in Borrower, any Guarantor or any of
their property, assets, or business, including the Project, which if decided
adversely would affect the business, affairs, assets or financial condition of
Borrower, Guarantor, the Project, or the prospects for repayment of the Loan.
4.13. SENIOR LOAN DOCUMENTS. Borrower and Guarantor have furnished
Lender with a true and complete copy of all documents relating to the Senior
Loan and the Project.
4.14. ACCURACY. Neither this Agreement nor any document, financial
statement, credit information, certificate or statement furnished to Lender by
Borrower or Guarantor contains any untrue statement of a material fact or omits
to state a material fact which would affect Lender's decision to make the Loan.
4.15. FOREIGN OWNERSHIP. Neither Borrower nor any Stockholder in
Borrower nor any Guarantor is or will be, and no legal or beneficial interest of
a stockholder in Borrower is or will be held, directly or indirectly, by a
"foreign corporation", "foreign partnership", "foreign trust", "foreign estate",
"foreign person", "affiliate" of a "foreign person" or a "United States
intermediary" of a "foreign person" within the meaning of IRC Sections 897 and
1445, the Foreign Investments in Real Property Tax Act of 1980, the
International Foreign Investment Survey Act of 1976, the Agricultural Foreign
Investment Disclosure Act of 1978, or the regulations promulgated pursuant to
such Acts or any amendments to such Acts.
4.16. SOLVENCY. Neither Borrower, nor the Company, nor any stockholder
in Borrower, nor Guarantor is insolvent and there has been no: (i) assignment
made for the benefit of the creditors of any of them; (ii) appointment of a
receiver for any of them or for the property of any of them; or (iii)
bankruptcy, reorganization, or liquidation proceeding instituted by or against
any of them.
4.17. FINANCIAL CONDITION/NO CHANGE. Borrower has heretofore delivered
to Lender copies of the most current financial statements of Borrower,
Guarantor, and the Company. Said financial statements were prepared on a basis
consistent with that of preceding years, and all of such financial statements
present fairly the financial condition of the subject thereof as of the dates in
question and the results of operations for the periods indicated. Since the
dates of such statements, there has been no material adverse change in the
business or financial
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condition of the subject thereof. The subject of such financial statements does
not have any material contingent liabilities not provided for or disclosed in
said financial statements. There has been no material adverse change since June
16, 1998 in the structure, business operations, credit, prospects or financial
condition of the subject of such financial statements or the Project.
4.18. BROKER. Borrower represents that L.J. Melody and Company is the
only agent, broker, finder or other representative involved with arranging the
Loan. Borrower has agreed to pay such party pursuant to a separate agreement. No
other brokerage commission or finder's fee is owing to any other broker or
finder arising out of any actions or activity of Borrower in connection with the
Loan. Borrower shall indemnify and hold harmless Lender from and against any
brokerage commission, finder's fee, or similar fee, commission or expense
arising out of any actions or activity of Borrower in connection with the Loan.
4.19. CASUALTY. There has been no damage or destruction of any part of
the Improvements by fire or other casualty that has not been repaired. There are
presently no existing defects in the Project and no repairs or alterations
thereof are reasonably necessary or appropriate except for routine maintenance.
4.20. SINGLE PURPOSE ENTITY. Borrower has not and shall not:
(a) engage in any business or activity other than the ownership,
operation and maintenance of its interest in the Company, and activities
incidental thereto;
(b) acquire or own any material assets other than its interest in the
Company;
(c) merge into or consolidate with any person or entity or dissolve,
terminate or liquidate in whole or in part, transfer or otherwise dispose of all
or substantially all of its assets or change its legal structure, without in
each case Lender's consent;
(d) fail to observe its organizational formalities or preserve its
existence as an entity duly organized, validly existing and in good standing (if
applicable) under the laws of the jurisdiction of its organization or formation,
and qualification to do business in the state where the Property is located, if
applicable, or without the prior written consent of Lender, amend, modify,
terminate or fail to comply with the provisions of its Incorporation Documents;
(e) own any subsidiary or make any investment in, any person or entity
without the consent of Lender;
(f) commingle its assets with the assets of any of its shareholders,
officers, directors, members, partners, affiliates, principals or of any other
person or entity, participate in a cash management system with any other entity
or person or fail to use its own separate stationery, invoices and checks;
(g) incur any debt, secured or unsecured, direct or contingent
(including guaranteeing any obligation), other than related to the Senior Loan,
except for trade payables in the ordinary course of its business of owning and
operating its interest in the Company and the Property, provided that such debt
is not evidenced by a note and is paid when due;
(h) become insolvent and fail to pay its debts and liabilities
(including, as applicable, shared personnel and overhead expenses) from its
assets as the same shall become due;
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(i) fail to maintain its records, books of account and bank accounts
separate and apart from those of the shareholders, officers, directors, members,
partners, principals and affiliates of Borrower, the affiliates of a
shareholder, officer, director, member, partner or principal of Borrower, and
any other person or entity;
(j) enter into any contract or agreement with any shareholder, officer,
director, member, partner, principal or affiliate of the Company, Borrower, or
Guarantor, or any member, partner, principal or affiliate thereof, 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 shareholder, officer, director, member, partner, principal or affiliate
of the Company, Borrower, or Guarantor, or any shareholder, officer, director,
member, partner, principal or affiliate thereof;
(k) seek the dissolution or winding up in whole, or in part, of
Borrower;
(l) fail to correct any known misunderstandings regarding the separate
identity of Borrower;
(m) guarantee or become obligated for the debts of any other entity or
person or hold itself out to be responsible for the debts of another person;
(n) make any loans or advances to any third party, including any
member, shareholder, officer, director, partner, principal or affiliate of
Borrower, or any shareholder, officer, director, member, partner, principal or
affiliate thereof, and shall not acquire obligations or securities of any
shareholder, officer, director, member, partner, principal or affiliate of
Borrower, or any shareholder, officer, director, member, partner, or affiliate
thereof;
(o) fail to file its own tax returns, however, if consolidated tax
returns are filed, the returns will reflect, by footnote or otherwise, that
Borrower, the Company and the Return filer are separate entities;
(p) fail either to hold itself out to the public as a legal entity
separate and distinct from any other entity or person or to conduct its business
solely in its own name in order not (i) to mislead others as to the identity
with which such other party is transacting business, or (ii) to suggest that
Borrower is responsible for the debts of any third party (including any
shareholder, officer, director, member, partner, principal or affiliate of
Borrower, or any shareholder, officer, director, member, partner, principal or
affiliate thereof);
(q) fail to 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;
(r) file or consent to the filing of any petition, either voluntary or
involuntary, to take advantage of any applicable insolvency, bankruptcy,
liquidation or reorganization statute, or make an assignment for the benefit of
creditors;
(s) share any common logo with or hold itself out as or be considered
as a department or division of (i) any shareholder, officer, director, partner,
principal, member or affiliate of Borrower, (ii) any affiliate of a shareholder,
officer, director, partner, principal or member of Borrower, or (iii) any other
person or entity;
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(t) fail to allocate fairly and reasonably any overhead expenses that
are shared with an affiliate, including paying for office space and services
performed by any employee of an affiliate;
(u) pledge its assets for the benefit of any other person or entity,
other than with respect to the Senior Loan; or
(v) fail to maintain a sufficient number of employees in light of its
contemplated business operations.
ARTICLE V.
AFFIRMATIVE COVENANTS
5.1. PAYMENT OF INDEBTEDNESS; PERFORMANCE OF OBLIGATIONS. Borrower
shall promptly pay when due all payment obligations of Borrower to Lender
(collectively, the "Indebtedness") and shall promptly perform all other
obligations of Borrower to Lender.
5.2. TAXES AND OTHER OBLIGATIONS. Except as provided in subsection (b)
below, Borrower shall cause the Company to pay, when due, and before any
interest, collection fees or penalties shall accrue, all taxes, assessments,
fines, impositions and other charges and obligations, which may become a lien on
or charge against the Project (collectively, "Charges"). The Company shall have
the right to contest, in good faith by appropriate proceedings, the amount or
validity of any such Charges, so long as: (a) Borrower has given prior written
notice to Lender of the Company'S intent to so contest or object to any such
Charges; (b) such contest stays the enforcement or collection of the Charges or
any lien created; and (c) the Charges or lien created are bonded or insured over
by the title insurance company or the Company has posted security therefor in
accordance with the provisions of the Senior Loan Documents and in a manner
acceptable to Lender. Upon the request of Lender, Borrower shall immediately
furnish to Lender all notices of amounts due and receipts evidencing payment.
Borrower shall promptly notify Lender of any lien on all or any part of the
Property and shall promptly discharge any unpermitted lien or encumbrance.
5.3. INSURANCE. Borrower shall cause the Company to keep the Project
insured, and to maintain general liability coverage and such other coverages
required by the Senior Loan Documents and as otherwise required by Lender, by
carrier(s), in amounts and in form at all times satisfactory to Lender, which
carrier(s), amounts and form shall not be changed without the prior written
consent of Lender. In case of loss or damage by fire or other casualty, Borrower
shall give immediate written notice thereof to the insurance carrier(s) and to
Lender.
5.4. CONDEMNATION. Borrower shall within three (3) business days of the
Company's receipt of notice thereof, notify Lender of any action or proceeding
relating to any condemnation or other taking of the Project, or part thereof,
and Borrower shall, after consultation with and subject to Lender's written
approval, cause the Company to appear in and prosecute any such action or
proceeding and/or settle or compromise any claim in connection therewith.
5.5. PRESERVATION AND MAINTENANCE OF THE PROJECT. Borrower shall: (a)
not permit the Company to commit waste or permit impairment or deterioration of
the Project; (b) not permit the Company to abandon the Project; (c) cause the
Company to keep the Project in good repair and restore or repair promptly, in a
good and workmanlike manner, all or any part of the Project to the equivalent of
its original condition; and (d) give notice in writing to Lender of and, unless
otherwise directed in writing by Lender, appear in and defend any action or
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proceeding purporting to affect the Project, the security granted by the Loan
Documents or the rights or powers of Lender. Borrower shall not permit the
Company to remove, demolish or alter any Improvement on the Property.
5.6. INSPECTION. Subject to the rights of tenants under Lender approved
Leases, Lender and its authorized agents may enter upon and inspect the Project
at all reasonable times upon notice given orally or in writing.
5.7. BOOKS AND RECORDS/AUDITS. Borrower shall keep and maintain at all
times at Borrower's address stated below, or such other place as Lender may
approve in writing, complete and accurate books of accounts and records adequate
to reflect the results of the operation of the Project and to provide the
financial statements required to be provided to Lender pursuant to Section 5.8
below and copies of all written contracts, correspondence, reports of Senior
Lender's independent consultant, and other documents affecting the Project.
Lender and its designated agents shall have the right to inspect and copy any of
the foregoing. Additionally, Lender may audit and determine, in Lender's sole
and absolute discretion, the accuracy of Borrower's records and computations.
The costs and expenses of the audit shall be paid by Borrower if the audit
discloses a monetary variance in any financial information or computation equal
to or greater than the greater of: (i) five percent (5%); or (ii) $5,000 more
than any computation submitted by Borrower.
5.8. FINANCIAL STATEMENTS; BALANCE SHEETS. Borrower shall furnish to
Lender and shall cause its stockholder, the Company, and Guarantor to furnish to
Lender such financial statements and other financial information as Lender may
from time to time request. All such financial statements shall show all material
contingent liabilities and shall accurately and fairly present the results of
operations and the financial condition of the subject thereof at the dates and
for the period indicated. Without limitation of the foregoing, Borrower shall
furnish to Lender and shall cause Guarantor to furnish to Lender the following
statements:
5.8.1. MONTHLY AND ANNUAL OPERATING STATEMENTS. Statements of the
operation of the Project (including a current rent roll, monthly operating
statements, monthly delinquency reports and a monthly schedule of delinquency of
receipts and payments) as of the last day of each month, to be delivered within
20 days after the end of each month and certified by Borrower as true, correct,
and complete, and yearly statements of the operation of the Project, to be
delivered within 90 days after the end of each fiscal year and certified by
Borrower as true, correct, and complete.
5.8.2. ANNUAL BALANCE SHEETS AND FINANCIAL STATEMENTS. Annual
balance sheets and financial statements from Borrower, its stockholder, the
Company, and Guarantor, within 90 days of the end of each fiscal year which are
true and correct in all respects, have been prepared in accordance with sound
accounting practices, and fairly present the financial condition(s) of the
person(s) referred to therein as of the date(s) indicated. At Lender's request,
such financial statements shall include, specific information concerning the
subject's other real estate holdings, including property income and expenses,
debt service requirements and occupancy).
5.8.3. AUDITS. If Borrower fails to furnish or cause to be
furnished promptly any report required by this Section 5.8, or if Lender
reasonably deems such reports to be unacceptable, Lender may elect (in addition
to exercising any other right and remedy) to conduct an audit of all books and
records of Borrower, stockholder and/or Guarantor which in any way pertain to
the Project and to prepare the statement or statements which Borrower
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failed to procure and deliver. Such audit shall be made and such statement or
statements shall be prepared by an independent firm of certified public
accountants to be selected by Lender. Borrower shall pay all reasonable expenses
of the audit and other services, which expenses shall be immediately due and
payable with interest thereon at the default rate contained in the Note.
5.9. USE OF PROCEEDS. Borrower shall use the proceeds of the Loan for
proper business purposes. No portion of the proceeds of the Loan shall be used
by Borrower in any manner that might cause the borrowing or the application of
such proceeds to violate Regulation G, Regulation U, Regulation T or Regulation
X or any other regulation of the Board of Governors of the Federal Reserve
System or to violate the Securities Act of 1933 or the Securities Exchange Act
of 1934.
5.10. NOTICE OF LITIGATION, DEFAULT OR EQUITY CONTRIBUTION. Borrower
shall promptly provide Lender with:
(a) written notice of any litigation, arbitration, or other proceeding
or governmental investigation pending or, to Borrower's or Guarantor's
knowledge, threatened against or relating to Borrower, the Company, stockholder,
Guarantor, the Collateral or the Project;
(b) a copy of all notices of default and violations of laws,
regulations, codes, ordinances and the like received by the Company, Borrower or
Guarantor relating to the Collateral or the Project;
(c) written notice of any default under the Senior Loan Documents
within five (5) days of Borrower's actual knowledge of such default and, if the
Company has received written notice of default from Senior Lender, a copy of
such notice;
(d) prior written notice of any capital or other equity contributions
to or distributions from Borrower.
5.11. AFFILIATE TRANSACTIONS. Prior to the Company or Borrower entering
into any agreement with an Affiliate, Borrower shall deliver to Lender a copy of
such agreement, which shall be satisfactory to Lender, in its sole discretion.
If requested by Lender, such agreement shall provide Lender the right to
terminate same upon Lender's (or its designee's) acquisition of the Borrower's
shares of the Company through foreclosure, an assignment-in-lieu of foreclosure,
UCC sale or otherwise.
"AFFILIATE" means with respect to any individual, trust, estate,
partnership, limited liability company, corporation or any other incorporated or
unincorporated organization (each a "PERSON"), a Person that directly or
indirectly, through one or more intermediaries, controls or is controlled by or
is under common control with Borrower, the Company or Guarantor; any officer,
director, partner, member or shareholder of such Borrower, the Company or
Guarantor; and any relative of any of the foregoing. The term "CONTROL" means
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
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5.12. [INTENTIONALLY DELETED]
5.13. LOCKBOX.
The deposit account for the Property shall be initially established for
the benefit of Borrower and Lender. If the net income from the Project for any
calendar quarter as reflected in the financial statements of the Company and the
Project ("Financial Statements") which the Company is obligated to provide
pursuant to the Senior Loan Documents is less than 1.1 times the combined debt
service payments due under the Loan and the Senior Loan, or in the event of a
default under the Loan Documents, Borrower shall cause the Company to cause the
financial institution holding the operating accounts for the Project to convert
such accounts into an account of the Company under the sole dominion and control
of Lender and any servicer or other designee of Lender (the "Lockbox Account").
Borrower shall cause the Company to grant to Senior Lender a lien on and
security interest in the Lockbox Account, and to Lender a subordinate lien on
and security interest in the Lockbox Account subject and subordinate only to a
prior security interest in favor of Senior Lender. Further, in such event,
Borrower shall cause the Company to (a) direct all tenants of the Project to pay
directly into the Lockbox Account all rents, additional rents, percentage rents
and all other sums due under their leases, (b) immediately deposit into the
Lockbox Account all rents and revenues it shall receive from the Project and (c)
instruct the property manager, if any, to immediately deposit into the Lockbox
Account all rents and other revenues it shall receive from the Project. Any sums
so deposited into the Lockbox Account shall be disbursed on a monthly basis
first to pay all amounts due under the Senior Loan (including the Impound
Account and Repair and Remediation Reserve); second to pay all costs and
expenses incurred by the Company in connection with the ownership, operation or
maintenance of the Project, to the extent set forth in a Project budget approved
by Lender; and third to the payment of principal and interest on the Loan in
accordance with the provisions of the Note; and the balance, if any, on deposit
in the Lockbox Account shall be paid to the Company. Thereafter, if net income
of the Project for two consecutive calendar quarters as reflected on the
Financial Statements is equal to or greater than 1.1 times the combined debt
service payments due under the Loan and the Senior Loan, Lender shall
discontinue the Lockbox Account. This cycle of instituting the Lockbox Account
and thereafter discontinuing it shall continue as appropriate when and if the
foregoing conditions for each event are satisfied during the term of the Loan.
Borrower shall cause the Company to send copies of the Financial Statements to
Lender at the same time they are sent to Senior Lender under the Senior Loan
Documents.
5.14. NOTICE PROVISIONS. Borrower shall cause all notice provisions
under the Senior Loan Documents to add Lender's name and address as part of the
Company's address for notices such that the Senior Loan Documents require the
concurrent delivery to Lender of a copy of any notice or demand delivered to the
Company thereunder.
ARTICLE VI.
NEGATIVE COVENANTS
6.1. NO AMENDMENTS. Borrower shall not and shall not permit the Company
to:
(a) materially amend or modify Lender's approved form of lease for the
Project without Lender's written consent;
(b) suffer or permit the amendment or modification of Borrower's
Incorporation Documents;
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(c) make or enter into any changes to the terms of the Senior Loan
Documents without Lender's prior consent; or
(d) modify, amend or change any notice provision of the Senior Loan
Documents to eliminate Lender as a party to receive notices under the Senior
Loan Documents or change the address of Lender thereunder without the prior
written consent of Lender.
6.2. LEASES. Borrower shall not permit the Company without Lender's
prior written consent to enter into any lease or other rental or occupancy
arrangement or concession agreement with respect to the Project unless on a form
previously approved by Lender.
6.3. TRANSFERS OF THE PROPERTY OR OWNERSHIP INTEREST IN BORROWER.
Neither Borrower nor Guarantor shall (a) create or permit the creation of any
new ownership interest in Borrower, any stockholder in Borrower or any
Guarantor, or (b) sell, transfer or assign (i) all or any part of the Project;
or (ii) any ownership interests in Borrower, any stockholder of Borrower or any
Guarantor (including any interest in the profits, losses or cash distributions
in any way relating to the Project or Borrower).
6.4. NO ADDITIONAL LIENS, ENCUMBRANCES OR INDEBTEDNESS. Borrower
covenants not to grant or permit or allow the Company to grant or permit the
filing of any lien or encumbrance on the Project or the Collateral, other than
those created by the Senior Loan Documents, without the prior written consent of
Lender; provided, however, the Company may, by appropriate proceeding, contest
the validity or amount of any asserted lien and, pending such contest, Borrower
shall not be deemed to be in default hereunder if (a) Borrower has given prior
written notice to Lender of the Company intent to so contest, (b) such contest
stays the enforcement of the contested lien, and (c) the contested lien is
bonded or insured over by the title insurance company or the Company has posted
security therefor in accordance with the provisions of the Senior Loan Documents
and in a manner acceptable to Lender.
6.5. NO ADDITIONAL INDEBTEDNESS. Except as expressly permitted under
this Agreement, Borrower shall not, without Lender's prior written consent,
incur additional indebtedness, except for trade payables in the ordinary course
of business.
6.6. PERSONAL PROPERTY. Neither Borrower nor the Company shall, without
the prior written consent of Lender, sell, assign, transfer, remove or permit to
be removed from the Project any personal property owned by Company or Borrower
now or at any time located at or used in connection with the construction,
operation, repair or replacement of the Project ("Personal Property"). So long
as no Event of Default exists, the Company may sell or otherwise dispose of the
Personal Property when obsolete, worn out, inadequate, unserviceable or
unnecessary for use in the operation of the Project, but only upon replacing the
same with other Personal Property at least equal in value and utility to the
disposed Personal Property.
6.7. USE OF PROPERTY; IMPROVEMENTS. Borrower shall not permit changes
in the plat of subdivision, zoning classification or use of any part of the
Project without Lender's written consent.
6.8. NO COMMINGLING FUNDS. Neither Borrower nor the Company shall
commingle the funds related to the Project with funds from any other property.
12
<PAGE> 24
6.9. PROPERTY MANAGER. Neither Borrower nor the Company shall change
the Project manager or amend or terminate the management contract for the
Project without Lender's prior written consent, which shall not be unreasonably
withheld.
6.10. SENIOR LOAN DOCUMENTS. Borrower shall fully and timely comply
with all of the terms and provisions of the Senior Loan Documents.
ARTICLE VII.
EVENTS OF DEFAULT; ACCELERATION OF INDEBTEDNESS
7.1. EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an "Event of Default" under this Agreement:
(a) Failure of Borrower to pay, on the due date, any of the
Indebtedness, including any payment due under the Note or this Agreement; or
(b) Failure of Borrower to strictly comply with Sections 5.4
(insurance), 5.7 (inspection), 6.3 (prohibition on transfers), 6.4 (no
additional liens), and 4.20 (single asset entity) of this Agreement; or
(c) Breach of any covenant, representation or warranty other than as
set forth in subsections (a) and (b) above which is not cured within thirty (30)
days after notice; provided, however, if such breach cannot by its nature be
cured within thirty (30) days, and Borrower diligently pursues the curing
thereof (and then in all events cures such failure within sixty (60) days after
the original notice thereof), Borrower shall not be in default hereunder; or
(d) A petition under any Chapter of Title 11 of the United States Code
or any similar law or regulation is filed by or against Borrower or any
Guarantor (and in the case of an involuntary petition in bankruptcy, such
petition is not discharged within sixty (60) days of its filing), or a
custodian, receiver or trustee for any of the Project is appointed, or Borrower
or any Guarantor makes an assignment for the benefit of creditors, or any of
them are adjudged insolvent by any state or federal court of competent
jurisdiction, or any of them admit their insolvency or inability to pay their
debts as they become due or an attachment or execution is levied against any of
the Project; or
(e) The occurrence of a default and the expiration of any cure period
applicable thereto under any other Loan Document; or
(f) Borrower or the Company shall default in the payment of any
indebtedness (other than the Indebtedness) and such default is declared and is
not cured within the time, if any, specified therefor in any agreement governing
the same; or
(g) Any statement, report or certificate made or delivered to Lender by
Borrower or the Company or any Guarantor is not materially true and complete as
of the date thereof; or
(h) The occurrence of a default under the Senior Loan Documents and the
expiration of any applicable cure period.
7.2. ACCELERATION; REMEDIES. Upon the occurrence of an Event of Default
at the option of Lender, the Indebtedness shall become immediately due and
payable without notice to Borrower and Lender shall be entitled to all of the
rights and remedies provided in the Loan Documents or at law or in equity. Each
remedy provided in the Loan
13
<PAGE> 25
Documents is distinct and cumulative to all other rights or remedies under the
Loan Documents or afforded by law or equity, and may be exercised concurrently,
independently, or successively, in any order whatsoever.
ARTICLE VIII.
MISCELLANEOUS
8.1. BORROWER AND LIEN NOT RELEASED. Without affecting the liability of
Borrower, any Guarantor or any other person liable for the payment of the
Indebtedness, and without affecting Lender's rights under this Agreement, Lender
may, from time to time and without notice to any lien holder or holder of any
other right or other interest in and to the Project: (a) release any person so
liable; (b) waive or modify any provision of this Agreement or the other Loan
Documents or grant other indulgences; (c) take additional security for any
obligation herein mentioned; or (d) subordinate its rights under any of the Loan
Documents.
8.2. EXPENDITURES AND EXPENSES. Borrower shall pay all reasonable
"Costs" incurred by Lender in connection with the documentation, modification,
workout, collection or enforcement of the Loan or any of the Loan Documents (as
applicable) and all such Costs shall be included as additional Indebtedness
bearing interest at the Default Rate set forth in the Note until paid. For the
purposes hereof "Costs" means all expenditures and expenses which may be paid or
incurred by or on behalf of Lender including repair costs, payments to remove or
protect against liens, attorneys' fees (including fees of Lender's inside
counsel), receivers' fees, appraisers' fees, engineers' fees, accountants' fees,
independent consultants' fees (including environmental consultants), all costs
and expenses incurred in connection with any of the foregoing, Lender's
out-of-pocket costs and expenses related to any audit or inspection of the
Property, outlays for documentary and expert evidence, stenographers' charges,
stamp taxes, publication costs, and costs (which may be estimates as to items to
be expended after entry of an order or judgment) for procuring all such
abstracts of title, title searches and examination, title insurance policies,
and similar data and assurances with respect to title as Lender may deem
reasonably necessary either to prosecute any action or to evidence to bidders at
any sale of the interests of Borrower in Company the true condition of the title
to, or the value of, the Project.
8.3. DISCLOSURE OF INFORMATION. Lender shall have the right (but shall
be under no obligation) to make available to any party for the purpose of
granting participations in or selling, transferring, assigning or conveying all
or any part of the Loan (including any governmental agency or authority and any
prospective bidder at any sale of the interest of Borrower in Company) any and
all information which Lender may have with respect to the Project and Borrower,
whether provided by Borrower, the Guarantor or any third party or obtained as a
result of any environmental assessments. Borrower, the Company and the Guarantor
agree that Lender shall have no liability whatsoever as a result of delivering
any such information to any third party, and Borrower, the Company and the
Guarantor, on behalf of themselves and their successors and assigns, hereby
release and discharge Lender from any and all liability, claims, damages, or
causes of action, arising out of, connected with or incidental to the delivery
of any such information to any third party.
8.4. SALE OF LOAN. Lender, at any time and without the consent of
Borrower or the Guarantor, may grant participations in or sell, transfer, assign
and convey all or any portion of
14
<PAGE> 26
its right, title and interest in and to the Loan, this Agreement and the other
Loan Documents, any guaranties given in connection with the Loan and any
collateral given to secure the Loan.
8.5. FORBEARANCE BY LENDER NOT A WAIVER. Any forbearance by Lender in
exercising any right or remedy under any of the Loan Documents, or otherwise
afforded by applicable law, shall not be a waiver of or preclude the exercise of
any right or remedy. Lender's acceptance of payment of any sum secured by any of
the Loan Documents after the due date of such payment shall not be a waiver of
Lender's right to either require prompt payment when due of all other sums so
secured or to declare a default for failure to make prompt payment. The
procurement of insurance or the payment of taxes or other liens or charges by
Lender shall not be a waiver of Lender's right to accelerate the maturity of the
Indebtedness, nor shall Lender's receipt of any awards, proceeds or damages
pursuant to Section 5.4 hereof operate to cure or waive Borrower's or
Guarantor's default in payment or sums secured by any of the Loan Documents.
With respect to all Loan Documents, only waivers made in writing by Lender shall
be effective against Lender.
8.6. WAIVER OF STATUTE OF LIMITATIONS. Borrower hereby waives the right
to assert any statute of limitations as a bar to the enforcement of the lien
created by any of the Loan Documents or to any action brought to enforce the
Note or any other obligation secured by any of the Loan Documents.
8.7. GOVERNING LAW; SEVERABILITY. The Loan Documents shall be governed
by and construed in accordance with the internal laws of the Commonwealth of
Virginia, except that the provisions of the Uniform Commercial Code shall be
applicable to the creation, perfection and enforcement of the lien created by
the Assignment. The invalidity, illegality or unenforceability of any provision
of this Agreement shall not affect or impair the validity, legality or
enforceability of the remainder of this Agreement, and to this end, the
provisions of this Agreement are declared to be severable.
8.8. RELATIONSHIP. The relationship between Lender and Borrower shall
be that of creditor-debtor only. No term in this Agreement or in the other Loan
Documents and no course of dealing between the parties shall be deemed to create
any relationship of agency, partnership or joint venture or any fiduciary duty
by Lender to any other party.
8.9. INDEMNITY. Borrower shall indemnify, protect, hold harmless and
defend Lender, its successors, assigns, shareholders, directors, officers,
employees, and agents from and against any and all loss, damage, cost, expense
(including attorneys' fees), and claims arising out of or in connection with (a)
the Project, (b) the Collateral, (c) any act or omission of Borrower, any
Guarantor, or their respective employees or agents, whether actual or alleged,
and (d) any and all brokers' commissions or other costs of similar type by any
party in connection with the Loan, in each case except to the extent arising
from the indemnitee's gross negligence or willful misconduct. Upon written
request by an indemnitee, Borrower will undertake, at its own costs and expense,
on behalf of such indemnitee, using counsel satisfactory to the indemnitee, the
defense of any legal action or proceeding whether or not such indemnitee shall
be a party and for which such indemnitee is entitled to be indemnified pursuant
to this section. At Lender's option, Lender may, at Borrower's expense,
prosecute or defend any action involving the priority, validity or
enforceability of the Assignment.
8.10. NOTICE. Any notice or other communication required or permitted
to be given shall be given in accordance with the Note.
15
<PAGE> 27
8.11. SUCCESSORS AND ASSIGNS BOUND; JOINT AND SEVERAL LIABILITY;
AGENTS; AND CAPTIONS. The covenants and agreements contained in the Loan
Documents shall bind, and the rights thereunder shall inure to, the respective
successors and assigns of Lender, Borrower and the Guarantor, subject to the
provisions of this Agreement. All covenants and agreements of Borrower and the
Guarantor shall be joint and several. In exercising any rights under the Loan
Documents or taking any actions provided for therein, Lender may act through its
employees, agents or independent contractors as authorized by Lender. The
captions and headings of the paragraphs of this Agreement are for convenience
only and are not to be used to interpret or define the provisions hereof.
8.12. TERMS AND USAGE. As used in the Loan Documents "business day"
means any day, other than a Saturday or a Sunday, when banks in Virginia are not
required or authorized to be closed.
8.13. LOSS OF NOTE. Upon notice from Lender of the loss, theft, or
destruction of the Note and upon receipt of an indemnity reasonably satisfactory
to Borrower from Lender, or in the case of mutilation of the Note, upon
surrender of the mutilated Note, Borrower shall make and deliver a new note of
like tenor in lieu of the then to be superseded Note.
8.14. TIME OF ESSENCE. Time is of the essence of this Agreement and the
other Loan Documents and the performance of each of the covenants and agreement
contained herein and therein.
8.15. VENUE. BORROWER AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING
DIRECTLY, INDIRECTLY OR OTHERWISE IN CONNECTION WITH, OUT OF, RELATED TO OR FROM
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED, AT LENDER'S SOLE
DISCRETION AND ELECTION, ONLY IN COURTS HAVING A SITUS WITHIN THE COMMONWEALTH
OF VIRGINIA. BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY
LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID STATE. BORROWER HEREBY
IRREVOCABLY APPOINTS AND DESIGNATES CT CORPORATION SYSTEM, WHOSE ADDRESS IS
BORROWER, C/O CT CORPORATION SYSTEM, 5511 STAPLE MILL ROAD, RICHMOND, VIRGINIA
23228, AS ITS DULY AUTHORIZED AGENT FOR SERVICE OF LEGAL PROCESS AND AGREES THAT
SERVICE OF SUCH PROCESS UPON SUCH PARTY SHALL CONSTITUTE PERSONAL SERVICE OF
PROCESS UPON SUCH PARTY. IN THE EVENT SERVICE IS UNDELIVERABLE BECAUSE SUCH
AGENT MOVES OR CEASES TO DO BUSINESS IN VIRGINIA BORROWER SHALL, WITHIN TEN (10)
DAYS AFTER LENDER'S REQUEST, APPOINT A SUBSTITUTE AGENT IN THE COMMONWEALTH OF
VIRGINIA ON ITS BEHALF AND WITHIN SUCH PERIOD NOTIFY LENDER OF SUCH APPOINTMENT.
IF SUCH SUBSTITUTE AGENT IS NOT TIMELY APPOINTED, LENDER SHALL, IN ITS SOLE
DISCRETION, HAVE THE RIGHT TO DESIGNATE A SUBSTITUTE AGENT UPON FIVE (5) DAYS
NOTICE TO BORROWER. BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR
CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST IT BY LENDER ON THE LOAN
DOCUMENTS IN ACCORDANCE WITH THIS SECTION.
8.16. JURY TRIAL WAIVER. BORROWER AND LENDER HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR
RELATED TO, THE SUBJECT MATTER OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
AND THE BUSINESS RELATIONSHIP THAT IS BEING ESTABLISHED. THIS WAIVER IS
KNOWINGLY, INTENTIONALLY AND VOLUNTARILY
16
<PAGE> 28
MADE BY BORROWER AND LENDER, AND BORROWER ACKNOWLEDGES THAT NEITHER LENDER NOR
ANY PERSON ACTING ON BEHALF OF LENDER HAS MADE ANY REPRESENTATIONS OF FACT TO
INCLUDE THIS WAIVER OF TRIAL BY JURY OR HAS TAKEN ANY ACTIONS WHICH IN ANY WAY
MODIFY OR NULLIFY ITS EFFECT. BORROWER AND LENDER ACKNOWLEDGE THAT THIS WAIVER
IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH OF
THEM HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS AND THAT EACH OF THEM WILL CONTINUE TO RELY ON THIS WAIVER
IN THEIR RELATED FUTURE DEALINGS. BORROWER AND LENDER FURTHER ACKNOWLEDGE THAT
THEY HAVE BEEN REPRESENTED (OR HAVE HAD THE OPPORTUNITY TO BE REPRESENTED) IN
THE SIGNING OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND IN THE MAKING OF
THIS WAIVER BY INDEPENDENT LEGAL COUNSEL.
8.17. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall constitute an original, and together shall
constitute the Agreement.
8.18. FINAL AGREEMENT/MODIFICATION. This Agreement, together with the
other Loan Documents, represents the entire agreement among Borrower, Guarantor
and Lender and supersedes all prior agreements among the parties with respect to
the Loan. This Agreement and the other Loan Documents may only be modified by
written instrument executed by the applicable parties.
17
<PAGE> 29
The parties hereto have executed this Agreement or has caused the same
to be executed by their duly authorized representatives as of the date first
above written.
BORROWER:
HALLWOOD HOTELS-OKC MEZZ, INC.,
a Delaware corporation
By:
------------------------------
Melvin J. Melle
Vice President
LENDER:
COMMERCIAL MORTGAGE INVESTMENT TRUST,
INC., a Virginia corporation
By: WMF Carbon Mesa Advisors, Inc.,
Its Manager
By:
--------------------------
Name:
Title:
<PAGE> 30
EXHIBIT A
LEGAL DESCRIPTION
<PAGE> 31
SCHEDULE 1
FORM OF ACKNOWLEDGMENT
[DATE]
Company
LENDER
Reference is made to that certain Clearing Bank Instruction
Letter dated ________ ___, 199__ (the "Instruction Letter") from
___________________ ("the ________"). I, the instructions set forth in the
Instruction Letter and notice of the pledges and security interest described
therein. The Bank hereby agrees to perform the instructions set forth in the
Instruction Letter for the benefit of _____________________, its successors and
assigns, (the "Lender").
[BANK]
By:
---------------------------
Name:
Title
LOCK BOX ADDRESS:
- ---------------------------------
- ---------------------------------
- ---------------------------------
<PAGE> 32
SCHEDULE 1
FORM OF ACKNOWLEDGMENT
[DATE]
Company
LENDER
Reference is made to that certain Clearing Bank Instruction
Letter dated ________ ___, 199__ (the "Instruction Letter") from
___________________ ("the ________"). I, the instructions set forth in the
Instruction Letter and notice of the pledges and security interest described
therein. The Bank hereby agrees to perform the instructions set forth in the
Instruction Letter for the benefit of _____________________, its successors and
assigns, (the "Lender").
[BANK]
By:
---------------------------
Name:
Title
LOCK BOX ADDRESS:
- ---------------------------------
- ---------------------------------
- ---------------------------------
2
<PAGE> 33
EXHIBIT C
[LITIGATION]
<PAGE> 34
EXHIBIT B
[CLEARING BANK INSTRUCTIONS]
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,337
<SECURITIES> 7,569
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 15,987
<CURRENT-ASSETS> 0
<PP&E> 183,827
<DEPRECIATION> (132,576)
<TOTAL-ASSETS> 103,092
<CURRENT-LIABILITIES> 0
<BONDS> 21,642
1,000
0
<COMMON> 160
<OTHER-SE> 16,151
<TOTAL-LIABILITY-AND-EQUITY> 103,092
<SALES> 0
<TOTAL-REVENUES> 89,968
<CGS> 0
<TOTAL-COSTS> 84,532
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,763
<INCOME-PRETAX> 2,673
<INCOME-TAX> 340
<INCOME-CONTINUING> 2,333
<DISCONTINUED> 0
<EXTRAORDINARY> 107
<CHANGES> 0
<NET-INCOME> 2,440
<EPS-PRIMARY> 1.90
<EPS-DILUTED> 1.83
</TABLE>
