<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 26, 1996
REGISTRATION NO. 333-7431
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PRIME HOSPITALITY CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 22-2640625
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
------------------------
700 ROUTE 46 EAST
FAIRFIELD, NEW JERSEY 07007-2700
(201) 882-1010
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
JOSEPH BERNADINO
SENIOR VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
PRIME HOSPITALITY CORP.
700 ROUTE 46 EAST
FAIRFIELD, NEW JERSEY 07007-2700
(201) 882-1010
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
Copies to:
<TABLE>
<S> <C>
WILLIAM N. DYE JOHN D. WATSON, JR.
WILLKIE FARR & GALLAGHER LATHAM & WATKINS
ONE CITICORP CENTER 1001 PENNSYLVANIA AVENUE, N.W.
153 EAST 53RD STREET SUITE 1300
NEW YORK, NEW YORK 10022 WASHINGTON, D.C. 20004
(212) 821-8000 (202) 637-2200
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this
Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered in connection with dividend or interest
reinvestment plans, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 26, 1996
7,500,000 SHARES
[PRIME HOSPITALITY CORP. LOGO]
COMMON STOCK
All of the shares of Common Stock offered hereby (the "Offering") are being
sold by Prime Hospitality Corp. ("Prime" or the "Company"). The Company's Common
Stock is traded on the New York Stock Exchange under the symbol "PDQ." On July
25, 1996, the last reported sale price of the Common Stock on the New York Stock
Exchange was $17.875 per share. See "Price Range of Common Stock and Dividend
Policy."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED UPON
OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
======================================================================================================
Price to Underwriting Proceeds to
Public Discount(1) Company(2)(3)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............................. $ $ $
Total(3)............................... $ $ $
======================================================================================================
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $450,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
1,125,000 additional shares of Common Stock solely to cover over-allotments,
if any. If the Underwriters exercise this option in full, the Price to
Public will total $ , the Underwriting Discount will total
$ and the Proceeds to Company will total $ . See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, when, as and if delivered to and accepted by the Underwriters and
subject to their right to reject any order in whole or in part. It is expected
that delivery of the certificates representing such shares will be made against
payment therefor at the office of Montgomery Securities on or about
, 1996.
------------------------
MONTGOMERY SECURITIES
BT SECURITIES CORPORATION
SMITH BARNEY INC.
, 1996
<PAGE> 3
[MAP]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN MARKET PRICES OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 4
[PHOTOGRAPHS]
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and Consolidated Financial Statements, including the notes
thereto, appearing elsewhere in or incorporated by reference in this Prospectus.
Unless the context indicates or requires otherwise, references in this
Prospectus to the "Company" or "Prime" are to Prime Hospitality Corp. and its
subsidiaries. All information in this Prospectus assumes that the overallotment
option granted to the Underwriters has not been exercised. EBITDA represents
earnings before extraordinary items, interest expense, provision for income
taxes and depreciation and amortization and excludes interest income on cash
investments and other income. EBITDA is used by the Company for the purpose of
analyzing its operating performance, leverage and liquidity. Such data are not a
measure of financial performance under generally accepted accounting principles
and should not be considered as an alternative to net income as an indicator of
the Company's operating performance or as an alternative to cash flows as a
measure of liquidity. Unless otherwise indicated, industry data is based on
reports of Smith Travel Research.
THE COMPANY
Prime is a leading national hotel company, with a portfolio of 98 hotels
containing 14,006 rooms located in 23 states and the U.S. Virgin Islands (the
"Portfolio"). Prime controls two high-quality hotel brands: AmeriSuites(R)
all-suites hotels and Wellesley Inns(R) limited-service hotels. The Company's
hotels are modern, well-maintained assets, with an average age of approximately
12 years. The Company emphasizes hotel equity ownership, owning and operating 82
of the 98 hotels in its Portfolio (the "Owned Hotels") and managing the
remaining 16 hotels for third parties (the "Managed Hotels"), with financial
interests in 9 of the 16 Managed Hotels. The Company believes it creates
long-term value through the development of its proprietary brands. Of the
Company's 98 hotels, an aggregate of 55 hotels are included in Prime's
proprietary AmeriSuites and Wellesley Inns brands.
Over the past three years, Prime has achieved rapid growth in its
Portfolio, increasing the number of owned rooms from 4,198 at January 1, 1993 to
10,866 at July 1, 1996. Prime has attained this strong Portfolio growth while
consistently increasing profit levels. From 1993 to 1995, the Company grew
EBITDA at a compound annual rate of 38.9%, from $32.0 million in 1993 to $61.8
million in 1995. Over the same period, recurring net income per share grew at a
compound annual rate of 64.3%, from $0.20 in 1993 to $0.54 in 1995. These
positive trends continued in the first quarter of 1996, compared to the first
quarter of 1995. EBITDA grew 32.9% from $14.6 million to $19.4 million and
recurring net income per share grew 30.8% from $0.13 to $0.17.
The Company's hotels serve three major lodging industry segments: the
all-suites segment, under the Company's proprietary AmeriSuites brand; the
upscale full-service segment, under major national franchises; and the mid-price
limited-service segment, primarily under the Company's proprietary Wellesley
Inns brand.
All-Suites: Prime owns and operates 25 all-suites hotels under the
AmeriSuites brand name. AmeriSuites are upper mid-price, all-suites hotels
containing approximately 125 suites and located primarily in the Southern and
Central United States. Since January 1, 1994, AmeriSuites has been one of the
fastest growing all-suites hotel chains in the United States, expanding from 9
hotels to 25 hotels at July 1, 1996, an increase of 178%. An additional 20
AmeriSuites are currently under construction, with sites for 25 more under
contract.
Full-Service: Prime operates 33 upscale full-service hotels under franchise
agreements with national hotel brands such as Marriott, Radisson, Sheraton,
Crowne Plaza, Holiday Inn and Ramada. Prime owns 20 of these hotels and has a
financial interest in 8 of the 13 other properties that it manages. Prime's
full-service hotels typically offer substantial food, beverage and banquet
facilities. Prime achieved a gross operating profit margin of 36% at its
full-service hotels in 1995, a 16% premium to the full-service industry average
of 31% for the comparable period.
Limited-Service: A total of 30 of Prime's 40 mid-price limited-service
hotels are operated under its Wellesley Inns brand name. Prime owns 100% of
these Wellesley Inns. The remaining limited-service hotels, seven of which are
owned by Prime, are operated under franchise agreements with well-known national
chains. Wellesley Inns compete primarily with hotels such as Hampton Inns and La
Quinta Inns. Wellesley Inns
3
<PAGE> 6
generated an average daily room rate ("ADR") and occupancy percentage in 1995 of
$51.28 and 75.4%, respectively.
GROWTH STRATEGY
Prime's principal growth strategy is the accelerated expansion of its
AmeriSuites brand through the construction of new AmeriSuites hotels. The
Company believes that AmeriSuites, which offers an excellent guest experience
and desirable suite accommodations at mid-scale prices, is well-positioned to
become a preeminent brand in the rapidly growing all-suites segment. Prime
expects to have 39 AmeriSuites in operation by the end of 1996 and seeks to have
more than 70 AmeriSuites open by the end of 1997. At present, 25 AmeriSuites are
open, with an additional 20 hotels under construction and sites for 25 more
under contract.
AmeriSuites are positioned in the upper mid-price segment of the lodging
industry, competing predominantly with other mid-price and upscale brands such
as Courtyard by Marriott and Holiday Inn. The Company markets AmeriSuites as
"America's Affordable All-Suite Hotel," emphasizing superior price/value
relative to traditional mid-price hotels by focusing on the chain's spacious
suites, upscale facilities and considerable amenity package. The Company is
committed to the expansion of the AmeriSuites brand for the following reasons:
- Attractive Economic Returns: Due to low all-in development costs
along with a rapid ramp up in occupancy and ADR after opening, AmeriSuites
have generated attractive unit level returns. AmeriSuites opened since 1992
have, in their first 12 months of operation, produced hotel-level EBITDA
constituting, on average, 15.7% of the hotel development cost.
- Broad Customer Appeal: The AmeriSuites concept offers the benefits
of an all-suites room at a price that appeals to a wide variety of
customers. Business travelers are attracted to the fully-equipped business
centers, meeting rooms, convenient locations and in-room features,
including computer data ports and voice mail. Leisure travelers enjoy the
exercise room, complimentary continental breakfast, living room sleeper
sofa and heated swimming pool. In addition, the layout of the AmeriSuites
room, each of which includes a kitchenette, appeals to the fast-growing
extended-stay market segment. The Company believes AmeriSuites offers a
level of amenities and services exceeding those typically found in
extended-stay hotels.
- High-Growth, High-Quality Brand: Prime believes it has the ability
to create significant brand value by rapidly expanding AmeriSuites while
consistently maintaining uniformly high quality standards. Because Prime
owns and operates every AmeriSuites, it can maintain a high level of
consistency and quality throughout the entire chain, and can implement
chain-wide programs quickly and efficiently.
- Fast Growing, Fragmented Market: The all-suites segment has seen
above-market demand growth in recent years. During the 1991-1995 period,
demand for all-suites rooms grew at more than double the rate of demand
growth experienced by the lodging industry as a whole, and exceeded
all-suites supply growth by 67%. Given the fast-growing demand for
all-suites accommodations and the absence of a dominant competitor in the
mid-price all-suites market, Prime believes that it can establish
AmeriSuites as a preeminent brand in this market while continuing to
generate attractive returns.
- Proven Operating Performance: The AmeriSuites concept has been in
existence since 1990 and currently operates in 20 different markets. In
addition, AmeriSuites hotels have consistently generated strong operating
results, with average revenue per available room ("REVPAR") for hotels open
at least one year increasing by 13.1% and 11.9% in 1994 and 1995 and 19.9%
in the first quarter of 1996, respectively, over comparable prior period
results.
Prime believes that it has sufficient resources available to fund its
AmeriSuites growth strategy, including capital from the following sources: (i)
net proceeds from the Offering; (ii) borrowings under its five-year secured
revolving credit facility; and (iii) internally generated free cash flow from
its Portfolio of 98 hotels. In addition, Prime may enter into sale/leaseback
transactions involving certain of its mid-price limited-service and upscale
full-service hotels, or seek additional debt financing secured by the Company's
hotels.
4
<PAGE> 7
OPERATING PERFORMANCE/INTERNAL GROWTH
In addition to revenue and earnings growth generated by the expansion of
the AmeriSuites brand, Prime seeks to achieve internal growth through continued
operating improvements at its existing hotels. Prime has demonstrated its
ability to operate its hotels effectively in each of its three segments,
achieving REVPAR increases in 1995 at its comparable AmeriSuites, full-service
and limited-service hotels of 11.9%, 8.7% and 9.2%, respectively, versus 1994
results. These trends continued in the first quarter of 1996, as Prime grew
REVPAR by 19.9%, 10.1% and 7.5% at its comparable AmeriSuites, full-service and
limited-service hotels, respectively, over first quarter 1995 levels.
The Company's emphasis on efficient operations has increased operating
margins, thus translating its top-line REVPAR growth into increased earnings.
Prime's gross operating profit margins in 1995 of 51% at AmeriSuites, 36% at
full-service hotels and 49% at limited-service hotels represented premiums of
3%, 16% and 4%, respectively, versus comparable industry statistics for these
industry segments.
RECENT EVENTS
For the quarter ending June 30, 1996, the Company's recurring net income
increased by 57.4% to $7.2 million, or $0.20 per share, from $4.6 million, or
$0.14 per share, in the comparable period in 1995. Net income, which includes
gains on property sales and other items not considered part of recurring
operations, increased by 44.7% to $7.2 million, or $0.20 per share, from $5.0
million, or $0.15 per share, in the comparable period in 1995. For the six
months ending June 30, 1996, recurring net income increased by 47.2% to $12.9
million, or $0.37 per share, from $8.8 million, or $0.27 per share, and net
income increased by 64.8% to $15.1 million, or $0.42 per share, from $9.2
million, or $0.28 per share, in the comparable period in 1995.
The results reflect revenue gains of 35.2% and 28.6%, respectively, and
EBITDA increases of 47.1% and 40.3%, respectively, for the three and six month
periods. The improvements were primarily attributable to the addition of 35
hotels over the past 18 months and an increase in REVPAR at comparable Owned
Hotels of 11.7% and 11.4% for the three and six month periods, respectively.
Results were driven by the strong performance of the AmeriSuites hotels, which
registered 15.9% and 17.6% REVPAR increases for comparable hotels for the three
and six month periods, respectively. In addition, the Company's comparable
full-service and limited-service hotels reported REVPAR increases of 11.6% and
7.0%, respectively, for the three month period and 10.9% and 7.3%, respectively,
for the six month period.
The Company recently entered into certain transactions that have allowed it
to consolidate control over its proprietary Wellesley Inns brand and to obtain
additional capital to fund its AmeriSuites growth strategy.
Purchase of Wellesley Inns: On March 6, 1996, Prime acquired 18
mid-price limited-service hotels with approximately 1,713 rooms (including
the remaining 16 Wellesley Inns it did not already own) for $65.1 million.
As a result, Prime now has full control over 100% of its proprietary
Wellesley Inns chain. The total purchase price plus the estimated cost of
planned renovations equals a price per room ranging from approximately
$42,000 to $43,000, which represents a discount to the average replacement
cost of these hotels. See "Business -- Prime's Lodging Operations."
Revolving Credit Facility: On June 28, 1996, the Company established
a $100 million, five-year secured revolving credit facility (the "Revolving
Credit Facility") bearing an interest rate of 2.25% over LIBOR. The
Revolving Credit Facility is secured by certain of the Company's
limited-service, AmeriSuites and full-service hotels. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
INDUSTRY OVERVIEW
The lodging industry as a whole has experienced four consecutive years in
which the growth in room demand has exceeded the growth in supply. In 1995,
industry wide percentage growth in demand for hotel rooms was nearly double
industry-wide percentage growth in supply of hotel rooms (3.0% versus 1.6%). In
the three price levels in which the Company's hotels operate, upscale, mid-price
and economy, percentage growth in demand outpaced percentage growth in supply by
0.7%, 1.4% and 1.0%, respectively. These trends
5
<PAGE> 8
continued in the first quarter of 1996 with the exception of the upscale price
level. On an industry-wide basis, demand growth exceeded supply by 1.2%. Demand
growth continued to exceed supply growth in the mid-price and economy segments
by 0.5% and 1.1% respectively. However, in the upscale segment, supply growth
exceeded demand growth by a modest 0.1%. The Company believes that quarterly
data are not necessarily indicative of a full year's results and that first
quarter results were adversely affected by severe seasonal weather in January.
Coopers & Lybrand L.L.P.'s Hospitality Directions (May 1996) ("Coopers and
Lybrand Hospitality Directions") estimates that the percentage growth in
industry-wide demand will exceed the percentage growth in supply by 0.8% and
0.2% in 1996 and 1997, respectively. The excess of demand growth over supply
growth in the past several years has led to industry-wide increases in occupancy
percentages and ADR, with occupancy rising to 65.4% in 1995 from 64.7% in 1994,
and ADR increasing 5.0% in 1995 over 1994 levels. Coopers & Lybrand Hospitality
Directions indicates that occupancy is expected to increase in 1996 and 1997 to
65.9% and 66.0%, respectively, and that ADR is expected to increase 5.4% in 1996
over 1995 levels and 4.8% in 1997 over 1996 levels. Historical industry
performance, however, may not be indicative of future results, and there can be
no assurance that such projections will be realized.
------------------------
The Company is a Delaware corporation incorporated in 1985. The principal
office of the Company is located at 700 Route 46 East, Fairfield, New Jersey
07007-2700 and its telephone number is (201) 882-1010.
<TABLE>
THE OFFERING
<S> <C>
Common Stock offered by the Company....... 7,500,000 shares
Common Stock to be outstanding after the
Offering.................................. 38,649,158 shares(1)
Use of Proceeds........................... To be used as part of the
financing of the Company's
AmeriSuites expansion.
New York Stock Exchange symbol............ PDQ
</TABLE>
- ---------------
(1) Does not include 1,800,316 shares of Common Stock issuable upon the exercise
of outstanding stock options and 1,443,057 shares of Common Stock issuable
upon the exercise of outstanding warrants as of March 31, 1996. See
"Description of Capital Stock -- Warrants."
6
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
The table below presents summary consolidated financial data derived from
the Company's historical financial statements as of and for the years ended
December 31, 1993, 1994 and 1995 and the three months ended March 31, 1995 and
1996. This data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements, related notes and other financial information included and
incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- --------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND HOTEL DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1):
Total revenues.................................. $108,860 $134,303 $205,628 $ 48,238 $ 58,614
Costs and expenses:
Direct hotel operating expenses............... 51,335 66,620 116,565 27,179 31,548
Occupancy and other operating................. 9,827 9,799 11,763 2,611 3,482
General and administrative.................... 15,685 15,089 15,515 3,872 4,219
Depreciation and amortization................. 7,117 9,427 15,974 3,976 5,224
------ ------ ------ ----- -----
Total costs and expenses................. 83,964 100,935 159,817 37,638 44,473
------ ------ ------ ----- -----
Operating income................................ 24,896 33,368 45,811 10,600 14,141
Interest expense................................ (16,116) (13,993) (21,603) (4,100) (5,851)
Net income:
Income from recurring operations.............. 5,928 12,805 17,442 4,208 5,733
Other income (expense) -- non-recurring(2).... 2,247 5,453 23 -- 2,059
------ ------ ------ ----- -----
Income before extraordinary items............. 8,175 18,258 17,465 4,208 7,792
Extraordinary items(3)........................ 3,989 172 104 7 149
------ ------ ------ ----- -----
Net income...................................... $ 12,164 $ 18,430 $ 17,569 $ 4,215 $ 7,941
====== ====== ====== ===== =====
Fully diluted net income per common share(4):
Income from recurring operations.............. $ 0.20 $ 0.40 $ 0.54 $ 0.13 $ 0.17
Other income (expense) -- non-recurring....... 0.07 0.17 -- -- 0.05
------ ------ ------ ----- -----
Income before extraordinary items............. 0.27 0.57 0.54 0.13 0.22
Extraordinary items........................... 0.13 0.01 -- -- --
------ ------ ------ ----- -----
Fully diluted net income per common share....... $ 0.40 $ 0.58 $ 0.54 $ 0.13 $ 0.22
====== ====== ====== ===== =====
OTHER DATA:
EBITDA(5)....................................... $ 32,013 $ 42,795 $ 61,785 $ 14,576 $ 19,365
Net cash provided by operating activities....... 19,728 28,672 40,851 4,849 8,655
Net cash provided by (used in) investing
activities.................................... 2,281 (34,248) (90,927) (12,918) (88,201)
Net cash provided by (used in) financing
activities.................................... (17,056) (23,469) 87,085 37,939 53,642
HOTEL DATA:
All-suites:
Number of locations........................... 8 12 19 13 22
Number of rooms............................... 993 1,494 2,319 1,620 2,640
REVPAR(6)..................................... $ 36.01 $ 39.50 $ 43.98 $ 37.60 $ 43.67
Full-service(7):
Number of locations........................... 30 31 32 32 32
Number of rooms............................... 5,797 6,152 6,301 6,301 6,301
REVPAR(6)..................................... $ 48.02 $ 51.69 $ 53.64 $ 45.10 $ 51.59
Limited-service:
Number of locations........................... 36 40 40 40 40
Number of rooms............................... 3,669 4,164 4,164 4,164 4,164
REVPAR(6)..................................... $ 34.61 $ 34.60 $ 37.46 $ 40.66 $ 42.58
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------
ACTUAL AS ADJUSTED(8)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and marketable securities....................... $ 31,628 $159,040
Property, equipment and leasehold improvements............................ 529,916 529,916
Total assets.............................................................. 642,876 770,288
Current portion of debt................................................... 5,699 5,699
Long-term debt, net of current portion.................................... 335,271 335,271
Total stockholders' equity................................................ 242,974 370,386
</TABLE>
- ---------------
(1) In December 1994, the Company acquired ownership of the Marriott's
Frenchman's Reef Beach Resort (the "Frenchman's Reef") as a result of the
restructuring of a mortgage note receivable, which was secured by the hotel.
This transaction has not had a material impact on operating income but has
affected revenue and operating margins significantly. For the years ended
December 31, 1993 and 1994, the Company recorded revenues related to the
Frenchman's Reef in the form of interest income and management fees with no
corresponding operating expenses. For the year ended December 31, 1995, the
Company recorded the operating revenues and operating expenses related to
this hotel.
(2) Other income (expense) -- non-recurring consists primarily of income and
expenses related to asset sales and other property transactions and is not
considered part of the Company's recurring operations.
(3) Extraordinary items consist of gains on discharges of indebtedness, net of
income taxes of $2.8 million in 1993, $120,000 in 1994 and $70,000 in 1995
and $4,000 and $100,000 for the three months ended March 31, 1995 and 1996.
(4) Fully diluted net income per common share, in addition to the adjustments
for primary net income per common share, reflects the elimination of
interest expense and the issuance of additional common shares from the
assumed conversion of the 7% Convertible Subordinated Notes due 2002 from
their issuance in April 1995.
(5) EBITDA represents earnings before extraordinary items, interest expense,
provision for income taxes and depreciation and amortization and excludes
interest income on cash investments and other income. EBITDA is used by the
Company for the purpose of analyzing its operating performance, leverage and
liquidity. Such data are not a measure of financial performance under
generally accepted accounting principles and should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or as an alternative to cash flows as a measure of liquidity.
(6) "REVPAR" means revenue per available room, which is equal to total room
revenue divided by the number of rooms available for sale.
(7) For purposes of showing operating trends, the results of the Frenchman's
Reef have been excluded from Hotel data due to the effects of the September
1995 hurricane. For full-service operating results including the Frenchman's
Reef, see "Business -- Prime's Lodging Operations."
(8) As adjusted to reflect the Offering. See "Use of Proceeds" and
"Capitalization."
The following table sets forth for the five years ended December 31, 1995
and the three months ended March 31, 1995 and 1996, operating data for the 79
Owned Hotels (hotels owned or leased by Prime) in the Company's Portfolio at
March 31, 1996. Operating data for the Owned Hotels built or acquired during the
period are presented from the dates such hotels commenced operations or became
Owned Hotels. For purposes of showing operating trends, the results of seven
Owned Hotels that were managed by the Company prior to their acquisition by the
Company during the period are presented as if they had been Owned Hotels from
the dates the Company began managing the hotels.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------------------------- ----------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT ADR AND REVPAR)
<S> <C> <C> <C> <C> <C> <C> <C>
Number of locations..................... 54 57 61 68 76 74 79
Number of rooms......................... 7,284 7,632 8,121 9,187 10,161 9,909 10,482
Occupancy %............................. 66.4% 67.9% 71.2% 69.6% 69.8% 65.4% 64.9%
ADR(1).................................. $ 60.14 $ 60.73 $ 62.58 $ 65.28 $ 69.52 $ 75.03 $ 73.56
REVPAR.................................. $ 39.94 $ 41.21 $ 44.57 $ 45.45 $ 48.52 $ 49.04 $ 47.76
Room revenues........................... $105,983 $113,664 $128,472 $140,347 $169,295 $ 40,575 $ 44,956
Gross operating profit(2)............... $ 54,974 $ 51,948 $ 59,458 $ 67,614 $ 83,875 $ 19,979 $ 20,653
Gross operating profit %(2)............. 35.60% 32.24% 33.15% 35.14% 37.75% 37.57% 37.16%
</TABLE>
- ---------------
(1) "ADR" means average daily rate, which is equal to total room revenue divided
by number of occupied rooms.
(2) Gross operating profit is defined as total hotel revenues less direct hotel
operating expenses, including room, food and beverage and selling and
general expenses.
For operating data with respect to the 16 Managed Hotels (hotels managed
for third parties) in the Company's Portfolio at March 31, 1996, see
"Business -- Prime's Lodging Operations."
8
<PAGE> 11
RISK FACTORS
Prospective purchasers of Common Stock should carefully consider, among
other things, the following risk factors before purchasing the Common Stock
offered hereby.
AMERISUITES EXPANSION RISKS
The Company is committed to expanding its AmeriSuites hotel brand to meet
growing demand in the all-suites hotel segment. The Company will be required to
expend significant management and financial resources to expand the AmeriSuites
hotel brand and develop brand name identification. The Company competes with
other companies in the all-suites segment, some of which have greater brand
recognition and financial resources than the Company. As a result, there is no
assurance that the Company can successfully expand the AmeriSuites hotel brand
or compete effectively with these other franchises. Expansion of the AmeriSuites
brand may present operating and marketing challenges that are different from
those currently encountered by the Company in its existing markets. There can be
no assurance that the Company will anticipate all of the changing demands that
expanding operations will impose on its management and management information
system or its reservation service. The failure to adapt its systems and
procedures could have a material adverse effect on the Company's business.
The expansion of the AmeriSuites brand will require significant capital.
The Company believes that the proceeds of the Offering, the availability under
the Revolving Credit Facility and cash flow from operations will be sufficient
to fund the near term growth of AmeriSuites. However, there can be no assurance
that the Company will be able to obtain financing to fund the growth of
AmeriSuites beyond the near term. If the Company is unable to obtain additional
financing, the growth prospects for AmeriSuites and the financial results of the
Company would be adversely effected.
The Company's growth strategy of developing new AmeriSuites hotels will
subject the Company to pre-opening and pre-stabilization costs. As the Company
opens additional AmeriSuites hotels, such costs may adversely affect the
Company's results of operations. Newly opened hotels historically begin with
lower occupancy and room rates that improve over time. While the Company has in
the past successfully opened new AmeriSuites hotels, there can be no assurance
that the Company will be able to continue to do so successfully. Construction of
hotels involves certain risks, including the possibility of construction cost
overruns and delays, site acquisition cost and availability, uncertainties as to
market potential, market deterioration after commencement of the development and
possible unavailability of financing on favorable terms. Although the Company
seeks to manage its construction activities so as to minimize such risks, there
can be no assurance that the AmeriSuites expansion will perform in accordance
with the Company's expectations.
The opening of the new AmeriSuites hotels will be contingent upon, among
other things, receipt of all required licenses, permits and authorizations. The
scope of the approvals required for a new hotel is extensive, including, without
limitation, state and local land-use permits, building and zoning permits and
health and safety permits. In addition, unexpected changes or concessions
required by local, regulatory and state authorities could involve significant
additional costs and could delay or prevent the completion of construction or
the opening of a new AmeriSuites hotel. There can be no assurance that the
necessary permits, licenses and approvals for the construction and operation of
the new AmeriSuites hotels will be obtained, or that such permits, licenses and
approvals will be obtained within the anticipated time frame.
Of the Company's 25 AmeriSuites, eight, or 32%, have been open less than
one year and ten, or 40%, have been open less than two years. Consequently, the
results achieved by these hotels to date may not be indicative of future results
for these hotels or for other new hotels. Although the revenue and profitability
of the AmeriSuites have improved as the hotels have matured, there can be no
assurance that future hotels will experience similar results.
9
<PAGE> 12
RISKS OF THE LODGING INDUSTRY; COMPETITION
The Company's business is subject to all of the risks inherent in the
lodging industry. These risks include, among other things, adverse effects of
general and local economic conditions, changes in local market conditions,
oversupply of hotel space, a reduction in local demand for hotel rooms, changes
in travel patterns, changes in governmental regulations that influence or
determine wages, prices or construction costs, changes in interest rates, the
availability of credit and changes in real estate taxes and other operating
expenses. The Company's ownership of real property, including hotels, is
substantial. Real estate values are sensitive to changes in local market and
economic conditions and to fluctuations in the economy as a whole. Due in part
to the strong correlation between the lodging industry's performance and
economic conditions, the lodging industry is subject to cyclical changes in
revenues and profits.
The lodging industry is highly competitive. During the 1980s, construction
of lodging facilities in the United States resulted in an excess supply of
available rooms. This oversupply had an adverse effect on occupancy levels and
room rates in the industry, although the oversupply has since largely been
absorbed. Competitive factors in the industry include reasonableness of room
rates, quality of accommodations, brand recognition, service levels and
convenience of locations. The Company's hotels generally operate in areas that
contain numerous other competitors. There can be no assurance that demographic,
economic or other changes in markets will not adversely affect the convenience
or desirability of the sites in which the Company's hotels are located.
Furthermore, there can be no assurance that, in the markets in which the
Company's hotels operate, competing hotels will not pose greater competition for
guests than presently exists, or that new hotels will not enter such locales.
See "Business -- Industry Overview."
HOTEL ACQUISITION RISKS
The Company's growth strategy includes the selective acquisition of hotels
with repositioning potential, notably in the full-service segment and in
locations where the Company presently operates. There can be no assurance that
suitable hotel acquisition candidates will be located, that hotel acquisitions
can be consummated successfully or that acquired hotels can be operated
profitably or integrated successfully into the Company's operations. Growth
through acquisition entails certain risks that the acquired hotels could be
subject to unanticipated business uncertainties or legal liabilities.
GEOGRAPHIC CONCENTRATION OF HOTELS
Many of the Company's hotels are located in Florida, New Jersey and New
York, and such geographic concentration exposes the Company's operating results
to events or conditions which specifically affect those areas, such as local and
regional economic, weather and other conditions. Adverse developments which
specifically affect those areas may have a material adverse effect on the
results of operations of the Company. While the Company's AmeriSuites expansion
is expected to reduce these risks, the Company will remain subject to the risks
associated with geographic concentration until the proposed AmeriSuites hotels
are opened and their operations are stabilized.
In addition, the Company owns the Marriott's Frenchman's Reef Beach Resort
(the "Frenchman's Reef") in St. Thomas, U.S. Virgin Islands. The Company
obtained ownership and control of this hotel in December 1994 pursuant to the
restructuring of a note receivable. The Frenchman's Reef accounted for
approximately 16.7% of the Company's operating income for the year ended
December 31, 1995. The Frenchman's Reef's operating results have been adversely
affected in recent years by hurricanes and a disruption in airline service. As a
resort hotel primarily operated for leisure travelers, operating results at the
Frenchman's Reef also are subject to adverse developments in general economic
conditions and changes in travel patterns. Adverse developments with respect to
the Frenchman's Reef may have a material adverse effect on the results of
operations of the Company.
In September 1995, the Frenchman's Reef suffered hurricane damage when
Hurricane Marilyn struck the U.S. Virgin Islands. The Company and its insurance
carrier have agreed to settle the Company's property and business interruption
insurance claim for $25.0 million. Due to this insurance coverage, the Company's
liquidity will be affected only to the extent of its insurance deductibles, for
which the Company provided a
10
<PAGE> 13
reserve of $2.2 million in 1995. The Company has continued to operate the hotel
and has repaired a majority of the damaged rooms on an interim basis. However,
the impact of the hurricane has caused operating profits to decline from the
1995 level. The Company is currently assessing the extent of further
refurbishment required at the Frenchman's Reef.
LEVERAGE
As of March 31, 1996, the Company's total long-term debt (including current
portion) was $341.0 million. The Company expects it will incur additional
indebtedness, including additional secured indebtedness, in connection with the
implementation of its growth strategy. The degree to which the Company is
leveraged, as well as its rent expense, could have important consequences to
holders of Common Stock, including: (i) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions or general corporate purposes may be impaired; (ii) a substantial
portion of the Company's cash flow from operations may be dedicated to the
payment of principal and interest on its indebtedness and rent expense, thereby
reducing the funds available to the Company for its operation; and (iii) certain
of the Company's indebtedness, including the Revolving Credit Facility, contains
financial and other restrictive covenants, including those restricting the
incurrence of additional indebtedness, the creation of liens, the payment of
dividends and sales of assets, as well as those imposing minimum net worth
requirements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
EMPLOYMENT AND OTHER GOVERNMENT REGULATION
The lodging industry is subject to numerous federal, state and local
government regulations, including those relating to the preparation and sale of
food and beverage (such as health and liquor license laws) and building and
zoning requirements. Also, the Company is subject to laws governing its
relationship with employees, including minimum wage requirements, overtime,
working conditions and work permits requirements. The failure to obtain or
retain liquor licenses or an increase in the minimum wage rate, employee benefit
costs or other costs associated with employees, could adversely affect the
Company. Both at the federal and state level, there are proposals under
consideration to increase the minimum wage and introduce a system of mandated
health insurance. Under the Americans with Disabilities Act of 1990 (the "ADA"),
all public accommodations are required to meet certain federal requirements
related to access and use by disabled persons. While the Company believes its
hotels are substantially in compliance with these requirements, a determination
that the Company is not in compliance with the ADA could result in the
imposition of fines or an award of damages to private litigants. These and other
initiatives could adversely affect the Company as well as the lodging industry
in general.
ENVIRONMENTAL REGULATION
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. Certain environmental laws and common law
principles could be used to impose liability for release of asbestos-containing
materials ("ACMs") into the air, and third parties may seek recovery from owners
or operators of real properties for personal injury associated with exposure to
released ACMs. Environmental laws also may impose restrictions on the manner in
which property may be used or businesses may be operated, and these restrictions
may require expenditures. In connection with the ownership or operation of
hotels, the Company may be potentially liable for any such costs. Although the
Company is currently not aware of any material environmental claims pending or
threatened against it, no assurance can be given that a material environmental
claim will not be asserted against the Company or against the Company and its
Managed Hotels. The cost of defending against claims of liability or of
remediating a contaminated property could have a material adverse effect on the
results of operations of the Company.
11
<PAGE> 14
IMPORTANCE OF FRANCHISOR RELATIONSHIPS
The Company currently enjoys good relationships with its major franchisors,
Marriott, Radisson, Sheraton, Crowne Plaza, Holiday Inn, Ramada and Howard
Johnson, and the Company has no reason to believe that such relationships will
not continue. However, under the applicable franchise agreements, the franchisor
can terminate the agreement if, among other things, its quality standards are
not maintained or if payments due are not made in a timely fashion. If any of
the franchise agreements were terminated by the franchisor, the Company could
explore entering into a franchise agreement with another franchisor. There can
be no assurance, however, that a desirable replacement relationship would be
available.
DEPENDENCE ON KEY EMPLOYEES
The Company is dependent on its President, Chief Executive Officer and
Chairman of the Board, David A. Simon, its Executive Vice President and Chief
Financial Officer, John M. Elwood, its Executive Vice President of Operations,
Paul H. Hower, and on certain other key members of its executive management
staff, the loss of whose services could have a material adverse effect on the
Company's business and future operations. See "Management."
12
<PAGE> 15
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock offered hereby are
estimated to be approximately $127.4 million (approximately $146.6 million if
the Underwriters' over-allotment option is exercised in full) after deducting
the underwriting discounts and commissions and estimated expenses related to the
Offering. The Company intends to use the net proceeds as part of the financing
of the Company's AmeriSuites expansion. The Company expects to have 39
AmeriSuites in operation by the end of 1996 and seeks to have more than 70
AmeriSuites open by the end of 1997. Until used, the net proceeds of this
Offering will be invested in short-term investment grade marketable securities
or money market funds.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "PDQ." The following table sets forth, for the periods indicated, the
high and low closing price of the Common Stock as reported on the New York Stock
Exchange.
<TABLE>
<CAPTION>
PRICE RANGE
-------------
HIGH LOW
---- ----
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1994
1st Quarter.......................................................... $ 8 1/8 $ 5 3/8
2nd Quarter.......................................................... 7 5/8 5 3/8
3rd Quarter.......................................................... 8 3/4 6 3/4
4th Quarter.......................................................... 9 6 7/8
YEAR ENDED DECEMBER 31, 1995
1st Quarter.......................................................... $10 3/8 $ 7 3/8
2nd Quarter.......................................................... 10 5/8 9 1/4
3rd Quarter.......................................................... 11 9 1/2
4th Quarter.......................................................... 10 1/4 9 3/8
YEAR ENDED DECEMBER 31, 1996
1st Quarter.......................................................... $13 5/8 $ 9 5/8
2nd Quarter.......................................................... 17 12 1/8
3rd Quarter (through July 25, 1996).................................. 19 1/4 16 5/8
</TABLE>
The closing price of the Common Stock as reported on the New York Stock
Exchange Composite Tape was $17.875 on July 25, 1996. As of July 25, 1996, there
were approximately 2,500 holders of record of the Common Stock.
The Company has not declared any cash dividends on its Common Stock since
January 1, 1994, and does not currently anticipate paying any dividends on the
Common Stock in the foreseeable future. The Company currently anticipates that
it will retain any future earnings for use in its business. The Company is
prohibited by the terms of its 10% Senior Secured Notes due 1999, and limited by
the terms of its Revolving Credit Facility, 9 1/4% First Mortgage Notes due 2006
and 7% Convertible Subordinated Notes due 2002, as well as certain other debt
instruments, from paying cash dividends on its Common Stock.
13
<PAGE> 16
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company as of March 31, 1996 and as adjusted to give effect to the Offering.
This table should be read in conjunction with the Consolidated Financial
Statements and notes thereto included and incorporated by reference in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------
ACTUAL AS ADJUSTED(1)
-------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current portion of debt(2)......................................... $ 5,699 $ 5,699
======== ========
Long-term debt(3):
9 1/4% First Mortgage Notes due 2006............................. $120,000 $120,000
10% Senior Secured Notes due 1999................................ 24,403 24,403
Notes and Mortgages payable, less current portion(2)............. 104,618 104,618
7% Convertible Subordinated Notes due 2002....................... 86,250 86,250
-------- --------
Total long-term debt..................................... 335,271 335,271
Stockholders' equity:
Preferred stock, par value $.10 per share; 20,000,000 shares
authorized; none issued....................................... -- --
Common stock, par value $.01 per share; 75,000,000 shares
authorized; 31,049,512 shares issued and outstanding;
38,549,512 shares issued and outstanding as adjusted.......... 310 385
Capital in excess of par value................................... 185,166 312,503
Retained earnings................................................ 57,498 57,498
-------- --------
Total stockholders' equity............................... 242,974 370,386
-------- --------
Total capitalization..................................... $578,245 $705,657
======== ========
</TABLE>
- ---------------
(1) As adjusted to reflect the Offering.
(2) See Note 8 of Notes to Consolidated Financial Statements as to interest
rates and maturities on long-term debt, including current portion.
(3) The Revolving Credit Facility provides for availability of funds up to the
lesser of $100.0 million and a borrowing base determined under the
agreement. As of July 25, 1996, the Company had borrowed $40.0 million under
the Revolving Credit Facility and had additional borrowing availability of
approximately $22.0 million.
14
<PAGE> 17
RECENT SELECTED CONSOLIDATED FINANCIAL DATA
The table below presents recent selected consolidated financial data
derived from the Company's historical financial statements as of and for the
years ended December 31, 1993, 1994 and 1995 and the three months ended March
31, 1995 and 1996. This data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Selected Consolidated Financial Data of the Company and its Predecessor" and
the Consolidated Financial Statements, related notes and other financial
information included and incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- -------------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1):
Revenues:
Lodging.................................... $ 69,487 $ 88,753 $146,184 $34,375 $41,974
Food and beverage.......................... 12,270 18,090 37,955 8,884 8,024
Management and other fees.................. 10,831 10,021 8,115 1,637 1,692
Interest on mortgages and notes
receivable............................... 14,765 15,867 11,895 3,026 2,681
Business interruption insurance............ -- -- -- -- 3,739
Rental and other........................... 1,507 1,572 1,479 316 504
-------- -------- -------- ------- -------
Total revenues........................ 108,860 134,303 205,628 48,238 58,614
-------- -------- -------- ------- -------
Costs and expenses:
Direct hotel operating expenses:
Lodging.................................. 19,925 25,490 38,383 8,698 10,624
Food and beverage........................ 10,230 13,886 28,429 6,657 6,914
Selling and general...................... 21,180 27,244 49,753 11,824 14,010
Occupancy and other operating............ 9,827 9,799 11,763 2,611 3,482
General and administrative............... 15,685 15,089 15,515 3,872 4,219
Depreciation and amortization............ 7,117 9,427 15,974 3,976 5,224
-------- -------- -------- ------- -------
Total costs and expenses.............. 83,964 100,935 159,817 37,638 44,473
-------- -------- -------- ------- -------
Operating income.............................. 24,896 33,368 45,811 10,600 14,141
Investment income............................. 1,267 1,966 4,861 514 1,265
Interest expense.............................. (16,116) (13,993) (21,603) (4,100) (5,851)
Other income.................................. 3,809 9,089 2,239 -- 3,432
Other expense................................. -- -- (2,200) -- --
-------- -------- -------- ------- -------
Income before income taxes and extraordinary
items...................................... 13,856 30,430 29,108 7,014 12,987
Provision for income taxes.................... 5,681 12,172 11,643 2,806 5,195
-------- -------- -------- ------- -------
Income before extraordinary items............. 8,175 18,258 17,465 4,208 7,792
Extraordinary items(2)........................ 3,989 172 104 7 149
-------- -------- -------- ------- -------
Net income.................................... $ 12,164 $ 18,430 $ 17,569 $ 4,215 $ 7,941
======== ======== ======== ======= =======
Net income per common share(3):
Primary:
Income before extraordinary items........ $ 0.27 $ 0.57 $ 0.54 $ 0.13 $ 0.24
Extraordinary items...................... 0.13 0.01 -- -- --
-------- -------- -------- ------- -------
Net income per common share................ $ 0.40 $ 0.58 $ 0.54 $ 0.13 $ 0.24
======== ======== ======== ======= =======
Fully diluted:
Income before extraordinary items........ $ 0.27 $ 0.57 $ 0.54 $ 0.13 $ 0.22
Extraordinary items...................... 0.13 0.01 -- -- --
-------- -------- -------- ------- -------
Net income per common share................ $ 0.40 $ 0.58 $ 0.54 $ 0.13 $ 0.22
======== ======== ======== ======= =======
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- -------------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT HOTEL DATA)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(4)............................. $ 32,013 $ 42,795 $ 61,785 $14,576 $19,365
Net cash provided by operating
activities.......................... 19,728 28,672 40,851 4,849 8,655
Net cash provided by (used in)
investing activities................ 2,281 (34,248) (90,927) (12,918) (88,201)
Net cash provided by (used in)
financing activities................ (17,056) (23,469) 87,085 37,939 53,642
HOTEL DATA:
All-suites:
Number of locations................. 8 12 19 13 22
Number of rooms..................... 993 1,494 2,319 1,620 2,640
REVPAR.............................. $ 36.01 $ 39.50 $ 43.98 $ 37.60 $ 43.67
Full-service(5):
Number of locations................. 30 31 32 32 32
Number of rooms..................... 5,797 6,152 6,301 6,301 6,301
REVPAR.............................. $ 48.02 $ 51.69 $ 53.64 $ 45.10 $ 51.59
Limited-service:
Number of locations................. 36 40 40 40 40
Number of rooms..................... 3,669 4,164 4,164 4,164 4,164
REVPAR.............................. $ 34.61 $ 34.60 $ 37.46 $ 40.66 $ 42.58
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------- AS OF MARCH 31,
1993 1994 1995 1996
-------- -------- -------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and
marketable securities............ $ 41,569 $ 13,641 $ 61,462 $ 31,628
Property, equipment and leasehold
improvements..................... 172,786 299,291 398,201 529,916
Total assets........................ 410,685 434,932 573,241 642,876
Current portion of debt............. 19,282 5,284 5,731 5,699
Long-term debt, net of current
portion.......................... 168,618 178,545 276,920 335,271
Total stockholders' equity.......... 171,364 204,065 232,916 242,974
</TABLE>
- ---------------
(1) In December 1994, the Company acquired ownership of the Frenchman's Reef as
a result of the restructuring of a mortgage note receivable, which was
secured by the hotel. This transaction has not had a material impact on
operating income but has affected revenue and operating margins
significantly. For the years ended December 31, 1993 and 1994, the Company
recorded revenues related to the Frenchman's Reef in the form of interest
income and management fees with no corresponding operating expenses. For the
year ended December 31, 1995, the Company recorded the operating revenues
and operating expenses related to this hotel.
(2) Extraordinary items consist of gains on discharges of indebtedness, net of
income taxes of $2.8 million in 1993, $120,000 in 1994 and $70,000 in 1995
and $4,000 and $100,000 for the three months ended March 31, 1995 and 1996.
(3) Primary net income per common share was computed based on the weighted
average number of common shares and common share equivalents (dilutive stock
options and warrants) outstanding during each period. The weighted average
number of common shares used in computing primary net income per common
share was 30,721,000, 32,022,000 and 32,461,000 for the years ended December
31, 1993, 1994 and 1995, respectively, and 32,365,000 and 32,865,000 for the
three months ended March 31, 1995 and 1996, respectively. Fully diluted net
income per common share, in addition to the adjustments for primary net
income per common share, reflects the elimination of interest expense and
the issuance of additional common shares from the assumed conversion of the
7% Convertible Subordinated Notes due 2002 from their issuance in April
1995. The weighted average number of common shares used in computing fully
diluted net income per common share was 37,423,000 for the year ended
December 31, 1995 and 32,365,000 and 40,346,000 for the three months ended
March 31, 1995 and 1996, respectively.
16
<PAGE> 19
(4) EBITDA represents earnings before extraordinary items, interest expense,
provision for income taxes and depreciation and amortization and excludes
interest income on cash investments and other income. EBITDA is used by the
Company for the purpose of analyzing its operating performance, leverage and
liquidity. Such data are not a measure of financial performance under
generally accepted accounting principles and should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or as an alternative to cash flows as a measure of liquidity.
(5) For purposes of showing operating trends, the results of the Frenchman's
Reef have been excluded from Hotel data due to the effects of the September
1995 hurricane. For full-service operating results including the Frenchman's
Reef, see "Business -- Prime's Lodging Operations."
17
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a leading hotel owner/operator which owns or leases 82
hotels (the "Owned Hotels") and manages 16 hotels (the "Managed Hotels") for
third parties. The Company has a financial interest in the form of mortgages or
profit participations (primarily incentive management fees) in 9 of the Managed
Hotels. The Company consolidates the results of operations of its Owned Hotels
and records management fees (including incentive management fees) and interest
income, where applicable, on the Managed Hotels.
The Company's principal growth strategy is the accelerated expansion of its
AmeriSuites brand through the construction of new AmeriSuites hotels. For the
three months ended March 31, 1996, earnings from recurring operations increased
by 36.2% over the comparable period in 1995, attributable to an 11.3% increase
in REVPAR at comparable hotels, the addition of 32 hotels primarily through
construction or acquisition in the past two years and the impact of increased
operating leverage. Although future results of operations may be adversely
affected in the short-term by the costs associated with the construction and
acquisition of new hotels, it is expected that this impact will be offset, after
an initial period, by revenues generated by these new hotels. The Company
believes that it is well positioned to benefit from the expected continued
improvements in the lodging industry due to its growth strategy and its hotel
equity ownership position.
For the quarter ending June 30, 1996, the Company's recurring net income
increased by 57.4% to $7.2 million, or $0.20 per share, from $4.6 million, or
$0.14 per share, in the comparable period in 1995. Net income, which includes
gains on property sales and other items not considered part of recurring
operations, increased by 44.7% to $7.2 million, or $0.20 per share, from $5.0
million, or $0.15 per share, in the comparable period in 1995. For the six
months ending June 30, 1996, recurring net income increased by 47.2% to $12.9
million, or $0.37 per share, from $8.8 million, or $0.27 per share, and net
income increased by 64.8% to $15.1 million, or $0.42 per share, from $9.2
million, or $0.28 per share, in the comparable period in 1995.
The results reflect revenue gains of 35.2% and 28.6%, respectively, and
EBITDA increases of 47.1% and 40.3%, respectively, for the three and six month
periods. The improvements were primarily attributable to the addition of 35
hotels over the past 18 months and an increase in REVPAR at comparable Owned
Hotels of 11.7% and 11.4% for the three and six month periods, respectively.
Results were driven by the strong performance of the AmeriSuites hotels, which
registered 15.9% and 17.6% REVPAR increases for comparable hotels for the three
and six month periods, respectively. In addition, the Company's comparable
full-service and limited-service hotels reported REVPAR increases of 11.6% and
7.0%, respectively, for the three month period and 10.9% and 7.3%, respectively,
for the six month period.
On March 6, 1996, the Company acquired 18 hotels consisting of 16 Wellesley
Inns and two other limited-service hotels for approximately $65.1 million in
cash. The transaction enabled the Company to establish full control over its
30-hotel proprietary Wellesley Inn brand. In connection with this transaction,
the Company also terminated its management agreement and junior subordinated
mortgages related to the 18 hotels. Revenues and expenses from these hotels have
been included in reported results from the date of acquisition. Prior to the
acquisition, the Company recorded revenues in the form of management fees and
interest income, with no corresponding operating expenses.
On June 28, 1996, the Company established the Revolving Credit Facility
with a group of financial institutions providing for availability of funds up to
the lesser of $100 million and a borrowing base determined under the agreement.
The Revolving Credit Facility is secured by certain of the Company's hotels with
recourse to the Company. Additional hotels may be added subject to the approval
of the lenders. As of July 25, 1996, the Company had borrowed $40.0 million
under the Revolving Credit Facility and had additional borrowing availability of
approximately $22.0 million. The proceeds were used to retire $20.0 million of
interim financing with the remainder to be utilized principally for the
development of AmeriSuites hotels. See "-- Liquidity and Capital Resources."
18
<PAGE> 21
In September 1995, the Frenchman's Reef suffered hurricane damage when
Hurricane Marilyn struck the U.S. Virgin Islands. The Company and its insurance
carrier have agreed to settle the Company's property and business interruption
insurance claim for $25.0 million. Due to this insurance coverage, the Company's
liquidity will be affected only to the extent of its insurance deductibles, for
which the Company provided a reserve of $2.2 million in 1995. The Company has
continued to operate the hotel and has repaired a majority of the damaged rooms
on an interim basis. However, the impact of the hurricane has caused operating
profits to decline from the prior year level. The Company is currently assessing
the extent of further refurbishment required at the Frenchman's Reef. For the
three months ended March 31, 1996, the Company continued to record the operating
revenues and expenses of the Frenchman's Reef. In addition, the Company
estimated its business interruption insurance proceeds assuming no growth over
the prior year's profit level and recorded revenue and a corresponding
receivable of $3.7 million.
This Prospectus contains forward-looking statements which involve risks and
uncertainties relating to future events. Prospective investors are cautioned
that the Company's actual events or results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
actual results to differ materially from those indicated by such forward-looking
statements include the matters set forth under the caption "Risk Factors."
19
<PAGE> 22
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 1995
The following table presents the components of operating income, operating
expense margins and other data for the Company and the Company's comparable
Owned Hotels for the three months ended March 31, 1996 and 1995. The results of
the two hotels divested during 1995 and 1996 are not material to an
understanding of the results of the Company's operations in such periods and,
therefore, are not separately discussed.
<TABLE>
<CAPTION>
COMPARABLE OWNED
TOTAL HOTELS(1)
------------------- -------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
------------------- -------------------
1995 1996 1995 1996
------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT ADR AND
REVPAR)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Lodging........................................... $34,375 $41,974 $25,033 $28,279
Food and Beverage................................. 8,884 8,024 5,336 5,908
Management and Other Fees......................... 1,637 1,692
Interest on Mortgages and Notes Receivable........ 3,026 2,681
Business Interruption Insurance................... -- 3,739
Rental and Other.................................. 316 504
------- -------
Total Revenues............................... 48,238 58,614
Direct Hotel Operating Expenses:
Lodging........................................... 8,698 10,624 6,832 7,240
Food and Beverage................................. 6,657 6,914 4,382 4,884
Selling and General............................... 11,824 14,010 8,274 9,237
Occupancy and Other Operating....................... 2,611 3,482
General and Administrative.......................... 3,872 4,219
Depreciation and Amortization....................... 3,976 5,224
------- -------
Operating Income.................................... 10,600 14,141
OPERATING EXPENSE MARGINS:
Direct Hotel Operating Expenses:
Lodging, as a percentage of lodging revenue....... 25.3% 25.3% 27.3% 25.6%
Food and Beverage, as a percentage of food and
beverage revenue............................... 74.9% 86.2% 82.1% 82.7%
Selling and General, as a percentage of lodging
and
food and beverage revenue...................... 27.3% 28.0% 27.2% 27.0%
Occupancy and Other Operating, as a percentage
of lodging and food and beverage revenue....... 6.0% 7.0%
General and Administrative, as a percentage
of total revenue............................... 8.0% 7.2%
OTHER DATA(2):
Occupancy......................................... 63.7% 65.9% 63.7% 66.8%
Average Daily Rate ("ADR")........................ $ 65.97 $ 69.78 $ 65.97 $ 70.03
Revenue Per Available Room ("REVPAR")............. $ 42.02 $ 45.95 $ 42.02 $ 46.75
Gross Operating Profit............................ $10,881 $17,194 $10,881 $12,826
</TABLE>
- ---------------
(1) For purposes of this discussion of results of operations for 1996 compared
to 1995, comparable Owned Hotels refers to 46 Owned Hotels that were owned
or leased by the Company during all of the three months ended March 31, 1995
and 1996. The Frenchman's Reef has not been classified as a comparable Owned
Hotel due to the effect of the hurricane damage.
(2) For purposes of showing operating trends, the results of the Frenchman's
Reef and the two disposed hotels have been excluded from the Other Data
section of the table.
20
<PAGE> 23
Lodging revenues, which include room revenues and other related revenues
such as telephone and vending, increased by $7.6 million, or 22.1%, during the
three months ended March 31, 1996 over the same period of the prior year. The
increase was primarily due to incremental lodging revenues of $8.9 million from
the 32 new hotels added during 1995 and 1996 with the balance coming from growth
in revenues at comparable Owned Hotels. Lodging revenues for comparable Owned
Hotels increased by $3.2 million, or 13.0%, for the three months ended March 31,
1996 as compared to the same period of the prior year, driven primarily by
strong results at the Company's AmeriSuites hotels. The revenue gains were
partially offset by a decrease of $4.2 million at the Frenchman's Reef
attributable to the impact of the 1995 hurricane.
The Company operates in three major segments of the industry: all-suites,
full-service and limited-service. The following table illustrates the growth in
REVPAR for the comparable Owned Hotels for the three months ended March 31, 1996
as compared to the same period in the prior year by industry segment:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 1996
--------------
<S> <C>
All-suites................................................... 19.9%
Full-service................................................. 10.1%
Limited-service.............................................. 7.5%
Total.............................................. 11.3%
</TABLE>
The REVPAR growth at comparable Owned Hotels reflects strong results in all
of the Company's industry segments: its all-suites AmeriSuites, full-service and
its limited-service Wellesley Inns. Repositioning efforts at both full-service
and limited-service hotels contributed to the foregoing REVPAR increases. The
improvements in REVPAR were generated by increases in ADR, which rose by 6.2%,
and occupancy gains of 4.8% for the three month period as compared to the same
period in the prior year.
Food and beverage revenues decreased by $860,000, or 9.7%, for the three
months ended March 31, 1996 compared to the same period in the prior year. This
decrease was primarily due to lower food and beverage revenues at the
Frenchman's Reef which declined by $2.4 million from the same period in the
prior year due to the hurricane damage. This was partially offset by additional
revenues of $1.0 million attributable to the new hotels and increased revenues
at comparable Owned Hotels. Food and beverage revenues for comparable Owned
Hotels increased by $572,000, or 10.7%, for the three months ended March 31,
1996, due primarily to increased banquet business at several hotels.
Management and other fees consist of base and incentive fees earned under
management agreements, fees for additional services rendered to Managed Hotels
and sales commissions earned by the Company's national sales group, Market
Segments, Inc. ("MSI"). Management and other fees increased by $55,000, or 3.4%,
for the three months ended March 31, 1996 as compared to the same period in the
prior year due primarily to increased incentive management fees partially offset
by the conversions of Managed Hotels into Owned Hotels.
Interest on mortgages and notes receivable during the period primarily
related to mortgages secured by certain Managed Hotels. Interest on mortgages
and notes receivable decreased by $345,000, or 11.4%, for the three months ended
March 31, 1996 as compared to the same period in the prior year, primarily due
to the Company's conversions of notes receivable into cash or hotel assets
during 1995 and 1996. Interest on mortgages and notes receivable will continue
to decrease and operating revenues and expenses will increase due to the March
31, 1996 conversion of a $22.4 million note into a long-term lease.
Direct lodging expenses increased by $1.9 million, or 22.1%, for the three
months ended March 31, 1996 compared to the same period in the prior year due
primarily to the addition of new hotels. Direct lodging expenses, as a
percentage of lodging revenue, remained constant at 25.3% during the three month
periods. For comparable Owned Hotels, direct lodging expenses as a percentage of
lodging revenues decreased from 27.3% to 25.6% for the three month period due
primarily to increases in ADR which had minimal corresponding increases in
expenses.
21
<PAGE> 24
Direct food and beverage expenses increased by $257,000, or 3.9%, for the
three months ended March 31, 1996 as compared to the same period in the prior
year primarily due to increased banquet business. As a percentage of food and
beverage revenues, direct food and beverage expenses increased from 74.9% to
86.2% for the three month period. The increase was primarily due to the impact
of decreased revenues from the food and beverage operations at the Frenchman's
Reef. For comparable Owned Hotels direct food and beverage expenses, as a
percentage of food and beverage revenue, remained relatively stable for both
periods as the higher margins associated with the increased banquet business
were offset by lower margins at the Hasbrouck Heights Crowne Plaza due to the
refurbishing of the hotel. The Company anticipates completing this project
during the second quarter of 1996.
Direct hotel selling and general expenses consist primarily of hotel
expenses for Owned Hotels which are not specifically allocated to rooms or food
and beverage activities, such as administration, selling and advertising,
utilities, repairs and maintenance. Direct hotel selling and general expenses
increased by $2.2 million, or 18.5%, for the three months ended March 31, 1996
as compared to the same period in the prior year due primarily to the addition
of new hotels. As a percentage of hotel revenues (defined as lodging and food
and beverage revenues), direct hotel selling and general expenses increased from
27.3% to 28.0% for the three month period due to increased utility and snow
removal costs related to the severe winter weather. For comparable Owned Hotels,
direct selling and general expenses as a percentage of revenues decreased
slightly from 27.2% to 27.0% for the three month periods, as the higher
weather-related costs were offset by the impact of improved revenues.
Occupancy and other operating expenses consist primarily of insurance, real
estate and other taxes and rent expense. For the three months ended March 31,
1996, occupancy and other operating expenses increased by $871,000, or 33.4%, as
compared to the same period in the prior year primarily due to the addition of
new hotels and increased real estate taxes on certain hotels which were
partially assessed in the prior year. As a result, occupancy and other operating
expenses as a percentage of hotel revenues increased from 6.0% to 7.0% for the
three month period.
General and administrative expenses consist primarily of centralized
management expenses such as operations management, sales and marketing, finance
and hotel support services associated with operating both the Owned Hotels and
Managed Hotels and general corporate expenses. General and administrative
expenses increased by $347,000, or 9.0%, for the three months ended March 31,
1996, primarily due to increased personnel, advertising and training costs
associated with opening new hotels. As a percentage of total revenues, general
and administrative expenses decreased from 8.0% to 7.2% for the three month
period due to operating leverage.
Depreciation and amortization expense increased by $1.2 million, or 31.4%,
for the three months ended March 31, 1996 as compared to the same period in the
prior year due to the impact of new hotel properties acquired or opened in the
past year and refurbishment efforts at several hotels.
Interest expense increased by $1.8 million, or 42.7%, for the three months
ended March 31, 1996 as compared to the same period in the prior year primarily
due to the issuance of $86.3 million of 7% Convertible Subordinated Notes due
2002 (the "Convertible Notes") in April 1995 and a net increase of $68.4 million
in debt, after application of the proceeds to repay indebtedness, from the
$120.0 million 9 1/4% First Mortgage Notes due 2006 (the "First Mortgage Notes")
issued in January 1996. The Company anticipates incurring additional
indebtedness under the Revolving Credit Facility in connection with the
development of its AmeriSuites hotels. While a majority of this interest will be
capitalized during the construction period, the Company expects that these
borrowings will increase net interest expense. Investment income increased by
$751,000 for the three month period primarily due to higher average cash
balances generated by the new borrowings.
Other income consists of items which are not part of the Company's
recurring operations. Other income for the three months ended March 31, 1996
consisted of a gain on the settlement of a note receivable of $1.8 million and a
gain on the sale of a hotel of $1.6 million.
Pretax extraordinary gains of approximately $249,000 relate to the
retirement of secured notes with a face value of $8.5 million. Pretax
extraordinary gains of approximately $11,000 for the three months ended March
31, 1995 relate to the retirement of debt with a face value of $388,000.
22
<PAGE> 25
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1994
The following table presents the components of operating income, operating
expense margins and other data for the Company and the Company's comparable
Owned Hotels for the years ended December 31, 1995 and 1994. The results of the
four hotels divested during 1994 and 1995 are not material to an understanding
of the results of the Company's operations in such periods and, therefore, are
not separately discussed.
<TABLE>
<CAPTION>
COMPARABLE OWNED
TOTAL HOTELS(1)
--------------------- -------------------
1994 1995 1994 1995
-------- -------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT ADR AND REVPAR)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Lodging......................................... $ 88,753 $146,184 $76,604 $83,190
Food and Beverage............................... 18,090 37,955 13,601 13,299
Management and Other Fees....................... 10,021 8,115
Interest on Mortgages and Notes Receivable...... 15,867 11,895
Rental and Other................................ 1,572 1,479
-------- --------
Total Revenues.......................... 134,303 205,628
Direct Hotel Operating Expenses:
Lodging......................................... 25,490 38,383 20,722 21,908
Food and Beverage............................... 13,886 28,429 10,634 10,467
Selling and General............................. 27,244 49,753 23,009 24,338
Occupancy and Other Operating..................... 9,799 11,763
General and Administrative........................ 15,089 15,515
Depreciation and Amortization..................... 9,427 15,974
-------- --------
Operating Income.................................. 33,368 45,811
OPERATING EXPENSE MARGINS:
Direct Hotel Operating Expenses:
Lodging, as a percentage of lodging revenue..... 28.7% 26.3% 27.1% 26.3%
Food and Beverage, as a percentage of food and
beverage revenue............................. 76.8% 74.9% 78.2% 78.7%
Selling and General, as a percentage of lodging
and food and beverage revenue................ 25.5% 27.0% 25.5% 25.2%
Occupancy and Other Operating, as a percentage
of lodging and food and beverage revenue..... 9.2% 6.4%
General and Administrative, as a percentage of
total revenue................................ 11.2% 7.5%
OTHER DATA:
Occupancy....................................... 68.0% 69.2% 70.4% 72.3%
Average Daily Rate.............................. $ 60.36 $ 73.28 $ 59.92 $ 63.97
Revenue Per Available Room...................... $ 41.04 $ 50.71 $ 42.21 $ 46.22
Gross Operating Profit.......................... $ 40,223 $ 67,605 $35,824 $39,926
</TABLE>
- ---------------
(1) For purposes of this discussion of results of operations, comparable Owned
Hotels refers to the 37 Owned Hotels that were owned or leased by the
Company during all of 1994 and 1995.
Lodging revenues, which include room revenues and other related revenues
such as telephone and vending, increased by $57.4 million, or 64.7%, from $88.8
million in 1994 to $146.2 million in 1995. The increase was due to $52.1 million
of lodging revenues from the addition of the Frenchman's Reef and the 19 new
hotels added during 1994 and 1995 with the balance coming from growth in
revenues at comparable Owned Hotels. Lodging revenues for comparable Owned
Hotels increased by $6.6 million, or 8.6%, in 1995 as compared to 1994.
23
<PAGE> 26
The Company operates in three major segments of the industry: all-suites,
full-service and limited-service. The following table sets forth the growth in
REVPAR at the comparable Owned Hotels for 1995, as compared to 1994, by industry
segment:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
All-suites................................................... 11.9%
Full-service................................................. 8.7%
Limited-service.............................................. 9.2%
Total.............................................. 9.5%
</TABLE>
The REVPAR growth at comparable Owned Hotels reflects strong results in
each of the Company's industry segments. Repositioning efforts at both
full-service and limited-service hotels also contributed to the REVPAR
increases. The improvements in REVPAR were generated by increases in ADR, which
rose by 6.8% and gains in occupancy of 2.7%.
Food and beverage revenues increased by $19.9 million, or 109.8%, from
$18.1 million in 1994 to $38.0 million in 1995. The increase was primarily due
to the additional food and beverage operations related to the Frenchman's Reef
and six other full-service hotels acquired since January 1, 1994. Food and
beverage revenues for comparable Owned Hotels decreased by $302,000 in 1995
compared to 1994. The decrease was primarily due to decreased banquet business
and lower beverage revenues at the Company's sports lounges.
Management and other fees consist of base and incentive fees earned under
management agreements, fees for additional services rendered to Managed Hotels
and sales commissions earned by the Company's national sales group, MSI.
Management and other fees decreased by $1.9 million, or 19.0%, from $10.0
million in 1994 to $8.1 million in 1995. The decrease was primarily due to the
loss of management fees on five Managed Hotels acquired by the Company during
1994 and 1995 and six additional hotels which were sold by a third party hotel
owner in 1994. Partially offsetting these decreased management fees were
increased base and incentive management fees associated with the remaining
Managed Hotels and increased revenues generated by MSI.
Interest on mortgages and notes receivable primarily relate to mortgages
secured by certain Managed Hotels. Interest on mortgages and notes receivable
decreased by $4.0 million, or 25.0%, from $15.9 million in 1994 to $11.9 million
in 1995, primarily due to the Company's conversion of a $50.0 million note
receivable secured by the Frenchman's Reef into an operating hotel asset in
December 1994. Partially offsetting the decrease was interest income related to
the purchase of $17.4 million of first mortgages secured by two hotels for $12.7
million in June 1995.
Direct lodging expenses increased by $12.9 million, or 50.6%, from $25.5
million in 1994 to $38.4 million in 1995, due primarily to the addition of new
hotels. Direct lodging expenses, as a percentage of lodging revenue, decreased
from 28.7% in 1994 to 26.3% in 1995. This decrease was primarily due to
increases in ADR which had minimal corresponding increases in expenses. For
comparable Owned Hotels, direct lodging expenses as a percentage of lodging
revenues decreased from 27.1% in 1994 to 26.3% in 1995.
Direct food and beverage expenses increased by $14.5 million, or 104.7%,
from $13.9 million in 1994 to $28.4 million in 1995, primarily due to the
addition of seven new full-service hotels. As a percentage of food and beverage
revenues, direct food and beverage expenses decreased from 76.8% in 1994 to
74.9% in 1995. The decrease was primarily due to increased revenues in higher
margin areas such as banquet departments at the new hotels. For comparable Owned
Hotels, direct food and beverage expenses as a percentage of food and beverage
revenue increased slightly from 78.2% in 1994 to 78.7% in 1995.
Direct hotel selling and general expenses consist primarily of hotel
expenses for Owned Hotels which are not specifically allocated to rooms or food
and beverage activities, such as administration, selling and advertising,
utilities, repairs and maintenance. Direct hotel selling and general expenses
increased by $22.6 million, or 82.6%, from $27.2 million in 1994 to $49.8
million in 1995, due primarily to the addition of new hotels. As a percentage of
hotel revenues (defined as lodging and food and beverage revenues), direct hotel
selling and general expenses increased from 25.5% in 1994 to 27.0% in 1995 due
to the addition of new full-
24
<PAGE> 27
service properties which generally require higher levels of unallocated
expenses. For comparable Owned Hotels, direct selling and general expenses as a
percentage of revenues decreased slightly from 25.5% in 1994 to 25.2% in 1995.
Occupancy and other operating expenses consist primarily of insurance, real
estate and other taxes and rent expense. Occupancy and other operating expenses
increased by $2.0 million, or 20.0%, from $9.8 million in 1994 to $11.8 million
in 1995 as the additional costs associated with the new hotels were offset by
real estate tax refunds of approximately $600,000 during the year. As a
percentage of hotel revenues, occupancy and other operating expenses decreased
from 9.2% in 1994 to 6.4% in 1995, primarily due to operating leverage.
General and administrative expenses consist primarily of centralized
management expenses such as operations management, sales and marketing, finance
and hotel support services associated with operating both the Owned Hotels and
Managed Hotels and general corporate expenses. General and administrative
expenses increased by $426,000, or 2.8%, from $15.1 million in 1994 to $15.5
million in 1995, due to ordinary inflationary increases which were partially
offset by central office payroll reductions. As a percentage of total revenues,
general and administrative expenses decreased from 11.2% in 1994 to 7.5% in 1995
due to operating leverage.
Depreciation and amortization expense increased by $6.6 million, or 69.4%,
from $9.4 million in 1994 to $16.0 million in 1995, due to the impact of new
hotel properties acquired in the past year and refurbishment efforts at several
hotels.
Interest expense increased by $7.6 million, or 54.4%, from $14.0 million in
1994 to $21.6 million in 1995, primarily due to new mortgage borrowings of $39.0
million incurred in February 1995 and $86.3 million of 7% Convertible
Subordinated Notes due 2002 (the "Convertible Notes") issued in April 1995.
Investment income increased by $2.9 million from $2.0 million in 1994 to $4.9
million in 1995 primarily due to higher average cash balances generated by the
new borrowings.
Other income consists of items which are not part of the Company's
recurring operations. For the year ended December 31, 1995, other income
consisted of a gain on the settlement of a note receivable of $822,000 and gains
on the sale of land parcels of $1.4 million. Other income for the year ended
December 31, 1994 consisted primarily of a gain on the settlement of the Rose
and Cohen note receivable of $6.2 million (see "Business -- Litigation"), gains
on property sales of $1.0 million and rebates of prior years' insurance premiums
of $1.2 million. Other expense of $2.2 million for the year ended December 31,
1995 consists of a reserve for insurance deductibles related to hurricane damage
at the Frenchman's Reef.
Pretax extraordinary gains of approximately $174,000 for the year ended
December 31, 1995 relate to the retirement of secured notes with a face value of
$22.2 million. Pretax extraordinary gains of approximately $292,000 for the year
ended December 31, 1994 relate to the retirement of debt with a face value of
$8.3 million.
25
<PAGE> 28
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1993
The following table presents the components of operating income, operating
expense margins and other data for the Company and the Company's comparable
Owned Hotels for 1993 and 1994. The results of the four hotels divested during
1993 and 1994 are not material to an understanding of the results of the
Company's operations in such periods and, therefore, are not separately
discussed.
<TABLE>
<CAPTION>
COMPARABLE OWNED
TOTAL HOTELS(1)
--------------------- -------------------
1993 1994 1993 1994
-------- -------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT ADR AND REVPAR)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Lodging......................................... $ 69,487 $ 88,753 $62,305 $66,821
Food and Beverage............................... 12,270 18,090 10,875 11,410
Management and Other Fees....................... 10,831 10,021
Interest on Mortgages and Notes Receivable...... 14,765 15,867
Rental and Other................................ 1,507 1,572
-------- --------
Total Revenues.......................... 108,860 134,303
Direct Hotel Operating Expenses:
Lodging......................................... 19,925 25,490 16,870 17,281
Food and Beverage............................... 10,230 13,886 9,029 9,143
Selling and General............................. 21,180 27,244 17,779 18,889
Occupancy and Other Operating..................... 9,827 9,799
General and Administrative........................ 15,685 15,089
Depreciation and Amortization..................... 7,117 9,427
-------- --------
Operating Income.................................. 24,896 33,368
OPERATING EXPENSE MARGINS:
Direct Hotel Operating Expenses:
Lodging, as a percentage of lodging revenue..... 28.7% 28.7% 27.1% 25.9%
Food and Beverage, as a percentage of food and
beverage revenue............................. 83.4% 76.8% 83.0% 80.1%
Selling and General, as a percentage of lodging
and food and beverage revenue................ 25.9% 25.5% 24.3% 24.1%
Occupancy and Other Operating, as a percentage
of lodging and food and beverage revenue..... 12.0% 9.2%
General and Administrative, as a percentage of
total revenue................................ 14.4% 11.2%
OTHER DATA:
Occupancy....................................... 70.4% 68.0% 73.2% 73.1%
Average Daily Rate.............................. $ 56.14 $ 60.36 $ 56.84 $ 61.16
Revenue Per Available Room...................... $ 39.52 $ 41.04 $ 41.61 $ 44.71
Gross Operating Profit.......................... $ 30,422 $ 40,223 $29,500 $32,917
</TABLE>
- ---------------
(1) For purposes of this discussion of results of operations for 1994 compared
to 1993, comparable Owned Hotels refers to the 31 Owned Hotels that were
owned or leased by the Company during all of 1994 and 1993.
Lodging revenues increased by $19.3 million, or 27.7%, from $69.5 million
in 1993 to $88.8 million in 1994. This increase was primarily due to incremental
lodging revenues of $17.6 million from hotels acquired or built in 1993 and 1994
and an increase in lodging revenues at comparable Owned Hotels. Lodging revenues
for comparable Owned Hotels increased by $4.5 million, or 7.2%, in 1994 compared
to 1993 due to improvements in ADR. ADR increased by $4.22 or 7.5% for all
hotels and $4.32 or 7.6% for comparable Owned Hotels due to repositioning and
refurbishment efforts at several full-service hotels and the continued
improvements in the lodging industry. In 1994, the industry continued its
recovery, as demand growth continued to outpace new
26
<PAGE> 29
hotel supply growth, resulting in higher occupancy levels which have allowed the
industry to increase room rates. The Company has pursued a strategy of
increasing ADR, which has a greater impact on net operating income than changes
in occupancy. Occupancy rates for all hotels decreased from 70.4% in 1993 to
68.0% in 1994 due to the lower occupancy rates normally associated with new
hotels, including both newly constructed hotels and repositioned hotels during
the refurbishment period. Occupancy rates for comparable Owned Hotels remained
constant in 1994 compared to 1993.
The Company operates in three major segments of the industry: all-suites,
full-service, and limited-service. The following table sets forth the growth in
REVPAR at the comparable Owned Hotels for the year ended December 31, 1994 as
compared to the prior year, by industry segment:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
All-suites................................................. 13.1%
Full-service............................................... 7.7%
Limited-service............................................ 4.1%
Total............................................ 7.5%
</TABLE>
Food and beverage revenues increased by $5.8 million, or 47.4%, from $12.3
million in 1993 to $18.1 million in 1994. This increase was primarily due to the
impact of incremental revenues of $5.7 million from additional food and beverage
operations of four full-service hotels acquired in 1994. Food and beverage
revenues for comparable Owned Hotels increased by $535,000, or 4.9%, in 1994
compared to 1993 primarily as a result of increased banquet sales and the
repositioning of three lounges to a sports bar theme.
Management and other fees consist of base and incentive fees earned under
management agreements, fees for additional services rendered to Managed Hotels
and sales commissions earned by the Company's national sales group, MSI.
Management and other fees decreased by $810,000, or 7.5%, from $10.8 million in
1993 to $10.0 million in 1994 primarily due to the loss of management fees on
four Managed Hotels acquired by the Company during 1994. In addition, the
Company's management contracts covering six additional hotels were terminated
during 1994 upon divestiture of those hotels by the third party hotel owners.
Partially offsetting these decreased management fees were the addition of two
new management contracts and increased revenues associated with the remaining
Managed Hotels.
Interest on mortgages and notes receivable in 1993 and 1994 primarily
related to mortgages secured by certain Managed Hotels including the Frenchman's
Reef. Interest income on mortgages and notes receivable increased by $1.1
million, or 7.5%, from $14.8 million in 1993 to $15.9 million in 1994 primarily
due to interest recognized on the Company's cash flow notes, which are
subordinated or junior mortgages which remit payment based on hotel cash flow.
In accordance with fresh start reporting adopted on July 31, 1992, assets and
liabilities were recorded at their then-current fair market values. As these
cash flow notes bear many of the characteristics and risks of operating hotel
equity investments, no value was assigned to these notes on the Company's
balance sheet due to substantial doubt as to their recoverability. The Company's
policy is to recognize interest on cash flow notes when cash is received. In
1994, the portion of interest on mortgages and other notes receivable
attributable to cash flow notes increased to $2.0 million from $1.0 million in
1993 primarily due to the execution of revised cash flow note agreements on
three hotels and the improved operating performance of the underlying hotels.
See "Business -- Mortgages and Notes Receivable."
Approximately $4.3 million and $4.6 million of interest on mortgages and
notes receivable in 1993 and 1994, respectively, was derived from the Company's
$50.0 million note receivable secured by the Frenchman's Reef. This note was
restructured in December 1994 and pursuant to such restructuring, the Company
obtained ownership and control of the Frenchman's Reef. See "-- Liquidity and
Capital Resources."
Direct lodging expenses increased by $5.6 million, or 27.9%, from $19.9
million in 1993 to $25.5 million in 1994 due primarily to the addition of new
hotels. As a percentage of lodging revenue, direct lodging expenses remained
constant at 28.7% in 1993 and 1994. For comparable Owned Hotels, direct lodging
expenses increased $411,000, or 2.4%, but decreased as a percentage of
comparable lodging revenue from 27.1% in 1993 to 25.9% in 1994 primarily due to
increases in ADR which had minimal corresponding increases in expenses.
27
<PAGE> 30
Direct food and beverage expenses increased by $3.7 million, or 35.7%, from
$10.2 million in 1993 to $13.9 million in 1994 due primarily to the addition of
new full-service hotels. As a percentage of food and beverage revenue, direct
food and beverage expenses decreased from 83.4% in 1993 to 76.8% in 1994
primarily due to increased revenues in higher margin areas such as banquet
departments and sports lounges. For comparable Owned Hotels, direct food and
beverage expenses increased $114,000, or 1.3%, but decreased as a percentage of
food and beverage revenue from 83.0% in 1993 to 80.1% in 1994.
Direct hotel selling and general expenses consist primarily of hotel
expenses for Owned Hotels which are not specifically allocated to rooms or food
and beverage activities, such as administration, selling and advertising,
utilities, repairs and maintenance. Direct hotel selling and general expenses
increased by $6.1 million, or 28.6%, from $21.2 million in 1993 to $27.2 million
in 1994 due primarily to the addition of 11 new hotels. Of these 11 hotels, four
were managed by the Company in 1993 or during a portion of 1994, while the other
seven had no previous relationship to the Company. As a percentage of hotel
revenues (defined as rooms and food and beverage revenues), direct hotel selling
and general expenses decreased slightly from 25.9% in 1993 to 25.5% in 1994. For
comparable Owned Hotels, direct selling and general expenses increased $1.1
million, or 6.2%, but decreased slightly as a percentage of comparable Owned
Hotel revenues from 24.3% in 1993 to 24.1% in 1994.
Occupancy and other operating expenses, which consist primarily of
insurance, real estate and other taxes, and rent expense, decreased by $28,000
in 1994. As a percentage of hotel revenues, occupancy and other operating
expenses decreased from 12.0% in 1993 to 9.2% in 1994 primarily due to operating
leverage, lower property and liability insurance charges based on favorable
claims experiences and reductions in real estate taxes as a result of successful
tax appeals on certain properties.
General and administrative expenses consist primarily of centralized
management expenses such as operations management, sales and marketing, finance
and hotel support services associated with operating both the Owned Hotels and
Managed Hotels and general corporate expenses. General and administrative
expenses decreased by $596,000, or 3.8%, from $15.7 million in 1993 to $15.1
million in 1994 primarily due to savings realized from the restructuring of the
Company's centralized management operations in 1993. As a percentage of total
revenues, general and administrative expenses decreased from 14.4% in 1993 to
11.2% in 1994.
Depreciation and amortization expense increased by $2.3 million, or 32.5%,
from $7.1 million in 1993 to $9.4 million in 1994, due to the impact of new
hotel properties acquired in the past year and refurbishment efforts at several
hotels.
Interest expense decreased by $2.1 million, or 13.2%, from $16.1 million in
1993 to $14.0 million in 1994, primarily due to the net reduction of
approximately $27.4 million of debt over the past two years. Interest income on
cash investments increased by approximately $700,000, or 55.2%, from $1.3
million in 1993 to $2.0 million in 1994 due to higher average cash balances in
1994.
Other income for 1994 consisted primarily of a gain of approximately $6.2
million related to the settlement of the Rose and Cohen note receivable (see
"Business -- Litigation"), gains on sales of other hotel assets of approximately
$1.0 million and rebates of prior years' insurance premiums of $1.2 million.
Pretax extraordinary gains of approximately $292,000 for 1994 relate to the
retirement of secured notes with a face value of $8.3 million. Pretax
extraordinary gains of approximately $6.8 million in 1993 relate to the
retirement of debt with a face value of $25.8 million.
LIQUIDITY AND CAPITAL RESOURCES
Prime's principal growth strategy is the accelerated expansion of its
AmeriSuites brand through the construction of new AmeriSuites hotels. Prime
expects to have 39 AmeriSuites in operation by the end of 1996 and seeks to have
more than 70 AmeriSuites open by the end of 1997.
Prime believes it has sufficient resources available to fund its
AmeriSuites growth strategy, including capital from the following sources: (i)
net proceeds from the Offering; (ii) borrowings under its five-year
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<PAGE> 31
secured Revolving Credit Facility; and (iii) internally generated free cash flow
from its Portfolio of 98 hotels. In addition, Prime may enter into
sale/leaseback transactions involving certain of its mid-price limited-service
and upscale full-service hotels, or seek additional debt financing secured by
the Company's hotels.
At March 31, 1996, the Company had cash and cash equivalents of $23.6
million, current marketable securities of $8.0 million and restricted cash,
which is primarily collateral for various debt obligations, of $9.4 million.
Cash and cash equivalents and current marketable securities decreased by $29.8
million during the three months ended March 31, 1996 primarily due to the
acquisition and development of hotels and repayment of debt, partially offset by
new borrowings.
The Company's major sources of cash for the three months ended March 31,
1996 were net proceeds of approximately $115.0 million from the issuance of the
$120.0 million First Mortgage Notes in January 1996, cash flow from operations
of $8.7 million and collections of mortgage and notes receivable of $8.3
million. The Company's major uses of cash during the quarter were capital
expenditures relating primarily to acquisitions and development of $103.6
million and debt payments of $61.5 million.
Cash flow from operations increased to $8.7 million for the three months
ended March 31, 1996 as compared to $4.9 million for the same period in the
prior year due to the improved operating results. Cash flow from operations was
positively impacted by the utilization of net operating loss carry forwards
("NOLs") of $2.0 million for the three months ended March 31, 1996 as compared
to $1.4 million for the same period in the prior year. At March 31, 1996, the
Company had federal NOLs relating to its predecessor, PMI, of approximately
$119.2 million which are subject to annual utilization limitations and expire
beginning in 2005 and continuing through 2007. See Note 10 to the Consolidated
Financial Statements.
Cash flow from operations was approximately $40.9 million for the year
ended 1995 as compared to $28.7 million in 1994. Cash flow from operations was
positively impacted by the utilization of NOLs and other tax basis differences
of $9.5 million and $12.8 million in 1995 and 1994, respectively.
The Company's other major sources of cash during 1995 were net proceeds of
approximately $83.2 million from the issuance of the Convertible Notes, mortgage
financings of $39.0 million and collections of mortgages and notes receivable of
$27.6 million. The Company's major uses of cash in 1995 were capital
expenditures of $113.5 million, debt payments of $34.0 million, the purchase of
first mortgage notes for $12.7 million and purchases of marketable securities of
$11.5 million.
Debt. On June 28, 1996, the Company established the Revolving Credit
Facility with a group of financial institutions providing for availability of
funds up to the lesser of $100.0 million and a borrowing base determined under
the agreement. The Revolving Credit Facility is secured by certain of the
Company's hotels with recourse to the Company. Additional hotels may be added
subject to the approval of the lenders. The Revolving Credit Facility bears
interest at LIBOR plus 2.25% and is available for five years. The Revolving
Credit Facility contains covenants requiring the Company to maintain certain
financial ratios. The Revolving Credit Facility also contains certain covenants
which limit the incurrence of debt, liens, dividend payments, certain
investments, transactions with affiliates, asset sales, mergers and
consolidations and any change of control of the Company. The aggregate amount of
the Revolving Credit Facility will be reduced to $87.0 million on June 28, 1999
and $75.0 million on June 28, 2000. As of July 25, 1996, the Company had
borrowed $40.0 million under the Revolving Credit Facility and had additional
borrowing availability of approximately $22.0 million. The proceeds were used to
retire $20.0 million of interim financing with the remainder to be utilized
principally for the development of AmeriSuites hotels.
In May 1996, the Company borrowed $20.0 million from a financial
institution with interest at LIBOR plus 2.25%. Proceeds were utilized for the
development of AmeriSuites hotels. The borrowing was subsequently repaid with
the proceeds from the Revolving Credit Facility.
In January 1996, the Company issued $120.0 million of First Mortgage Notes.
Interest on the First Mortgage Notes is payable semi-annually on January 15 and
July 15. The notes are secured by 15 hotels and contain certain covenants
including limitations on the incurrence of debt, dividend payments, certain
investments, transactions with affiliates, asset sales and mergers and
consolidations. The First Mortgage Notes are redeemable, in whole or in part, at
the option of the Company on or after January 15, 2001 at premiums to
29
<PAGE> 32
principal which decline on each anniversary date thereafter. The Company
utilized a portion of the proceeds to pay down approximately $51.6 million of
indebtedness, with the remainder of the proceeds used to finance the development
or acquisition of hotels or hotel portfolios.
During the first quarter, the Company prepaid and retired $6.0 million of
its senior secured notes resulting in pre-tax extraordinary gains of $60,000.
The Company also retired $2.4 million of debt in conjunction with the sale of a
hotel which resulted in a pre-tax extraordinary gain of $189,000. In April 1996,
the Company, utilizing the proceeds from the settlement of a note receivable,
prepaid and retired $6.5 million of senior secured notes. A pre-tax
extraordinary gain of $45,000 will be recorded in the second quarter.
The Company has $31.6 million of debt related to the Frenchman's Reef which
was scheduled to mature in December 1996. In March 1996, the Company and the
lender entered into an agreement to extend the maturity of the loan to July
1997. The loan bears interest at the same rate currently in effect and principal
payments are waived until July 1997. All other terms and conditions of the loan
remain in effect.
Capital Investments. The Company's capital spending in the first quarter
of 1996 was focused on the development of its AmeriSuites hotel chain and the
consolidation of its Wellesley Inns chain. The Company spent approximately $92.9
million through March 31, 1996 on acquisitions and construction funded primarily
by a combination of existing cash balances, cash flow from operations and the
issuance of the First Mortgage Notes.
The Company intends to rapidly expand its AmeriSuites chain through new
construction. The Company has opened six new AmeriSuites hotels to date in 1996,
in Miami (2), Dallas (2), Cleveland and Detroit, bringing the number of
AmeriSuites to 25 as of July 1, 1996. The Company currently has 20 AmeriSuites
hotels under construction and 25 additional AmeriSuites sites under contract.
The Company expects to have 39 AmeriSuites in operation by the end of 1996 and
seeks to have more than 70 AmeriSuites open by the end of 1997. During the first
quarter of 1996, the Company spent $27.8 million on constructing new AmeriSuites
hotels. The Company expects to spend a total of approximately $250 million on
constructing new AmeriSuites hotels in 1996.
On March 6, 1996, the Company acquired 18 hotels consisting of 16 Wellesley
Inns and two other limited service hotels for approximately $65.1 million in
cash. The acquisition enabled the Company to establish full control over its
proprietary Wellesley Inns brand with all 30 Wellesley Inns owned and operated
by the Company. The Company intends to spend approximately $7 million to $8
million to refurbish these hotels to ensure consistent quality and enhance the
value of its brand.
The Company and its insurance carrier have agreed to settle the Company's
property and business interruption insurance claim with respect to the
Frenchman's Reef for $25.0 million. Due to this insurance coverage, the
Company's liquidity will be affected only to the extent of its insurance
deductibles, for which the Company provided a reserve of $2.2 million in 1995.
Additionally, the Company's debt in the amount of $31.6 million related to the
Frenchman's Reef is further secured by an assignment of property insurance
proceeds. The lender has sole discretion concerning the utilization of such
proceeds for refurbishment. The Company is discussing with the lender the terms
under which the lender will make such funds available.
During the first quarter of 1996, the Company spent approximately $10.7
million on capital improvements at its Owned Hotels, of which approximately $4.6
million related to refurbishments and repositionings of recently acquired
hotels. The Company intends to spend an additional $12 million to $13 million in
1996 relating to the refurbishing and repositioning of the Hasbrouck Heights
Crowne Plaza and the 16 recently acquired Wellesley Inns.
Asset Realizations. The Company has pursued a strategy of converting
mortgage notes receivable and other assets into cash or operating hotel assets.
Since July 31, 1992, the Company has received $122.9 million in cash and added
ten operating hotel assets through note settlements, lease terminations and
property sales. During the first quarter, the Company received $8.3 million in
cash in settlement of notes receivable and $3.7 million in cash on sales of
properties resulting in gains of $3.4 million. In January 1996, the Company
obtained control of the 210-room Cocoa Beach Howard Johnson Hotel by converting
its $9.7 million mortgage note receivable into a long-term lease. On March 31,
1996, the Company obtained control of the 204-room Fairfield Radisson by
converting its $22.4 million mortgage note receivable into a long-term lease.
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<PAGE> 33
SELECTED CONSOLIDATED FINANCIAL DATA
OF THE COMPANY AND ITS PREDECESSOR
The Company is the successor in interest to the Company's predecessor,
Prime Motor Inns, Inc. ("PMI"), which emerged from chapter 11 reorganization on
July 31, 1992 (the "Effective Date"). PMI had filed for protection under chapter
11 of the United States Bankruptcy Code in September 1990. The Company
implemented "fresh start" reporting pursuant to the Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code" of
the American Institute of Certified Public Accountants, as of the Effective
Date. Accordingly, the consolidated financial statements of the Company are not
comparable in all material respects to any such financial statement as of any
date or for any period prior to the Effective Date. Subsequent to the Effective
Date, the Company changed its fiscal year end from June 30 to December 31. The
table below presents selected consolidated financial data derived from: (i) the
Company's historical financial statements for the years ended December 31, 1993,
1994 and 1995 and each of the three months ended March 31, 1995 and 1996, (ii)
the Company's historical financial statements as of and for the five-month
period ended December 31, 1992, (iii) the Company's "fresh start" balance sheet
as of the Effective Date and (iv) the historical consolidated financial
statements of PMI for the one month ended July 31, 1992 and for the years ended
June 30, 1991 and 1992. This data should be read in conjunction with the
Consolidated Financial Statements, related notes and other financial information
included and incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
PRE-REORGANIZATION
--------------------------------
FOR THE
AS OF AND FOR THE ONE
YEAR MONTH
ENDED JUNE 30, ENDED
--------------------- JULY 31,
1991(1) 1992(1) 1992(1)
--------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.......................... $ 205,699 $ 134,190 $ 8,793
Valuation writedowns and
reserves.............................. (59,149) (62,123) (13,000)
Reorganization items...................... (181,655) (23,194) 1,796
Other income (expense).................. -- -- --
Income (loss) from continuing
operations before extraordinary
items(2).............................. (246,110) (71,965) (10,274)
Extraordinary items-gains on
discharge of indebtedness (net of
income taxes)......................... -- -- 249,600
Net income (loss)....................... (227,188) (71,965) 239,326
BALANCE SHEET DATA:
Total assets............................ $ 679,916 $ 554,118 --
Long-term debt, net of current portion.. 2,851 8,921 --
Stockholders' equity (deficiency)....... (157,327) (229,292) --
<CAPTION>
POST-REORGANIZATION
-----------------------------------------------------------------------------
AS OF AND
FOR THE AS OF AND FOR THE
FIVE MONTHS AS OF AND FOR THE YEAR ENDED THREE MONTHS ENDED
AS OF ENDED DECEMBER 31, MARCH 31,
JULY 31, DEC. 31, ------------------------------ -------------------
1992(1) 1992 1993 1994 1995 1995 1996
-------- ----------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.......................... -- $ 41,334 $108,860 $134,303 $205,624 $ 48,238 $ 58,614
Valuation writedowns and
reserves.............................. -- -- -- -- -- -- --
Reorganization items...................... -- -- -- -- -- -- --
Other income (expense).................. -- -- 3,809 9,089 39 -- 3,432
Income (loss) from continuing
operations before extraordinary
items(2).............................. -- 1,393 8,175 18,258 17,465 4,208 7,792
Extraordinary items-gains on
discharge of indebtedness (net of
income taxes)......................... -- -- 3,989 172 104 7 149
Net income (loss)....................... -- 1,393 12,164 18,430 17,569 4,215 7,941
BALANCE SHEET DATA:
Total assets............................ $468,650 $ 403,314 $410,685 $434,932 $573,241 $492,438 $642,876
Long-term debt, net of current portion.. 204,438 192,913 168,618 178,545 276,920 221,726 335,271
Stockholders' equity (deficiency)....... 135,600 137,782 171,364 204,065 232,916 210,176 242,974
</TABLE>
- ---------------
(1) PMI filed for chapter 11 bankruptcy protection on September 18, 1990, at
which time it owned or managed 141 hotels. During its approximately two-year
reorganization, PMI restructured its assets, operations and capital
structure. On the Effective Date, the Company emerged from chapter 11
reorganization with 75 Owned Hotels or Managed Hotels, $135.6 million of
stockholders' equity and $266.4 million of total debt.
(2) Approximately $2.3 million, $28.0 million and $25.3 million of contractual
interest expense during the one month ended July 31, 1992 and for the fiscal
years ended June 30, 1992 and 1991, respectively, was not accrued and was
not paid due to the chapter 11 proceeding.
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<PAGE> 34
BUSINESS
THE COMPANY
Prime is a leading national hotel company, with a portfolio of 98 hotels
containing 14,006 rooms located in 23 states and the U.S. Virgin Islands (the
"Portfolio"). Prime controls two high-quality hotel brands: AmeriSuites(R)
all-suites hotels and Wellesley Inns(R) limited-service hotels. The Company's
hotels are modern, well-maintained assets, with an average age of approximately
12 years. The Company emphasizes hotel equity ownership, owning and operating 82
of the 98 hotels in its Portfolio (the "Owned Hotels") and managing the
remaining 16 hotels for third parties (the "Managed Hotels"), with financial
interests in 9 of the 16 Managed Hotels. The Company believes it creates
long-term value through the development of its proprietary brands. Of the
Company's 98 hotels, an aggregate of 55 hotels are included in Prime's
proprietary AmeriSuites and Wellesley Inns brands.
Over the past three years, Prime has achieved rapid growth in its
Portfolio, increasing the number of owned rooms from 4,198 at January 1, 1993 to
10,866 at July 1, 1996. Prime has attained this strong Portfolio growth while
consistently increasing profit levels. From 1993 to 1995, the Company grew
EBITDA at a compound annual rate of 38.9%, from $32.0 million in 1993 to $61.8
million in 1995. Over the same period, recurring net income per share grew at a
compound annual rate of 64.3%, from $0.20 in 1993 to $0.54 in 1995. These
positive trends continued in the first quarter of 1996, compared to the first
quarter of 1995. EBITDA grew 32.9% from $14.6 million to $19.4 million and
recurring net income per share grew 30.8% from $0.13 to $0.17.
The Company's hotels serve three major lodging industry segments: the
all-suites segment, under the Company's proprietary AmeriSuites brand; the
upscale full-service segment, under major national franchises; and the mid-price
limited-service segment, primarily under the Company's proprietary Wellesley
Inns brand.
All-Suites. Prime owns and operates 25 all-suites hotels under the
AmeriSuites brand name. AmeriSuites are upper mid-price, all-suites hotels
containing approximately 125 suites and located primarily in the Southern and
Central United States. Since January 1, 1994, AmeriSuites has been one of the
fastest growing all-suites hotel chains in the United States, expanding from 9
hotels to 25 hotels at July 1, 1996, an increase of 178%. An additional 20
AmeriSuites are currently under construction, with sites for 25 more under
contract.
Full-Service. Prime operates 33 upscale full-service hotels under
franchise agreements with national hotel brands such as Marriott, Radisson,
Sheraton, Crowne Plaza, Holiday Inn and Ramada. Prime owns 20 of these hotels
and has a financial interest in 8 of the 13 other properties that it manages.
Prime's full-service hotels typically offer substantial food, beverage and
banquet facilities. Prime achieved a gross operating profit margin of 36% at its
full-service hotels in 1995, a 16% premium to the full-service industry average
of 31% for the comparable period.
Limited-Service. A total of 30 of Prime's 40 mid-price limited-service
hotels are operated under its Wellesley Inns brand name. Prime owns 100% of
these Wellesley Inns. The remaining limited-service hotels, seven of which are
owned by Prime, are operated under franchise agreements with well-known national
chains. Wellesley Inns compete primarily with hotels such as Hampton Inns and La
Quinta Inns. Wellesley Inns generated an average daily room rate ("ADR") and
occupancy percentage in 1995 of $51.28 and 75.4%, respectively.
GROWTH STRATEGY
Prime's principal growth strategy is the accelerated expansion of its
AmeriSuites brand through the construction of new AmeriSuites hotels. The
Company believes that AmeriSuites, which offers an excellent guest experience
and desirable suite accommodations at mid-scale prices, is well-positioned to
become a preeminent brand in the rapidly growing all-suites segment. Prime
expects to have 39 AmeriSuites in operation by the end of 1996 and seeks to have
more than 70 AmeriSuites open by the end of 1997. At present, 25 AmeriSuites are
open, with an additional 20 hotels under construction and sites for 25 more
under contract.
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<PAGE> 35
AmeriSuites are positioned in the upper mid-price segment of the lodging
industry, competing predominantly with other mid-price and upscale brands such
as Courtyard by Marriott and Holiday Inn. The Company markets AmeriSuites as
"America's Affordable All-Suite Hotel," emphasizing superior price/value
relative to traditional mid-price hotels by focusing on the chain's spacious
suites, upscale facilities and considerable amenity package. The Company is
committed to the expansion of the AmeriSuites brand for the following reasons:
- Attractive Economic Returns: Due to low all-in development costs
along with a rapid ramp up in occupancy and ADR after opening, AmeriSuites
have generated attractive unit level returns. AmeriSuites opened since 1992
have, in their first 12 months of operation, produced hotel-level EBITDA
constituting, on average, 15.7% of the hotel development cost.
- Broad Customer Appeal: The AmeriSuites concept offers the benefits
of an all-suites room at a price that appeals to a wide variety of
customers. Business travelers are attracted to the fully-equipped business
centers, meeting rooms, convenient locations and in-room features,
including computer data ports and voice mail. Leisure travelers enjoy the
exercise room, complimentary continental breakfast, living room sleeper
sofa and heated swimming pool. In addition, the layout of the AmeriSuites
room, each of which includes a kitchenette, appeals to the fast-growing
extended-stay market segment. The Company believes AmeriSuites offers a
level of amenities and services exceeding those typically found in
extended-stay hotels.
- High-Growth, High-Quality Brand: Prime believes it has the ability
to create significant brand value by rapidly expanding AmeriSuites while
consistently maintaining uniformly high quality standards. Because Prime
owns and operates every AmeriSuites, it can maintain a high level of
consistency and quality throughout the entire chain, and can implement
chain-wide programs quickly and efficiently.
- Fast Growing, Fragmented Market: The all-suites segment has seen
above-market demand growth in recent years. During the 1991-1995 period,
demand for all-suites rooms grew at more than double the rate of demand
growth experienced by the lodging industry as a whole, and exceeded
all-suites supply growth by 67%. Given the fast-growing demand for
all-suites accommodations and the absence of a dominant competitor in the
mid-price all-suites market, Prime believes that it can establish
AmeriSuites as a preeminent brand in this market while continuing to
generate attractive returns.
- Proven Operating Performance: The AmeriSuites concept has been in
existence since 1990 and currently operates in 20 different markets. In
addition, AmeriSuites hotels have consistently generated strong operating
results, with average REVPAR for hotels open at least one year increasing
by 13.1% and 11.9% in 1994 and 1995 and 19.9% in the first quarter of 1996,
respectively, over comparable prior period results.
Prime believes that it has sufficient resources available to fund its
AmeriSuites growth strategy, including capital from the following sources: (i)
net proceeds from the Offering; (ii) borrowings under its five-year secured
Revolving Credit Facility; and (iii) internally generated free cash flow from
its Portfolio of 98 hotels. In addition, Prime may enter into sale/leaseback
transactions involving certain of its mid-price limited-service and upscale
full-service hotels, or seek additional debt financing secured by the Company's
hotels.
OPERATING PERFORMANCE/INTERNAL GROWTH
In addition to revenue and earnings growth generated by the expansion of
the AmeriSuites brand, Prime seeks to achieve internal growth through continued
operating improvements at its existing hotels. Prime has demonstrated its
ability to operate its hotels effectively in each of its three segments,
achieving REVPAR increases in 1995 at its comparable AmeriSuites, full-service
and limited-service hotels of 11.9%, 8.7% and 9.2%, respectively, versus 1994
results. These trends continued in the first quarter of 1996, as Prime grew
REVPAR by 19.9%, 10.1% and 7.5% at its comparable AmeriSuites, full-service and
limited-service hotels, respectively, over first quarter 1995 levels.
The Company's emphasis on efficient operations has increased operating
margins, thus translating its top-line REVPAR growth into increased earnings.
Prime's gross operating profit margins in 1995 of 51% at
33
<PAGE> 36
AmeriSuites, 36% at full-service hotels and 49% at limited-service hotels
represented premiums of 3%, 16% and 4%, respectively, versus comparable industry
statistics for these industry segments.
RECENT EVENTS
For the quarter ending June 30, 1996, the Company's recurring net income
increased by 57.4% to $7.2 million, or $0.20 per share, from $4.6 million, or
$0.14 per share, in the comparable period in 1995. Net income, which includes
gains on property sales and other items not considered part of recurring
operations, increased by 44.7% to $7.2 million, or $0.20 per share, from $5.0
million, or $0.15 per share, in the comparable period in 1995. For the six
months ending June 30, 1996, recurring net income increased by 47.2% to $12.9
million, or $0.37 per share, from $8.8 million, or $0.27 per share, and net
income increased by 64.8% to $15.1 million, or $0.42 per share, from $9.2
million, or $0.28 per share, in the comparable period in 1995.
The results reflect revenue gains of 35.2% and 28.6%, respectively, and
EBITDA increases of 47.1% and 40.3%, respectively, for the three and six month
periods. The improvements were primarily attributable to the addition of 35
hotels over the past 18 months and an increase in REVPAR at comparable Owned
Hotels of 11.7% and 11.4% for the three and six month periods, respectively.
Results were driven by the strong performance of the AmeriSuites hotels, which
registered 15.9% and 17.6% REVPAR increases for comparable hotels for the three
and six month periods, respectively. In addition, the Company's comparable
full-service and limited-service hotels reported REVPAR increases of 11.6% and
7.0%, respectively, for the three month period and 10.9% and 7.3%, respectively,
for the six month period.
The Company recently entered into certain transactions that have allowed it
to consolidate control over its proprietary Wellesley Inns brand and to obtain
additional capital to fund its AmeriSuites growth strategy.
- Purchase of Wellesley Inns: On March 6, 1996, Prime acquired 18
mid-price limited-service hotels with approximately 1,713 rooms (including
the remaining 16 Wellesley Inns it did not already own) for $65.1 million.
As a result, Prime now has full control over 100% of its proprietary
Wellesley Inns chain. The total purchase price plus the estimated cost of
planned renovations equals a price per room ranging from approximately
$42,000 to $43,000, which represents a discount to the average replacement
cost of these hotels. See "-- Prime's Lodging Operations."
- Revolving Credit Facility: On June 28, 1996, the Company
established the $100 million, five-year secured Revolving Credit Facility
bearing an interest rate of 2.25% over LIBOR. The Revolving Credit Facility
is secured by certain of the Company's limited-service, AmeriSuites and
full-service hotels. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
INDUSTRY OVERVIEW
The lodging industry as a whole has experienced four consecutive years in
which the growth in room demand has exceeded the growth in supply. In 1995,
industry wide percentage growth in demand for hotel rooms was nearly double
industry-wide percentage growth in supply of hotel rooms (3.0% versus 1.6%). In
the three price levels in which the Company's hotels operate, upscale, mid-price
and economy, percentage growth in demand outpaced percentage growth in supply by
0.7%, 1.4% and 1.0%, respectively. These trends continued in the first quarter
of 1996 with the exception of the upscale price level. On an industry-wide
basis, demand growth exceeded supply by 1.2%. Demand growth continued to exceed
supply growth in the mid-price and economy segments by 0.5% and 1.1%
respectively. However, in the upscale segment, supply growth exceeded demand
growth by a modest 0.1%. The Company believes that quarterly data are not
necessarily indicative of a full year's results and that first quarter results
were adversely affected by severe seasonal weather in January.
Coopers & Lybrand L.L.P.'s Hospitality Directions (May 1996) ("Coopers and
Lybrand Hospitality Directions") estimates that the percentage growth in
industry-wide demand will exceed the percentage growth in supply by 0.8% and
0.2% in 1996 and 1997, respectively. The excess of demand growth over supply
growth in the past several years has led to industry-wide increases in occupancy
percentages and ADR, with
34
<PAGE> 37
occupancy rising to 65.4% in 1995 from 64.7% in 1994, and ADR increasing 5.0% in
1995 over 1994 levels. Coopers & Lybrand Hospitality Directions indicates that
occupancy is expected to increase in 1996 and 1997 to 65.9% and 66.0%,
respectively, and that ADR is expected to increase 5.4% in 1996 over 1995 levels
and 4.8% in 1997 over 1996 levels. Historical industry performance, however, may
not be indicative of future results, and there can be no assurance that such
projections will be realized.
The following table was compiled from industry operating data as reported
by Smith Travel Research and highlights industry data for the United States and
the regions in which most of the Company's hotels are located: the Middle
Atlantic region, which is comprised of New Jersey, New York and Pennsylvania;
and the South Atlantic region, which is comprised of Florida, Georgia, South
Carolina, North Carolina, Virginia, West Virginia, Maryland and Delaware. The
table also includes operating data concerning the three price levels (of the
five price levels classified by Smith Travel Research) in which the Company
competes: upscale, mid-price and economy. REVPAR data was calculated by the
Company based on occupancy and ADR data supplied by Smith Travel Research.
<TABLE>
<CAPTION>
% CHANGE IN:
------------------------------------------------------------------------------------------------------
ROOM SUPPLY ROOM DEMAND REVPAR
-------------------------------- -------------------------------- --------------------------------
THREE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
1996 1996 1996
v. THREE v. THREE v. THREE
MONTHS MONTHS MONTHS
ENDED ENDED ENDED
1994v. 1995v. MARCH 31, 1994v. 1995v. MARCH 31, 1994v. 1995v. MARCH 31,
1993 1994 1995 1993 1994 1995 1993 1994 1995
------ ------ -------------- ------ ------ -------------- ------ ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States........... 1.4% 1.6% 1.8% 4.7% 3.0% 3.0% 7.3% 6.1% 7.4%
BY REGION:
Middle Atlantic......... 0.4 1.1 1.0 4.0 1.2 2.6 10.5 5.8 5.6
South Atlantic.......... 1.1 1.3 1.4 3.2 3.6 3.1 4.9 6.9 7.8
BY SERVICE
(PRICE LEVEL):
Upscale................. 2.0 1.9 2.5 3.8 2.6 2.4 5.0 4.7 4.9
Mid-Price............... 2.0 2.4 2.6 4.2 3.8 3.1 5.5 5.9 6.5
Economy................. 1.1 2.0 1.6 2.6 3.0 2.7 5.0 6.2 7.2
</TABLE>
35
<PAGE> 38
PRIME'S LODGING OPERATIONS
The following table sets forth information with respect to the Owned Hotels
and Managed Hotels as of July 1, 1996:
<TABLE>
<CAPTION>
MANAGED WITH
FINANCIAL
OWNED(1) INTEREST(2) OTHER MANAGED TOTAL
----------------- ---------------- ---------------- -----------------
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
------ ------ ------ ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
All-Suites:
AmeriSuites................. 25 3,024 0 0 0 0 25 3,024
Full-Service:
Marriott.................... 1 517 0 0 1 525 2 1,042
Radisson.................... 2 476 0 0 1 192 3 668
Sheraton.................... 3 589 0 0 0 0 3 589
Crowne Plaza................ 3 717 0 0 0 0 3 717
Holiday Inn................. 1 240 4 810 0 0 5 1,050
Ramada...................... 8 1,214 3 672 2 276 13 2,162
Howard Johnson.............. 1 210 1 116 1 115 3 441
Independent................. 1 149 0 0 0 0 1 149
--- ------ --- ----- --- ----- --- ------
Total Full-Service... 20 4,112 8 1,598 5 1,108 33 6,818
Limited-Service:
Wellesley Inn............... 30 3,013 0 0 0 0 30 3,013
Howard Johnson.............. 4 372 1 149 2 285 7 806
Other....................... 3 345 0 0 0 0 3 345
--- ------ --- ----- --- ----- --- ------
Total Limited-Service..... 37 3,730 1 149 2 285 40 4,164
--- ------ --- ----- --- ----- --- ------
Total................ 82 10,866 9 1,747 7 1,393 98 14,006
=== ====== === ===== === ===== === ======
</TABLE>
- ---------------
(1) Of the 82 Owned Hotels, 11 are leased. The leases covering the Company's
leased hotels provide for fixed lease rents and, in most instances,
additional percentage rents based on a percentage of room revenues. The
leases also generally require the Company to pay the cost of repairs,
insurance and real estate taxes. In addition, some of the Company's Owned
Hotels are located on land subject to long-term leases, generally for terms
in excess of the depreciable lives of the improvements.
(2) Nine Managed Hotels in which the Company holds a mortgage or profit
participation on the property.
36
<PAGE> 39
The following table sets forth the location of the Company's hotels as of
July 1, 1996:
<TABLE>
<CAPTION>
MANAGED WITH
FINANCIAL
OWNED INTEREST OTHER MANAGED TOTAL
--------------- -------------------- -------------- ---------------
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
------ ------ ------------ ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arizona............................... 1 118 -- -- -- -- 1 118
Arkansas.............................. 1 130 -- -- -- -- 1 130
California............................ -- -- -- -- 1 96 1 96
Connecticut........................... 4 589 -- -- -- -- 4 589
Florida............................... 23 2,529 -- -- 1 115 24 2,644
Georgia............................... 3 351 -- -- 1 189 4 540
Illinois.............................. 1 113 -- -- -- -- 1 113
Indiana............................... 1 126 -- -- -- -- 1 126
Kansas................................ 1 126 -- -- -- -- 1 126
Kentucky.............................. 1 123 -- -- -- -- 1 123
Maryland.............................. 1 84 -- -- 1 525 2 609
Michigan.............................. 1 128 -- -- -- -- 1 128
Nevada................................ 2 350 -- -- -- -- 2 350
New Jersey............................ 15 2,331 7 1,489 3 468 25 4,288
New York.............................. 8 941 -- -- -- -- 8 941
North Carolina........................ 1 126 -- -- -- -- 1 126
Ohio.................................. 4 508 -- -- -- -- 4 508
Oregon................................ 1 161 -- -- -- -- 1 161
Pennsylvania.......................... 3 467 2 258 -- -- 5 725
South Carolina........................ 1 111 -- -- -- -- 1 111
Tennessee............................. 2 251 -- -- -- -- 2 251
Texas................................. 2 256 -- -- -- -- 2 256
U.S. Virgin Islands................... 1 517 -- -- -- -- 1 517
Virginia.............................. 4 430 -- -- -- -- 4 430
--- ------ --- ----- --- ----- --- ------
Total........................ 82 10,866 9 1,747 7 1,393 98 14,006
=== ====== === ===== === ===== === ======
</TABLE>
37
<PAGE> 40
The following table sets forth for the five years ended December 31, 1995
and the three months ended March 31, 1995 and 1996, operating data for the 95
hotels in the Company's portfolio as of March 31, 1996. Operating data for the
Owned Hotels built or acquired during the period are presented from the dates
such hotels commenced operations or became Owned Hotels. For purposes of showing
operating trends, the results of 27 Owned Hotels that were managed by the
Company prior to their acquisition by the Company are presented as if they had
been Owned Hotels from the dates the Company began managing the hotels.
<TABLE>
<CAPTION>
MANAGED WITH
OWNED FINANCIAL INTEREST OTHER MANAGED TOTAL
------------------------- ------------------------- ------------------------- -------------------------
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
--------- ------ --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1991.............. 54 7,284 9 1,747 4 993 67 10,024
1992.............. 57 7,632 9 1,747 4 993 70 10,372
1993.............. 61 8,121 9 1,747 5 1,108 75 10,976
1994.............. 68 9,187 9 1,747 7 1,393 84 12,327
1995.............. 76 10,161 9 1,747 7 1,393 92 13,301
*1995.............. 74 9,909 9 1,747 7 1,393 90 13,049
*1996.............. 79 10,482 9 1,747 7 1,393 95 13,622
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- ------ ------ --------- ------ ------ --------- ------ ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1991.............. 66.4% $60.14 $39.94 61.6% $56.97 $35.11 61.6% $82.44 $50.74 65.1% $61.74 $40.20
1992.............. 67.9 60.73 41.21 70.7 58.50 41.33 66.2 82.83 54.81 68.2 62.39 42.54
1993.............. 71.2 62.58 44.57 72.9 60.72 44.26 67.2 84.09 56.47 71.1 64.16 45.63
1994.............. 69.6 65.28 45.45 72.1 66.42 47.88 69.5 77.58 53.94 70.0 66.92 46.84
1995.............. 69.8 69.52 48.52 73.5 69.55 51.09 71.9 80.95 58.18 70.5 70.80 49.93
*1995.............. 65.4 75.03 49.04 66.2 67.52 44.67 62.4 77.15 48.16 65.1 74.18 48.32
*1996.............. 64.9 73.56 47.76 68.6 70.92 48.64 75.5 78.79 59.49 66.5 73.82 49.08
</TABLE>
- ---------------
* Through March 31.
All-Suites Hotels
Prime expects to have 39 AmeriSuites in operation by the end of 1996 and
seeks to have more than 70 AmeriSuites open by the end of 1997. The Company
currently owns 25 AmeriSuites hotels. AmeriSuites are all-suites, upper
mid-price hotels which offer guests an attractively designed suite with a
complimentary continental breakfast in a spacious lobby cafe, remote-control
cable television, fully-equipped business centers, fitness centers and pool
facilities. The hotels provide group meeting space, but do not include
restaurant or lounge facilities. AmeriSuites attract customers principally
because of the quality of the guest suites, which offer distinct living,
sleeping and kitchen areas and the consistency of product quality. Each
AmeriSuites contains approximately 125 suites and two to four meeting rooms.
AmeriSuites are primarily located near corporate office parks and travel
destinations in the Southern and Central parts of the United States. The target
customer is primarily the business traveler with an average length of stay of
two to three nights. AmeriSuites are marketed primarily through direct sales,
national marketing programs and a central reservation system.
The Company believes it has outlined a comprehensive strategy for the rapid
development of the AmeriSuites brand while maintaining control of the
development process.
Detailed Site Selection. The Company undertakes an extensive review
process in selecting sites for new AmeriSuites. Key factors in the selection of
sites include close proximity to demand generators, superior visibility, ease of
access and nearby guest amenities. Sites are initially identified with the
assistance of a nationwide network of brokers. Once identified, the Company
qualifies the sites before entering into a letter of intent. After a letter of
intent is signed, the Company assesses the feasibility of the sites, which
includes extensive reconnaissance by the Company's operations and sales and
marketing staffs as well as independent consultants. Upon satisfactory
completion of economic feasibility, the Company will enter into a contract for
38
<PAGE> 41
the site and commence legal, engineering and environmental due diligence. The
entire process, from site selection to completion of construction and opening,
takes approximately 18 months.
Suburban Market Focus. The Company believes that suburban markets offer a
number of features which permit the rapid expansion of AmeriSuites. As opposed
to major metropolitan markets, suburban markets offer ample land to construct
new hotels. More importantly, the Company believes that suburban locations
appeal to multiple demand generators. In addition to the business traveler, who
is the target customer for AmeriSuites, the weekend/leisure traveler is
attracted by the close proximity to nearby dining, shopping and entertainment
amenities.
Cluster Strategy. The Company intends to expand into new regions by first
developing hotels in cities which it has targeted as "key" cities. The Company
will then add additional hotels in that region in cities which are logical
destinations from the "key" cities. This strategy permits the Company to quickly
build brand recognition of AmeriSuites in a particular region.
The following table sets forth for the five years ended December 31, 1995
and the three months ended March 31, 1995 and 1996, certain data with respect to
AmeriSuites hotels, all of which are owned by the Company. Operating data for
the hotels built during the period are presented from the dates such hotels
commenced operations.
<TABLE>
<CAPTION>
HOTELS ROOMS OCCUPANCY ADR REVPAR
------ ----- --------- ------ ------
<S> <C> <C> <C> <C> <C>
1991........................ 4 497 48.5% $55.33 $26.83
1992........................ 6 749 59.9 54.99 32.97
1993........................ 8 993 64.1 56.21 36.01
1994........................ 12 1,494 65.9 59.90 39.50
1995........................ 19 2,319 67.2 65.45 43.98
*1995........................ 13 1,620 61.2 61.47 37.60
*1996........................ 22 2,640 64.9 67.29 43.67
</TABLE>
-----------------------
*Through March 31.
The Company believes that the all-suites segment will continue to be a high
growth segment of the industry. During the 1991-1995 period, demand for
all-suites rooms grew at more than double the rate of demand growth experienced
by the lodging industry as a whole, and exceeded all-suites supply growth by
67%. The operating performance of the AmeriSuites hotels is benefiting from this
favorable trend. For the eight owned AmeriSuites hotels which were open for all
of 1995 and 1994, REVPAR increased by 11.9% during 1995.
The Company plans to develop the AmeriSuites brand primarily through new
construction to assure product consistency and quality. The average age of the
AmeriSuites hotels as of July 1, 1996 was 4.0 years. The Company believes that
AmeriSuites provide attractive economic returns due to their reasonable cost and
rapid stabilization rate. The Company's AmeriSuites have generally achieved
positive net operating income within 12 months after opening. The Company
believes that economic returns from AmeriSuites development have generally
equaled or exceeded those prevalent in the hotel acquisition markets. In 1995,
six new AmeriSuites hotels were opened in Atlanta, Greensboro, Jacksonville,
Chicago, Columbia and Augusta. In addition, in 1996, the Company has opened six
new AmeriSuites hotels in Miami (2), Dallas (2), Cleveland and Detroit, bringing
the number of AmeriSuites owned and operated by the Company to 25. The Company
currently has 20 AmeriSuites hotels under construction and 25 additional
AmeriSuites sites under contract.
Full-Service Hotels
The Company operates 33 full-service hotels under franchise agreements with
Marriott, Radisson, Sheraton, Crowne Plaza, Holiday Inn, Ramada and Howard
Johnson. The full-service hotels are concentrated in the Northeast. The hotels
are generally positioned along major highways within close proximity to
corporate headquarters, office parks, airports, convention or trade centers and
other major facilities. The customer base
39
<PAGE> 42
for full-service hotels consists primarily of business travelers. Consequently,
the Company's sales force markets to companies which have a significant number
of employees traveling in the Company's operating regions who consistently
produce a high volume demand for hotel room nights. In addition, the Company's
sales force actively markets meeting and banquet services to groups and
individuals for seminars, business meetings, holiday parties and weddings. The
hotels are also marketed through national franchisor programs and central
reservation systems.
The Company's full-service hotels generally have between 150 and 300 rooms
and pool, restaurant, lounge, banquet and meeting facilities. Other amenities
include fitness rooms, room service, remote-control cable television and
facsimile services. In order to enhance guest satisfaction, the Company also has
theme concept lounges such as sports bars, fifties clubs and country and western
bars in a number of its hotels. In recent years, the Company has received
recognition from various franchisors and associations for its hotel quality and
service.
The Company owns and operates one resort hotel, the Frenchman's Reef in St.
Thomas, U.S. Virgin Islands. The Frenchman's Reef is a 517-room resort hotel
which includes a 421-room eight-story building and 96 rooms in the adjacent
Morningstar Beach Resort. The Frenchman's Reef has seven restaurants, extensive
convention facilities, complete sports and beach facilities and a self-contained
total energy system. Certain of these facilities were damaged in the September
1995 hurricane described in the following paragraph. The Frenchman's Reef is
marketed directly through its own sales force in New York City and at the hotel,
and through the Marriott reservation system. The Frenchman's Reef market
includes tour groups, corporate meetings, conventions and individual
vacationers.
In September 1995, the Frenchman's Reef suffered hurricane damage when
Hurricane Marilyn struck the U.S. Virgin Islands. The Company and its insurance
carrier have agreed to settle the Company's property and business interruption
insurance claim for $25.0 million. Due to this insurance coverage, the Company's
liquidity will be affected only to the extent of its insurance deductibles, for
which the Company provided a reserve of $2.2 million in 1995. The Company has
continued to operate the hotel and has repaired a majority of the damaged rooms
on an interim basis. However, the impact of the hurricane has caused operating
profits to decline from the 1995 level. The Company is currently assessing the
extent of further refurbishment required at the Frenchman's Reef.
40
<PAGE> 43
The following table sets forth for the five years ended December 31, 1995
and the three months ended March 31, 1995 and 1996, operating data for the 33
full-service hotels in the Company's portfolio as of March 31, 1996. Operating
data for the hotels built or acquired during the period are presented from the
dates such hotels commenced operations or became Owned Hotels. For purposes of
showing operating trends, the results of eight Owned Hotels that were managed by
the Company prior to their acquisition by the Company during the five-year
period are presented as if they had been Owned Hotels from the dates the Company
began managing the hotels.
<TABLE>
<CAPTION>
OWNED TOTAL
------------------------ ------------------------
HOTELS ROOMS HOTELS ROOMS
------ ----- ------ -----
<S> <C> <C> <C> <C>
1991.................................... 18 3,608 30 6,199
1992.................................... 18 3,608 30 6,199
1993.................................... 18 3,608 31 6,314
1994.................................... 19 3,963 32 6,669
1995.................................... 20 4,112 33 6,818
*1995.................................... 20 4,112 33 6,818
*1996.................................... 20 4,112 33 6,818
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- ------ ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
1991.................................... 62.9% $76.09 $47.86 62.5% $72.55 $45.37
1992.................................... 63.7 78.23 49.86 66.2 73.63 48.72
1993.................................... 67.9 81.68 55.44 69.4 76.51 53.06
1994.................................... 66.6 86.36 57.52 68.8 81.28 55.90
1995.................................... 66.4 91.00 60.41 69.2 85.67 59.26
*1995.................................... 60.3 99.26 59.86 62.4 89.03 55.53
*1996.................................... 58.9 92.26 54.37 63.8 86.13 54.97
</TABLE>
- ---------------
* Through March 31.
The Company has taken advantage of opportunities for acquisitions of
full-service hotels at attractive multiples of cash flow or at significant
discounts to replacement values. In 1995, the Company acquired the 240-room
Princeton Ramada Inn in New Jersey, which the Company has since converted to a
Holiday Inn, and the 149-room St. Tropez Hotel and Shopping Center in Las Vegas,
Nevada.
The majority of the Company's repositioning efforts have been performed at
the full-service hotels. Since 1993, the Company successfully completed the
repositioning of 12 of its full-service hotels which included changing the
franchise affiliations of six such hotels. The Company recently completed the
repositioning of the Hasbrouck Heights Sheraton Hotel to a Crowne Plaza.
Limited-Service Hotels
The Company's limited-service hotels consist of 30 Wellesley Inns and 10
other hotels operated under franchise agreements, primarily with Howard Johnson.
On March 6, 1996, the Company acquired 18 hotels consisting of 16 Wellesley Inns
and two other limited-service hotels for approximately $65.1 million in cash.
The acquisition enables the Company to establish full control over its
proprietary Wellesley Inns brand with all 30 Wellesley Inns owned and operated
by the Company. The acquisition should also provide the Company with significant
new opportunities to maximize the value of its brand.
Of the Company's 30 Wellesley Inns, 16 are located in Florida and the
remainder in the Middle Atlantic and Northeast United States. The prototypical
Wellesley Inn has 105 rooms and is distinguished by its classic stucco exterior,
spacious lobby and amenities such as pool facilities, complimentary continental
breakfast, remote control cable television and facsimile services. In connection
with the acquisition of the 16 Wellesley Inns, the Company intends to refurbish
these hotels to ensure consistent product quality throughout the chain.
41
<PAGE> 44
Marketing efforts for the Wellesley Inn chain will continue to rely heavily on
direct marketing and billboard advertising. In Florida, where the population has
grown rapidly and development opportunities continue to exist, the Company has
built a geographically concentrated group of Wellesley Inns, thereby developing
regional brand name recognition in Florida. The majority of the Florida
Wellesley Inns were constructed within the past five years. The Company
historically has constructed these properties at a cost of approximately $40,000
per room and a construction period of approximately seven to nine months.
Florida Wellesley Inns have a low cost structure and have had rapid
stabilization periods generally within six to twelve months of opening.
The Company's other limited-service hotels have an average of between 100
and 120 rooms and offer complimentary continental breakfast, remote control
cable television, pool facilities and facsimile services, generally with
restaurant facilities within a short distance of the hotel. They are designed to
appeal primarily to business travelers.
The following table sets forth for the five years ended December 31, 1995
and the three months ended March 31, 1995 and 1996, operating data for the 40
limited-service hotels as of March 31, 1996. Operating data for the Owned Hotels
built or acquired during the period are presented from the dates such hotels
commenced operations or became Owned Hotels. For purposes of showing operating
trends, the results of 18 Owned Hotels that were managed by the Company prior to
their acquisition by the Company are presented as if they had been Owned Hotels
from the dates the Company began managing the hotels.
<TABLE>
<CAPTION>
OWNED TOTAL
------------------------- ---------------------------
HOTELS ROOMS HOTELS ROOMS
------ ------ ------ ------
<S> <C> <C> <C> <C>
1991.................................. 32 3,179 33 3,328
1992.................................. 33 3,275 34 3,424
1993.................................. 35 3,520 36 3,669
1994.................................. 37 3,730 40 4,164
1995.................................. 37 3,730 40 4,164
*1995.................................. 37 3,730 40 4,164
*1996.................................. 37 3,730 40 4,164
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- ------ ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
1991.................................. 72.6% $44.57 $32.37 71.8% $44.78 $32.16
1992.................................. 74.3 44.41 32.97 73.6 44.46 32.74
1993.................................. 76.8 45.43 34.89 76.1 45.46 34.61
1994.................................. 73.9 47.57 35.15 73.1 47.31 34.60
1995.................................. 74.7 50.77 37.93 74.1 50.53 37.46
*1995.................................. 72.4 58.26 42.19 71.0 57.26 40.66
*1996.................................. 71.6 60.17 43.09 71.9 59.23 42.58
</TABLE>
- ---------------
* Through March 31.
REFURBISHMENT PROGRAM
The Company continuously refurbishes its Owned Hotels in order to maintain
consistent quality standards. The Company generally spends approximately 4% to
6% of hotel revenue on capital improvements at its Owned Hotels and typically
refurbishes each hotel approximately every five years. The Company believes that
its Owned Hotels are in generally good physical condition, with over half of the
Owned Hotels being five years old or less. The Company recommends the
refurbishment and repair projects on its Managed Hotels although spending
amounts vary based on the plans of such hotels' owners and the significance of
the Company's interest as a mortgagee.
In addition to making normal capital improvements, the Company reviews on
an on-going basis each hotel's competitive position in the local market in order
to decide the types of product that will best meet the market's demand
characteristics. During the past three years, the Company has implemented a
program of
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<PAGE> 45
repositioning its Owned Hotels. Repositioning a hotel generally requires
renovation and refurbishment of the exterior and interior of the building and
may result in a change of brand name. In 1993, 1994 and 1995, the Company spent
$2.8 million, $8.9 million and $13.7 million, respectively, on the repositioning
of 19 of its Owned Hotels, which included changing the franchise affiliation of
12 of such hotels. In 1996, the Company completed the repositioning of the
Hasbrouck Heights Crowne Plaza. Major refurbishment efforts during the remainder
of 1996 will focus on the 18 hotels acquired on March 6, 1996, 16 of which are
Wellesley Inns. The Company expects to spend approximately $7 million to $8
million in connection with the Wellesley Inns repositionings.
MORTGAGES AND NOTES RECEIVABLE
As of March 31, 1996, mortgages and notes receivable totaled $26.6 million
(including the current portion) and consisted of an aggregate principal amount
of $9.1 million of mortgages and notes secured by Managed Hotels, $13.8 million
of mortgages secured by hotels that are leased by the Company from third parties
and $3.7 million of other mortgages and notes secured primarily by other hotels.
The Company has pursued a strategy of converting its mortgage and notes
receivable into cash or operating hotel assets and has received $105.8 million
in cash and added nine operating hotel assets through note settlements since
July 31, 1992. In 1996, the Company obtained control of the 210-room Cocoa Beach
Howard Johnson Plaza and the 204-room Fairfield Radisson by converting these
mortgage notes receivable into long-term leasehold positions. See Note 5 to
Consolidated Financial Statements.
MANAGEMENT AGREEMENTS
As of July 1, 1996, the Company provided hotel management services to third
party hotel owners of 16 Managed Hotels. Management fees are based on fixed
percentages of the property's total revenues and incentive payments based on
certain measures of hotel income. Additional fees are also generated from the
rendering of specific services such as accounting services, construction
services, design services and sales commissions. The Company's fixed management
fee percentages range from 1.0% to 5.0% and average 3.5% of total revenues
before giving consideration to performance related incentive payments. The base
and incentive fees comprised 56.2%, or $4.6 million, of the total management and
other fees for 1995. Terms of the management agreements vary but the majority
are short-term and, therefore, there are risks associated with termination of
these agreements. Although management agreements may be terminated in connection
with a change in ownership of the underlying hotels, such risks may be limited
due to the Company's other financial interests in these hotels. The Company
holds financial interests in the form of mortgages or profit participations in 9
of the 16 Managed Hotels.
OPERATIONS
As a leading domestic hotel operating company, the Company enjoys a number
of operating advantages over other lodging companies. With 98 hotels covering a
number of price points and broad geographic regions, the Company possesses the
critical mass to support sophisticated operating, marketing and financial
systems. The Company believes that its broad array of central services permits
on-site hotel general managers to effectively focus on providing guest services,
results in economies of scale and leads to above-market hotel profit margins. As
a result of these operating strategies, the Company's hotels generated average
operating profit margins that exceeded comparable industry averages for 1995, as
reported by industry sources, by approximately 3% for all-suites hotels, 16% for
full-service hotels and 4% for limited-service hotels.
The Company's operating strategy combines operating service and guidance
from its central management team with decentralized decision-making authority
delegated to each hotel's on-site management. The on-site hotel management teams
consist of a general manager and, depending on the hotel's size and market
positioning, managers of sales and marketing, food and beverage, front desk
services, housekeeping and engineering. The Company's operating objective is to
exceed guest expectations by providing quality services and comfortable
accommodations at a fair value. On-site hotel management is responsible for
efficient expense controls and uses operating standards provided by the Company.
Within parameters established in the operating and capital planning process,
on-site management possesses broad decision-making authority on
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<PAGE> 46
operating issues such as guest services, marketing strategies, hiring practices
and incentive programs. Each hotel's management team is empowered to take all
necessary steps to ensure guest satisfaction within established guidelines. Key
on-site personnel participate in an incentive program based on hotel revenues
and profits.
The central management team, located in Fairfield, New Jersey, provides
four major categories of services: (i) operations management, (ii) sales and
marketing management, (iii) financial reporting and control and (iv) hotel
support services.
Operations Management. Operations management consists of the development,
implementation and monitoring of hotel operating standards and is provided by a
network of regional operating officers who are each responsible for the
operations of 10 to 30 hotels. They are supported by training, food and beverage
and human resources departments, each staffed full-time by specialized
professionals. The cornerstone of operations management is employee training,
with a staff of professionals dedicated to training in sales, housekeeping, food
service, front desk services and leadership. The Company believes these efforts
increase employee effectiveness, reduce turnover and improve the level of guest
services.
The Company's cost-effective centralized management services benefit not
only its existing operations but also provide additional opportunities for
growth and development from acquisitions. In all of the recently acquired
hotels, the Company's central management has assumed certain of the operational
responsibilities which previously had been performed by the on-site hotel
management. In addition, the Company believes it has improved operating
efficiencies for each of the hotels that it has acquired.
Sales and Marketing Management. Aggressive sales and marketing is a top
operating priority. Sales and marketing management is directed by a corporate
staff of 20 professionals, including regional marketing directors who are
responsible for each hotel's sales and marketing strategies, and the Company's
national sales group, Market Segments, Inc. ("MSI"). In cooperation with the
regional marketing staff, on-site sales management develops and implements
short- and intermediate-term marketing plans. The Company focuses on yield
management techniques, which optimize the relationship between hotel rates and
occupancies and seek to maximize profitability. In addition, the Company assumes
prominent roles in franchise marketing associations to obtain maximum benefit
from franchise affiliations. The Company's in-house creative department develops
hotel advertising materials and programs at cost-effective rates.
Complementing regional and on-site marketing efforts, MSI's marketing team
targets specific hotel room demand generators including tour operators, major
national corporate accounts, athletic teams, religious groups and others with
segment-specialized sales initiatives. MSI's primary objective is to book hotel
rooms at the Company's hotels and its secondary objective is to market its
services on a commission basis to hotels throughout the industry. Sales
activities on behalf of non-affiliated hotels increase the number of hotels
where bookings can be made to support marketing efforts and defray the costs of
the marketing organization.
Financial Reporting and Control. The Company's system of centralized
financial reporting and control permits management to closely monitor
decentralized hotel operations without the cost of financial personnel on site.
Centralized accounting personnel produce detailed financial and operating
reports for each hotel. Additionally, central management directs budgeting and
analysis, processes payroll, handles accounts payable, manages each hotel's
cash, oversees credit and collection activities and conducts on-site hotel
audits.
Hotel Support Services. The Company's hotel support services combine a
number of technical functions in central, specialized management teams to attain
economies of scale and minimize costs. Central management handles purchasing,
directs construction and maintenance and provides design services. Technical
staff teams support each hotel's information and communication systems needs.
Additionally, the Company directs safety/risk management activities and provides
central legal services.
FRANCHISE AGREEMENTS
The Company enters into non-exclusive franchise licensing agreements with
franchisors, which agreements typically have a ten year term and allow the
Company to benefit from franchise brand recognition and loyalty. The
non-exclusive nature of the franchise agreement allows the Company the
flexibility to continue to
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<PAGE> 47
develop properties with the brands that have shown success in the past or to
develop in conjunction with other brand names. This flexibility also plays an
important role in the Company's repositioning strategy, which emphasizes proper
positioning of its properties within their respective markets to maximize their
return on investment. Over the past three years, the Company has repositioned
several hotels. These repositionings include the Portland, Oregon Crowne Plaza
(formerly Howard Johnson), the Las Vegas, Nevada Crowne Plaza (formerly Howard
Johnson), the Saratoga Springs, New York Sheraton (formerly Ramada Renaissance),
the Fairfield, New Jersey Radisson (formerly Sheraton), the Orlando, Florida
Shoney's Inn (formerly Howard Johnson), the Trevose, Pennsylvania Radisson
(formerly Ramada), the Princeton, New Jersey Holiday Inn (formerly Ramada) and
the Hasbrouck Heights Crowne Plaza (formerly Sheraton). The Company believes its
relationships with numerous nationally recognized franchisors provides
significant benefits for both its existing hotel portfolio and prospective hotel
acquisitions. While the Company currently enjoys good relationships with its
franchisors, there can be no assurance that a desirable replacement would be
available if any of the franchise agreements were to be terminated.
The franchise agreements require the Company to pay annual fees, to
maintain certain standards and to implement certain programs which require
additional expenditures by the Company such as remodeling or redecorating. The
payment of annual fees, which typically total 7% to 8% of room revenues, cover
royalties and the costs of marketing and reservation services provided by the
franchisors. Franchise agreements, when initiated, generally provide for an
initial fee in addition to annual fees payable to the franchisor.
LITIGATION
In May 1996, the Company received a favorable ruling from the U.S. Court of
Appeals for the 11th Circuit (the "Court of Appeals") in its litigation with
Financial Security Assurance, Inc. ("FSA") in which FSA sought approximately
$31,200,000 received by the Company in settlement of a note and guaranty from
Allen V. Rose and Arthur Cohen ("Rose and Cohen"). The Company had reached a
settlement in 1993 with Rose and Cohen which provided for Rose or his affiliate
to pay the Company $25,000,000 plus proceeds from the sale of approximately
1,100,000 shares of the Company's common stock held by Rose, bringing the total
settlement proceeds to approximately $31,200,000. FSA asserted that, under the
terms of an intercreditor agreement, it was entitled to receive the settlement
proceeds otherwise payable to the Company. The U.S. Bankruptcy Court for the
Southern District of Florida (the "Bankruptcy Court") ruled in April 1994 that
the Company alone was entitled to the settlement proceeds, and the Company used
$25,000,000 of the settlement proceeds to retire certain senior secured notes.
FSA appealed to the U.S. District Court for the Southern District of Florida
(the "District Court"), which affirmed the Bankruptcy Court's ruling. On May 12,
1995, the Company used the remaining proceeds plus accrued interest to prepay
the remaining senior secured notes outstanding. FSA appealed to the Court of
Appeals, which on May 21, 1996 affirmed the District Court's ruling. While the
decision of the Court of Appeals is subject to appeal, the Company believes that
any further appeal will affirm the Court of Appeals ruling and that there will
be no effect on the Company's financial position, results of operations or
liquidity.
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<PAGE> 48
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names, ages and positions of the directors and
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David A. Simon........... 44 President, Chief Executive Officer and Chairman of the Board
of Directors
John M. Elwood........... 42 Executive Vice President, Chief Financial Officer and Director
Howard M. Lorber(1)...... 47 Director
Herbert Lust, II(1)...... 69 Director
Jack H. Nusbaum.......... 56 Director
Allen J. Ostroff(1)...... 60 Director
A.F. Petrocelli(1)....... 52 Director
Paul H. Hower............ 62 Executive Vice President
Timothy E. Aho........... 52 Senior Vice President/Development
Denis W. Driscoll........ 51 Senior Vice President/Human Resources
John H. Leavitt.......... 44 Senior Vice President/Sales and Marketing
Joseph Bernadino......... 49 Senior Vice President, Secretary and General Counsel
Richard T. Szymanski..... 39 Vice President and Corporate Controller
Douglas W. Vicari........ 36 Vice President and Treasurer
</TABLE>
- ---------------
(1) Member of the Compensation and Audit Committee.
The following is a biographical summary of the experience of the directors
and executive officers of the Company:
David A. Simon has been President, Chief Executive Officer and a Director
since 1992 and Chairman of the Board of Directors of the Company since 1993. Mr.
Simon was a director of PMI from 1991 to 1992. Mr. Simon was the Chief Executive
Officer of PMI from 1991 to 1992.
John M. Elwood has been a Director and Executive Vice President of the
Company since 1992 and Chief Financial Officer since 1993. Mr. Elwood was the
Director of Reorganization of PMI from 1991 to 1992.
Howard M. Lorber has been a Director and a member of the Compensation and
Audit Committee since 1994. Mr. Lorber is Chairman of the Board of Directors of
Nathan's Famous, Inc. and Hallman & Lorber Associates, Inc. and a director of
New Valley Corporation, United Capital Corp. and Alpine Lace Brands, Inc. Mr.
Lorber has been Chief Executive Officer of Hallman & Lorber Associates, Inc. for
more than the past five years, President and Chief Operating Officer of New
Valley Corporation since 1994 and Chief Executive Officer of Nathan's Famous,
Inc. since 1993. Mr. Lorber has also been a general partner or shareholder of a
corporate general partner of various limited partnerships organized to acquire
and operate real estate properties.
Herbert Lust, II has been a Director since 1992 and Chairman of the
Compensation and Audit Committee of the Company since 1993. Mr. Lust was a
member of the Committee of Unsecured Creditors of PMI from 1991 to 1992. Mr.
Lust has been a private investor and President of Private Water Supply Inc. for
more than the past five years. Mr. Lust is a director of BRT Realty Trust.
Jack H. Nusbaum has been a Director since 1994. Mr. Nusbaum is the Chairman
of the law firm of Willkie Farr & Gallagher, where he has been a partner for
more than the past twenty-five years. He also is a director of Pioneer
Companies, Inc., W.R. Berkley Corporation, The Topps Company, Inc. and Fine Host
Corporation.
Allen J. Ostroff has been a Director since 1992 and a member of the
Compensation and Audit Committee since 1993. Mr. Ostroff has been a Managing
Director of the Prudential Realty Group, a
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<PAGE> 49
subsidiary of The Prudential Insurance Company of America, since June 1994 and
was a Senior Vice President of the Prudential Realty Group from 1991 to June
1994.
A.F. Petrocelli has been a Director since 1992 and a member of the
Compensation and Audit Committee since 1993. Mr. Petrocelli has been the
Chairman of the Board of Directors and Chief Executive Officer of United Capital
Corp. for more than the past five years. He is also a director of Nathan's
Famous, Inc.
Paul H. Hower has been an Executive Vice President of the Company since
1993. Mr. Hower was President of Integrity Hospitality Services from 1991 to
1993 and Vice President and Hotel Division Manager of B.F. Saul Co. in 1991.
Timothy E. Aho has been a Senior Vice President of the Company since 1994.
Mr. Aho was a Senior Vice President of Development for Boykin Management Company
from 1993 to 1994 and Vice President of Development for Interstate Hotels
Corporation from 1991 to 1993.
Denis W. Driscoll has been a Senior Vice President of the Company since
1993. Mr. Driscoll was President of Driscoll Associates, a human resources
consulting organization, from 1991 to 1993.
John H. Leavitt has been a Senior Vice President of the Company since 1992.
Mr. Leavitt was a Senior Vice President of PMI from 1991 to 1992 and a Senior
Vice President of Medallion Hotel corporation in 1991.
Joseph Bernadino has been Senior Vice President, Secretary and General
Counsel of the Company since 1992. Mr. Bernadino was an Assistant Secretary and
Assistant General Counsel of PMI from 1991 to 1992.
Richard T. Szymanski has been a Vice President and Corporate Controller of
the Company since 1992. Mr. Szymanski was Corporate Controller of PMI from 1991
to 1992.
Douglas W. Vicari has been a Vice President and Treasurer of the Company
since 1992 and was Vice President and Treasurer of PMI during 1992. Mr. Vicari
was the Director of Budget and Financial Analysis of PMI from 1991 to 1992.
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<PAGE> 50
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 75,000,000 shares
of Common Stock and 20,000,000 shares of Preferred Stock.
COMMON STOCK
At March 31, 1996, 31,049,512 shares of Common Stock were issued and
outstanding. Holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of the Company's stockholders, including the
election of directors. The Common Stock does not have cumulative voting rights.
Subject to the preferential rights of any outstanding series of Preferred Stock,
the holders of Common Stock will be entitled to such dividends as may be
declared from time to time by the Board of Directors from funds legally
available therefor, and will be entitled to receive pro rata all assets of the
Company available for distribution to such holders upon liquidation. All shares
of Common Stock are fully paid and non-assessable.
PREFERRED STOCK
The Board of Directors has authority to establish the designations,
liquidation preferences, dividend rights, terms of redemption, conversion
rights, sinking fund terms and all other preferences and rights (including
voting rights) of any series of Preferred Stock. The ability of the Board of
Directors to issue Preferred Stock, while providing flexibility in connection
with possible acquisitions and other corporate purposes, could, among other
things, adversely affect the voting powers of holders of Common Stock and, under
certain circumstances, may discourage an attempt by others to gain control of
the Company.
WARRANTS
Warrants to purchase 2,106,383 shares of Common Stock were issued to former
shareholders of the Company's predecessor, PMI, in partial settlement of their
bankruptcy interests. The warrants became exercisable on August 31, 1993 at an
exercise price of $2.71 per share. The exercise price was determined from the
average per share daily closing price of the Common Stock during the year
following the effective date of the PMI reorganization. As of March 31, 1996,
warrants to purchase 663,326 shares of Common Stock had been exercised.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Certificate of Incorporation and Bylaws of the
Company summarized below may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in its best interest, including an attempt that might result in a
premium over the market price for the shares held by stockholders.
Staggered Board of Directors. The Certificate of Incorporation and the
Bylaws provide that the Board of Directors will be divided into three classes of
Directors, each class constituting approximately one-third of the total number
of Directors and with the classes serving staggered three-year terms. The
classification of Directors will have the effect of making it more difficult for
shareholders to change the composition of the Board of Directors. The Company
believes, however, that the longer time required to elect a majority of a
classified Board of Directors will help to ensure continuity and stability of
the Company's management and policies.
The classification provisions could also have the effect of discouraging a
third party from accumulating large blocks of the Company's stock or attempting
to obtain control of the Company, even though such an attempt might be
beneficial to the Company and its stockholders. Accordingly, stockholders could
be deprived of certain opportunities to sell their shares of Common Stock at a
higher market price than might otherwise be the case.
Fair Price Provisions. Provisions of the Certificate of Incorporation (the
"Fair Price Provisions") limit the ability of an Interested Stockholder (defined
as the beneficial owner of 20% of outstanding voting shares) to effect certain
transactions involving the Company. Unless the Fair Price Provisions are
satisfied, an
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<PAGE> 51
Interested Stockholder may not engage in a business combination involving the
Company unless approved by 75% of the Company's outstanding voting shares or a
majority of the Disinterested Directors (as defined therein). A business
combination includes a merger, consolidation, sale of assets valued at over
$25.0 million or issuance or transfer of securities valued at over $25.0
million, or a similar transaction. In general, the Fair Price Provisions require
that an Interested Stockholder pay shareholders at least the same amount of cash
or the same amount and type of consideration paid by the Interested Stockholder
when it initially acquired the Company's shares.
The Fair Price Provisions are designed to discourage attempts to take over
the Company in non-negotiated transactions utilizing two-tier pricing tactics,
which typically involve the accumulation of a substantial block of the target
corporation's stock followed by a merger or other reorganization of the acquired
company on terms determined by the purchaser. Due to the difficulties of
complying with the requirements of the Fair Price Provisions, the Fair Price
Provisions generally discourage attempts to obtain control of the Company.
LIMITATIONS ON DIRECTORS' LIABILITY
The Company's Certificate of Incorporation provides that no director of the
Company shall be liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) in respect of certain unlawful
dividend payments or stock redemptions or redemptions or repurchases pursuant to
Section 174 of the Delaware General Corporation Law or (iv) for any transaction
from which the director derived an improper personal benefit. The effect of
these provisions is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of fiduciary duty as a director
(including breaches resulting from grossly negligent behavior), except in the
situations described above. These provisions will not limit the liability of
directors under Federal securities laws.
CERTAIN PROVISIONS OF DELAWARE LAW REGARDING AN INTERESTED STOCKHOLDER
Section 203 of the Delaware General Corporation Law prohibits certain
transactions between a Delaware corporation and an "interested stockholder,"
which is defined as a person who, together with any affiliates or associates of
such person, beneficially owns, directly or indirectly, 15% or more of the
outstanding voting shares of a Delaware corporation. This provision prohibits
certain business combinations (defined broadly to include mergers,
consolidations, sales or other dispositions of assets having an aggregate value
in excess of 10% of the consolidated assets of the corporation, and certain
transactions that would increase the interested stockholder's proportionate
share ownership in the corporation) between an interested stockholder and a
corporation for a period of three years after the date the interested
stockholder becomes an interested stockholder, unless (i) the business
combination is approved by the corporation's board of directors prior to the
date the interested stockholder becomes an interested stockholder; (ii) the
interested stockholder acquired at least 85% of the voting stock of the
corporation (other than stock held by directors who are also officers or by
certain employee stock plans) in the transaction in which it becomes an
interested stockholder; or (iii) the business combination is approved by a
majority of the board of directors and by the affirmative vote of 66 2/3% of the
outstanding voting stock which is not owned by the interested stockholder.
49
<PAGE> 52
UNDERWRITING
The Underwriters named below have severally agreed, subject to the terms
and conditions of the Underwriting Agreement, to purchase from the Company the
number of shares of Common Stock opposite their respective names at the public
offering price less the underwriting discount set forth on the cover page of
this Prospectus. The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, and that the
Underwriters are committed to purchase all of such shares if they purchase any.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Montgomery Securities................................................
BT Securities Corporation............................................
Smith Barney Inc. ...................................................
---------
Total...................................................... 7,500,000
=========
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Common Stock to the public on the terms set forth on the cover page of
this Prospectus. The Underwriters may allow to selected dealers a concession of
not more than $ per share, and the Underwriters may allow, and such
dealers may reallow, a discount of not more than $ per share to other
dealers. The public offering price and the concession and discount to dealers
may be changed by the Underwriters after the public offering of the shares. The
Common Stock is offered subject to receipt and acceptance by the Underwriters,
and to certain other conditions, including the right to reject orders in whole
or in part.
The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 1,125,000 shares of Common Stock solely to cover
over-allotments, if any, at the same price per share as the initial shares to be
purchased by the Underwriters. To the extent the Underwriters exercise this
option, each of the Underwriters will be committed to purchase such additional
shares in approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments made in
connection with the Offering.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act of 1933, as amended (the "Securities Act"), or will contribute to
payments the Underwriters may be required to make in respect thereof.
The Company and its directors and executive officers have agreed not to
offer for sale, sell, distribute or otherwise dispose of any shares of Common
Stock, or any securities convertible into or warrants to purchase shares of
Common Stock, now owned or hereafter acquired for a period of approximately 90
days after the date of this Prospectus, except under certain circumstances,
without prior written consent of Montgomery Securities.
BT Securities Corporation is an affiliate of Bankers Trust Company, which
is the agent and a lender under the Revolving Credit Facility, and with respect
to which Bankers Trust Company has received and will receive customary
compensation. Bankers Trust Company and its affiliates have provided other
commercial and investment banking services to the Company, with respect to which
Bankers Trust Company and its affiliates have received customary compensation.
Smith Barney Inc. from time to time has provided financial advisory
services to the Company. Smith Barney Inc. has received customary fees for such
services.
LEGAL MATTERS
Certain legal matters with respect to the legality of the shares of Common
Stock offered hereby will be passed upon for the Company by Willkie Farr &
Gallagher, New York, New York. Certain legal matters relating to the Offering
will be passed upon for the Underwriters by Latham & Watkins, Washington, D.C.
Jack H. Nusbaum, a Director of the Company who beneficially owns 10,000 shares
of Common Stock and an additional 40,000 shares of Common Stock underlying stock
options, is a partner in the law firm of Willkie Farr & Gallagher.
50
<PAGE> 53
EXPERTS
The consolidated financial statements included in this Prospectus and
elsewhere in the Registration Statement, to the extent and for the periods
indicated in their reports, have been audited by Arthur Andersen LLP,
independent public accountants, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
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<PAGE> 54
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy materials and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
materials and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Regional Offices of the Commission at Seven World Trade Center, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
IllinwReference Section of the Commission, Washington, D.C. 20549 at prescribed
rates. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is http://www.
sec. gov. The Company's Common Stock, par value $.01 per share, 9 1/4% First
Mortgage Notes due 2006 and 7% Convertible Subordinated Notes due 2002 are
listed on the New York Stock Exchange. Reports, proxy materials and other
information concerning the Company may also be inspected at the offices of the
New York Stock Exchange, 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain portions
of which are omitted as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock, reference is made to the Registration Statement, including the exhibits
and schedules. The Registration Statement, together with its exhibits and
schedules thereto, may be inspected, without charge, at the Commission's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20459, and also at
the regional offices of the Commission listed above. Copies of such material may
also be obtained from the Commission upon the payment of prescribed fees.
Statements contained in the Prospectus as to any contracts, agreements or
other documents filed as an exhibit to the Registration Statement are not
necessarily complete, and in each instance reference is hereby made to the copy
of such contract, agreement or other document filed as an exhibit to the
Registration Statement for a full statement of the provisions thereof, and each
such statement in the Prospectus is qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995, the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996, the Company's Current Report on Form 8-K, as amended on Form
8-K/A, dated March 6, 1996, the Company's Current Report on Form 8-K, dated July
17, 1996 and the description of the Common Stock contained in the Company's
Registration Statement on Form 8-A dated June 5, 1992, as amended on July 9,
1992 and December 21, 1992, each previously filed by the Company with the
Commission, are incorporated herein by reference.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and before the
termination of the Offering shall be deemed incorporated herein by reference,
and such documents shall be deemed to be a part hereof from the date of filing
such documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement as so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the request of any such person, a copy of any or all
of the above documents incorporated herein by reference (other than exhibits to
such documents, unless such exhibits are specifically incorporated by reference
into the documents that this Prospectus incorporates). Requests should be
directed to Prime Hospitality Corp., 700 Route 46 East, Fairfield, New Jersey
07007-2700, Attention: Joseph Bernadino, Senior Vice President, Secretary and
General Counsel, (201) 882-1010.
52
<PAGE> 55
PRIME HOSPITALITY CORP.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated:
Balance Sheets at December 31, 1995 and March 31, 1996 (Unaudited).................. F-2
Statements of Income (Unaudited) for the Three Months Ended March 31, 1995 and March
31, 1996......................................................................... F-3
Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 1995 and
March 31, 1996................................................................... F-4
Notes to Interim Consolidated Financial Statements.................................... F-5
Report of Arthur Andersen LLP......................................................... F-7
Consolidated:
Balance Sheets at December 31, 1994 and 1995........................................ F-8
Statements of Income for the Years Ended December 31, 1993, 1994 and 1995........... F-9
Statements of Stockholders' Equity for the Years Ended December 31, 1993, 1994 and
1995............................................................................. F-10
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995....... F-11
Notes to Consolidated Financial Statements............................................ F-12
</TABLE>
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in the
consolidated financial statements or notes thereto.
Separate financial statements of 50% or less owned entities accounted for
by the equity method have been omitted because such entities considered in the
aggregate as a single subsidiary would not constitute a significant subsidiary.
F-1
<PAGE> 56
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND MARCH 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 49,533 $ 23,629
Marketable securities available for sale........................... 11,929 7,999
Restricted cash.................................................... 8,973 9,434
Accounts receivable, net of reserves............................... 13,139 14,318
Current portion of mortgages and notes receivable.................. 1,533 1,173
Other current assets............................................... 8,070 9,928
-------- --------
Total current assets....................................... 93,177 66,481
Property, equipment and leasehold improvements, net of accumulated
depreciation and amortization...................................... 398,201 529,916
Mortgages and notes receivable, net of current portion............... 64,962 25,405
Other assets......................................................... 16,901 21,074
-------- --------
TOTAL ASSETS............................................... $573,241 $ 642,876
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt............................................ $ 5,731 $ 5,699
Other current liabilities.......................................... 38,961 40,250
-------- --------
Total current liabilities.................................. 44,692 45,949
Long-term debt, net of current portion............................... 276,920 335,271
Other liabilities.................................................... 18,713 18,682
-------- --------
Total liabilities.......................................... 340,325 399,902
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.10 per share; 20,000,000 shares
authorized; none issued......................................... -- --
Common stock, par value $.01 per share; 75,000,000 shares
authorized; 31,004,499 and 31,049,512 shares issued and
outstanding at December 31, 1995 and March 31, 1996,
respectively.................................................... 310 310
Capital in excess of par value....................................... 183,050 185,166
Retained earnings.................................................... 49,556 57,498
-------- --------
Total stockholders' equity................................. 232,916 242,974
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................. $573,241 $ 642,876
======== ========
</TABLE>
See Accompanying Notes to Interim Consolidated Financial Statements.
F-2
<PAGE> 57
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1995 1996
------- -------
<S> <C> <C>
Revenues:
Lodging.............................................................. $34,375 $41,974
Food and beverage.................................................... 8,884 8,024
Management and other fees............................................ 1,637 1,692
Interest on mortgages and notes receivable........................... 3,026 2,681
Business interruption insurance...................................... -- 3,739
Rental and other..................................................... 316 504
------- -------
Total revenues............................................... 48,238 58,614
------- -------
Costs and expenses:
Direct hotel operating expenses:
Lodging........................................................... 8,698 10,624
Food and beverage................................................. 6,657 6,914
Selling and general............................................... 11,824 14,010
Occupancy and other operating........................................ 2,611 3,482
General and administrative........................................... 3,872 4,219
Depreciation and amortization........................................ 3,976 5,224
------- -------
Total costs and expenses..................................... 37,638 44,473
------- -------
Operating income....................................................... 10,600 14,141
Investment income...................................................... 514 1,265
Interest expense....................................................... (4,100) (5,851)
Other income........................................................... -- 3,432
------- -------
Income before income taxes and extraordinary items..................... 7,014 12,987
Provision for income taxes............................................. 2,806 5,195
------- -------
Income before extraordinary items...................................... 4,208 7,792
Extraordinary items -- gains on discharges of indebtedness
(net of income taxes)................................................ 7 149
------- -------
Net income............................................................. $ 4,215 $ 7,941
======= =======
Earnings per common share:
Primary:
Income before extraordinary items.................................... $ .13 $ .24
Extraordinary items.................................................. -- --
------- -------
Net earnings........................................................... $ .13 $ .24
======= =======
Fully diluted:
Income before extraordinary items.................................... $ .13 $ .22
Extraordinary items.................................................. -- --
------- -------
Net earnings........................................................... $ .13 $ .22
======= =======
</TABLE>
See Accompanying Notes to Interim Consolidated Financial Statements.
F-3
<PAGE> 58
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1995 1996
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................ $ 4,215 $ 7,941
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................. 3,976 5,224
Business interruption insurance revenue........................ -- (3,739)
Utilization of net operating loss carryforwards................ 1,418 1,958
Gains on settlements of notes receivable....................... -- (1,778)
Gains on discharges of indebtedness............................ (11) (249)
Gains on sales of assets....................................... -- (1,956)
Compensation expense related to stock options.................. 12 --
Increase (decrease) from changes in other operating assets and
liabilities:
Accounts receivable............................................ (1,965) (1,179)
Other current assets........................................... (538) 1,883
Other liabilities.............................................. (2,258) 550
-------- ---------
Net cash provided by operating activities...................... 4,849 8,655
-------- ---------
Cash flows from investing activities:
Net proceeds from mortgages and other notes receivable............ 3,211 8,275
Disbursements for mortgages and notes receivable.................. -- (800)
Proceeds from sales of property, equipment and leasehold
improvements................................................... 13 3,706
Purchases of property, equipment and leasehold improvements....... (16,072) (103,648)
Increase in restricted cash....................................... (585) (461)
Proceeds from sales of marketable securities...................... 100 4,856
Other............................................................. 415 (129)
-------- ---------
Net cash used in investing activities..................... (12,918) (88,201)
-------- ---------
Cash flows from financing activities:
Net proceeds from issuance of debt................................ 39,000 114,979
Payments of debt.................................................. (1,533) (61,494)
Proceeds from the exercise of stock options and warrants.......... 472 157
-------- ---------
Net cash provided by financing activities................. 37,939 53,642
-------- ---------
Net increase (decrease) in cash and cash equivalents................ 29,870 (25,904)
Cash and cash equivalents at beginning of period.................... 12,524 49,533
-------- ---------
Cash and cash equivalents at end of period.......................... $ 42,394 $ 23,629
======== =========
</TABLE>
See Accompanying Notes to Interim Consolidated Financial Statements.
F-4
<PAGE> 59
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
In the opinion of management, the accompanying interim unaudited
consolidated financial statements of Prime Hospitality Corp. and subsidiaries
(the "Company") contain all material adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial position of the Company
as of March 31, 1996 and the results of its operations for the three months
ended March 31, 1995 and 1996 and cash flows for the three months ended March
31, 1995 and 1996.
The financial statements for the three months ended March 31, 1995 and 1996
were prepared on a consistent basis with the audited consolidated financial
statements for the year ended December 31, 1995.
The consolidated results of operations for the three months ended March 31,
1996 are not necessarily indicative of the results to be expected for the full
year. These interim unaudited consolidated financial statements should be read
in conjunction with the audited consolidated financial statements included in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995.
NOTE 2 -- ACQUISITIONS
On March 6, 1996, the Company acquired 18 hotels consisting of 16 Wellesley
Inns and two other limited-service hotels for approximately $65,100,000 in cash.
The acquisition enabled the Company to establish full control over its
proprietary Wellesley Inns brand with all 30 Wellesley Inns owned and operated
by the Company. The acquisition price was comprised of approximately $60,400,000
to purchase the first mortgage on the 18 hotels with a face value of
approximately $70,500,000 and $4,700,000 to purchase the interests of the three
partnerships which owned the hotels. Approximately $1,900,000 of the total
purchase price was paid to a partnership in which a general partner is the
father of the Company's President and Chief Executive Officer. In connection
with the transaction, the Company also terminated its management agreements and
junior subordinated mortgages related to the 18 hotels. The transaction has been
accounted for as a purchase and, accordingly, the revenues and expenses of these
hotels have been included in reported results from the date of acquisition. If
these operations had been included in the consolidated financial statements
since January 1, 1996, reported results would not have been materially
different.
NOTE 3 -- DEBT
On January 23, 1996, the Company issued $120,000,000 of 9 1/4% First
Mortgage Notes due 2006. Interest on the notes is payable semi-annually on
January 15 and July 15. The notes are secured by 15 hotels and contain certain
covenants including limitations on the incurrence of debt, dividend payments,
certain investments, transactions with affiliates, asset sales and mergers and
consolidations. These notes are redeemable, in whole or in part, at the option
of the Company after January 15, 2001 at premiums to principal which decline on
each anniversary date. The Company utilized a portion of the proceeds to pay
down $51,601,000 of debt.
NOTE 4 -- EARNINGS PER COMMON SHARE
Primary earnings per common share was computed based on the weighted
average number of common shares and common share equivalents (dilutive stock
options and warrants) outstanding during each period. The weighted average
number of common shares used in computing primary earnings per share was
32,365,000 and 32,865,000 for the three months ended March 31, 1995 and 1996,
respectively.
Fully diluted earnings per share, in addition to the adjustments for
primary earnings per share, reflects the elimination of interest expense and the
issuance of additional common shares from the assumed conversion of the 7%
convertible subordinated notes from their issuance in April 1995. The weighted
average number of
F-5
<PAGE> 60
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
common shares used in computing fully diluted earnings per share was 32,365,000
and 40,346,000 for the three months ended March 31, 1995 and 1996, respectively.
NOTE 5 -- BUSINESS INTERRUPTION INSURANCE REVENUE
In September 1995, the Company-owned Marriott's Frenchman's Reef Hotel (the
"Frenchman's Reef") in St. Thomas U.S. Virgin Islands suffered hurricane damage.
Due to extensive property and business interruption insurance, the Company
believes that its liquidity will be affected only to the extent of its insurance
deductibles for which the Company provided a reserve of $2,200,000 in 1995. The
Company has continued to operate the hotel and has repaired a majority of the
damaged rooms on an interim basis. However, the impact of the hurricane has
caused operating profits to decline from the prior year level. For the three
months ended March 31, 1996, the Company continued to record the operating
revenues and expenses of the Frenchman's Reef. In addition, the Company
estimated its business interruption insurance proceeds assuming no growth over
the prior year's profit level and recorded revenue and a corresponding
receivable of $3,739,000. The Company is currently engaged in discussions with
its insurance carrier regarding the amount of property and business interruption
insurance proceeds to be paid and is assessing the extent of refurbishment
required at the Frenchman's Reef.
NOTE 6 -- OTHER INCOME
Other income consists of items which are not considered part of the
Company's recurring operations. For the three months ended March 31, 1996, other
income consisted of a gain on the settlement of a note receivable of $1,778,000
and a gain on the sale of a hotel of $1,654,000.
NOTE 7 -- SUBSEQUENT EVENT
On July 2, 1996, the Company filed a registration statement covering the
sale of 7.5 million shares of its common stock. The Company intends to use the
net proceeds from this offering to fund the development and growth of its
AmeriSuites all-suites hotel brand. The offering is subject to a number of risks
that should be considered by prospective investors. See "Risk Factors" included
elsewhere in this Registration Statement.
F-6
<PAGE> 61
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Prime Hospitality Corp.:
We have audited the accompanying consolidated balance sheets of Prime
Hospitality Corp. (a Delaware corporation) and subsidiaries (the "Company") as
of December 31, 1994 and 1995 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Prime Hospitality Corp. and
subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 31, 1996, except with
respect to the matters discussed in
Note 16 as to which the date is
July 2, 1996
F-7
<PAGE> 62
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 12,524 $ 49,533
Marketable securities available for sale............................. 1,117 11,929
Restricted cash...................................................... 9,725 8,973
Accounts receivable, net of reserves of $125 and $213 in
1994 and 1995, respectively....................................... 7,819 13,139
Current portion of mortgages and notes receivable.................... 1,925 1,533
Other current assets................................................. 7,196 8,070
-------- --------
Total current assets......................................... 40,306 93,177
Property, equipment and leasehold improvements, net of
accumulated depreciation and amortization............................ 299,291 398,201
Mortgages and notes receivable, net of current portion................. 81,260 64,962
Other assets........................................................... 14,075 16,901
-------- --------
TOTAL ASSETS................................................. $434,932 $573,241
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt.............................................. $ 5,284 $ 5,731
Other current liabilities............................................ 23,904 38,961
-------- --------
Total current liabilities.................................... 29,188 44,692
Long-term debt, net of current portion................................. 178,545 276,920
Other liabilities...................................................... 23,134 18,713
-------- --------
Total liabilities............................................ 230,867 340,325
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.10 per share; 20,000,000 shares
authorized; none issued........................................... -- --
Common stock, par value $.01 per share; 75,000,000 shares
authorized 30,409,371 and 31,004,499 shares issued and
outstanding in 1994 and 1995, respectively........................ 304 310
Capital in excess of par value......................................... 171,774 183,050
Retained earnings...................................................... 31,987 49,556
-------- --------
Total stockholders' equity................................... 204,065 232,916
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................... $434,932 $573,241
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-8
<PAGE> 63
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Lodging.................................................. $ 69,487 $ 88,753 $146,184
Food and beverage........................................ 12,270 18,090 37,955
Management and other fees................................ 10,831 10,021 8,115
Interest on mortgages and notes receivable............... 14,765 15,867 11,895
Rental and other......................................... 1,507 1,572 1,479
------- -------- --------
Total revenues................................... 108,860 134,303 205,628
------- -------- --------
Costs and expenses:
Direct hotel operating expenses:
Lodging............................................... 19,925 25,490 38,383
Food and beverage..................................... 10,230 13,886 28,429
Selling and general................................... 21,180 27,244 49,753
Occupancy and other operating............................ 9,827 9,799 11,763
General and administrative............................... 15,685 15,089 15,515
Depreciation and amortization............................ 7,117 9,427 15,974
------- -------- --------
Total costs and expenses......................... 83,964 100,935 159,817
------- -------- --------
Operating income........................................... 24,896 33,368 45,811
Investment income.......................................... 1,267 1,966 4,861
Interest expense........................................... (16,116) (13,993) (21,603)
Other income............................................... 3,809 9,089 2,239
Other expense.............................................. -- -- (2,200)
------- -------- --------
Income before income taxes and extraordinary items......... 13,856 30,430 29,108
Provision for income taxes................................. 5,681 12,172 11,643
------- -------- --------
Income before extraordinary items.......................... 8,175 18,258 17,465
Extraordinary items -- gains on discharges of indebtedness
(net of income taxes of $2,772, $120 and $70 in 1993,
1994 and 1995, respectively)............................. 3,989 172 104
------- -------- --------
Net income................................................. $ 12,164 $ 18,430 $ 17,569
======= ======== ========
Net income per common share:
Income before extraordinary items........................ $ .27 $ .57 $ .54
Extraordinary items...................................... .13 .01 --
------- -------- --------
Net income per common share................................ $ .40 $ .58 $ .54
======= ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-9
<PAGE> 64
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CAPITAL
COMMON STOCK IN
------------------- EXCESS OF RETAINED
SHARES AMOUNT PAR VALUE EARNINGS TOTAL
---------- ------ --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1992..................... 29,912,794 $299 $ 136,090 $ 1,393 $137,782
Net income.................................... -- -- -- 12,164 12,164
Utilization of net operating loss
carryforwards............................... -- -- 4,525 -- 4,525
Federal income tax refund..................... -- -- 16,462 -- 16,462
Compensation expense related to stock option
plan........................................ -- -- 225 -- 225
Proceeds from exercise of stock options....... 30,000 -- 81 -- 81
Proceeds from exercise of stock warrants...... 45,880 1 124 -- 125
----------- ---- -------- ------- --------
Balance December 31, 1993..................... 29,988,674 300 157,507 13,557 171,364
Net income.................................... -- -- -- 18,430 18,430
Utilization of net operating loss
carryforwards............................... -- -- 5,861 -- 5,861
Amortization of pre-fresh start tax basis
differences................................. -- -- 6,954 -- 6,954
Federal income tax refund..................... -- -- 200 -- 200
Compensation expense related to stock option
plan........................................ -- -- 60 -- 60
Proceeds from exercise of stock options....... 216,080 2 640 -- 642
Proceeds from exercise of stock warrants...... 204,617 2 552 -- 554
----------- ---- -------- ------- --------
Balance December 31, 1994..................... 30,409,371 304 171,774 31,987 204,065
Net income.................................... -- -- -- 17,569 17,569
Utilization of net operating loss
carryforwards............................... -- 3,370 -- 3,370
Amortization of pre-fresh start tax........... -- -- 6,167 -- 6,167
Compensation expense related to stock option
plan........................................ -- -- 16 -- 16
Proceeds from exercise of stock options....... 220,159 2 705 -- 707
Proceeds from exercise of stock warrants...... 374,969 4 1,018 -- 1,022
----------- ---- -------- ------- --------
Balance December 31, 1995..................... 31,004,499 $310 $ 183,050 $ 49,556 $232,916
=========== ==== ======== ======= ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-10
<PAGE> 65
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 12,164 $ 18,430 $ 17,569
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization......................... 7,117 9,427 15,974
Utilization of net operating loss carryforwards....... 4,525 5,861 3,370
Gains on settlements of notes receivable.............. -- (6,224) (822)
Gains on discharges of indebtedness................... (6,761) (292) (174)
Gains on sales of assets.............................. (1,769) (1,099) (1,957)
Amortization of pre-fresh start tax basis
differences......................................... -- 6,954 6,167
Deferred income taxes................................. 1,541 (205) 1,556
Compensation expense related to stock options......... 225 60 16
Increase (decrease) from changes in other operating
assets and liabilities:
Accounts receivable................................... 269 (1,945) (5,320)
Other current assets.................................. (1,791) 127 (887)
Other liabilities..................................... 4,208 (2,422) 5,359
-------- -------- --------
Net cash provided by operating activities............. 19,728 28,672 40,851
-------- -------- --------
Cash flows from investing activities:
Net proceeds from mortgages and other notes receivable... 10,861 36,198 27,603
Disbursements for mortgages and notes receivable......... (515) (1,100) (12,704)
Proceeds from sales of property, equipment and leasehold
improvements.......................................... 3,715 1,480 8,167
Purchases of property, equipment and leasehold
improvements.......................................... (14,346) (63,360) (113,517)
Decrease in restricted cash.............................. 1,903 1,268 752
Proceeds from sales of marketable securities............. -- 1,116 2,928
Purchase of marketable securities........................ -- (5,885) (11,520)
Insurance advances in excess of renovation payments...... -- -- 6,518
Other.................................................... 663 (3,965) 846
-------- -------- --------
Net cash provided by (used in) investing activities... 2,281 (34,248) (90,927)
-------- -------- --------
Cash flows from financing activities:
Net proceeds from issuance of debt....................... 2,771 19,026 119,360
Payments of debt......................................... (30,890) (43,771) (33,961)
Proceeds from the exercise of stock options and
warrants.............................................. 206 1,196 1,729
Principal proceeds from federal income tax refund........ 16,462 200 --
Reorganization items after emergence from bankruptcy..... (5,605) (120) (43)
-------- -------- --------
Net cash provided by (used in) financing activities... (17,056) (23,469) 87,085
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... 4,953 (29,045) 37,009
Cash and cash equivalents at beginning of period........... 36,616 41,569 12,524
-------- -------- --------
Cash and cash equivalents at end of period................. $ 41,569 $ 12,524 $ 49,533
======== ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-11
<PAGE> 66
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
NOTE 1 -- BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITIES:
Prime Hospitality Corp. (the "Company") is a hotel owner/operator with
ownership or management of hotels in the United States and the U.S. Virgin
Islands. The Company's hotels primarily provide moderately priced, quality
accommodations in secondary markets, and operate under franchise agreements with
national hotel chains or under the Company's proprietary Wellesley Inns or
AmeriSuites brand names.
BASIS OF PRESENTATION:
The Company emerged from the Chapter 11 reorganization proceeding of its
predecessor, Prime Motor Inns, Inc. and certain of its subsidiaries ("PMI"),
which consummated its Plan of Reorganization ("the Plan") on July 31, 1992.
Pursuant to the American Institute of Certified Public Accountant's
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" ("SOP 90-7"), the Company adopted fresh start
reporting as of July 31, 1992. Under fresh start reporting, the reorganization
value of the entity was allocated to the reorganized Company's assets on the
basis of the purchase method of accounting. The reorganization value (the
approximate fair value) of the assets of the emerging entity was determined by
consideration of many factors and various valuation methods, including
discounted cash flows and price/earnings and other applicable ratios believed by
management to be representative of the Company's business and industry.
Liabilities were recorded at face values, which approximate the present values
of amounts to be paid determined at appropriate interest rates. Under fresh
start reporting, the consolidated balance sheet as of July 31, 1992 became the
opening consolidated balance sheet of the emerging Company.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and all of its majority-owned subsidiaries. All material intercompany accounts
and transactions have been eliminated in consolidation.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS:
Cash equivalents are highly liquid unrestricted investments with a maturity
of three months or less when acquired.
MARKETABLE SECURITIES:
Marketable securities consist primarily of commercial paper and other
corporate debt and equity securities which mature or are available for sale
within one year. Marketable securities are valued at current market value, which
approximates cost.
F-12
<PAGE> 67
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RESTRICTED CASH:
Restricted cash consists primarily of highly liquid investments that serve
as collateral for debt obligations due within one year.
MORTGAGES AND NOTES RECEIVABLE:
Mortgages and notes receivable are reflected at their fair value as of July
31, 1992, adjusted for payments and other advances since that date. The amount
of interest income recognized on mortgages and notes receivable is generally
based on the stated interest rate and the carrying value of the notes. The
Company has a number of subordinated or junior mortgages which remit payment
based on hotel cash flow. Because there was substantial doubt that the Company
would recover any value, these mortgages were assigned no value in the Company's
consolidated financial statements when the Company adopted fresh-start reporting
on July 31, 1992. Interest on cash flow mortgages and delinquent loans is
generally recognized when cash is received.
In 1995, the Company adopted Statement of Financial Accounting Standards
("SFAS") 114, "Accounting by Creditors for Impairment of a Loan (SFAS 114)" and
SFAS 118, "Accounting by Creditors for Impairment of a Loan -- Income
Recognition and Disclosures (SFAS 118)". As defined in SFAS 114 and SFAS 118, a
loan is impaired when, based on current information and events, it is probable
that a creditor will be unable to collect all amounts due according to the
contractual terms of the loan agreement. SFAS 114 and SFAS 118 require that the
measurement of impairment of a loan be based on the present value of expected
future cash flows (net of estimated costs to sell) discounted at the loan's
effective interest rate. Impairment can also be measured based on a loan's
observable market price or the fair value of collateral, if the loan is
collateral dependent. If the measure of the impaired loan is less than the
recorded investment in the loan, the Company will establish a valuation
allowance, or adjust existing valuation allowances, with a corresponding charge
or credit to operations. The effect of adopting these new accounting standards
was immaterial in 1995.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Property, equipment and leasehold improvements that the Company intends to
continue to operate are stated at their fair market value as of July 31, 1992
plus the cost of acquisitions subsequent to that date less accumulated
depreciation and amortization from August 1, 1992. Provision is made for
depreciation and amortization using the straight-line method over the estimated
useful lives of the assets. Properties identified for disposal are stated at
their estimated net realizable value.
During 1995, the Company adopted SFAS 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of (SFAS 121)".
Following this standard, the Company evaluates whether impairment has occurred
at each of its properties based upon the future cash flows (undiscounted and
before interest charges) as compared to the carrying value of the property.
Based upon its evaluation as of December 31, 1995, the Company has determined
that no impairment has occurred.
OTHER ASSETS:
Other assets consist primarily of deferred issuance costs related to the
Company's 7% Convertible Subordinated Notes due 2002 and other debt obligations.
Deferred issuance costs are amortized over the respective terms of the loans
using the effective interest method.
SELF-INSURANCE PROGRAMS:
The Company uses an incurred loss retrospective insurance plan for general
and auto liability and workers' compensation. Predetermined loss limits have
been arranged with insurance companies to limit the Company's per occurrence and
aggregate cash outlay.
F-13
<PAGE> 68
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company maintains a self-insurance program for major medical and
hospitalization coverage for employees and dependents which is partially funded
by payroll deductions. Payments for major medical and hospitalization below
specified aggregate annual amounts are self-insured by the Company. Claims for
benefits in excess of these amounts are covered by insurance purchased by the
Company.
Provisions have been made in the combined financial statements which
represent the expected future payments based on the estimated ultimate cost for
incidents incurred through the balance sheet date.
INCOME TAXES:
The Company and its subsidiaries file a consolidated Federal income tax
return. For financial reporting purposes, the Company follows SFAS No. 109
"Accounting for Income Taxes". In accordance with SFAS 109, as well as SOP 90-7,
income taxes have been provided at statutory rates in effect during the period.
Tax benefits associated with net operating loss carryforwards and other
temporary differences that existed at the time fresh start reporting was adopted
are reflected as a contribution to stockholders' equity in the period in which
they are realized.
NET INCOME PER COMMON SHARE:
Primary net income per common share is computed based on the weighted
average number of common shares and common share equivalents (dilutive stock
options and warrants) outstanding during each year. The weighted average number
of common shares used in computing primary net income per share was 30,721,000,
32,022,000 and 32,461,000 for the years ended December 31, 1993, 1994 and 1995,
respectively.
Fully diluted net income per share, in addition to the adjustments for
primary net income per share, reflects the elimination of interest expense and
the issuance of additional common shares from the assumed conversion of the 7%
Convertible Subordinated Notes from their issuance in April 1995. The weighted
average number of common share used in computing fully diluted net income per
share was 37,423,000 for the year ended December 31, 1995. Fully diluted net
income per share has not been presented in the consolidated financial statements
because the dilutive effect is not material.
PRE-OPENING COSTS:
Non-capital expenditures incurred prior to opening new or renovated hotels
such as payroll and other operating supplies are deferred and expensed within
one year after opening. Preopening costs charged to expense were $0, $86,000 and
$364,000 for the years ended December 31, 1993, 1994 and 1995. As of December
31, 1995, $261,000 of pre-opening costs are included in other current assets.
INTEREST RATE SWAPS:
The Company has entered into an interest rate swap agreement which reduces
the Company's exposure to interest rate fluctuations. The accounting treatment
for the Company's off balance sheet interest rate swap agreement is to accrue
net interest to be received or to be paid as an adjustment to interest expense.
RECLASSIFICATIONS:
Certain reclassifications have been made to the December 31, 1993 and 1994
consolidated financial statements to conform them to the December 31, 1995
presentation.
NOTE 2 -- HOTEL PROPERTY ACQUISITIONS
In March 1995, the Company acquired the option of ShoLodge, Inc.
("ShoLodge") to purchase a 50% interest in eleven of the Company's AmeriSuites
hotels and also acquired the remaining AmeriSuites hotel not
F-14
<PAGE> 69
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
already owned by the Company. In 1993, the Company and its wholly-owned
subsidiary, Suites of America, Inc. ("SOA") entered into agreements with
ShoLodge, a company controlled by a former director, designed to further the
growth of its AmeriSuites hotels from the six hotels owned by the Company at
that time. Pursuant to these agreements, (i) ShoLodge agreed to build and
finance six additional AmeriSuites hotels and received an option to purchase a
50% interest in SOA and (ii) the Company received an option pursuant to which it
could require ShoLodge to purchase a 50% interest in SOA. The exercise of the
option by ShoLodge was scheduled to occur in January 1995, when the Company and
ShoLodge began to negotiate the Company's buyout of ShoLodge's option. The
consideration payable by the Company was based upon the fair market value of the
properties. The consideration totaled $19,700,000 and was comprised of (i)
$16,100,000 in cash, which was paid in 1995, plus (ii) $18,500,000 in notes
maturing in 1997, less (iii) $14,900,000 of existing debt on five hotels, which
was forgiven at face value. The transaction resulted in a net increase of
approximately $3,600,000 of long-term debt. No gain or loss was recorded on the
forgiveness of debt. As a result of this transaction, the Company assumed
management of these hotels.
In August 1995, the Company entered into an agreement to purchase four
Bradbury Suites hotels for $18,700,000. The hotels, comprising 447 rooms, were
subsequently converted to the Company's proprietary AmeriSuites brand. In August
1995, the Company also purchased the 149 room all-suite St. Tropez Hotel and
Shopping Center in Las Vegas for $15,200,000. Revenues and expenses from these
transactions have been included in reported results from the date of
acquisition. If these operations had been included in the consolidated financial
statements for the full year, reported results would not have been materially
different.
NOTE 3 -- CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Cash..................................................... $ 5,953 $ 4,312
Commercial paper and other cash equivalents.............. 6,571 45,221
------- -------
Totals......................................... $12,524 $49,533
======= =======
</TABLE>
NOTE 4 -- MARKETABLE SECURITIES
Marketable securities are comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995
------ -------
<S> <C> <C>
Equity securities......................................... $1,117 $ 3,796
Corporate debt securities................................. -- 8,133
------ -------
Totals.......................................... $1,117 $11,929
====== =======
</TABLE>
F-15
<PAGE> 70
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- MORTGAGES AND NOTES RECEIVABLE
Mortgages and notes receivable are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Properties operated by the Company(a).................... $60,609 $57,171
Other(b)................................................. 22,576 9,324
------- -------
Total.......................................... 83,185 66,495
Less current portion..................................... (1,925) (1,533)
------- -------
Long-term portion........................................ $81,260 $64,962
======= =======
</TABLE>
- ---------------
(a) At December 31, 1995, the Company is the holder of mortgage notes receivable
with a book value of $43,293,000 secured primarily by four hotel properties
operated by the Company under management agreements and $13,878,000 in
mortgages secured primarily by four properties operated under lease
agreements. These notes bear interest at rates ranging from 8.0% to 13.5%
and mature through 2015. The mortgages were derived from the sales of hotel
properties.
The loans secured by hotel properties operated under management agreements
pay interest and principal based upon available cash and include a
participation in the future excess cash flow of such hotel properties. Two
of these mortgages have been structured to include a "senior portion"
featuring defined payment terms, and a "junior portion" payable annually
based on cash flow.
In addition to the mortgage positions referred to above, the Company holds
junior or cash flow mortgages and subordinated interests on six other hotel
properties operated by the Company under management agreements. Pursuant to
these mortgage agreements, the Company is entitled to receive the majority
of excess cash flow generated by these hotel properties and to participate
in any future sales proceeds. With regard to these properties, third parties
hold significant senior mortgages. The junior mortgages mature on various
dates from 1999 through 2002.
In accordance with the adoption of fresh start reporting under SOP 90-7, no
value was assigned to the junior portions of the notes or the junior
mortgages and subordinated interests on the other hotels as there was
substantial doubt at the time of valuation that the Company would recover
any of their value. As a result, interest income on these junior or cash
flow mortgages is recognized when cash is received. During 1993, 1994 and
1995, the Company recognized $976,000, $2,000,000 and $1,950,000,
respectively, of interest income related to these mortgages. Future
recognition of interest income on these mortgages is dependent primarily
upon the net cash flow of the underlying hotels after debt service, which is
senior to the Company's junior positions.
(b) Other notes receivable currently bear interest at effective rates ranging
from 4.0% to 10.0%, mature through 2011 and are secured primarily by hotel
properties not currently managed by the Company.
F-16
<PAGE> 71
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- YEARS OF
1994 1995 USEFUL LIFE
-------- -------- -----------
<S> <C> <C> <C>
Land and land leased to others............. $ 49,438 $ 69,765
Hotels..................................... 200,706 246,278 20 to 40
Furniture, fixtures and autos.............. 46,021 67,001 3 to 10
Leasehold improvements..................... 11,336 26,038 3 to 40
Construction in progress................... 1,457 22,667
Properties held for sale................... 8,898 --
-------- --------
Sub-total................................ 317,856 431,749
Less accumulated depreciation and
amortization.......................... (18,565) (33,548)
-------- --------
Totals........................... $299,291 $398,201
======== ========
</TABLE>
At December 31, 1995, the Company was the lessor of land and certain
restaurant facilities in Company-owned hotels with an approximate aggregate book
value of $7,493,000 pursuant to noncancelable operating leases expiring on
various dates through 2013. Minimum future rentals under such leases are
$9,599,000, of which $4,079,000 is scheduled to be received in the aggregate
during the five-year period ending December 31, 2000.
Depreciation and amortization expense on property, equipment and leasehold
improvements was $7,015,000, $9,300,000 and $14,800,000 for the years ended
December 31, 1993, 1994 and 1995, respectively.
During the years ended December 31, 1993, 1994 and 1995, the Company
capitalized $0, $836,000 and $2,596,000, respectively, of interest related to
borrowings used to finance hotel construction.
NOTE 7 -- OTHER CURRENT LIABILITIES
Other current liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Accounts payable......................................... $ 4,436 $ 6,940
Interest................................................. 3,115 3,616
Accrued payroll and related benefits..................... 2,490 3,151
Accrued expenses......................................... 4,182 4,303
Insurance reserves....................................... 5,123 6,007
Hurricane damage reserve................................. -- 8,718
Other.................................................... 4,558 6,226
------- -------
Totals......................................... $23,904 $38,961
======= =======
</TABLE>
In September 1995, the Marriott's Frenchman's Reef Hotel (the "Frenchman's
Reef") in St. Thomas, United States Virgin Islands suffered damages when
Hurricane Marilyn struck the U.S. Virgin Islands. At December 31, 1995, the
Company has a reserve of $8,718,000 which consists of a $2,200,000 reserve (See
Notes 8 and 11) established to cover the cost of the insurance deductible and
$6,518,000 of insurance advances, net of funds that have been used to begin the
restoration process.
F-17
<PAGE> 72
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- DEBT
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
10% Senior Secured Notes(a)............................ $ 52,580 $ 30,374
7% Convertible Subordinated Notes(b)................... -- 86,250
Mortgages and other notes payable(c)................... 131,249 158,904
Capitalized lease obligations(d)....................... -- 7,123
-------- --------
Total debt............................................. 183,829 282,651
Less current maturities................................ (5,284) (5,731)
-------- --------
Long-term debt, net of current portion....... $178,545 $276,920
======== ========
</TABLE>
- ---------------
(a) The 10% Senior Secured Notes were issued pursuant to the Plan, and mature on
July 31, 1999. The collateral for the 10% Senior Secured Notes consists
primarily of mortgages and notes receivable and real property, net of
related liabilities (the "10% Senior Secured Note Collateral"), with a book
value of $68,812,000 as of December 31, 1995.
Interest on the 10% Senior Secured Notes is payable semi-annually. The 10%
Senior Secured Notes require that 85% of the cash proceeds from the 10%
Senior Secured Note Collateral be applied first to interest then to
prepayment of principal. Aggregate principal payments on the 10% Senior
Secured Notes are required in order that one-third of the principal balance
outstanding on December 31, 1996 is paid by July 31, 1998 and all of the
balance is paid by July 31, 1999. To the extent the cash proceeds from the
10% Senior Secured Note Collateral are insufficient to pay interest or
required principal payments on the 10% Senior Secured Notes, the Company
will be obligated to pay any deficiency out of its general corporate funds.
The 10% Senior Secured Notes contain covenants which, among other things,
require the Company to maintain a net worth of at least $100,000,000, and
preclude cash distributions to stockholders, including dividends and
redemptions, until the 10% Senior Secured Notes have been paid in full. As
of December 31, 1995, the Company was in compliance with all covenants
applicable to the 10% Senior Secured Notes.
During 1994 the Company purchased through a third party agent approximately
$5,200,000 of its 10% Senior Secured Notes for aggregate consideration of
approximately $4,800,000. These notes are currently held by the third party
agent and have not been retired due to certain restrictions under the note
agreements. The purchases were recorded as investments on the Company's
balance sheet and no gains are recorded until the notes mature or are
redeemed. During 1994, approximately $1,137,000 of the notes were retired
resulting in a pretax extraordinary gain of approximately $105,000. During
1995, approximately $1,738,000 of the notes were retired resulting in a
pretax extraordinary gain of $174,000. As of December 31, 1995, the Company
had unrecognized holding gains of approximately $177,000 related to these
securities.
(b) In 1995, the Company sold $86,250,000 of 7% Convertible Subordinated Notes
due 2002. The notes are convertible into common stock at a price of $12 per
share at the option of the holder and mature on April 15, 2002. The notes
are redeemable, in whole or in part, at the option of the Company after
April 17, 1998 at premiums to principal which decline on each anniversary
date.
(c) The Company has mortgage and other notes payable of approximately
$158,904,000 that are secured by mortgage notes receivable and hotel
properties with a book value of $260,116,000.
F-18
<PAGE> 73
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Principal and interest on these mortgages and notes are generally paid
monthly. At December 31, 1995 these notes bear interest at rates ranging
from 6.6% to 10.5%, with a weighted average interest rate of 9.3%, and
mature from 1996 through 2007.
Subsequent to December 31, 1995, the Company entered into an agreement to
extend the maturity of a loan in the amount of $32,097,000 secured by the
Frenchman's Reef from December 1996 to July 1997. The loan will bear
interest at the same rate currently in effect and principal payments will be
waived until July 1997. All other terms and conditions of the loan shall
remain in effect. The December 31, 1995 consolidated financial statements
reflect the impact of this amendment.
Additionally, the Company's debt related to the Frenchman's Reef is further
secured by an assignment of property insurance proceeds related to the
hurricane damage (See Notes 7 and 11). The lender has sole discretion
concerning the utilization of such proceeds for refurbishment. The Company
is discussing with the lender the terms under which the lender will make
such funds available for refurbishment.
(d) The Company has $7,123,000 of capital lease obligations. Principal and
interest on these capital lease obligations are generally paid monthly. At
December 31, 1995, these leases bear interest at rates ranging from 6.7% to
12.45%, with a weighted average interest rate of 10.8%, and mature through
2001.
In August 1995, the Company entered into an interest rate protection
agreement with a major financial institution which reduces the Company's
exposure to fluctuations in interest rates by effectively fixing interest
rates on $40 million of variable interest rate debt. Under the agreement, on
a monthly basis the Company will pay a fixed rate of interest of 6.18% and
will receive a floating interest rate payment equal to the 30 day LIBOR rate
on a $40 million notional principal amount. The agreement commenced in
October 1995 and expires in 1999.
Maturities of long-term debt for the next five years ending December 31 are
as follows (in thousands):
<TABLE>
<S> <C>
1996.............................................. $ 5,731
1997.............................................. 83,127
1998.............................................. 4,877
1999.............................................. 33,714
2000.............................................. 28,277
Thereafter........................................ 126,925
--------
Total................................... $282,651
========
</TABLE>
On January 23, 1996, the Company issued $120,000,000 of 9 1/4% First
Mortgage Notes due 2006 (See Note 16). The Company utilized a portion of the
proceeds to pay down $51,601,000 of debt outstanding at December 31, 1995.
Included in this amount was $45,798,000 due in 1997.
NOTE 9 -- LEASE COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases various hotels under lease agreements with initial terms
expiring at various dates from 1998 through 2022. The Company has options to
renew certain of the leases for periods ranging from 1 to 99 years. Rental
payments are based on minimum rentals plus a percentage of the hotel properties'
revenues in excess of stipulated amounts.
F-19
<PAGE> 74
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a schedule, by year, of future minimum lease payments
required under the remaining operating leases that have terms in excess of one
year as of December 31, 1995 (in thousands):
<TABLE>
<S> <C>
1996............................................... $ 4,854
1997............................................... 4,808
1998............................................... 4,762
1999............................................... 4,976
2000............................................... 4,681
Thereafter......................................... 42,829
-------
Total.................................... $66,910
=======
</TABLE>
Rental expense for all operating leases, including those with terms of less
than one year, consist of the following for the years ended December 31, 1993,
1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Rentals.................................................. $5,009 $4,654 $4,630
Contingent rentals....................................... 764 823 745
------ ------ ------
Rental expense................................. $5,773 $5,477 $5,375
====== ====== ======
</TABLE>
EMPLOYEE BENEFITS
The Company does not provide any material post employment benefits to its
current or former employees.
CONTINGENT CLAIMS
In April 1995, the Company received a second favorable ruling in its
litigation with Financial Security Assurance, Inc. ("FSA") in which FSA sought
approximately $31,200,000 previously received by the Company in settlement of a
note and guaranty from Allen V. Rose and Arthur Cohen ("Rose and Cohen"). In an
order dated April 25, 1995, the U.S. District Court for the Southern District of
Florida (the "U.S. District Court") affirmed a lower court ruling approving the
Company's settlement with Rose and Cohen and finding that the Company alone was
entitled to the settlement proceeds. The Company had previously reached a
settlement in 1993 with Rose and Cohen which provided for Rose or his affiliate
to pay the Company $25,000,000 plus proceeds from the sale of approximately
1,100,000 shares of the Company's common stock held by Rose, bringing the total
settlement proceeds to approximately $31,200,000. FSA asserted that, under the
terms of an intercreditor agreement, it was entitled to receive the settlement
proceeds otherwise payable to the Company. The U.S. Bankruptcy Court for the
Southern District of Florida (the "Bankruptcy Court") ruled in favor of the
Company in April 1994 and the Company used $25,000,000 of the settlement
proceeds to retire certain senior secured notes. FSA appealed to the U.S.
District Court, which affirmed the Bankruptcy Court's ruling. On May 12, 1995,
the Company used the remaining proceeds plus accrued interest to prepay the 10%
Senior Secured Notes. On May 23, 1995, FSA filed a notice of appeal with the
U.S. Court of Appeals for the 11th Circuit. The Company believes that the U.S.
Court of Appeals will affirm the U.S. District Court ruling and that there will
be no effect on the Company's financial position or results of operations.
The Company is involved in various other proceedings incidental to the
normal course of its business. The Company believes that the resolution of these
contingencies will not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.
F-20
<PAGE> 75
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- INCOME TAXES
The provision for income taxes (including amounts applicable to
extraordinary items) consisted of the following for the years ended December 31,
1993, 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1993 1994 1995
------ ------- -------
<S> <C> <C> <C>
Current:
Federal.............................................. $2,167 $ 970 $ 320
State................................................ 220 28 299
------ ------- -------
2,387 998 619
------ ------- -------
Deferred:
Federal.............................................. 5,049 9,780 9,929
State................................................ 1,017 1,514 1,165
------ ------- -------
6,066 11,294 11,094
------ ------- -------
Total........................................ $8,453 $12,292 $11,713
====== ======= =======
</TABLE>
Income taxes are provided at the applicable federal and state statutory
rates.
The tax effects of the temporary differences in the areas listed below
resulted in deferred income tax provisions for the years ended December 31,
1993, 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1993 1994 1995
------ ------- -------
<S> <C> <C> <C>
Utilization of net operating loss...................... $4,525 $ 5,861 $ 3,370
Amortization of pre-fresh start basis
differences -- properties and notes.................. 1,322 5,632 6,167
Depreciation........................................... 144 200 1,400
Leasehold reserves..................................... -- 450 158
Property transactions.................................. -- 320 --
Compensation expense................................... -- -- 604
Other.................................................. 75 (1,169) (605)
------ ------- -------
Total........................................ $6,066 $11,294 $11,094
====== ======= =======
</TABLE>
At December 31, 1995, the Company had available federal net operating loss
carryforwards of approximately $114,271,000 which will expire beginning in 2005
and continuing through 2007. Of this amount, $96,080,000 is subject to an annual
limitation of $8,735,000 under the internal revenue code due to a change in
ownership of the company upon consummation of the Plan. The Company also has
potential state income tax benefits relating to net operating loss carryforwards
of approximately $8,673,000 which will expire during various periods from 1996
to 2006. Certain of these potential benefits are subject to annual limitations
similar to federal requirements due to factors such as the level of business
conducted in each state and the amount of income subject to tax within each
state's carryforward period.
In accordance with SFAS 109, the Company has not recognized the future tax
benefits associated with the net operating loss carryforwards or with other
temporary differences. Accordingly, the Company has provided a valuation
allowance of approximately $39,995,000 against the deferred tax asset as of
December 31, 1995. To the extent any available carryforwards or other tax
benefits are utilized, the amount of tax benefit realized will be treated as a
contribution to stockholders' equity and will have no effect on the income tax
provision for financial reporting purposes. For the years ended December 31,
1993, 1994 and 1995, the
F-21
<PAGE> 76
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company recognized $4,525,000, $5,861,000 and $3,370,000, respectively of such
benefits as a contribution to stockholders' equity.
Additionally, the Company recognized $6,954,000 and $6,167,000 as a
contribution to stockholders' equity for the years ended December 31, 1994 and
1995, which represents the amortization of pre-fresh start tax basis differences
related to properties and notes receivable. As a result of reflecting
substantially all of the deferred tax provisions as a contribution to
stockholders' equity, the Company had no material deferred tax assets or
liabilities as of December 31, 1994 and 1995.
NOTE 11 -- OTHER INCOME/EXPENSE
Other income consists of items which are not considered part of the
Company's recurring operations and is composed of the following as of December
31, 1993, 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Gains on settlements of notes receivable................. $ -- $6,355 $ 822
Gain on sale of property................................. 2,109 1,099 1,417
Rebates of prior year's insurance........................ -- 1,579 --
premiums Interest on federal income tax refund........... 1,200 56 --
Other.................................................... 500 -- --
------ ------ ------
Total.......................................... $3,809 $9,089 $2,239
====== ====== ======
</TABLE>
Other expense of $2,200,000 for the year ended December 31, 1995, consists
of a reserve for insurance deductibles related to hurricane damage at the
Frenchman's Reef (See Note 7).
NOTE 12 -- FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The fair values of non-current financial assets and liabilities and other
financial instruments are shown below (in thousands). The fair values of current
assets and current liabilities are assumed to be equal to their reported
carrying amounts.
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Mortgage and notes receivable........... $ 81,260 $ 91,604 $ 64,962 $ 76,058
Long-term debt.......................... 178,545 178,250 276,920 278,899
Other financial instruments (Interest
rate swap agreement).................. -- -- -- (15)
</TABLE>
The fair value for mortgages and notes receivable is based on the valuation
of the underlying collateral utilizing discounted cash flows and other methods
applicable to the industry. Valuations for long-term debt are based on quoted
market prices or at current rates available to the Company for debt of the same
maturities. The fair value of the interest rate swap agreement is based on the
estimated amount the Company would pay to terminate the agreement.
The Company's mortgages and other notes receivable (See Note 5) are derived
primarily from and are secured by hotel properties, which constitutes a
concentration of credit risk. These notes are subject to many of the same risks
as the Company's operating hotel assets. A significant portion of the collateral
is located in the Northeastern and Southeastern United States.
F-22
<PAGE> 77
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- RELATED PARTY TRANSACTIONS
The following summarizes significant financial information with respect to
transactions with present and former officers, directors, their relatives and
certain entities they control or in which they have a beneficial interest for
the years ended December 31, 1993, 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1993 1994 1995
---- ------ ------
<S> <C> <C> <C>
Management and other fee income(a)......................... $810 $1,165 $1,427
Interest income(a)......................................... 14 1,283 518
Management fee expense(b).................................. 222 679 --
Interest expense(b)........................................ 475 461 --
Reservation fee expense(b)................................. 468 317 --
</TABLE>
- ---------------
(a) During 1995, the Company managed 15 hotels for partnerships in which related
parties own various interests. The income amounts shown above primarily
include transactions related to these hotel properties. On March 6, 1996,
the Company acquired nine of these hotels (See Note 16).
(b) In 1991, the Company entered into an agreement with ShoLodge, a company
controlled by a former director, whereby ShoLodge was appointed the
exclusive agent to develop and manage certain hotel properties.
In March 1995, the Company acquired ShoLodge's option to purchase the
remaining 50% interest in all eleven hotels developed by ShoLodge and also
acquired the ownership interest of the remaining AmeriSuites hotel not
already owned by the Company (See Note 2).
NOTE 14 -- COMMON STOCK AND COMMON STOCK EQUIVALENTS
Stock Options
The Company has adopted various stock option and performance incentive
plans under which options to purchase shares of common stock may be granted to
directors, officers or key employees under terms determined by the Board of
Directors. Total options reserved under these plans (net of amounts granted to
date) as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
1995 Employee Stock Option Plan............................................ 574,000
1995 Non-Employee Director Stock Option Plan............................... 250,000
-------
Total............................................................ 824,000
=======
</TABLE>
Under the 1995 Employee Stock Option Plan, options to purchase shares of
common stock may be granted at the fair market value of the common stock at the
date of grant. Options can generally be exercised during a participant's
employment with the Company in equal annual installments over a three-year
period and expire ten years from the date of grant. During 1995, options to
purchase 648,000 shares of common stock were granted under this plan.
Under the 1995 Non-Employee Director Stock Option Plan, options to purchase
10,000 shares of common stock are automatically granted to each non-employee
director at the fair market value of the common stock at the date of grant. All
options will be fully vested and exercisable one year after the date of grant
and will expire ten years after the date of grant, or earlier if the
non-employee director ceases to be a director. During 1995, options to purchase
50,000 shares of common stock were granted under this plan.
Under the Company's 1992 Stock Option and Performance Incentive Plans,
options to purchase 413,000, 367,000 and 15,000 shares of common stock were
issued to employees in 1993, 1994 and 1995, respectively. The options were
granted at prices which approximate fair market value at the date of grant.
Generally, these
F-23
<PAGE> 78
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
options can be exercised during a participant's employment in equal annual
installments over a three year period and expire six years from the date of
grant.
Options to purchase 315,000, 30,000 and 60,000 shares of common stock were
issued to non-employee directors of the Company in 1993, 1994 and 1995,
respectively, under the Company's 1992 Stock Option Plan. The options were
granted at prices which approximate fair market value at the date of grant.
Generally, one-third of these options were exercisable at the date of grant and
the remaining options vest in equal annual installments over a two-year period.
The options expire six years after the date of grant.
During 1992, options to purchase 350,000 shares were granted to employee
officers and directors under the Company's 1992 Stock Option Plan. All 350,000
shares are currently exercisable at December 31, 1995. In addition, options to
purchase 330,000 shares were granted to a former officer in 1992. At December
31, 1995, all of these options were exercised. The exercise prices of the above
options are based on the average market price one year from the date of grant
which was determined to be $2.71 per share. Based on this exercise price, the
amount of compensation expense attributable to these options was $225,000,
$60,000 and $16,000 for the years ended December 31, 1993, 1994 and 1995,
respectively.
During 1995, the Financial Accounting Standards Board issued "Accounting
for Stock Based Compensation (SFAS 123)." The new standard specifies permissible
methods for valuing compensation attributable to stock options, as well as
certain required disclosures. The Company is required to adopt the new standard
beginning in 1996.
The Company intends to continue to follow the compensation measurement
method currently used, which is one of the permissible methods under SFAS 123.
As a result, compensation expense attributable to stock option plans will
continue to be measured by the excess, if any, of the market price of the
Company's common stock on the date of grant over the exercise price of the
option. Additional disclosures showing the pro forma effect of an alternative
method will be included in the notes to financial statements.
The following is a summary of the various stock option plans:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE
OF SHARES PER SHARES
--------- ------------
<S> <C> <C>
Outstanding at December 31, 1993........................... 1,301,000
Granted.................................................... 397,000 $7.38-$ 7.63
Exercised.................................................. (216,000) $2.71-$ 3.63
Canceled................................................... (40,000) $3.63-$ 7.63
---------
Outstanding at December 31, 1994........................... 1,442,000
---------
Granted.................................................... 773,000 $9.25-$10.88
Exercised.................................................. (222,000) $2.71-$ 7.63
Canceled................................................... (165,000) $3.63-$ 9.63
---------
Outstanding at December 31, 1995........................... 1,828,000
=========
Exercisable at December 31, 1995........................... 798,000 $2.71-$ 9.31
=========
</TABLE>
Warrants
Pursuant to the Plan, warrants to purchase 2,106,000 shares of the
Company's common stock were issued to former shareholders of the Company's
predecessor, PMI, in partial settlement of their bankruptcy interests. The
warrants became exercisable on August 31, 1993 at an exercise price of $2.71 per
share and expire five years after the date of grant. The exercise price was
determined from the average per share daily closing price of the Company's
common stock during the year following its reorganization on July 31, 1992. As
of December 31, 1995 warrants to purchase 625,466 shares have been exercised.
F-24
<PAGE> 79
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 -- SUPPLEMENTAL CASH FLOW INFORMATION
The following summarizes non-cash investing and financing activities for
the years ended December 31, 1993, 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1993 1994 1995
------ ------- ------
<S> <C> <C> <C>
Hotels acquired in exchange for the assumption of
mortgage notes payable................................ $9,161 $18,718 $5,120
Hotels received in settlement of mortgage notes
receivable............................................ 3,500 54,521 2,702
Sale of hotel in exchange for a mortgage note
receivable............................................ $6,500 $ 1,497 $ --
</TABLE>
Cash paid for interest was $16,347,000, $15,504,000 and $22,444,000 for the
years ended December 31, 1993, 1994 and 1995, respectively.
Cash paid for income taxes was $2,697,000, $1,900,000 and $1,237,000 for
the years ended December 31, 1993, 1994 and 1995, respectively.
NOTE 16 -- SUBSEQUENT EVENTS
On January 23, 1996, the Company issued $120,000,000 of 9 1/4% First
Mortgage Notes due 2006. Interest on the notes will be payable semi-annually on
January 15 and July 15. The notes are secured by 15 hotels and contain certain
covenants including limitations on the incurrence of debt, dividend payments,
certain investments, transactions with affiliates, asset sales and mergers and
consolidations. These notes are redeemable, in whole or in part, at the option
of the Company after five years at premiums to principal which decline on each
anniversary date. The Company utilized a portion of the proceeds to pay down
$51,601,000 of debt outstanding as of December 31, 1995.
On March 6, 1996, the Company acquired 18 hotels consisting of 16 Wellesley
Inns and two other limited-service hotels for approximately $65,100,000 in cash.
The acquisition enables the Company to establish full control over its
proprietary Wellesley Inns brand with all 30 Wellesley Inns owned and operated
by the Company. The acquisition price was comprised of approximately $60,400,000
to purchase the first mortgage on the 18 hotels with a face value of
approximately $70,500,000 and $4,700,000 to purchase the interests of the three
partnerships which owned the hotels. Approximately $1,900,000 of the total
purchase price was paid to a partnership in which a general partner is the
father of David A. Simon, the Company's President and Chief Executive Officer.
In connection with the transaction, the Company also terminated its management
agreements and junior subordinated mortgages related to the 18 hotels.
On July 2, 1996, the Company filed a registration statement covering the
sale of 7.5 million shares of its common stock. The Company intends to use the
net proceeds from this offering to fund the development and growth of its
AmeriSuites all-suites hotel brand. The offering is subject to a number of risks
that should be considered by prospective investors. See "Risk Factors" included
elsewhere in this Registration Statement.
F-25
<PAGE> 80
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesman or other person is authorized to give any information or
to make any representation in connection with this offering not contained in
this Prospectus, and any information or representation not contained herein must
not be relied upon as having been authorized by the Company or the Underwriters.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy of any securities other than the Common Stock or an offer to any
person in any jurisdiction where such offer would be unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof.
----------------------------
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 9
Use of Proceeds....................... 13
Price Range of Common Stock and
Dividend Policy..................... 13
Capitalization........................ 14
Recent Selected Consolidated Financial
Data................................ 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Selected Consolidated Financial Data
of the Company and its
Predecessor......................... 31
Business.............................. 32
Management............................ 46
Description of Capital Stock.......... 48
Underwriting.......................... 50
Legal Matters......................... 50
Experts............................... 51
Available Information................. 52
Incorporation of Certain Documents by
Reference........................... 52
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
7,500,000 SHARES
LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MONTGOMERY SECURITIES
BT SECURITIES CORPORATION
SMITH BARNEY INC.
, 1996
------------------------------------------------------
------------------------------------------------------
<PAGE> 81
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the Notes being registered which will be paid solely by
the Company. All the amounts shown are estimates, except the Securities and
Exchange Commission registration fee and the National Association of Securities
Dealers, Inc. filing fee:
<TABLE>
<S> <C>
SEC Registration Fee...................................................... $ 48,895
NASD Fee.................................................................. 14,680
Printing and Engraving Expenses........................................... 100,000
Legal Fees and Expenses................................................... 175,000
Accounting Fees and Expenses.............................................. 50,000
Blue Sky Fees and Expenses................................................ 20,000
Transfer Agent Fees and Expenses.......................................... 25,000
Miscellaneous Expenses.................................................... 16,425
--------
Total........................................................... $450,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") empowers a
Delaware corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. A
corporation may, in advance of the final action of any civil, criminal,
administrative or investigative action, suit or proceeding, pay the expenses
(including attorneys' fees) incurred by any officer, director, employee or agent
in defending such action, provided that the director or officer undertakes to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the corporation. A corporation may indemnify such
person against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
A Delaware corporation may indemnify officers and directors in an action by
or in the right of the corporation to procure a judgment in its favor under the
same conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him or
her against the expenses (including attorneys' fees) which he or she actually
and reasonably incurred in connection therewith. The indemnification provided is
not deemed to be exclusive of any other rights to which an officer or director
may be entitled under any corporation's by-law, agreement, vote or otherwise.
In accordance with Section 145 of the DGCL, Article 8 of the Company's
Restated Certificate of Incorporation (the "Restated Certificate") and the
Company's By-Laws (the "By-Laws") provide that the Company shall indemnify to
the fullest extent permitted under and in accordance with the laws of the State
of Delaware any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative by reason of the fact that he
is or was a director, officer, employee or agent of the Company, or is or was
serving at the request
II-1
<PAGE> 82
of the Company as director, officer, trustee, employee or agent of or in any
other capacity with another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in, or not opposed to, the best interests
of the Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The indemnification
provided by the Restated Certificate and the By-Laws shall not be deemed
exclusive of any other rights to which any of those seeking indemnification or
advancement of expenses may be entitled under any other contract or agreement
between the Company and any officer, director, employee or agent of the Company.
Expenses incurred in defending a civil or criminal action, suit or proceeding
shall (in the case of any action, suit or proceeding against a director of the
Company) or may (in the case of any action, suit or proceeding against an
officer, trustee, employee or agent) be paid by the Company in advance of the
final disposition of such action, suit or proceeding as authorized by the Board
of Directors of the Company upon receipt of an undertaking by or on behalf of
the indemnified person to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Company. Subparagraph (d) of
Article 8 of the Restated Certificate provides that neither the amendment or
repeal of, nor the adoption of any provision inconsistent with, the
above-referenced provisions of the Restated Certificate shall eliminate or
reduce the effect of such provisions in respect of any matter occurring before
such amendment, repeal or adoption of an inconsistent provision or in respect of
any cause of action, suit or claim relating to any such matter which would have
given rise to a right of indemnification or right to receive expenses pursuant
to such provisions if any such provision had not been so amended or repealed or
if a provision inconsistent therewith had not been so adopted. Subparagraph (e)
of Article 8 of the Restated Certificate provides that a director of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL or
any amendment thereto or successor provision thereto, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
DGCL is amended to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director of the
Company shall be eliminated or limited to the fullest extent permitted by the
DGCL as so amended.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT REPORT OR REGISTRATION STATEMENT IN
NUMBER DESCRIPTION WHICH DOCUMENT IS CONTAINED
- ------ ----------- -------------------------------------
<S> <C> <C> <C>
1.1 -- Form of Underwriting Agreement Previously filed
2.1 -- Senior Secured Revolving Credit Filed herewith
Agreement, dated as of June 26, 1996,
among the Company, the lenders party
thereto, Credit Lyonnais New York
Branch, as Documentation Agent, and
Bankers Trust Company, as Agent
4.1 -- Specimen Common Stock Certificate Filed as Exhibit 1(a) to the
Company's Form 8-A dated June 5, 1992
5.1 -- Opinion of Willkie Farr & Gallagher Filed herewith
23.1 -- Consent of Willkie Farr & Gallagher Contained within Exhibit 5.1
23.2 -- Consent of Arthur Andersen LLP Filed herewith
24.1 -- Power of Attorney Previously filed
</TABLE>
ITEM 17. UNDERTAKINGS
(1) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to its Certificate, By-Laws, the
II-2
<PAGE> 83
Underwriting Agreement or otherwise, the Registrant has been advised that, in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(2) The Registrant hereby undertakes that
(a) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b) (1) or
(4) or 497 (h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and this Offering of such securities at that time shall be
deemed to be the initial bona fide Offering thereof.
II-3
<PAGE> 84
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements of filing on Form S-3 and has duly caused this amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on the 25th day of
July, 1996.
PRIME HOSPITALITY CORP.
By: /s/ DAVID A. SIMON
------------------------------------
David A. Simon,
Chairman of the Board,
President and Chief Executive
Officer
II-4
<PAGE> 85
Pursuant to the requirements of the Securities Act of 1933, as amended,
this amendment to the Registration Statement has been signed below by the
following persons, in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ DAVID A. SIMON Chairman of the Board, President, July 25, 1996
- ------------------------------------------ Chief Executive Officer and
David A. Simon Director (principal executive
officer)
/s/ JOHN M. ELWOOD Chief Financial Officer, Executive July 25, 1996
- ------------------------------------------ Vice President and Director
John M. Elwood (principal
financial and accounting officer)
* Director July 25, 1996
- ------------------------------------------
Herbert Lust, II
* Director July 25, 1996
- ------------------------------------------
Jack H. Nusbaum
* Director July 25, 1996
- ------------------------------------------
Allen J. Ostroff
* Director July 25, 1996
- ------------------------------------------
A.F. Petrocelli
* Director July 25, 1996
- ------------------------------------------
Howard M. Lorber
*By: /s/ JOHN M. ELWOOD
- ------------------------------------------
John M. Elwood
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 86
APPENDIX I
This Registration Statement contains spaces for the following graphic and
image materials:
(1) The front cover will be folded. The inside front cover contains a map
of the United States showing the states where the Company's hotels are located
or under development.
(2) The fold-out portion of the front cover contains photographs of hotels
and a map. The left side contains photographs of AmeriSuites hotels and a map
indicating the location of AmeriSuites hotels. The right side contains
photographs of additional AmeriSuites hotels in the Company's Portfolio.
(3) The inside back cover contains additional photographs of full-service
and limited-service hotels in the Company's Portfolio.
<PAGE> 87
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT REPORT OR REGISTRATION STATEMENT NUMBERED
NUMBER DESCRIPTION IN WHICH DOCUMENT IS CONTAINED PAGES
- ------ ----------- --------------------------------- ------------
<S> <C> <C> <C> <C>
1.1 -- Form of Underwriting Agreement Previously filed
2.1 -- Senior Secured Revolving Credit Filed herewith
Agreement, dated as of June 26, 1996,
among the Company, the lenders party
thereto, Credit Lyonnais New York
Branch, as Documentation Agent, and
Bankers Trust Company, as Agent
4.1 -- Specimen Common Stock Certificate Filed as Exhibit 1(a) to the
Company's Form 8-A dated
June 5, 1992
5.1 -- Opinion of Willkie Farr & Gallagher Filed herewith
23.1 -- Consent of Willkie Farr & Gallagher Contained within Exhibit 5.1
23.2 -- Consent of Arthur Andersen LLP Filed herewith
24.1 -- Power of Attorney Previously filed
</TABLE>
<PAGE> 1
Exhibit 2.1
================================================================================
SENIOR SECURED REVOLVING CREDIT AGREEMENT
DATED AS OF JUNE 26, 1996
AMONG
PRIME HOSPITALITY CORP.,
AND
THE LENDERS PARTY HERETO,
AND
CREDIT LYONNAIS NEW YORK BRANCH,
AS DOCUMENTATION AGENT,
AND
BANKERS TRUST COMPANY,
AS AGENT
================================================================================
<PAGE> 2
PRIME HOSPITALITY CORP.
CREDIT AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1.
INTERPRETATION............................................. 2
1.1 Certain Defined Terms...................................................................... 2
1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations
Under Agreement............................................................................ 48
1.3 References to Articles, Sections, Exhibits, Schedules and Attachments...................... 49
1.4 Captions................................................................................... 49
1.5 Drafter.................................................................................... 49
1.6 References to Persons Include Permitted Successors and Assigns............................. 49
1.7 References to Applicable Law and Contracts................................................. 49
1.8 Herein..................................................................................... 50
1.9 Including Without Limitation............................................................... 50
1.10 Gender..................................................................................... 50
1.11 Singular and Plural........................................................................ 50
1.12 Knowledge.................................................................................. 50
SECTION 2.
AMOUNTS AND TERMS OF COMMITMENTS AND LOANS............................... 51
2.1 Purchase of Existing Loans................................................................. 51
A. Purchase and Sale................................................................. 51
B. Purchase Price.................................................................... 51
C. Manner of Payment................................................................. 51
D. Conditions to Closing............................................................. 51
E. Consolidation, Splitter, Amendment and Restatement of Existing
Loan Documents.................................................................... 51
2.2 Commitments; Loans; Notes; the Register.................................................... 51
A. Commitments....................................................................... 51
B. Borrowing Mechanics............................................................... 52
C. Disbursement of Funds............................................................. 53
D. The Register...................................................................... 54
2.3 Interest on the Loans...................................................................... 55
A. Rate of Interest.................................................................. 55
B. Interest Periods.................................................................. 55
C. Interest Payments................................................................. 56
D. Conversion........................................................................ 56
E. Default Rate Interest............................................................. 57
F. Computation of Interest........................................................... 57
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
2.4 Fees....................................................................................... 58
A. Commitment Fees................................................................... 58
B. Other Fees........................................................................ 58
2.5 Repayments and Prepayments; General Provisions Regarding Payments.......................... 58
A. Scheduled Reductions of Commitments............................................... 58
B. Prepayments and Unscheduled Reductions in Commitments............................. 58
C. Application of Payments to Principal and Interest................................. 61
D. General Provisions Regarding Payments............................................. 61
2.6 Use of Proceeds............................................................................ 62
A. Loans............................................................................. 62
B. Margin Regulations................................................................ 62
2.7 Special Provisions Governing Eurodollar Rate Loans......................................... 62
A. Determination of Applicable Interest Rate......................................... 62
B. Inability to Determine Applicable Interest Rate................................... 62
C. Illegality or Impracticability of Eurodollar Rate Loans........................... 63
D. Compensation For Breakage or Non-Commencement of Interest
Periods........................................................................... 64
E. Booking of Eurodollar Rate Loans.................................................. 64
F. Assumptions Concerning Funding of Eurodollar Rate Loans........................... 64
2.8 Increased Costs; Taxes; Capital Adequacy................................................... 64
A. Compensation for Increased Costs and Taxes........................................ 64
B. Withholding of Taxes.............................................................. 65
C. Capital Adequacy Adjustment....................................................... 68
D. Obligation of the Lenders to Mitigate............................................. 68
2.9 Replacement of a Lender.................................................................... 69
A. Affected Lenders.................................................................. 69
B. Defaulting Lenders................................................................ 69
C. Replacement Lenders............................................................... 69
2.10 Addition and Designation of Mortgaged Properties........................................... 70
A. Addition of Mortgaged Properties.................................................. 70
B. Designation of Mortgaged Properties............................................... 72
C. Removal of Designated Properties.................................................. 72
D. ADDITION OF CERTAIN PROPERTIES AFTER CLOSING...................................... 72
2.11 Releases of Mortgaged Properties........................................................... 73
A. Mortgaged Properties.............................................................. 73
B. Effect of Release................................................................. 74
C. Revised Schedules................................................................. 74
SECTION 3.
CONDITIONS PRECEDENT.......................................... 74
3.1 Conditions to Effectiveness................................................................ 74
A. Corporate Documents............................................................... 74
B. Auditor's Procedures Letter....................................................... 75
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C. Existing Consolidated Loan Documents.............................................. 75
D. Financial Statements; Certificates................................................ 76
E. No Material Adverse Effect........................................................ 76
F. Security Interests................................................................ 76
G. Casualty, Flood Insurance and Workers' Compensation............................... 79
H. Franchise Agreements; Franchise Estoppel Certificates. ........................... 80
I. Material Leases; Tenant Estoppel Certificates; Tenant Subordination
Agreements........................................................................ 80
J. Environmental Audits.............................................................. 80
K. Engineering Reports............................................................... 81
L. Appraisals. ...................................................................... 81
M. Opinions of the Company's Counsel................................................. 81
N. Opinion of Agent's Counsel........................................................ 82
O. No Adverse Litigation............................................................. 82
P. Payment of Fees and Expenses...................................................... 82
Q. Deferred Maintenance Account...................................................... 82
R. Contingent Obligations............................................................ 82
S. HPT Term Sheet.................................................................... 82
T. Completion of Proceedings......................................................... 82
U. Other Documents................................................................... 83
3.2 Conditions to All Loans.................................................................... 83
SECTION 4.
COMPANY'S REPRESENTATIONS AND WARRANTIES................................ 84
4.1 Organization, Powers, Qualification, Good Standing, Business and
Subsidiaries............................................................................... 84
A. Organization and Powers........................................................... 84
B. Qualification and Good Standing................................................... 85
C. Conduct of Business............................................................... 85
D. Subsidiaries...................................................................... 85
4.2 Authorization of Borrowing, etc............................................................ 85
A. Authorization of Borrowing........................................................ 85
B. No Conflict....................................................................... 86
C. Governmental Consents............................................................. 86
D. Binding Obligation................................................................ 86
E. Valid Issuance of Common Stock.................................................... 86
F. New York Stock Exchange Listing................................................... 87
G. Related Documents; Representations and Warranties in other Loan
Documents......................................................................... 87
4.3 Financial Condition; No Material Adverse Effect; Contingent
Obligations................................................................................ 87
A. Financial Condition............................................................... 87
B. No Material Adverse Effect........................................................ 88
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C. Contingent Obligations............................................................ 88
4.4 Mortgaged Properties; Existing Loans....................................................... 88
A. Mortgaged Properties.............................................................. 88
B. Servicing Agreements.............................................................. 88
C. Franchise Agreements.............................................................. 89
D. Leases............................................................................ 89
E. Liquor Licenses................................................................... 89
4.5 Litigation; Adverse Facts.................................................................. 89
4.6 Taxes...................................................................................... 90
4.7 Performance of Agreements; Materially Adverse Agreements................................... 90
4.8 Governmental Regulation; Securities Activities............................................. 91
4.9 Employee Benefit Plans..................................................................... 91
A. ERISA............................................................................. 91
B. ERISA Event....................................................................... 91
C. Unfunded Benefit Liabilities...................................................... 91
D. Potential Withdrawal Liability.................................................... 91
4.10 Certain Fees............................................................................... 92
4.11 Solvency................................................................................... 92
4.12 Disclosure................................................................................. 92
4.13 Liens on the Collateral.................................................................... 93
A. General........................................................................... 93
B. Mortgages......................................................................... 93
C. Assignments of Rents and Leases................................................... 93
D. Mechanics' Liens.................................................................. 94
E. Filings and Recordings............................................................ 94
4.14 Zoning; Authorizations..................................................................... 94
A. Zoning............................................................................ 94
B. Authorizations.................................................................... 95
4.15 Physical Condition; Encroachment........................................................... 95
4.16 Insurance.................................................................................. 95
4.17 Leases..................................................................................... 96
4.18 Environmental Reports; Engineering Reports; Appraisals; Market Studies..................... 96
4.19 No Condemnation or Casualty................................................................ 96
4.20 Utilities and Access....................................................................... 96
4.21 Intellectual Property...................................................................... 96
A. Ownership; IP License Agreements.................................................. 96
B. No Material Adverse Claims........................................................ 97
4.22 Wetlands................................................................................... 97
4.23 Cash Management System..................................................................... 97
4.24 Labor Matters.............................................................................. 98
4.25 Employment and Labor Agreements............................................................ 98
SECTION 5.
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COMPANY'S AFFIRMATIVE COVENANTS............................................. 98
5.1 Financial Statements and Other Reports. .................................................. 98
5.2 Common Stock.............................................................................. 105
5.3 Corporate Existence....................................................................... 105
5.4 Taxes and Potential Lien Claims; Tax Consolidation........................................ 105
A. Taxes and Potential Lien Claims.................................................. 105
B. Tax Consolidation................................................................ 106
5.5 Maintenance of Properties; Repair; Alteration............................................. 106
A. Maintenance, Repair and Alteration............................................... 106
B. Environmental Repairs............................................................ 107
5.6 Inspection; Lender Meeting; Appraisals.................................................... 107
A. Inspection and Lender Meeting.................................................... 107
B. Appraisals....................................................................... 107
5.7 Compliance with Laws, Authorizations, etc................................................. 108
5.8 Performance of Loan Documents and Related Documents....................................... 108
A. Loan Documents................................................................... 108
B. Related Documents................................................................ 108
5.9 Payment of Liens.......................................................................... 108
A. Removal by Loan Parties.......................................................... 108
B. Removal by the Agent............................................................. 109
C. Title Searches................................................................... 109
5.10 Insurance................................................................................. 109
A. Risks to be Insured.............................................................. 109
B. Policy Provisions................................................................ 113
C. Increases in Coverage............................................................ 113
D. Payment of Proceeds.............................................................. 114
E. Delivery of Counterpart Policies; Evidence....................................... 114
F. Replacement or Renewal Policies.................................................. 114
G. Material Change in Policy........................................................ 114
H. Reports of Insurance Broker...................................................... 115
I. Separate Insurance............................................................... 115
5.11 Casualty and Condemnation................................................................. 115
A. Notice of Casualty............................................................... 115
B. Insurance Proceeds............................................................... 115
C. Notice of Condemnation; Negotiation and Settlement of Claims..................... 116
D. Condemnation Proceeds............................................................ 116
E. Certain Minor Casualties and Takings............................................. 117
F. Reduction of Borrowing Base; Payment of Release Price............................ 118
G. Restoration...................................................................... 119
H. Engineer's Inspection............................................................ 121
5.12 Renovations............................................................................... 121
A. Notice of Renovation; Renovation Plans........................................... 121
B. Conduct of Renovation............................................................ 122
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C. Completion Certificate........................................................... 122
D. Engineer's Inspection............................................................ 122
5.14 Interest Rate Protection.................................................................. 123
5.15 Cash Management System; Agent Rights; Application of Cash Flow;
Depository Account Names.................................................................. 123
A. Cash Management System........................................................... 123
B. Agent Rights..................................................................... 124
C. Application of Cash Flow......................................................... 125
D. Names on Depository Accounts..................................................... 125
5.16 Capital Expenditures...................................................................... 125
5.17 Management of Properties; Liquor Licenses................................................. 126
A. Management of Properties......................................................... 126
B. Liquor Licenses.................................................................. 126
5.18 Further Assurances........................................................................ 127
A. Assurances....................................................................... 127
B. Execution of Subsidiary Guaranties............................................... 127
C. Filing and Recording Obligations................................................. 127
D. Costs of Defending and Upholding the Lien........................................ 128
E. Costs of Enforcement............................................................. 128
F. Furnishing of Documents.......................................................... 128
SECTION 6.
COMPANY'S NEGATIVE COVENANTS..................................... 129
6.1 Indebtedness.............................................................................. 129
6.2 Liens and Related Matters................................................................. 130
A. Prohibition on Liens............................................................. 130
B. Equitable Lien in Favor of Lenders............................................... 131
C. No Further Negative Pledges...................................................... 131
D. No Restrictions on Subsidiary Distributions to the Company or
Other Subsidiaries............................................................... 131
6.3 Investments and Joint Ventures............................................................ 133
6.4 Contingent Obligations.................................................................... 133
6.5 Restricted Payments....................................................................... 133
6.6 Financial Covenants....................................................................... 134
A. Minimum Consolidated Net Worth................................................... 134
B. Minimum Market Equity Capitalization............................................. 134
C. Minimum Interest Coverage Ratio.................................................. 134
D. Maximum Total Debt Leverage Ratio................................................ 135
E. Maximum Total Debt/Market Equity Capitalization Ratio............................ 136
F. Maximum Total Debt/Net Worth..................................................... 136
6.7 Fundamental Changes....................................................................... 137
6.8 Zoning and Contract Changes and Compliance................................................ 138
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6.9 No Joint Assessment; Separate Lots........................................................ 138
6.10 Transactions with Affiliated Persons...................................................... 138
6.11 Sale-Leaseback Transactions............................................................... 139
6.12 Sale or Discount of Receivables........................................................... 139
6.13 Transfer of Subsidiary Stock.............................................................. 139
6.14 Conduct of Business....................................................................... 140
6.15 Management of Mortgaged Properties........................................................ 140
6.16 Material Leases........................................................................... 140
6.17 Issuance of Preferred Stock............................................................... 140
6.18 Fiscal Year............................................................................... 141
6.19 Intellectual Property; Franchise Agreements............................................... 141
A. Intellectual Property................................................................. 141
B. Franchise Agreements.................................................................. 141
SECTION 7.
EVENTS OF DEFAULT; REMEDIES..................................... 141
7.1 Events of Default......................................................................... 141
A. Failure to Make Payments When Due................................................ 141
B. Default in Other Agreements...................................................... 141
C. Breach of Certain Covenants...................................................... 142
D. Breach of Warranty............................................................... 142
E. Invalidity of Loan Document; Failure of Security; Repudiation of
Obligations...................................................................... 142
F. Prohibited Transfers............................................................. 143
G. Other Defaults Under Loan Documents or Related Documents......................... 143
H. Involuntary Bankruptcy; Appointment of Receiver, etc............................. 143
I. Voluntary Bankruptcy; Appointment of Receiver, etc............................... 144
J. Judgments and Attachments........................................................ 144
K. Dissolution...................................................................... 144
L. Employee Benefit Plans........................................................... 144
M. Material Adverse Effect.......................................................... 144
N. Change of Control................................................................ 145
O. Employment of Simon and Elwood................................................... 145
P. Ownership of Subsidiaries........................................................ 145
7.2 Remedies.................................................................................. 145
SECTION 8.
MISCELLANEOUS............................................ 148
8.1 Assignments and Participations in Loans................................................... 148
A. General.......................................................................... 148
B. Participations................................................................... 148
C. Assignments to Federal Reserve Banks............................................. 148
D. Information...................................................................... 149
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8.2 Expenses.................................................................................. 149
8.3 Indemnity................................................................................. 150
A. Indemnity........................................................................ 150
B. Procedure........................................................................ 151
C. Contribution..................................................................... 152
D. No Limitation.................................................................... 152
E. Independence of Indemnity........................................................ 152
8.4 No Joint Venture or Partnership........................................................... 153
8.5 Ratable Sharing........................................................................... 153
8.6 Amendments and Waivers.................................................................... 154
8.7 Independence of Covenants................................................................. 154
8.8 Notices................................................................................... 154
8.9 Survival of Representations, Warranties and Agreements.................................... 154
8.10 Agent's Discretion........................................................................ 155
8.11 Obligations Several; Independent Nature of the Lenders' Rights............................ 155
8.12 Remedies of the Company................................................................... 155
8.13 Marshalling; Payments Set Aside........................................................... 156
8.14 Maximum Amount............................................................................ 156
8.15 Severability.............................................................................. 157
8.16 Headings.................................................................................. 157
8.17 Applicable Law............................................................................ 157
8.18 Successors and Assigns.................................................................... 157
8.19 Consent to Jurisdiction and Service of Process............................................ 157
8.20 Waiver of Jury Trial...................................................................... 158
8.21 Counterparts; Effectiveness............................................................... 159
8.22 Material Inducement....................................................................... 159
8.23 Entire Agreement.......................................................................... 160
8.24 Confidentiality........................................................................... 160
8.25 Documentation Agent....................................................................... 160
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EXHIBITS
I FORM OF NOTE
II FORM OF NOTICE OF BORROWING
III FORM OF NOTICE OF CONTINUATION
IV FORM OF COMPLIANCE CERTIFICATE
V FORM OF BORROWING BASE CERTIFICATE
VI FORM OF SUBSIDIARY GUARANTY
VII FORM OF SECURITY AND PLEDGE AGREEMENT
VIII FORM OF INTELLECTUAL PROPERTY LICENSE AGREEMENT
IX FORM OF CASH MANAGEMENT LETTER
X FORM OF CASH MANAGER CASH MANAGEMENT AGREEMENT
XI FORM OF ENVIRONMENTAL INDEMNITY
XII FORM OF OPINION OF LOAN PARTIES' COUNSEL
XIII FORM OF ADDITION CERTIFICATE
XIV FORM OF AGREEMENT REGARDING SERVICING AGREEMENTS AND LIQUOR
LICENSES
XV FORM OF OPERATING STATEMENTS
(ix)
<PAGE> 11
SCHEDULES
1.1A MORTGAGED PROPERTIES
1.1B PROPERTIES
1.1C SCHEDULED PROPERTIES
1.1D DEFERRED MAINTENANCE
1.1E COMPANY'S BASIS IN MORTGAGED PROPERTIES
1.1F GROUND LEASES
2.2 LENDERS' COMMITMENTS AND PRO RATA SHARES
3.1I MAJOR LEASE ESTOPPELS AND CONSENTS
3.1S HPT TERM SHEET
4.1 JURISDICTIONS WHERE THE LOAN PARTIES AND SUBSIDIARIES CONDUCT
BUSINESS
4.2C GOVERNMENT CONSENTS
4.2E OTHER ISSUED AND OUTSTANDING SECURITIES OF THE COMPANY
4.3 CERTAIN CONTINGENT OBLIGATIONS
4.4B SERVICING AGREEMENTS
4.4C FRANCHISE AGREEMENTS
4.4D MATERIAL LEASES
4.4E LIQUOR LICENSES
4.5 LITIGATION
4.6 TAX EXTENSIONS
4.7 RESTRICTIONS ON BUSINESS
4.14A ZONING
4.14B AUTHORIZATIONS
4.15 CERTAIN ENVIRONMENTAL AND ENGINEERING ISSUES
4.16 INSURANCE
4.21A INTELLECTUAL PROPERTY
4.22 WETLANDS
4.23 CASH MANAGEMENT SYSTEM
4.25 EMPLOYMENT AND LABOR AGREEMENTS
5.1 FORM OF FINANCIAL PROJECTIONS
5.5B ENVIRONMENTAL REPAIRS AND RECOMMENDATIONS
6.10 AFFILIATE TRANSACTIONS
(x)
<PAGE> 12
SENIOR SECURED REVOLVING CREDIT AGREEMENT
This SENIOR SECURED REVOLVING CREDIT AGREEMENT is dated as of June 26,
1996 and entered into among PRIME HOSPITALITY CORP., a Delaware corporation (the
"COMPANY"), THE LENDERS LISTED ON THE SIGNATURE PAGES HEREOF (individually
referred to herein as a "LENDER" and collectively as the "LENDERS"), CREDIT
LYONNAIS NEW YORK BRANCH, as documentation agent (in such capacity,
"DOCUMENTATION AGENT"), and BANKERS TRUST COMPANY ("BANKERS"), as agent for the
Lenders (in such capacity, the "AGENT").
R E C I T A L S
WHEREAS, Prime Note Collections Company, Inc. (the "PRIME LOAN
SELLER"), the Company and Bankers, as lender, are parties to that certain Credit
Agreement dated as of May 24, 1996 (the "PRIOR AGREEMENT") pursuant to which (a)
the Prime Loan Seller sold to Bankers and Bankers purchased from the Prime Loan
Seller the loan evidenced by that certain Consolidated Note (the "EXISTING
CONSOLIDATED NOTE") in the original principal amount of $20,000,000 dated May
24, 1996 made by the Company in favor of the Prime Loan Seller, which Existing
Consolidated Note had consolidated and reduced the indebtedness evidenced by (i)
that certain Modified First Mortgage Note dated December 1, 1992 by Meriden
Hotel Associates, L.P. and Wellesley I, L.P. in favor of the payees named
therein in the original aggregate principal amount of $22,641,219 (the "EXISTING
POOL I NOTE"), (ii) that certain Modified First Mortgage Note dated December 1,
1992 by Multi Wellesley Hotels Limited Partnership in favor of the payees named
therein in the original aggregate principal amount of $20,165,214 (the "EXISTING
POOL II HARD NOTE"), and (iii) that certain Modified First Mortgage Note dated
December 1, 1992 by Multi Wellesley Hotels Limited Partnership in favor of the
payees named therein in the original aggregate principal amount of $1,085,466
(the "EXISTING POOL II SOFT NOTE"; together with the Existing Pool II Hard Note,
the "EXISTING POOL II NOTE") and (b) Bankers and the Company amended and
restated the Existing Consolidated Note so that all of the agreements of the
Company, its Subsidiaries and Bankers with respect to the Existing Consolidated
Loan are as set forth in the Prior Agreement and in the other documents,
instruments, certificates, agreements, indemnities and other materials described
therein or delivered pursuant thereto.
WHEREAS, the Company has previously incurred indebtedness in order to
acquire the Properties (as defined below) which will be mortgaged hereunder and
desires to refinance such indebtedness with permanent financing.
WHEREAS, the Company and its Subsidiaries desire certain additional
loan facilities, the proceeds of which will be used for the general corporate
purposes of the Company, which may include the acquisition and development of
new hotel properties.
<PAGE> 13
WHEREAS, Bankers desires to sell to the Lenders, and the Lenders desire
to purchase from Bankers, the loans evidenced by the Existing Consolidated Note
(collectively, the "EXISTING CONSOLIDATED LOAN"), together with all documents,
instruments, certificates, agreements, indemnities and other materials
evidencing, governing, securing or otherwise relating to the Existing
Consolidated Loan (the "EXISTING CONSOLIDATED LOAN DOCUMENTS").
WHEREAS, it is a condition precedent to the effectiveness of this
Agreement, to the acquisition by the Lenders of the Existing Consolidated Note
and to the extensions of credit hereunder that (i) the Mortgaged Property
Subsidiaries (as defined below), if any, guaranty the obligations of the Company
and (ii) the Company and the Property Subsidiaries, if any, grant Liens (as
defined below) in certain of their real and personal property to secure their
respective obligations under the Loan Documents (as defined below).
WHEREAS, simultaneously with the sale of the Existing Consolidated Note
to the Lenders, the Lenders and the Company desire to consolidate, amend and
restate the Existing Consolidated Note and the Existing Consolidated Loan
Documents on the terms and conditions set forth herein and the other Loan
Documents.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the Company, the Lenders and the
Agent agree as follows:
SECTION 1.
INTERPRETATION
This Agreement and the other Loan Documents shall be construed and
interpreted in accordance with this Section 1.
1.1 CERTAIN DEFINED TERMS.
The following terms used in this Agreement and the other Loan Documents
shall have the following meanings when used herein with initial capital letters:
"ACQUISITION AGREEMENTS" means, collectively, the agreements entered
into after the Closing Date by the Company and any of its Subsidiaries in
connection with the acquisition of any fee or ground leasehold interest in any
Mortgaged Property.
"ACQUISITION DATE" means, with respect to any Property, the date on
such Property was acquired by the Company or any of its Subsidiaries.
"ADDITION CERTIFICATE" means an Officer's Certificate, substantially in
the form attached hereto as Exhibit XIII, delivered to the Agent pursuant to
subsection 2.10.
2
<PAGE> 14
"ADDITION DATE" means the following:
(i) with respect to any Mortgaged Property listed on Schedule
1.1A as of the Closing Date, the Closing Date;
(ii) with respect to any Additional Mortgaged Property
designated after the Closing Date in accordance with subsection 2.10,
the date on which the Agent approves the Designation of such Property
in accordance with the provisions of subsection 2.10.
"ADDITIONAL MORTGAGED PROPERTY" has the meaning assigned to that term
in subsection 2.10.
"ADJUSTED EURODOLLAR RATE" means, for any Interest Rate Determination
Date with respect to a Eurodollar Rate Loan, the rate per annum obtained by
dividing (i) the Eurodollar offered rate for deposits with maturities comparable
to the Interest Period for which such Adjusted Eurodollar Rate will apply as of
approximately 10:00 A.M. (New York time) on such Interest Rate Determination
Date as set forth on Telerate Page 4756 (or such other page as may, in the
opinion of the Agent, replace such page for the purpose of displaying such rate)
by (ii) a percentage equal to 100% minus the stated maximum rate of all reserve
requirements (including any marginal, emergency, supplemental, special or other
reserves) applicable on such Interest Rate Determination Date to any member bank
of the Federal Reserve System in respect of "Eurocurrency liabilities" as
defined in Regulation D (or any successor category of liabilities under
Regulation D).
"AFFECTED LENDER" has the meaning assigned to that term in subsection
2.7C.
"AFFECTED LOANS" has the meaning assigned to that term in subsection
2.7C.
"AFFILIATE" means with respect to any Person, any other Person directly
or indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities or
by contract or otherwise.
"AGENT" has the meaning assigned to that term in the introduction to
this Agreement and also means and includes any successor Agent hereunder.
"AGREEMENT" means this Senior Secured Revolving Credit Agreement dated
as of the date first written above among the Company, Prime Loan Seller, the
Lenders and the Agent, as it may be amended, restated, supplemented or otherwise
modified from time to time.
3
<PAGE> 15
"ALTA" means the American Land Title Association or any successor
thereto.
"ANNIVERSARY" means each of the dates that are anniversaries of the
Closing Date. "APPLICABLE LAWS" means, collectively, all statutes, laws, rules,
regulations, ordinances, orders, decisions, writs, judgments, decrees and
injunctions of Governmental Authorities (including Environmental Laws) affecting
the Agent, any Lender, the Company, any Loan Party or the Collateral or any part
thereof (including the acquisition, development, construction, Renovation,
occupancy, use, improvement, alteration, management, operation, maintenance,
repair or restoration thereof), whether now or hereafter enacted and in force,
and all Authorizations relating thereto, and all covenants, conditions and
restrictions contained in any instruments, either of record or known to the
Company or any other Loan Party, at any time in force affecting any Property or
any part thereof, including any such covenants, conditions and restrictions
which may (i) require improvements, repairs or alterations in or to such
Property or any part thereof or (ii) in any way limit the use and enjoyment
thereof; for purposes of usury, Applicable Laws means the law of the State of
New York applicable to maximum rates of interest.
"APPRAISED VALUE" means, as of any date of determination and with
respect to any Mortgaged Property, the lesser of (i) the appraised value of such
Mortgaged Property, in each case as most recently determined by an Appraisal
approved by the Agent on or before such date of determination and (ii) the
maximum aggregate principal amount secured by the Mortgage applicable to such
Mortgaged Property, as expressly set forth in such Mortgage, and with respect to
which the Company has elected pursuant to subsection 5.6B to pay (and has paid)
all applicable mortgage or recording taxes; provided that the Appraised Value
with respect to the Hazlet Property shall be decreased by $250,000.
"APPRAISER" means CB Commercial Real Estate Group, Inc. or any other
independent appraiser selected by the Agent and reasonably acceptable to the
Company who meets all regulatory requirements applicable to the Agent and the
Lenders, who is a member of the Appraisal Institute with a national practice and
who has at least 10 years experience with real estate of the same type and in
the geographic area of the Property to be appraised.
"APPRAISAL" means, with respect to any Mortgaged Property, a written
appraisal of such Mortgaged Property prepared by an Appraiser and requested by
the Agent pursuant to subsection 5.6B or delivered to the Agent pursuant to
subsection 3.1L, in each case in form, content and methodology satisfactory to
the Agent and in compliance with all applicable legal and regulatory
requirements (including the requirements of Title XI of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, 12 U.S.C.
Sections 3331, et seq., as amended (or any successor statute thereto), and
the regulations promulgated thereunder).
"APPROVED ENVIRONMENTAL CONSULTANT" means Dames & Moore or any other
qualified, independent environmental consultant reasonably acceptable to the
Agent.
"ASSET SALE" means (i) the sale, lease (other than operating leases in
respect of facilities which are ancillary to the operation of the Company's or a
Subsidiary's Properties), conveyance or other disposition of any property or
assets of the Company or any Subsidiary of the Company
4
<PAGE> 16
(including by way of a sale-leaseback transaction and including a disposition by
the Company or a Subsidiary of Equity Interests in a Subsidiary), (ii) the
issuance or sale of Equity Interests of any of the Company's Subsidiaries or
(iii) any event of loss by reason of casualty, condemnation or otherwise, other
than, with respect to clauses (i), (ii), and (iii) above, the following: (1) the
sale or disposition of personal property held for sale in the ordinary course of
business, (2) the sale or disposal of damaged, worn out or other obsolete
property in the ordinary course of business so long as such property is no
longer necessary for the proper conduct of the business of the Company or such
Subsidiary, as applicable, (3) the transfer of assets (other than assets that
constitute Collateral) by the Company to a Subsidiary of the Company or by a
Subsidiary of the Company to the Company or to another Subsidiary of the
Company, (4) the exchange of assets (other than assets which constitute
Collateral) held by the Company or a Subsidiary of the Company for one or more
hotels and/or one or more Hospitality-Related Businesses of any Person owning
one or more hotels and/or one or more Hospitality-Related Businesses; provided,
that the board of directors of the Company has determined that the terms of any
exchange are fair and reasonable and that the fair market value of the assets
received by the Company as set forth in an opinion of a Qualified Appraiser, are
equal to or greater than the fair market value of the assets exchanged by the
Company or a Subsidiary of the Company, (5) any Restricted Payment, dividend or
purchase or retirement of Equity Interests permitted under this Agreement, (6)
the conversion of or foreclosure on any mortgage or note, provided that the
Company or a Subsidiary of the Company receives the real property underlying any
such mortgage or note and (7) any transaction or series of related transactions
(other than a sale, lease, conveyance or other disposition of any hotel property
or Land) that would otherwise be an Asset Sale where the aggregate fair market
value of the assets subject to such transaction or series of transactions is
less than $5,000,000 unless such transaction or series of transactions, or the
receipt of any proceeds therefrom (or the application or failure to apply any
such proceeds or any other amount determined in whole or in part upon the
receipt or application of such proceeds) would result in or require the
repayment or prepayment of any Indebtedness or the payment of any other amount
under any other agreement.
"ASSIGNMENT OF RENTS AND LEASES" means each Assignment of Rents and
Leases executed and acknowledged by the Loan Party thereto in favor of the Agent
for the benefit of the Agent and the Lenders in the form delivered on the
Closing Date, as any such Assignment of Rents and Leases may be amended,
restated, supplemented, consolidated, extended or otherwise modified from time
to time in accordance with the terms thereof and hereof.
"ASSUMED INTEREST AMOUNT" means as of any date of determination, the
amount which, if multiplied by a per annum interest rate equal to the greater of
(i) the highest Adjusted Eurodollar Rate then applicable to any Eurodollar Rate
Loan plus 2.25% and (ii) the Adjusted Eurodollar Rate then applicable to
Eurodollar Rate Loans with a 30-day Interest Period plus 2.25% (such product
being the "ASSUMED INTEREST CHARGE"), would permit (a) the ratio of (1)
aggregate Property EBITDA with respect to Class 1 Mortgaged Properties and Class
3 Mortgaged Properties, measured for the 12 most recent complete calendar months
for which financial statements have been delivered pursuant to subsection
5.1(i), to (2) the product of (x) the Assumed Interest Charge times (y) the
ratio, the numerator of which is the aggregate Property EBITDA with respect to
all Class 1 and Class 3 Mortgaged Properties and the denominator of
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<PAGE> 17
which is the aggregate Property EBITDA of all Mortgaged Properties, in each case
for such 12 calendar months, to be equal to or greater than the applicable ratio
set forth below:
PERIOD RATIO
------ -----
From and including the Closing Date - to but 2.50 to 1.00
not including the first Anniversary
From and including the first Anniversary - to 2.50 to 1.00
but not including the second Anniversary
From and including the second Anniversary - to 2.50 to 1.00
but not including the third Anniversary
From and including the third Anniversary - to 2.50 to 1.00
but not including the fourth Anniversary
From and including the fourth Anniversary - to 2.75 to 1.00
but not including the Maturity Date
and (b) the ratio of (1) aggregate Property EBITDA with respect to the Mortgaged
Properties measured for such 12 calendar months to (2) the Assumed Interest
Charge, to be equal to or greater than the applicable ratio set forth below:
PERIOD RATIO
------ -----
From and including the Closing Date - to 2.00 to 1.00
but not including the first Anniversary
From and including the first Anniversary
- to but not including the second 2.00 to 1.00
Anniversary
From and including the second
Anniversary - to but not including the 2.25 to 1.00
third Anniversary
From and including the third Anniversary
- to but not including the fourth 2.50 to 1.00
Anniversary
From and including the fourth
Anniversary - to but not including the 2.75 to 1.00
Maturity Date
"AUTHORIZATION" means any authorization, approval, franchise, license,
variance, land use entitlement, sewer and waste water discharge permit, storm
water discharge permit, air pollution authorization to operate, certificate of
occupancy, municipal water and sewer connection permit, and any like or similar
permit now or hereafter required for the construction or Renovation of any
Improvements located on any Mortgaged Property or for the use, occupancy or
operation of any Mortgaged Property and all amendments, modifications,
supplements and addenda thereto.
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"AUTHORIZED OFFICER" means any executive officer of the Company,
including the chairman of the board of directors, president, chief executive
officer, chief financial officer, vice president or treasurer of the Company.
"BANKERS" has the meaning assigned to that term in the introduction to
this Agreement.
"BANKRUPTCY CODE" means Title 11 of the United States Code entitled
"Bankruptcy", as now and hereafter in effect, or any successor statute.
"BASE RATE" means, at any time, the rate per annum that is the higher
of (i) the Prime Rate and (ii) the sum of (a) the Federal Funds Effective Rate
plus (b) 1/2 of 1%.
"BASE RATE LOANS" means Loans bearing interest at rates determined by
reference to the Base Rate as provided in subsection 2.3A.
"BORROWING BASE" means, as of any date of determination from and after
the Closing Date through and including the Maturity Date, the amount determined
by the Agent as of the last day of the preceding month or, if subsequent
thereto, the most recent Addition Date or Release Date, that is equal to the sum
of the Property Amounts in respect of all Designated Mortgaged Properties as of
such date of determination; provided, that the calculation of the Borrowing Base
shall exclude:
(i) if the applicable date of determination is before the
third Anniversary, the amount, if any, by which the aggregate Property
Amount from Class 2 Mortgaged Properties that are Designated Mortgaged
Properties exceeds 25% of the amount determined pursuant to this
definition as of such date of determination, provided that if the date
of determination is during the period from the first Anniversary but
before the third Anniversary, and the Designated Average Life is less
than 36 months, then such percentage may be 50%, if, as long as the
percentage exceeds 25%, the advance rate for the Class 2 Mortgaged
Properties is adjusted as provided in clause (ii) of the definition of
"Property Amount";
(ii) if the applicable date of determination is on or after
the third Anniversary, all Property Amounts from Class 2 Mortgaged
Properties;
(iii) the amount by which the sum of the Property Amounts for
the Scheduled Properties and the Class 3 Mortgaged Properties that are
Designated Mortgaged Properties exceeds 20% of the amount determined
pursuant to this definition, provided that for the period from the
Closing Date to the first Anniversary, such percentage shall be 25.4%;
provided further, that on and after the third Anniversary, all Property
Amounts from the Scheduled Properties shall be excluded from the
calculation of the Borrowing Base; and
(iv) the amount by which the Property Amount with respect to
any Designated Mortgaged Property exceeds 15% of the amount determined
pursuant to this definition;
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<PAGE> 19
provided further, that (x) if the Designated Average Life is less than 36 months
at any time prior to the first Anniversary, the Borrowing Base shall be zero;
(y) if the Designated Average Life is less than 24 months at any time on and
after the first Anniversary, the Borrowing Base shall be zero; and (z) in no
event shall the Borrowing Base exceed the Assumed Interest Amount as of such
date of determination; provided still further that the Borrowing Base is subject
to (A) recomputation from time to time as provided in subsections 2.5B(iii) and
2.10 and (B) adjustment from time to time as provided in the definitions of
"Mortgaged Property Amount" and "Property EBITDA," respectively.
"BORROWING BASE CERTIFICATE" means a certificate substantially in the
form annexed hereto as Exhibit V delivered by the Company pursuant to subsection
3.1D(iii) or 5.1(ii).
"BUSINESS DAY" means (i) for all purposes other than as covered by (ii)
below, any day excluding Saturday, Sunday and any day which is a legal holiday
under the laws of the State of New York or is a day on which banking
institutions located in such state are authorized or required by law or other
governmental action to close and (ii) with respect to notices, determinations,
fundings and payments in connection with the Adjusted Eurodollar Rate or any
Eurodollar Rate Loans, any day that is a Business Day described in clause (i)
above and that is also a day for trading by and between banks in Dollar deposits
in the London interbank market.
"CAPITAL ITEMS" means the cost of capital repairs and replacements of
all or any portion of the Improvements or any other portion of any Property,
including (i) the cost of tenant improvements and brokerage commissions payable
in connection with lease transactions at any Property, (ii) costs of
environmental audits and monitoring, environmental remediation work or any other
costs and expenses incurred with respect to compliance with Environmental Laws,
(iii) the cost of any Restoration, (iv) the cost of any Renovation, (v) costs of
FF&E, (vi) costs of appraisals, valuations, title insurance and inspections and
(vii) any other costs incurred in connection with the Properties to the extent
such costs would be capitalized on a balance sheet in accordance with GAAP.
"CAPITAL LEASE" means, with respect to any Person, lease of any
property (whether real, personal or mixed) by that Person as lessee that, in
conformity with GAAP, is accounted for as a Capital Lease on the balance sheet
of that Person.
"CAPITAL LEASE OBLIGATIONS" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be so required to be capitalized on the balance sheet of
that Person in accordance with GAAP.
"CAPITAL RESERVE ACCOUNT" means, collectively, one or more
interest-bearing accounts to be established and maintained by the Company at the
offices of the Agent located at 280 Park Avenue, New York, New York, each in the
name of "Bankers Trust Company, as Agent - Prime Hospitality Corp. Capital
Reserve Account," with such additional identifying references in such name as
the Company and the Agent shall agree.
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<PAGE> 20
"CAPITAL STOCK" means, with respect to any Person, any capital stock,
partnership or joint venture interests of such Person and shares, interests,
participations or other ownership interests (however designated) of any Person
and any rights (other than debt securities convertible into any of the
foregoing), warrants or options to purchase any of the foregoing.
"CASH" means money, currency or a credit balance in a Deposit Account.
"CASH EQUIVALENTS" means, as of any date of determination, (i)
marketable securities issued or directly and fully guaranteed or insured by the
government of the United States of America or any agency or instrumentality
thereof having maturities of not more than six months from the date of
acquisition, (ii) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months from the date of
acquisition and overnight bank deposits, in each case with any domestic
commercial bank having capital and surplus in excess of $500,000,000, (iii)
repurchase obligations with a term not more than seven days for underlying
securities of the types described in clauses (i) and (ii) entered into with any
financial institution meeting the qualifications specified in clause (ii) above,
(iv) commercial paper or commercial paper master notes having a rating of P-2 or
the equivalent thereof by Moody's or A-2 or the equivalent thereof by S&P
Corporation and in each case maturing within six months after the date of
acquisition, (v) money market mutual funds that provide daily purchase and
redemption features and (vi) corporate debt with maturities of not greater than
six months and with a rating of A or the equivalent thereof by S&P and a rating
of A2 or the equivalent thereof by Moody's.
"CASH MANAGEMENT LETTERS" means (i) the Cash Manager Cash Management
Agreement, (ii) each letter agreement among each Loan Party, its Subsidiaries
(if applicable), the financial institutions at which Deposit Accounts are
located pursuant to the Cash Management System and the Agent, in each case
substantially in the form of Exhibit IX annexed hereto with such changes as are
acceptable to the Agent (approval of such changes not to be unreasonably
withheld or delayed, and (iii) all other agreements with or directions to the
financial institutions at which Deposit Accounts are located reasonably
satisfactory to the Agent, in either case pursuant to which, in accordance with
subsection 5.15, such financial institutions are to direct funds from such
Deposit Accounts to the Concentration Account.
"CASH MANAGEMENT SYSTEM" means the system of Deposit Accounts of Loan
Parties and their Subsidiaries pursuant to which all Receipts of Loan Parties
and such Subsidiaries related to the Mortgaged Properties are collected and
distributed, all as described in Schedule 4.23 annexed hereto, as it may be
modified from time to time in accordance with the terms hereof.
"CASH MANAGER" means The Chase Manhattan Bank, N.A., or any other
domestic commercial bank designated by the Company to the Agent having capital
and surplus in excess of $500,000,000.
"CASH MANAGER CASH MANAGEMENT AGREEMENT" means the letter agreement
substantially in the form of Exhibit X annexed hereto and delivered pursuant to
subsection 3.1F(x) by and among the Cash Manager, the Agent and the Company.
9
<PAGE> 21
"CASH PROCEEDS" means, with respect to any sale or other disposition or
refinancing of any Property, cash payments (including any cash received by way
of deferred payment pursuant to, or monetization of, a note receivable or
otherwise, but only as an when so received) received from such sale or
disposition or refinancing.
"CHANGE OF CONTROL" means the occurrence of any of the following: (i)
the sale, lease or transfer, in one or a series of related transactions, of all
or substantially all of the Company's assets to any person or group (as such
term is used in Section 13 (d)(3) of the Exchange Act) other than to a
Subsidiary Guarantor, (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) the acquisition by any person or group (as
such term is used in Section 13 (d)(3) of the Exchange Act) of a direct or
indirect interest in more than 50% of the ownership of the Company or the voting
power of the voting stock of the Company by way of purchase, merger or
consolidation or otherwise (other than a creation of a holding company that does
not involve a change in the beneficial ownership of the company as a result of
such transaction), (iv)(a) any consolidation of the Company with, or merger of
the Company into, any other Person, any merger of another Person into the
Company, (other than a merger which does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares of capital stock of
the Company or reclassification, conversion or exchange of outstanding shares of
capital stock of the Company solely into shares of capital stock of the
Company), or (b) the merger or consolidation of the Company with or into another
corporation or the merger of another corporation into the Company, in each case
with the effect that immediately after such transaction the stockholders of the
Company immediately prior to such transaction hold less than 50% of the total
voting power of all securities generally entitled to vote in the election of
directors, managers, or trustees of the Person surviving such merger or
consolidation, (v)(a) the first day on which a majority of the members of the
Board of Directors of the Company are not Continuing Directors or (b) a change
in the Board of Directors of the Company in which the individuals who
constituted the Board of Directors of the Company or whose nomination for
election by the shareholders of the Company was approved by a vote of at least a
majority of the directors then in office either who were directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
directors then in office; provided, however, that, with respect to clauses
(iv)(a) and (v)(a), a Change of Control shall not be deemed to have occurred if
any Convertible Notes are outstanding and the closing price per share of the
Company Stock for any five trading days within the period of ten consecutive
trading days ending immediately before the Convertible Notes shall equal or
exceed 105% of the conversion price of such Convertible Notes in effect on each
such trading day. A "beneficial owner" shall be determined in accordance with
Rule 13d-3 promulgated by the Securities and Exchange Commission under the
Exchange Act, as in effect on the date of execution of the Convertible Note
Indenture.
"CLASS 1 MORTGAGED PROPERTIES" means, as of any date of determination,
(i) Mortgaged Properties that have been in full operation more than 15 complete,
consecutive calendar months following the completion of the construction or
Complete Renovation/Restoration thereof and (ii) Mortgaged Properties that have
been in full operation following the completion of the construction or Complete
Renovation/Restoration thereof for more than 12, but less than 15, complete,
consecutive calendar months and the Property EBITDA for the applicable Mortgaged
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<PAGE> 22
Property for 12 complete, consecutive calendar months during such 12 month
period is greater than the projected results of operations for such 12 month
period prepared by the Company and approved by the Agent before the Addition
Date with respect to such Mortgaged Property; provided, in either case, that
Class 1 Mortgaged Properties do not satisfy the criteria of Class 3 Mortgaged
Properties; provided further, (a) if, as of the last day of any month, any
Mortgaged Property satisfies the criteria of a Class 3 Mortgaged Property, then
such Mortgaged Property shall be automatically reclassified as a Class 3
Mortgaged Property, (b) if the Property EBITDA with respect to any Mortgaged
Property described in clause (a) above, measured for the immediately preceding
12 complete, consecutive months, exceeds 10% of the Company's basis in such
Mortgaged Property for 6 consecutive months, such Mortgaged Property shall be
automatically reclassified as a Class 1 Mortgaged Property and (c) if any
Mortgaged Property is reclassified as a Class 3 Mortgaged Property pursuant to
clause (a) above more than once, such Mortgaged Property cannot be reclassified
as a Class 1 Mortgaged Property pursuant to clause (b) above or otherwise.
"CLASS 2 MORTGAGED PROPERTIES" means, as of any date of determination,
Mortgaged Properties that have been in full operation for less than 15 complete,
consecutive calendar months following the completion of the construction or
Complete Renovation/Restoration thereof; provided that Class 2 Mortgaged
Properties do not include Mortgaged Properties that satisfy the criteria of
Class 1 Mortgaged Properties or Class 3 Mortgaged Properties; provided further,
that until July 15, 1997 the Hasbrouck Heights Crowne Plaza shall be classified
as a Class 2 Mortgaged Property and thereafter it shall be classified as
otherwise provided herein.
"CLASS 3 MORTGAGED PROPERTIES" means, as of any date of determination,
Mortgaged Properties that have been in full operation for more than 24 complete,
consecutive calendar months following the completion of the construction or
Complete Renovation/Restoration thereof and with respect to which Property
EBITDA, calculated based on the immediately preceding 12 complete, consecutive
months, is less than 10% of the Company's basis in such Mortgaged Property as
recorded on Schedule 1.1E annexed hereto as such schedule may be modified from
time to time (i) to increase the basis in a Mortgaged Property for additions and
improvements thereto and FF&E (provided that the aggregate cost of FF&E
installed at any Mortgaged Property in any period of 12 consecutive calendar
months that is less than 4.0% of the Property Gross Revenues from such Mortgaged
Property for such period shall be excluded) and (ii) to include each Mortgaged
Property designated as a Class 3 Mortgaged Property pursuant to subsection 2.10
after the Closing Date.
"CLOSING DATE" means the first date on which each of the conditions set
forth in subsection 3.1 are satisfied.
"COLLATERAL" means, collectively, all property (including capital
stock), whether real, personal or mixed, tangible or intangible, owned or to be
owned or leased or to be leased or otherwise held or to be held by the Company
or any of its Subsidiaries or in which the Company or any of its Subsidiaries
has or shall acquire an interest, to the extent of the Company's or such
Subsidiary's interest therein, now or hereafter granted, assigned, transferred,
mortgaged or pledged to the Agent and/or the Lenders or in which a Lien is
granted to the Agent and/or the
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<PAGE> 23
Lenders to secure all or any part of the Obligations, whether pursuant to the
Security Documents or otherwise, including, without limitation, the Mortgaged
Properties, the Leases, Rents and, Acquisition Documents related to the
Mortgaged Properties, and any and all proceeds of the foregoing.
"COLLECTING AGENT(S)" has the meaning assigned to that term in
subsection 5.15B(i).
"COMMITMENTS" means, collectively, the commitments of the Lenders to
make Loans to the Company pursuant to subsection 2.2A and to pay the purchase
price pursuant to subsection 2.1.
"COMMON STOCK" means the common stock of the Company, par value $.01
per share.
"COMPANY" has the meaning assigned to that term in the introduction to
this Agreement.
"COMPARABLE COMPANIES" has the meaning assigned to that term in
subsection 6.6B.
"COMPLETE RENOVATION/RESTORATION" means, as of any date of
determination, any Renovation or Restoration of a Property with respect to which
more than 60% of the available rooms located at the applicable Property have
been, are schedule to be, or could reasonably be expected to be, "rooms
out-of-order," as determined in accordance with the Uniform System during 5 or
more days during any period of 30 consecutive days.
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form
of Exhibit IV annexed hereto delivered to the Agent by the Company pursuant to
subsection 5.1(vi).
"CONCENTRATION ACCOUNT" means the interest bearing account No.
__________ established and maintained in the name of the Agent at the offices of
the Cash Manager pursuant to the terms of the Security Agreement, to which all
funds on deposit in the Deposit Accounts included in the Cash Management System
are directed by the Agent in accordance with subsection 5.15.
"CONDEMNATION PROCEEDS" means all compensation, awards, damages, rights
of action and proceeds awarded to any Loan Party or any of its Subsidiaries by
reason of any Taking.
"CONSOLIDATED EBITDA" means, with respect to the Company and its
Subsidiaries for any period and as of any date of determination, the sum of (i)
operating income plus (ii) depreciation and amortization expense, in each case
as determined on a consolidated basis for the Company and its Subsidiaries and
reflected on the financial statements delivered pursuant to subsections 3.1D or
5.1(iv); provided that if any hotel property has been sold subsequent to the
commencement of such period pursuant to a sale-leaseback transaction not
prohibited by this Agreement, Consolidated EBITDA shall be (a) reduced by the
amount of rental expense that would be attributable to such hotel property in
connection with such transaction from the first day of such period to but
excluding the earlier of the last day of such period and the closing date of the
applicable sale-leaseback transaction (the "ADJUSTMENT PERIOD") as if such
transaction had
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<PAGE> 24
occurred on the first day of such period and (b) increased by the amount of
Saved Interest Expense for the Adjustment Period with respect to any
Indebtedness repaid from the proceeds of such transaction; provided further that
Consolidated EBITDA shall be reduced by an aggregate amount, without
duplication, equal to the amount of operating income of the Subsidiaries of the
Company which is actually restricted (but only to the extent of such
restriction) from being used to declare or pay dividends or other distributions
by operation of the terms of such Subsidiary's charter, any agreement to which
such Subsidiary is a party (including without limitation pursuant to any minimum
net worth provision) or otherwise.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to the Company and
its Subsidiaries for any period and as of any date of determination, without
duplication, the sum of (a) interest expense, whether paid or accrued, to the
extent such expense was deducted in computing Consolidated Net Income (including
amortization or original issue discount, non-cash interest payments, the
interest component of Capital Lease Obligations, and net payments (if any)
pursuant to Hedging Obligations, but excluding amortization of deferred
financing fees, (b) commissions, discounts and other fees and charges paid or
accrued with respect to letters of credit and bankers' acceptance financing and
(c) interest for which the Company or its Subsidiaries is liable pursuant to
Indebtedness or under a Guaranty of Indebtedness of any other Person, but only
to the extent actually paid by the Company or any of its Subsidiaries; in each
case calculated for the Company and its Subsidiaries for such period on a
consolidated basis as determined in accordance with GAAP; provided that when
this definition is used for purposes of determining compliance with the
financial covenants contained in Section 6.6, it shall be applied as of the date
of determination and measured for the 12 most recent complete calendar months
for which financial statements have been delivered pursuant to subsection 5.1.
"CONSOLIDATED NET INCOME" means, with respect to any Person as of any
date of determination, the aggregate of the Net Income of such Person and its
Subsidiaries, on a consolidated basis, determined in accordance with GAAP,
measured for the 12 most recent complete calendar months for which financial
statements have been delivered pursuant to subsection 5.1; provided, that (i)
the Net Income of any Person that is not a Subsidiary or that is accounted for
by the equity method of accounting shall be excluded, whether or not distributed
to the Company or one of its Subsidiaries, (ii) the Net Income of any Person
that is a Subsidiary and that is restricted from declaring or paying dividends
or other distributions, directly or indirectly, by operation of the terms of its
charter, any applicable agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation or otherwise shall be included only to the
extent of the amount of dividends or distributions paid to any Person or a
Wholly Owned Subsidiary of any Person, (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded and (iv) the cumulative effect of change
in accounting principles shall be excluded.
"CONSOLIDATED NET WORTH" means, with respect to the Company as of any
date of determination, the Net Worth of the Company and its Subsidiaries, on a
consolidated basis, determined in accordance with GAAP.
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<PAGE> 25
"CONSOLIDATED TOTAL INDEBTEDNESS" means, as of any date of
determination, the sum, without duplication, of all Indebtedness of the Company
and its Subsidiaries, determined on a consolidated basis in conformity with
GAAP.
"CONTINGENT OBLIGATION" means, with respect to any Person, as of any
date of determination and without duplication, any direct or indirect liability,
contingent or otherwise, of that Person which has not been (or to the extent
that it has not been) paid or otherwise discharged with respect to the
following: (i) any Guaranty; (ii) any letter of credit issued for the account of
that Person or as to which that Person is otherwise liable for reimbursement of
drawings; (iii) performance, surety and similar bonds in respect of any
Restoration, Renovation or other design, construction, restoration, renovation
or repair of any Improvements, in each case with respect to any Mortgaged
Property or other hotel property; (iv) other performance, surety and appeal
bonds; and (v) indemnification or contribution obligations of any nature,
including, without limitation, liabilities in respect of (a) agreements
providing for indemnification, adjustment of purchase price or similar
obligations or for Guaranties or letters of credit, surety bonds and performance
bonds securing any obligations of that Person pursuant to such agreements, (b)
environmental and "bad deed" indemnities and (c) the issuance or sale of
Securities of that Person, but excluding any indemnity or contribution
obligation (1) which is insured or (2) with respect to which that Person has no
knowledge that a condition exists giving rise to an actual payment liability.
Except as provided in the next sentence, the amount of any Contingent
Obligation, as of any date of determination, shall be equal to the least of (A)
the amount of the obligation so Guaranteed or that otherwise may be required to
be paid and (B) the amount to which such Contingent Obligation is expressly
limited. The amount of any Contingent Obligations described in clause (v) of
this definition, as of any date of determination, shall be the amount reasonably
estimated by the Company and agreed to by the Agent; provided, however, that in
the absence of such agreement, the amount shall be conclusively and finally
determined by an independent third-party expert selected by the Agent and
approved by the Company, which approval shall not be unreasonably withheld.
"CONTINUING DIRECTORS" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the Closing Date or (ii) was nominated for election or
elected to such Board of Directors with the affirmative vote of at least a
majority of the Continuing Directors who were members of such Board of Directors
at the time of such nomination or election.
"CONTRACTUAL OBLIGATION" means, with respect to any Person, means any
provision of any Security issued by that Person or of any material indenture,
mortgage, deed of trust, deed to secure debt, contract, lease, purchase order,
undertaking, agreement or other instrument to which that Person is a party or by
which it or any of its properties is bound or to which it or any of its
properties is subject, including, with respect to the Company or any of its
Subsidiaries, any provision of the Related Documents to which the Company or
such Subsidiary is a party or by which it or any of its properties is bound or
to which it or any of its properties is subject.
"CONVERTIBLE NOTE DOCUMENTS" means, collectively, (i) the Convertible
Notes, the Convertible Note Indenture and each agreement, instrument,
certificate, opinion, or other
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<PAGE> 26
document executed and delivered by or on behalf of any Loan Party or any of its
Subsidiaries in connection with the Convertible Notes and (ii) each agreement,
instrument, indenture, note, certificate, opinion or other document executed and
delivered by or on behalf of any Person in connection with the issuance of any
Securities referred to in clause (ii) or (iii) of the definition of Convertible
Notes; in each case, as amended, restated, supplemented or otherwise modified
from time to time in accordance with the terms thereof and hereof.
"CONVERTIBLE NOTE INDENTURE" means the Indenture dated as of April 26,
1995 between the Company and Bank One, Columbus, N.A., as Trustee, pursuant to
which the Company issued the Convertible Notes.
"CONVERTIBLE NOTES" means, collectively, (i) the 7% Convertible
Subordinated Notes due 2002 issued by the Company pursuant to the Convertible
Note Indenture, (ii) any Securities issued by any Person to a holder of any of
the Securities referred to in this definition of Convertible Notes pursuant to
an order of decree of a court of competent jurisdiction and (iii) any Securities
issued by any Person in connection with any refinancing, exchange or refunding
of any of the securities referred to in this definition of Convertible Notes, in
each case with respect to securities referred to in this definition of
Convertible Notes, as such securities are amended, restated, supplemented or
otherwise modified from time to time in accordance with the terms thereof and
hereof.
"CREDIT BID" means a bid made, in a foreclosure sale pursuant to a
Mortgage, by the Agent consisting of all or a portion of the outstanding amount
of the Obligations.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement, futures contract, option contract, synthetic cap or other similar
agreement or arrangement designed to protect the Company or any of its
Subsidiaries against fluctuations in currency values.
"DEFAULT RATE" means the rate of interest payable pursuant to
subsection 2.3E.
"DEFERRED MAINTENANCE" means the deferred maintenance and repair in
respect of the Mortgaged Properties and the estimated cost thereof, each as set
forth in the Engineering Reports delivered by the Company pursuant to subsection
3.1K and specified on Schedule 1.1D annexed hereto.
"DEFERRED MAINTENANCE ACCOUNT" means, collectively, one or more
interest-bearing accounts to be established and maintained by the Company at the
offices of the Agent located at 280 Park Avenue, New York, New York, each in the
name of "Bankers Trust Company, as Agent - Prime Hospitality Corp. Deferred
Maintenance Account," with such additional identifying references in such name
as the Company and the Agent shall agree.
"DEPOSIT ACCOUNT" means a demand, time, savings, passbook or like
account with a bank, savings and loan association, credit union or like
organization, other than an account evidenced by a negotiable certificate of
deposit.
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"DESIGNATED AVERAGE LIFE" means, as of any date of determination, the
average number of complete, consecutive months of operation following the
construction or, if applicable, Complete Renovation/Restoration of the
Designated Mortgaged Properties which are Class 1 Mortgaged Properties and Class
3 Mortgaged Properties; provided that, for purposes of calculating Designated
Average Life, the number of months of operation of any Designated Mortgaged
Property following the construction or Complete Renovation/Restoration thereof,
as the case may be, in excess of 60 months shall be excluded.
"DESIGNATED MORTGAGED PROPERTIES" means, collectively all Mortgaged
Properties other than Mortgaged Properties that have been removed from
calculation of the Borrowing Base pursuant to subsection 2.10C.
"DESIGNATION" means the designation of a Property for inclusion in the
Borrowing Base as provided in subsection 2.10. The term "Designate" used as a
verb has a corresponding meaning.
"DOCUMENTATION AGENT" has the meaning assigned to that term in the
introductory paragraph of this Agreement.
"DOLLARS" and the sign "$" mean the lawful money of the United States
of America.
"ELIGIBLE ASSIGNEE" means (i) (a) a commercial bank organized under the
laws of the United States or any state thereof; (b) a savings and loan
association or savings bank organized under the laws of the United States or any
state thereof; (c) a commercial bank organized under the laws of any other
country or a political subdivision thereof; provided, however, that (x) such
bank is acting through a branch or agency located in the United States or (y)
such bank is organized under the laws of a country that is a member of the
Organization for Economic Cooperation and Development or a political subdivision
of such country; and (d) any other entity which is an "accredited investor" (as
defined in Regulation D under the Securities Act) which extends credit or buys
loans as one of its principal businesses including, but not limited to,
insurance companies, mutual funds and lease financing companies, in each case
(under clauses (a) through (d) above) that is reasonably acceptable to the
Agent; and (ii) any Lender and any Affiliate of any Lender; provided further,
however, that each Eligible Assignee under clauses (i)(a) through (i)(c) above
shall have Tier 1 capital (as defined in the regulations of its primary Federal
banking regulator) of not less than $100,000,000.
"EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as defined in
Section 3(3) of ERISA, which is, or was within the six-year period ending on the
applicable date of determination, maintained or contributed to by the Company,
any of its Subsidiaries, or any of their respective ERISA Affiliates.
"ENGINEER" means Dames & Moore or any other qualified engineer
reasonably approved by the Agent licensed as such in the state in which the
applicable Property in question is located.
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"ENGINEERING REPORT" means, with respect to any Property, a written
report prepared by an Engineer, describing and analyzing the physical condition
of the Improvements of such Property, describing any necessary or recommended
repairs, estimating the cost of such repairs and otherwise in form and substance
reasonably satisfactory to the Agent.
"ENVIRONMENTAL CLAIM" means any accusation, allegation, notice of
violation, claim, demand, abatement order or other order or direction
(conditional or otherwise) by any Governmental Authority or any other Person for
any damage, including personal injury (including sickness, disease or death),
tangible or intangible property damage, contribution, indemnity, indirect or
consequential damages, damage to the environment, damage to natural resources,
nuisance, pollution, contamination or other adverse effects on the environment,
or for fines, penalties or restrictions, in each case relating to, resulting
from or in connection with Hazardous Materials and relating to the Company, any
of its Subsidiaries (including any Person who was a Subsidiary prior to the
Closing Date) or any Property.
"ENVIRONMENTAL INDEMNITY" means the Environmental Indemnity executed
and delivered by the Company on or before the Closing Date, and thereafter by
each Subsidiary of the Company that becomes a party thereto, in favor of the
Agent and the Lenders, in substantially the form of Exhibit XI annexed hereto,
as such agreement may be amended, restated, supplemented or otherwise modified
from time to time in accordance with the terms thereof and hereof.
"ENVIRONMENTAL LAWS" means all statutes, laws, ordinances, orders,
rules, regulations, plans, policies, writs, judgments, decrees or injunctions
and the like relating to (i) environmental matters, including those relating to
fines, injunctions, penalties, damages, contribution, cost recovery
compensation, losses or injuries resulting from the Hazardous Release or
threatened Hazardous Release of Hazardous Materials, (ii) the generation, use,
storage, transportation or disposal of Hazardous Materials, or (iii)
occupational safety and health, industrial hygiene, or the protection of human,
plant or animal health or welfare, in any manner applicable to any Loan Party or
any of its Subsidiaries or any of their properties, including the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C.
Sections 9601, et seq.), the Hazardous Materials Transportation Act (49
U.S.C. Sections 1801, et seq.), the Resource Conservation and Recovery Act
(42 U.S.C. Sections 6901, et seq.), the Federal Water Pollution Control
Act ( 33 U.S.C. Sections 1251, et seq.), the Clean Air Act (42 U.S.C.
Sections 7401, et seq.), the Toxic Substances Control Act (15 U.S.C.
Sections 2601, et seq.), the Solid Waste Disposal Act (42 U.S.C.
Sections 6901, et seq.), as amended by the Resource Conservation and
Recovery Act (42 U.S.C. Sections 6901, et seq.), the Federal Insecticide,
Fungicide and Rodenticide Act (7 U.S.C. Sections 136, et seq.), the
Occupational Safety and Health Act (29 U.S.C. Sections 651, et seq.) and
the Emergency Planning and Community Right-to-Know Act (42 U.S.C. Sections
11001, et seq.), each as amended or supplemented, and rules and regulations,
policies and guidelines promulgated pursuant thereto and any analogous future or
present local, state and federal statutes and rules and regulations, policies
and guidelines promulgated pursuant thereto, each as in effect as of the date of
determination.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for Capital Stock).
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"ERISA" means the Employee Retirement Income Security Act of 1974 (29
U.S.C. Sections 1001 et seq.), as amended from time to time, and any
successor thereto.
"ERISA AFFILIATE" means, with respect to any Person, (i) any
corporation which is, or was at any time, a member of a controlled group of
corporations within the meaning of Section 414(b) of the Internal Revenue Code
of which that Person is a member; (ii) any trade or business (whether or not
incorporated) which is a member of a group of trades or businesses under common
control within the meaning of Section 414(c) of the Internal Revenue Code of
which that Person is a member; and (iii) any member of an affiliated service
group within the meaning of Section 414(m) or (o) of the Internal Revenue Code
of which that Person, any corporation described in clause (i) above or any trade
or business described in clause (ii) above is a member. Any former ERISA
Affiliate of any Loan Party or any of its Subsidiaries shall continue to be
considered an ERISA Affiliate of such Loan Party or such Subsidiary within the
meaning of this definition with respect to the period such entity was an ERISA
Affiliate of such Loan Party or such Subsidiary and with respect to liabilities
arising after such period for which such Loan Party or such Subsidiary could be
liable under the Internal Revenue Code or ERISA.
"ERISA EVENT" means (i) a "reportable event" within the meaning of
Section 4043 of ERISA and the regulations issued thereunder with respect to any
Pension Plan (excluding (a) those for which the provision for 30-day notice to
the PBGC has been waived by regulation and (b) those for which the PBGC has by
public notice determined that a penalty will not apply for the failure to
provide such 30-day notice to the PBGC), (ii) the failure to meet the minimum
funding standard of Section 412 of the Internal Revenue Code with respect to any
Pension Plan (whether or not waived in accordance with Section 412(d) of the
Internal Revenue Code) or the failure to make by its due date a required
installment under Section 412(m) of the Internal Revenue Code with respect to
any Pension Plan or the failure to make any required contribution to a
Multiemployer Plan, (iii) the provision by the administrator of any Pension Plan
pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such
plan in a distress termination described in Section 4041(c) of ERISA, (iv) the
withdrawal by any Loan Party, any of its Subsidiaries or any of their respective
ERISA Affiliates from any Pension Plan with two or more contributing sponsors or
the termination of any such Pension Plan resulting in liability pursuant to
Section 4063 or 4064 of ERISA, (v) the institution by the PBGC of proceedings to
terminate any Pension Plan, or the occurrence of any event or condition which
might constitute grounds under ERISA for the termination of, or the appointment
of a trustee to administer, any Pension Plan, (vi) the imposition of liability
on any Loan Party or any of its Subsidiaries or any of their respective ERISA
Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the
application of Section 4212(c) of ERISA, (vii) the withdrawal by any Loan Party
or any of its Subsidiaries or any of their respective ERISA Affiliates in a
complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of
ERISA) from any Multiemployer Plan if there is any liability therefor, or the
receipt by any Loan Party or any of its Subsidiaries or any of their respective
ERISA Affiliates of notice from any Multiemployer Plan that it is in
reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that
it intends to terminate or has terminated under Section 4041A or 4042 of ERISA,
(viii) the occurrence of an act or omission which could give rise to the
imposition on any Loan Party or any of its Subsidiaries or any of their
respective ERISA Affiliates of fines, penalties, taxes or related charges under
Chapter 43
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<PAGE> 30
of the Internal Revenue Code or under Section 409 or Section 502(c), (i) or (l),
or Section 4071 of ERISA in respect of any Employee Benefit Plan, (ix) the
assertion of a material claim (other than routine claims for benefits) against
any Employee Benefit Plan other than a Multiemployer Plan or the assets thereof,
or against any Loan Party or any of its Subsidiaries or any of their respective
ERISA Affiliates in connection with any such Employee Benefit Plan, (x) receipt
from the Internal Revenue Service of notice of the failure of any Pension Plan
(or any other Employee Benefit Plan intended to be qualified under Section
401(a) of the Internal Revenue Code) to qualify under Section 401(a) of the
Internal Revenue Code, or the failure of any trust forming part of any Pension
Plan to qualify for exemption from taxation under Section 501(a) of the Internal
Revenue Code or (xi) the imposition of a Lien pursuant to Section 401(a)(29) or
412(n) of the Internal Revenue Code or pursuant to ERISA with respect to any
Pension Plan.
"EURODOLLAR RATE LOANS" means Loans bearing interest at rates
determined by reference to the Adjusted Eurodollar Rate as provided in
subsection 2.3A.
"EVENT OF DEFAULT" means each of the events set forth in subsection
7.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute.
"EXCESS DEBT" has the meaning assigned to that term in subsection 5.14.
"EXCUSABLE DELAY" means a delay due to acts of God, governmental
restrictions, enemy actions, war, civil commotion, fire, casualty, strikes,
shortages of supplies or labor, work stoppages or other causes beyond the
reasonable control of the Company or any of its Affiliates, but lack of funds
shall not be deemed a cause beyond the reasonable control of the Company or any
of its Affiliates.
"EXISTING CONSOLIDATED LOAN" has the meaning assigned to that term in
the recitals to this Agreement.
"EXISTING CONSOLIDATED LOAN DOCUMENTS" has the meaning assigned to that
term in the recitals to this Agreement.
"EXISTING CONSOLIDATED NOTE" has the meaning assigned to that term in
the recitals to this Agreement.
"EXISTING POOL I NOTE" has the meaning assigned to that term in the
recitals to this Agreement.
"EXISTING POOL II HARD NOTE" has the meaning assigned to that term in
the recitals to this Agreement.
"EXISTING POOL II NOTE" has the meaning assigned to that term in the
recitals to this Agreement.
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"EXISTING POOL II SOFT NOTE" has the meaning assigned to that term in
the recitals to this Agreement.
"EXTRAORDINARY RECEIPTS" means the proceeds to any Loan Party or any of
its Subsidiaries from such items as (i) sales, exchanges or other dispositions
of the assets of any Loan Party or any of its Subsidiaries other than in the
ordinary course of business thereof, (ii) damage recoveries and casualty
insurance proceeds (including Condemnation Proceeds or Insurance Proceeds but
other than the proceeds of business interruption insurance or rental loss
insurance), (iii) income derived from Securities and other property acquired for
investment, (iv) condemnation awards or sales in lieu of and under the threat of
condemnation (other than awards or other payments for any Taking for temporary
use), (v) debt or equity financing or refinancing, and (vi) all other amounts of
any nature paid to any Loan Party or any of its Subsidiaries not arising out of
the ordinary course of business thereof.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any period, a fluctuating
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by the Agent.
"FF&E" means, with respect to any Property, any furniture, fixtures and
equipment, including any beds, lamps, bedding, tables, chairs, sofas, curtains,
carpeting, smoke detectors, mini bars, paintings, decorations, televisions,
video and movie equipment, telephones, radios, desks, dressers, towels, bathroom
equipment and supplies, heating, cooling, lighting, laundry, incinerating,
loading, swimming pool, landscaping, garage and power equipment and supplies,
machinery, engines, vehicles, fire prevention, refrigerating, ventilating and
communications apparatus, carts, dollies, elevators, escalators, kitchen
appliances and supplies, restaurant equipment and supplies, computers,
reservation systems, software, cash registers, card keys, switchboards, hotel
cleaning equipment and supplies or any other items of furniture, fixtures and
equipment typically used in hotel properties (including items used in guest
rooms, lobbies, common areas, front desk, back office, bars, restaurants,
kitchens, laundries, concierge, bellman, recreation, amusement, landscaping,
parking and other areas of hotels) and any repairs and replacements of all or
any portion of any of the foregoing as reflected in the Company's capitalization
policy in accordance with GAAP.
"FRANCHISE AGREEMENT" means each of the franchise agreements listed on
Schedule 4.4C annexed hereto, as each such agreement may be amended, restated,
supplemented or otherwise modified or replaced from time to time in accordance
with subsection 6.19B.
"FUNDING DATE" means the date of the funding of a Loan.
"GAAP" means, subject to the limitations on the application thereof set
forth in subsection 1.2, generally accepted accounting principles set forth in
opinions and pronouncements
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of the Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board, in each case as the same are applicable to the circumstances as
of the date of determination.
"GOVERNMENTAL AUTHORITY" or "GOVERNMENTAL AUTHORITIES" means any nation
or government, any state, county, municipality or other political subdivision or
branch thereof, and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government, including
any agency, board, central bank, commission, court, department or officer
thereof.
"GROUND LEASE" means each of the ground leases with respect to the
Mortgaged Properties listed on Schedule 1.1F annexed hereto, as such Schedule
may be revised from time to time in accordance with this Agreement.
"GUARANTY" means, with respect to any Person, any obligation,
contingent or otherwise, of that Person which has not been (or to the extent
that it has not been) paid or otherwise discharged with respect to any
obligation of any other Person if the primary purpose or intent thereof by the
Person incurring the Contingent Obligation is to provide assurance to the
obligee that such obligation of another Person will be paid or discharged, or
that any agreements relating thereto will be complied with, or that the holders
of such obligation will be protected (in whole or in part) against loss in
respect thereof. Guaranties shall include, without limitation, with respect to
such obligations (i) the direct or indirect guaranty, endorsement (otherwise
than for collection or deposit in the ordinary course of business), co- making,
discounting with recourse or sale with recourse by such Person of the obligation
of another, and (ii) any liability of such Person for the obligation of another
Person through any agreement (contingent or otherwise) (a) to purchase,
repurchase or otherwise acquire such obligation or any security therefor, or to
provide funds for the payment or discharge of such obligation (whether in the
form of loans, advances, stock purchases, capital contributions or otherwise) or
(b) to maintain the solvency or any balance sheet item, level of income or
financial condition of another Person if, in the case of any agreement described
under subclauses (a) or (b) of this sentence, the primary purpose or intent
thereof is as described in the preceding sentence. The amount of any Guaranty
shall be equal to the amount of the obligation so guaranteed or otherwise
supported or, if less, the amount to which such Guaranty is specifically
limited. Guaranties shall not include any of the foregoing obligations to the
extent that the same constitutes Indebtedness under the definition thereof or is
a Guaranty with respect thereto. The term "Guarantee" used as a verb has a
corresponding meaning.
"HPT" means Hospitality Properties Trust, a Maryland real estate
investment trust.
"HPT SUBSIDIARY" means the Wholly Owned Subsidiary of the Company
created in accordance with the HPT Term Sheet to enter into the HPT Transaction.
"HPT TERM SHEET" means that certain term sheet attached as Schedule
3.1S hereto with respect to a proposed sale - leaseback transaction by the
Company and HPT Subsidiary with HPT.
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"HPT TRANSACTION" means the proposed sale - leaseback transaction by
the Company and HPT Subsidiary with HPT in accordance in all material respects
with the terms set forth in the HPT Term Sheet.
"HAZARDOUS MATERIALS" means (i) any chemical, material or substance at
any time defined as or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "extremely hazardous waste",
"restricted hazardous waste", "infectious waste", "toxic substances",
"pollutant", "contaminant" or any other formulations intended to define, list or
classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, "TCLP
toxicity" or "EP toxicity" or words of similar import under any applicable
Environmental Laws, (ii) any oil, petroleum, petroleum fraction or petroleum
derived substance, (iii) any drilling fluids, produced waters and other wastes
associated with the exploration, development or production of crude oil, natural
gas or geothermal resources, (iv) any flammable substances or explosives, (v)
any radioactive materials, (vi) asbestos in any form, (vii) urea formaldehyde
foam insulation, (viii) electrical equipment which contains any oil or
dielectric fluid containing levels of polychlorinated biphenyls in excess of
fifty parts per million, (ix) pesticides, and (x) any other chemical, material
or substance, exposure to which is prohibited, limited or regulated by any
Governmental Authority or which may or could pose a hazard to the health and
safety of the owners, occupants or any Persons in the vicinity of the
Properties; provided, however, that Hazardous Materials shall not include any
materials in a nonhazardous form such as asphalt contained in road-surfacing
materials or hazardous materials customarily used in the operation of hotel
properties and properly stored and maintained in accordance with applicable
Environmental Laws.
"HAZARDOUS RELEASE" means any release, spill, emission, leaking,
pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal,
dumping, leaching or migration of Hazardous Materials into the indoor or outdoor
environment (including the abandonment or disposal of any barrels, containers or
other receptacles containing any Hazardous Materials), or into or out of any
Property, including the movement of any Hazardous Material through the air,
soil, surface water, groundwater or property.
"HEDGING OBLIGATIONS" means, with respect to any Person, the
obligations of such Person under Interest Rate Agreements.
"HOSPITALITY-RELATED BUSINESS" means the hotel business and other
businesses necessary for, incident to, in support of, connected with or arising
out of the hotel business, including, without limitation (i) developing,
constructing, managing, operating, improving or acquiring lodging facilities,
restaurants and other food-service facilities, sports or entertainment
facilities, and convention or meeting facilities, and marketing services related
thereto, (ii) acquiring, developing, operating, managing or improving the
Properties owned by the Company or one of its Subsidiaries that is a Loan Party
as of the Closing Date, any real estate taken in foreclosure (or similar
settlement) by the Company or any of its Subsidiaries, or any real estate
ancillary or connected to any
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hotel owned, managed or operated by the Company or any of its Subsidiaries
that is a Loan Party, (iii) owning and managing mortgages in, or other
Indebtedness secured by Liens on hotels and real estate related or ancillary
to hotels or (iv) other related activities thereto.
"IMPOSITIONS" means all real property taxes and assessments, of any
kind or nature whatsoever, including, without limitation, vault, water and sewer
rents, rates, charges and assessments, levies, permits, inspection and license
fees and other governmental, quasi-governmental or nongovernmental levies or
assessments such as maintenance charges, owner association dues or charges or
fees resulting from covenants, conditions and restrictions affecting the
Mortgaged Properties, assessments resulting from inclusion of any Mortgaged
Property in any taxing district or municipal or other special district, any of
which are assessed or imposed upon the Mortgaged Property, or become due and
payable, and which create or may create a Lien upon the Property, or any part
thereof. In the event that any penalty, interest or cost for nonpayment of any
Imposition becomes due and payable, such penalty, interest or cost shall be
included within the term "Impositions".
"IMPROVEMENTS" means all buildings, structures, fixtures, tenant
improvements and other improvements of every kind and description now or
hereafter located in or on or attached to any Land, including all building
materials, water, sanitary and storm sewers, drainage, electricity, steam, gas,
telephone and other utility facilities, parking areas, roads, driveways, walks
and other site improvements; and all additions and betterments thereto and all
renewals, substitutions and replacements thereof.
"INDEBTEDNESS" means, with respect to any Person and without
duplication, to the extent required to be shown on a balance sheet prepared in
conformity with GAAP, (i) all indebtedness or other obligations of such Person,
whether or not contingent, for money borrowed or evidenced by bonds, notes,
debentures or similar instruments, (ii) that portion of obligations with respect
to Capital Leases that is classified as a liability on a balance sheet in
conformity with GAAP, (iii) notes payable and drafts accepted representing
extensions of credit whether or not representing obligations for borrowed money,
(iv) all obligations owed for all or any part of the deferred purchase price of
assets or services purchased by that Person, which purchase price is (a) due
more than six months from the date of incurrence of the obligation in respect
thereof or (b) evidenced by a note or similar instrument, (v) all indebtedness
secured by any Lien on any property or asset owned or held by that Person
regardless of whether the indebtedness secured thereby shall have been assumed
by that Person or is nonrecourse to the credit of that Person, (vi) Hedging
Obligations, (vii) any obligations of that Person classified as indebtedness on
a balance sheet in conformity with GAAP and (viii) all Guaranties by that Person
of any of the foregoing obligations.
"INDEMNIFIED PERSON" has the meaning assigned to that term in
subsection 8.3.
"INSURANCE PROCEEDS" means all insurance proceeds, damages, claims and
rights of action and the right thereto under any insurance policies relating to
any portion of any Mortgaged Property.
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<PAGE> 35
"INSURANCE REQUIREMENTS" means all terms of any insurance policy
required hereunder covering or applicable to any Mortgaged Property or any part
thereof, all requirements of the issuer of any such policy, and all orders,
rules, regulations and other requirements of the National Board of Fire
Underwriters (or any other body exercising similar functions) applicable to or
affecting any Mortgaged Property or any portion thereof or any use of any
Mortgaged Property or any portion thereof.
"INTELLECTUAL PROPERTY" means, as of any date of determination, all
patents, trademarks, tradenames, copyrights, technology, know-how and processes
used in or necessary for the conduct of the business of the Loan Parties and
their respective Subsidiaries as conducted on such date of determination that
are material to the financial condition, business or operations of the Loan
Parties and their Subsidiaries, taken as a whole, including any of the foregoing
licensed to the Loan Parties or any of their respective Subsidiaries by other
Persons.
"INTELLECTUAL PROPERTY LICENSE AGREEMENT" means the Intellectual
Property License Agreement by and between the Company and the Agent, in
substantially the form of Exhibit VIII annexed hereto, as such agreement may be
amended, restated, supplemented or otherwise modified from time to time in
accordance with the terms thereof and hereof.
"INTEREST PERIOD" has the meaning assigned to that term in subsection
2.3B.
"INTEREST RATE AGREEMENT" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other similar
agreement or arrangement designed to protect the Company or any of its
Subsidiaries against fluctuations in interest rates.
"INTEREST RATE DETERMINATION DATE" means each date for calculating the
Adjusted Eurodollar Rate for purposes of determining the interest rate in
respect of an Interest Period. The Interest Rate Determination Date shall be the
second Business Day prior to the first day of the related Interest Period for
any Loan.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter.
"INVESTMENT" means, with respect to any Person or any of its
Subsidiaries, as of any date of determination and without duplication, (i) any
direct or indirect purchase or other acquisition by such investing Person or
Subsidiary of, or of a beneficial interest in, any Securities of any other
Person, (ii) any direct or indirect loan, advance (other than advances to
officers, employees, consultants, accountants, attorneys and other advisors and
members of the Board of Directors of any Person for moving, entertainment and
travel expenses, drawing accounts and similar expenditures in each case incurred
in the ordinary course of business) or capital contribution by any Person to any
other Person, including all indebtedness and accounts receivable from that other
Person that are not current assets or did not arise from sales to that other
Person in the ordinary course of business, (iii) any commitment or obligation to
make any investment described in clauses (i) and (ii) above and (iv) any
liability that is recourse to such investing Person or Subsidiary and that
arises, by law, contract, ownership of Securities or otherwise, directly or
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<PAGE> 36
indirectly, as the result of or otherwise in connection with the origination,
continuation or termination of any investment described in clauses (i) through
(iii) above. The amount of any Investment, as of any date of determination,
shall be equal to (x) with respect to an Investment referred to in clause (i) or
(ii) of the preceding sentence, the remainder of (1) the sum of original cost of
such Investment plus the cost of all additions thereto as of such date of
determination, minus (2) the aggregate amount paid to such Person or Subsidiary
as a return of such Investment, provided, that (A) the calculation of the amount
referred to in this clause (2) shall exclude all fees and other amounts (or the
portion thereof) that shall constitute interest, dividends or other amounts in
respect of the return on such Investment (assuming for such purpose that
payments to such Person or Subsidiary with respect to such Investment shall be
treated as returns on such Investment unless and to the extent that, after
taking into account the respective amounts and dates of such Investment and such
payments, the aggregate amount that shall have been paid to such Person or
Subsidiary as of any date of determination is greater than the aggregate amount
that would accrue at 20% per annum, compounded on a monthly basis, on the
unreturned amount of such Investment) and (B) the calculation of the amount
referred to in this clause (x) shall exclude, all adjustments for increases or
decreases in value, and write-ups, write-downs or write-offs with respect to
such Investment, (y) with respect to an Investment referred to in clause (ii),
(iii) or (iv) of the preceding sentence, the maximum aggregate liability for
which such investing Person or Subsidiary may become liable, by law, contract,
ownership of Securities or otherwise, with respect to such Investment as of such
date of determination, and (2) with respect to an Investment described in two or
more of clauses (i), (ii) and (iii), the sum of the amounts with respect to such
Investment, as calculated in accordance with the preceding clauses (x) and (y),
in each case as of such date of determination.
"IP LICENSE AGREEMENTS" has the meaning assigned to that term in
subsection 4.21A.
"JOINT VENTURE" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; provided,
however, that in no event shall any Subsidiary of any Person be considered to be
a Joint Venture to which such Person is a party.
"LAND" means the real property located in the towns, counties and
states listed on Schedule 1.1A annexed hereto (and more particularly described
in Exhibit A to each Mortgage), and Schedule 1.1B annexed hereto together with
all strips and gores within or adjoining such property, all estate, right,
title, interest, claim or demand whatsoever of any Loan Party or any of its
Subsidiaries in the streets, roads, sidewalks, alleys, and ways adjacent thereto
(whether or not vacated and whether public or private and whether open or
proposed), all vaults or chutes adjoining such land, all of the tenements,
hereditaments, easements, reciprocal easement agreements, rights pursuant to any
trackage agreement, rights to the use of common drive entries, rights-of-way and
other rights, privileges and appurtenances thereunto belonging or in any way
pertaining thereto.
"LEASE" means each of the leases, licenses, concession agreements,
franchise agreements (other than the Franchise Agreements) and other occupancy
agreements (other than agreements for letting of rooms or other facilities to
hotel guests) and other agreements demising, leasing or granting rights of
possession or use or, to the extent of the interest therein of any Loan Party or
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any of its Subsidiaries, any sublease, subsublease, underletting or sublicense,
which now or hereafter may affect any Mortgaged Property or any part thereof or
interest therein, including any agreement relating to a loan or other advance of
funds made in connection with any such lease, license, concession agreement,
franchise or other occupancy agreement and such sublease, subsublease,
underletting or sublicense, and every amendment, restatement, supplement,
consolidation or other modification of or other agreement relating to or entered
into in connection with such lease, license, concession agreement, franchise or
other occupancy agreement and such sublease, subsublease, underletting or
sublicense, and every Guaranty of the performance and observance of the
covenants, conditions and agreements to be performed and observed by the other
party thereto, and any Guaranties of leasing commissions.
"LENDER" and "LENDERS" means the persons identified as "Lenders" and
listed on the signature pages of this Agreement, together with their successors
and permitted assigns pursuant to subsection 8.1.
"LIEN" means any lien (including any lien or security title granted
pursuant to any mortgage, deed of trust or deed to secure debt), pledge,
hypothecation, assignment, security interest, charge, levy, attachment,
restraint or encumbrance of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof, and any agreement to
give any security interest) and any option, trust or other preferential
arrangement having the practical effect of any of the foregoing; provided that
the term "Lien" shall not include any license of Intellectual Property in the
ordinary course of business of the Company (including in connection with the
granting of a Lien on assets other than Intellectual Property) as long as any
such license granted in connection with the incurrence of Indebtedness is on
terms no more favorable to the applicable licensee than the terms of the
Intellectual Property License Agreement.
"LIQUOR LICENSES" means the licenses set forth on Schedule 4.4E annexed
hereto and each other license issued by the Department of Alcoholic Beverage
Control or similar state or local agency to any Loan Party or any of its
Subsidiaries or in respect of any Mortgaged Property, in each case in connection
with the sale of alcoholic beverages at any Mortgaged Property.
"LIQUOR LICENSE AGREEMENT" means the Agreement Regarding Liquor
Licenses executed and delivered by the Company and each other Loan Party thereto
in favor of the Agent on or before the Closing Date, and thereafter by each
other Subsidiary of the Company that becomes a party thereto, substantially in
the form of Exhibit XIV annexed hereto, as such agreement may be amended,
restated, supplemented or otherwise modified from time to time in accordance
with the terms hereof and thereof.
"LOAN DOCUMENTS" means, collectively, this Agreement, the Notes, the
Security Documents, the Environmental Indemnity, the Cash Management Letters and
any other documents entered into in connection with the Cash Management System
and, if executed and delivered by any Subsidiaries of the Company as provided
herein, the Subsidiary Guaranty.
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"LOAN PARTIES" means, collectively, the Company, and any Subsidiary of
the Company which is or becomes a party to a Loan Document.
"LOANS" means, collectively, the loans made by the Lenders to the
Company pursuant to subsection 2.2A and shall include the loans evidenced by the
Existing Consolidated Note, as set forth in subsection 2.1E.
"LOCAL ACCOUNTS" means, collectively, the Deposit Accounts listed on
Schedule 4.23 annexed hereto as "Local Accounts" and any other Deposit Account
established with respect to one or more Mortgaged Properties for the purpose of
receiving Receipts pursuant to subsection 5.15.
"MANAGEMENT FEES" means, collectively, all hotel management fees
(however characterized, including base fees, trade name fees, incentive fees,
special incentive fees, termination fees and all fees in respect of liquor
license operations) and all other fees or charges payable to the manager for the
management and operation of a hotel property, the related land and the
improvements thereof.
"MARGIN STOCK" has the meaning assigned to that term in Regulation U of
the Board of Governors of the Federal Reserve System as in effect from time to
time.
"MARKET EQUITY CAPITALIZATION" means, with respect to any issuer and as
of any date of determination, the product of (i) the number of shares of common
stock of such issuer outstanding as of such date multiplied by (ii) the average
of the closing bid prices of such common stock on the New York Stock Exchange,
for each of the 30 consecutive trading days next preceding such date of
determination.
"MATERIAL ADVERSE EFFECT" means (i) a material adverse effect upon the
business, operations, condition (financial or otherwise) or prospects of the
Company and its Subsidiaries, taken as a whole, or (ii) the material impairment
of the ability of the Company or any of its Material Subsidiaries to perform, or
of the ability of the Agent or the Lenders to enforce, any of Obligations
(whether monetary of non-monetary) of the Company or any of its Material
Subsidiaries.
"MATERIAL LEASE" means each Lease (i) demising in excess of (x) 500
square feet of the Improvements with respect to any Mortgaged Property, in the
case of limited service and all suite hotels and (y) 2,000 square feet of
Improvements with respect to any Mortgaged Property, in case of full service
hotels, in each case having a term in excess of 3 months or (ii) generating in
excess of 10% of the Property Gross Revenues with respect to such Mortgaged
Property or otherwise identified as a Material Lease by the Company pursuant to
subsection 3.1I.
"MATERIAL RENOVATION/RESTORATION" means, as of any date of
determination, any Renovation or Restoration of a Mortgaged Property with
respect to which more than (i) in the case of full service hotels, 25% or (ii)
in the case of limited service and all-suite hotels, 33% of the available rooms
located at the applicable Mortgaged Property have been, are scheduled to be,
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<PAGE> 39
or could reasonably be expected to be, "rooms out-of-order", as determined in
accordance with the Uniform System, during 5 or more days during any period of
30 consecutive days; provided, that a Restoration conducted pursuant to and, as
of such date of determination, satisfying the conditions of subsection 5.11F is
not a Material Renovation/Restoration.
"MATERIAL RENOVATION/RESTORATION PERIOD" means with respect to any
Property, the period commencing on the day that a Material
Renovation/Restoration shall commence with respect to such Property, and
terminating on the day that such Material Renovation/Restoration shall terminate
with respect to such Property, in each case as such dates of commencement and
termination shall be determined by the Agent.
"MATERIAL SUBSIDIARY" means, as of any date of determination, any
Subsidiary of the Company that is either (or both of) (i) a Loan Party or (ii) a
Subsidiary of the Company if
(a) the Company's and its other Subsidiaries' investments in
and advances to the Subsidiary equal 5 percent of the total assets of
the Company and its Subsidiaries consolidated as of the end of the most
recently completed fiscal year; or
(b) the Company's and its other Subsidiaries' proportionate
share of the total assets (after intercompany eliminations) of the
Subsidiary exceeds 5 percent of the total assets of the Company and its
Subsidiaries consolidated as of the end of the most recently completed
fiscal year; or
(c) the Company's and its other Subsidiaries' equity in the
income from continuing operations before income taxes, extraordinary
items and cumulative effect of a change in accounting principle of the
subsidiary exceeds 5 percent of such income of the Company and its
Subsidiaries consolidated for the most recently completed fiscal year.
"MATURITY DATE" means the earliest of (i) the date that is five years
from the date this Agreement becomes effective in accordance with its terms,
(ii) the date as of which the Obligations shall have become immediately due and
payable pursuant to subsection 7.1 and (iii) the date as of which the
Obligations shall have become immediately due and payable pursuant to subsection
2.5B(vi).
"MOODY'S" means Moody's Investors Service, Inc. or any successor to the
business thereof.
"MORTGAGE" means each Mortgage, Assignment of Rents, Security Agreement
and Fixture Filing and each Deed of Trust, Assignment of Rents, Security
Agreement and Fixture Filing and each Deed to Secure Debt, Assignment of Rents,
Security Agreement and Fixture Filing executed and acknowledged by the Loan
Party thereto in favor of the Agent for the benefit of the Lenders (or, in the
case of a deed of trust, to a trustee for the benefit of the Agent and the
Lenders) in the form delivered on the Closing Date, as each such agreement may
be amended, restated, supplemented, consolidated, extended or otherwise modified
from time to time in accordance with the terms thereof and hereof.
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"MORTGAGE NOTE DOCUMENTS" means, collectively, (i) the Mortgage Notes,
the Indenture and each agreement, instrument, certificate, opinion, or other
document executed and delivered by or on behalf of any Loan Party or any of its
Subsidiaries in connection with the Mortgage Notes and (ii) each agreement,
instrument, indenture, note, certificate, opinion or other document executed and
delivered by or on behalf of any Person in connection with the issuance of any
Securities referred to in clause (ii) or (iii) of the definition of Mortgage
Notes; in each case, as amended, restated, supplemented or otherwise modified
from time to time in accordance with the terms thereof and hereof.
"MORTGAGE NOTE INDENTURE" means the Indenture dated as of January 23,
1996 between the Company and Norwest Bank Minnesota, National Association, as
Trustee, pursuant to which the Company issued the Mortgage Notes, as such
indenture may be amended, restated, supplemented or otherwise modified from time
to time in accordance with the items thereof and hereof.
"MORTGAGE NOTES" means, collectively, (i) the mortgage notes issued by
the Company pursuant to the Mortgage Note Indenture, (ii) any Securities issued
by any Person to a holder of any of the Securities referred to in this
definition of Mortgage Notes pursuant to an order of decree of a court of
competent jurisdiction and (iii) any Securities issued by any Person in
connection with any refinancing, exchange or refunding of any of the securities
referred to in this definition of Mortgage Notes; in each case with respect to
securities referred to in this definition of Mortgage Notes, as such securities
may be amended, restated, supplemented or otherwise modified from time to time
in accordance with the terms thereof and hereof.
"MORTGAGED PROPERTIES" means, collectively, the hotel properties, the
Land on which they are located, and all Improvements thereon and all fixtures
attached thereto and all personal property used in connection therewith, in each
case as listed on Schedule 1.1A annexed hereto, as such Schedule may be revised
or supplemented from time to time pursuant to subsection 2.10 or 2.11.
"MORTGAGED PROPERTY SUBSIDIARY" means any Wholly Owned Subsidiary of
the Company that owns any Mortgaged Property.
"MULTIEMPLOYER PLAN" means a "multiemployer plan", as defined in
Section 3(37) of ERISA.
"NET CASH PROCEEDS" means, the aggregate cash proceeds (including any
cash received by way of deferred payment pursuant to, or by monetization of, a
note receivable or otherwise, but only as and when so received) received by the
Company or any of its Subsidiaries from any sale or other permanent disposition
of a Property or any Asset Sale, as applicable, by a Loan Party or any of its
Subsidiaries less the sum, without duplication, of (i) the amounts required to
be applied to the repayment of Indebtedness or secured by a Lien on such
Property (other than the Obligations), (ii) the direct costs relating to such
sale or other disposition (including, without limitation, legal, accounting and
sales commissions), including income taxes paid or estimated to be actually
payable as a result thereof, after taking into account any available tax credits
or
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<PAGE> 41
deductions and any tax sharing arrangements (provided that the amount of income
taxes so estimated to be actually payable shall be approved by the Agent, which
approval shall not be unreasonably withheld), (iii) a reserve for all
adjustments that are reasonably likely to be made to the sales price, whether
before or after the closing of such sale or permanent disposition, and for all
modifications to the sales price from time to time before the closing thereof,
by reason of such sale or other permanent disposition and (iv) the amount of the
reserve actually provided by the applicable Loan Party, in accordance with GAAP,
after such sale or other permanent disposition, including, without limitation,
for liabilities related to environmental matters and liabilities under any
indemnification obligations, but only to the extent and for so long as a cash
reserve is actually established.
"NET INCOME" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of Preferred Stock dividends, excluding, however, any gain (but not
loss), together with any related provision for Taxes on such gain (but not
loss), realized in connection with any Asset Sale, and excluding any
extraordinary gain (but not loss), together with any related provision for taxes
on such extraordinary gain (but not loss).
"NET INSURANCE/CONDEMNATION PROCEEDS" means all Insurance Proceeds on
account of damage or destruction to any Mortgaged Property or all Condemnation
Proceeds in respect of any Mortgaged Property, less the cost, if any, of such
recovery and of paying out such proceeds, including attorneys' fees and costs
allocable to inspecting the Work and the plans and specifications therefor.
"NET WORTH" means, as of any date of determination and in each case
determined in accordance with GAAP, the stockholders' equity of the Company.
"NON-RECOURSE INDEBTEDNESS" means, with respect to any Person,
Indebtedness or that portion of Indebtedness of such Person (a) as to which
neither the Company nor any of its Subsidiaries (i) provides credit support
(other than in the form of a Lien on an asset serving as security for
Indebtedness otherwise described in this definition) pursuant to any
undertaking, agreement or instrument that would constitute Indebtedness, (ii) is
directly or indirectly liable (other than in the form of a Lien on an asset
serving as security for Indebtedness otherwise described in this definition) or
(iii) constitutes the lender, and (b) no default with respect to which would
permit (upon notice, lapse of time or both) any holder of any other Indebtedness
of the Company or any of its Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
"NOTES" means, collectively, (i) the amended and restated promissory
notes of the Company issued to the Lenders on the Closing Date and (ii) any
promissory notes issued by the Company pursuant to the last sentence of
subsection 8.1B(i) in connection with assignments of the Commitments and Loans
of any Lenders, in each case substantially in the form of Exhibit I annexed
hereto, as they may be amended, restated, supplemented or otherwise modified
from time to time in accordance with the terms thereof and hereof.
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"NOTICE OF BORROWING" means a notice substantially in the form of
Exhibit II annexed hereto delivered by the Company to the Agent pursuant to
subsection 2.2B with respect to a proposed borrowing hereunder.
"NOTICE OF CONTINUATION" means a notice substantially in the form of
Exhibit III annexed hereto delivered by the Company to the Agent pursuant to
subsection 2.3D with respect to a proposed continuation of the applicable basis
for determining the interest rate with respect to the Loans specified therein.
"OBLIGATIONS" means, collectively, all obligations of every nature of
the Company or any other Loan Party from time to time owed to the Agent or
Lenders or any of them under or in respect of the Loans and the Loan Documents,
whether for principal, interest, fees, expenses, indemnification or otherwise.
"OFFICER'S CERTIFICATE" means, as applied to any corporation, a
certificate executed on behalf of such corporation by an Authorized Officer;
provided, however, that every Officer's Certificate with respect to the
compliance with a condition precedent to the making of the Loan hereunder shall
include (i) a statement that the officer or officers making or giving such
Officer's Certificate have read such condition and any definitions or other
provisions contained in this Agreement relating thereto, (ii) a statement that,
in the opinion of the signers, they have made or have caused to be made such
examination or investigation as is necessary to enable them to express an
informed opinion as to whether or not such condition has been complied with, and
(iii) a statement as to whether, in the opinion of the signers, such condition
has been complied with.
"OPERATING EXPENSES" means, for any period and as calculated on the
accrual basis of accounting, all expenses incurred by the Company or any of its
Subsidiaries during such period in connection with the ownership, management,
operation, cleaning, maintenance, ordinary repair or leasing of any Property,
including, without duplication:
(i) costs and expenses in connection with the cleaning and the
ordinary repair, maintenance, decoration and painting of such Property;
(ii) wages, benefits, payroll taxes, uniforms, insurance costs
and all other related expenses for employees of the Company engaged in
the management, operation, cleaning, maintenance, ordinary repair and
leasing of such Property and service to guests, customers, Tenants,
concessionaires and licensees of such Property;
(iii) the cost of all services and utilities with respect to
such Property, including all electricity, oil, gas, water, steam,
heating, ventilation, air conditioning, elevator, escalator,
landscaping, model furniture, answering services, telephone
maintenance, credit check, snow removal, trash removal and pest
extermination costs and expenses and any other energy, utility or
similar item and overtime services with respect to such Property;
(iv) the cost of building and cleaning supplies with respect
to such Property;
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(v) insurance premiums required in order to maintain the
insurance policies required under this Agreement or any other Loan
Documents, or by any document pursuant to which Indebtedness secured by
such Property is incurred, in each case with respect to such Property
(which, in the case of any policies covering multiple Properties, shall
be allocated among the Properties pro rata in proportion to the insured
value of the Properties covered by such policies);
(vi) legal, accounting, engineering and other fees, costs and
expenses incurred by or on behalf of the Company or such Subsidiary in
connection with the ownership, management, operation, maintenance,
ordinary repair and leasing of such Property, including collection
costs and expenses;
(vii) operating costs and expenses of security and security
systems provided to and/or installed and maintained with respect to
such Property;
(viii) operating costs and expenses of reservation systems,
internal telephone exchanges and key card systems with respect to such
Property;
(ix) costs and expenses of parking and valet services, parking
lot maintenance and ordinary parking lot repairs in respect of such
Property;
(x) costs and expenses of food and beverages with respect to
such Property;
(xi) real property taxes and assessments with respect to such
Property and the costs incurred in seeking to reduce such taxes or the
assessed value of such Property;
(xii) advertising, marketing and promotional costs and
expenses with respect to such Property;
(xiii) costs and expenses incurred in connection with lock
changes, storage, moving, market surveys, permits (and the application
or registration therefor) and licenses (and the application or
registration therefor) with respect to such Property;
(xiv) maintenance and cleaning costs related to guest and
customer amenities with respect to such Property;
(xv) costs and expenses of maintaining and repairing FF&E
(including the breakage or loss of any such FF&E) with respect to such
Property;
(xvi) franchise fees due and payable with respect to such
Property;
(xvii) rent payments due and payable under any ground lease
with respect to such Property, if applicable;
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<PAGE> 44
(xviii) actual reserves required under any ground lease with
respect to such Property, if applicable;
(xix) Management Fees with respect to such Property for such
period;
(xx) tenant improvements and leasing commissions with respect
to such Property accrued during such period;
(xxi) contributions by the Company or any of its Subsidiaries
to any merchants' association, whether as dues or advertising costs or
otherwise with respect to such Property;
(xxii) costs incurred pursuant to any reciprocal easement
agreement affecting such Property;
(xxiii) refunds the Company or any of its Subsidiaries must
pay to guests, customers, Tenants, concessionaires and licensees and
other occupants of such Property;
(xxiv) reserves (other than reserves required to be deposited
in the Capital Reserve Account) for such purposes and in such amounts
as the Company and the Agent may reasonably agree upon;
(xxv) costs and expenses of maintaining operating, repairing
and servicing vehicles, including fuel and insurance premiums; and
(xxvi) all other ongoing expenses which in accordance with the
accrual basis of accounting should be included in the Company's or any
of its Subsidiaries' annual financial statements as operating expenses
of such Property.
Notwithstanding the foregoing, Operating Expenses shall not include, without
duplication, (a) Consolidated Interest Expense, including such items included
within the definition thereof as shall apply to any Property or Properties with
respect to which such Operating Expenses are being determined, (b) income taxes,
(c) depreciation, (d) amortization, (e) principal or Release Prices, if any, due
under the Loans or the Mortgage Notes or the Convertible Notes or otherwise in
connection with the Obligations or the Mortgage Notes or the Convertible Notes,
(f) principal, if any, due in respect of Indebtedness, or (g) any other items
that are capitalized on the financial statements of the Company or any of its
Subsidiaries in conformity with GAAP.
"OPERATING LEASE" means, with respect to any Person, lease of any
property (whether real, personal or mixed) by that Person as lessee that, in
conformity with GAAP, is not accounted for as a Capital Lease on the balance
sheet of that Person.
"PARTNERSHIP SUBSIDIARIES" means, collectively, the Subsidiaries of the
Company, if any, that are general partnerships or limited partnerships.
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"PAYMENT DATE" means the fifteenth day of each month, beginning July
15, 1996, or, if such fifteenth day is not a Business Day, the next succeeding
Business Day.
"PBGC" means the Pension Benefit Guaranty Corporation (or any successor
thereto).
"PENSION PLAN" means any employee benefit pension plan as defined in
Section 3(2) of ERISA, other than a Multiemployer Plan, which is, or was within
the six-year period ending on the applicable date of determination, maintained
or contributed to by the Company, any of its Subsidiaries or any of their
respective ERISA Affiliates and which is subject to Section 412 of the Internal
Revenue Code or Section 302 of ERISA.
"PERMITTED ENCUMBRANCES" means, with respect to any Mortgaged Property
on the Closing Date, the following types of Liens (other than any such Lien
imposed pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or
by ERISA):
(i) Liens for real property Taxes, assessments, vault charges,
water and sewer rents, and other Impositions the payment of which is
not, at the time, required by subsection 5.4;
(ii) the Leases in existence on the Closing Date and any
Leases entered into thereafter in accordance with the requirements of
the Loan Documents;
(iii) covenants, easements, rights-of-way, restrictions, minor
encroachments or other similar encumbrances not impairing the
marketability of such Mortgaged Property and not interfering, and which
could not reasonably be expected to interfere, with the use of such
Mortgaged Property for hotel purposes or with the ordinary conduct of
the business of the Company and its Subsidiaries;
(iv) Liens securing the Obligations;
(v) Liens that are bonded and thereby released of record in a
manner reasonably satisfactory to the Agent;
(vi) rights of guests to occupy rooms and of Tenants under
Leases;
(vii) all exceptions contained in the Title Policies approved
by the Agent on or prior to the Closing Date or contained in any Title
Policy approved by the Agent with respect to the Acquisition of a
Property;
(viii) mechanics', workmen's, materialmen's, operator or
similar statutory Liens arising in the ordinary course of business for
sums that are not yet delinquent or are being contested in good faith
and by appropriate action, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made
therefore; and
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(ix) Liens arising after the Closing Date securing purchase
money, permanent or other financing permitted by this Agreement
incurred or assumed in connection with the acquisition, purchase,
refurbishment or lease of FF&E used or to be used in connection with
the Mortgaged Properties; provided that the aggregate amount at any
time outstanding, secured by such Liens does not exceed $125,000 with
respect to any Mortgaged Property and; provided further, that such
Liens encumber only the property purchased, financed or refinanced with
the amounts secured by such Liens.
"PERSON" means, collectively, natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, joint stock
companies, Joint Ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and Governmental Authorities.
"POTENTIAL EVENT OF DEFAULT" means a condition or event that, after
notice or lapse of time or both, would constitute an Event of Default if that
condition or event were not cured or removed within the applicable grace period.
"PREFERRED STOCK" means any Equity Interest with preferential rights in
the payment of dividends or upon liquidation or any Capital Stock that is not
Qualified Capital Stock.
"PRIME LOAN SELLER" means Prime Note Collections Company, Inc., a
Delaware corporation and a Wholly Owned Subsidiary of the Company.
"PRIME RATE" means the rate that Bankers announces from time to time as
its prime lending rate, as in effect from time to time. The Prime Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. Bankers or any other Lender may make
commercial loans or other loans at rates of interest at, above or below the
Prime Rate.
"PRIOR AGREEMENT" has the meaning assigned to that term in the Recitals
to this Agreement.
"PROPERTIES" means, collectively, the Mortgaged Properties and all
other hotel properties owned by the Company or any of its Subsidiaries, the land
on which such hotel properties are located and all Improvements thereon and all
fixtures attached thereto and all personal property used in connection
therewith, in each case as listed on Schedule 1.1B annexed hereto, as such
Schedule may be revised or supplemented from time to time pursuant to subsection
2.10 or 2.11.
"PROPERTY AMOUNT" means, with respect to any Designated Mortgaged
Property and as of any date of determination, the following:
(i) with respect to any Class 1 Mortgaged Property, the
product of (a) Property EBITDA with respect to such Designated
Mortgaged Property, measured for the 12 most recent complete calendar
months for which financial statements have been delivered pursuant to
subsection 5.1(i), multiplied by (b) as of any date of determination on
or
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before the fourth Anniversary, 4.0 and thereafter, 3.5; provided, that
if the Designated Average Life is less than 36 months at any date of
determination (1) on or after the third Anniversary but before the
fourth Anniversary, the applicable number in clause (b) above shall be
3.5 and (2) on or after the fourth Anniversary, the applicable number
in clause (b) above shall be 3.0;
(ii) with respect to any Class 2 Mortgaged Property, the
product of (a) the replacement cost for such Designated Mortgaged
Property, as determined by Appraisal approved by Agent multiplied by
(b) 50%; provided, that if, as of any date of determination during the
period on and after the first Anniversary but before the third
Anniversary, the Designated Average Life is less than 36 months, such
percentage shall be 25%; and
(iii) with respect to any Class 3 Mortgaged Property, the
product of (a) Property EBITDA with respect to such Designated
Mortgaged Property, calculated based on the 12 most recent complete
calendar months for which financial statements have been delivered
pursuant to subsection 5.1(i), multiplied by (b) on or before the
Fourth Anniversary, 3.5 and thereafter, 3.0;
provided, that in no event shall the Property Amount with respect to any Class 1
Mortgaged Property or Class 3 Mortgaged Property exceed the lesser of (1) 85% of
the replacement cost of such Designated Mortgaged Property and (2) 55% of the
Appraised Value
of such Designated Mortgage Property.
"PROPERTY EBITDA" means, with respect to any Property, for any period
and as of any date of determination and calculated on the accrual basis of
accounting, whether a positive or negative number, the amount equal to the
remainder of the following:
(i) all Property Gross Revenues for such period in respect of
such Property; provided, that Property Gross Revenues for such period
in respect of any Property shall be included in the calculation of
Property EBITDA for such period only to the extent that the Agent and
Lenders shall have received the financial statements for such period
required to be delivered on or before such date of determination
pursuant to subsection 2.10 or 5.1(i), as the case may be; minus
(ii) all Operating Expenses for such period with respect to
such Property; provided, that the aggregate amount of Management Fees,
franchise fees and marketing expenses included in the calculation of
Property EBITDA for such period in respect of such Property, shall not
be less than (1) with respect to full-service hotels, 10.7%, and (2)
with respect to all-suite and limited-service hotels, 9.0% of Property
Gross Revenues for such period in respect of the applicable Property;
provided that:
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(a) Property EBITDA with respect to any Property shall be zero
for such period if (y) the Acquisition Date with respect to such
Property shall not have occurred on or before such date of
determination or (z) such Property shall have been sold or otherwise
permanently disposed of or any Loan Party or any of its Subsidiaries
shall have executed a definitive agreement with respect to the sale or
other permanent disposition of such Property, in each case on or before
such date of determination, provided that this subclause (z) shall not
be given effect upon the execution of such agreement (I) if the
proposed Net Cash Proceeds with respect to such sale or other permanent
disposition shall be greater than the aggregate amount of principal and
interest that would be required to be paid by the Company pursuant to
paragraphs (i) and (iii) of the definition of Release Price if the
closing thereof were to occur on such date of determination, as such
determination shall be specified by written notice delivered to the
Agent, together with the information used by the Company to make such
determination or (II) the Agent shall have approved the proposed sales
price, which approval shall not be unreasonably withheld, conditioned
or delayed;
(b) if the Acquisition Date with respect to such Property
shall have occurred after the Closing Date and after the commencement
of such period but before the termination of such period, Property
EBITDA with respect to such Property for such period shall be the sum
of (y) Property EBITDA for the portion of such period commencing on the
first day of such period and ending on the day before such Acquisition
Date, as the same shall be determined based upon the financial
statements for such period required by clause (iii) of the definition
of "Property Information" to be delivered with respect to such Property
and such other information with respect thereto that may be provided by
the Loan Parties and their respective Subsidiaries, subject to such
adjustments as may be reasonably required by the Agent in its sole
discretion to conform such financial statements and other information
to the basis on which the Company's financial statements are prepared,
plus (z) Property EBITDA with respect to such Property for the portion
of such period commencing on such Acquisition Date and ending on the
last day of such period, based upon the financial statements for such
period required to be delivered on or before such date of determination
pursuant to subsection 5.1(i); and
(c) if such date of determination shall occur during a
Material Renovation/Restoration Period with respect to such Property
and the Property EBITDA with respect to such Property for such period
is a positive number, then Property EBITDA shall be equal to the
product of (y) Property EBITDA for such period multiplied by (z) a
fraction, the numerator of which is equal to the remainder of (I) the
number of complete months in such period minus (II) the number of
complete or partial months (rounding to the next higher whole number)
that shall have been reasonably estimated by the Company and reasonably
approved by the Agent as the duration of such Material
Renovation/Restoration Period (as such estimate may be revised from
time to time thereafter to the reasonable satisfaction of the Agent,
and the denominator of which is the number of complete months in such
period.)
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"PROPERTY GROSS REVENUE" means, for any period, all Receipts resulting
from the operation of such Property, including, without limitation, Rents or
other payments from guests and customers, Tenants, licensees and concessionaires
and business interruption and rental loss insurance payments; provided, that
Gross Revenue shall be determined net of allowances in accordance with the
Uniform System and shall exclude (i) excise, sales, use, occupancy and similar
taxes and charges collected from guests or customers and remitted to
Governmental Authorities, (ii) gratuities collected for employees of such
Property, (iii) security deposits and other advance deposits, until and unless
same are forfeited to any Loan Party or Subsidiary thereof or applied for the
purpose for which collected, (iv) federal, state or municipal excise, sales, use
or similar taxes collected directly from patrons or guests or included as part
of the sales price of any goods or services, (v) interest income on such
Property's bank accounts or otherwise earned by the Company, (vi) rebates,
refunds or discounts (including, without limitation, free or discounted
accommodations) and (vii) Management Fees.
"PROPERTY INFORMATION" means, with respect to any Designation of any
Additional Mortgaged Property pursuant to subsection 2.10:
(i) financial statements in respect of such Additional
Mortgaged Property for the most recently completed three calendar
years, to the extent such financial statements exist and are in the
possession of any Loan Party or can be obtained by a Loan Party at no
cost;
(ii) copies of all other consolidated balance sheets and
related statements of operations and statements of cash flows of such
Additional Mortgaged Property that are to be or were delivered to any
Loan Party or any of its Subsidiaries in connection with the
Acquisition of such Additional Mortgaged Property, if applicable;
(iii) financial information, satisfactory in form and
substance to the Agent, sufficient to permit the calculation of
Property EBITDA with respect to such Additional Mortgaged Priority
pursuant to clause (ii) to the proviso to the definition of Property
EBITDA, if applicable;
(iv) to the extent Renovation is then proposed for such
Additional Mortgaged Property, a preliminary project plan and a project
budget for such Mortgaged Property satisfactory in form and substance
to the Agent in its sole discretion;
(v) (a) a comprehensive environmental audit (which shall
include a Phase I environmental audit and, if necessary or desirable in
the Agent's opinion, a Phase II environmental audit), satisfactory in
form and substance to the Agent, conducted and certified by an Approved
Environmental Consultant (the Company shall certify as of the closing
date of such Acquisition or the Addition Date that, as to any
environmental audit delivered by the Company prior to such date, to the
Company's knowledge, the information contained in such audit remains
true, correct and complete), (b) a reliance letter from such Approved
Environmental Consultant with respect to each such environmental audit
addressed to the Agent and Lenders, which reliance letter shall be
satisfactory in form and
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<PAGE> 50
substance to the Agent, (c) if requested by the Agent, evidence that
all required approvals from all Governmental Authorities having
jurisdiction with respect to the environmental condition of such
Additional Mortgaged Property, if any, have been obtained, and (d) such
other environmental reports, inspections and investigations as the
Agent shall, in its sole discretion, require, prepared, in each
instance, by an Approved Environmental Consultant, which audits,
approvals, reports, inspections and investigations shall be
satisfactory in form and substance to the Agent, in its sole
discretion;
(vi) with respect to an Additional Mortgaged Property, (a) a
written Engineering Report with respect to such Additional Mortgaged
Property dated not more than 90 days (or such longer period not to
exceed 180 days as the Agent may approve) prior to the closing date and
prepared by an Engineer which Engineering Report shall be satisfactory
in form and substance to the Agent and (b) a reliance letter from such
Engineer with respect to each such Engineering Report addressed to the
Agent and Lenders, which letter shall be in form and substance
reasonably satisfactory to the Agent;
(vii) copies (if available) or drafts of the Acquisition
Agreements with respect to such Additional Mortgaged Property, all
other purchase agreements, letters of intent or other related
agreements entered into by any Loan Party or any of its Subsidiaries in
connection with the acquisition thereof (it being understood and agreed
that, to the extent such agreements or letters of intent have not been
entered into at such time, copies of such agreements and letters of
intent shall be delivered reasonably promptly after the execution
thereof);
(viii) a market study with respect to such Additional
Mortgaged Property as of a date not earlier than 90 days (or such
longer period not to exceed 180 days as the Agent may approve) before
the acquisition of such Additional Mortgaged Property and copies of all
other appraisals and market studies with respect to such Additional
Mortgaged Property to the extent such appraisals and market studies
exist and can be readily obtained by any Loan Party or any of its
Subsidiaries; and
(ix) any other information relating to such Mortgaged Property
reasonably requested by the Agent.
"PRO RATA SHARE" means with respect to each Lender, the percentage
obtained by dividing (i) as of any date of determination prior to the
termination of the Commitments (a) that Lender's Commitment by (b) the sum of
the aggregate Commitments of all Lenders and (ii) as of any date of
determination after the termination of the Commitments, (A) the aggregate
principal amount of that Lender's Loans by (B) the sum of the aggregate
principal amount of all Lenders' Loans.
"PURCHASE PRICE" has the meaning assigned to that term in subsection
2.1B to this Agreement.
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"QUALIFIED APPRAISER" means an independent, qualified appraiser that is
a member of the American Institute of Real Estate Appraisers.
"QUALIFIED CAPITAL STOCK" means, with respect to any Person, any series
or class of Capital Stock of that Person which may not be required to be
redeemed or repurchased, in whole or in part, by that Person or any of its
Subsidiaries, in whole or in part, at the option of the holder thereof, on or
prior to the Maturity Date, or not be convertible or exchangeable into or
exercisable for Capital Stock of the Company that is not Qualified Capital Stock
on or prior to the Maturity Date; provided that Capital Stock will be deemed to
be Qualified Capital Stock if it may only be so redeemed or put solely in
consideration of Qualified Capital Stock.
"RECEIPTS" means, collectively, but in each case only to the extent
derived from a Mortgaged Property, all cash, Cash Equivalents, checks, notes,
drafts and any items of payment or collection received, by or on behalf of the
Company or any of its Subsidiaries, or by any officers, employees or agents of
the Company or any of its Subsidiaries or other Persons acting for or in concert
with the Company or such Subsidiary to make collections on the Company's or such
Subsidiary's behalf in connection with or in any way relating to the Company or
such Subsidiary or the operation of the Company's or such Subsidiary's business,
including, without limitation, any proceeds received from or pursuant to (i) any
sales of, or loans against, accounts of the Company or any of its Subsidiaries
(other than the Loans pursuant to this Agreement), (ii) any disposition of
assets (including, without limitation, any disposition of assets permitted
hereunder or consented to by the Agent, but excluding amounts applied to the
repayment of indebtedness or other obligations secured by a Lien on the assets
subject to such disposition) or issuance or sale of equity Securities by the
Company or any of its Subsidiaries, (iii) the incurrence of Indebtedness by the
Company or any of its Subsidiaries and the issuance and sale by the Company or
any of its Subsidiaries of equity or debt Securities, in each case other than
the Obligations and other Indebtedness permitted by this Agreement, (iv)
insurance policies (other than liability insurance payable directly or
indirectly to a third party) maintained by the Company or any of its
Subsidiaries, whether or not the Agent is an additional insured or named as loss
payee thereunder and (v) the successful prosecution (including any settlement)
of any claims, actions or other litigation or proceeding by or on behalf of or
against the Company or any of its Subsidiaries; it being understood and agreed
that nothing contained in this definition shall in any respect be deemed to
permit any transactions by the Company or any of its Subsidiaries otherwise
restricted or prohibited by this Agreement.
"REGISTER" has the meaning assigned to that term in subsection 2.2D.
"REGULATION D" means Regulation D of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"RELATED DOCUMENTS" means, collectively, the Acquisition Agreements,
the Franchise Agreements, the Intellectual Property License Agreements, Ground
Leases and the Material Leases.
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"RELEASE" means any satisfaction, release, assignment instrument, deed
of reconveyance or similar instrument or instruments (each in recordable form
and otherwise in form reasonably satisfactory to the Company but without any
representation or warranty of the Agent or the Lenders necessary to release any
Collateral from the Lien of all applicable Security Documents.
"RELEASE DATE" means the date of a release of the Lien of the Security
Documents on any Mortgaged Property pursuant to subsection 2.11.
"RELEASE PRICE" means, as calculated as of any Release Date, with
respect to any Mortgaged Property, the amount that is the greatest of the
following:
(i) 125% of the Borrowing Base allocated to such Mortgaged
Property;
(ii) in the event of a sale or other permanent disposition of
such Mortgaged Property, 100% of the Net Cash Proceeds for such
Mortgaged Property;
(iii) the amount necessary to ensure that the Total
Utilization shall not exceed the Borrowing Base in effect as of such
date after giving effect to any recomputation in the Borrowing Base
required pursuant to the terms of this Agreement, including without
limitation subsection 2.5B(iii) and;
(iv) in the event of a casualty or taking with respect to such
Mortgaged Property, the Insurance Proceeds or Condemnation Proceeds, as
the case may be, resulting therefrom, net of income taxes paid or
estimated to be actually payable as a result of the related casualty or
condemnation, if any, after taking into account any available tax
credits or deductions and any tax sharing arrangements, provided that
the amount of income taxes so estimated to be actually payable shall be
approved by the Agent, which approval shall not be unreasonably
withheld.
"REMOVAL PERIOD" means with respect to any Mortgaged Property, the
period commencing on the day that the Mortgaged Property is removed from the
calculation of the Borrowing Base pursuant to subsection 2.10C and terminating
on the day on which either (i) the Mortgaged Property is Released pursuant to
subsection 2.11 or (ii) the Borrower elects to designate the Mortgaged Property
for inclusion in the Borrowing Base pursuant to subsection 2.10.
"RENOVATION" means the rebuilding, repair, restoration, refurbishment,
fixturing and equipping of the Improvements at a Mortgaged Property.
"RENTS" means, collectively, with respect to any Mortgaged Property,
all rents, issues, profits, royalties, receipts, revenues, accounts receivable,
security deposits and other deposits (subject to the prior right of Tenants
making such deposits) and income, including room receipts, rack charges, vending
machine receipts, food and beverage receipts, concession fees and charges,
public assembly room receipts, fixed, additional and percentage rents, occupancy
charges, operating expense reimbursements, reimbursements for increases in
taxes, sums paid by Tenants
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pursuant to any Lease to any Loan Party or any of its Subsidiaries as landlord
thereunder to reimburse such Loan Party or such Subsidiary for amounts
originally paid or to be paid by such Loan Party or such Subsidiary or such Loan
Party's or such Subsidiary's agents or Affiliates for which such Tenants were
liable (as, for example, tenant improvements costs in excess of any work letter,
lease takeover costs, moving expenses and tax and operating expense
pass-throughs for which a Tenant is solely liable), deficiency rents and
liquidated damages, and other benefits.
"REORGANIZATION SECURITIES" means, collectively, (i) the 8% Secured
Promissory Note of the Company due 2002, (ii) the 9.20% Secured Promissory Note
of the Company due 2002 and (iii) the 10.00% Senior Secured Note of the Company
due 1999.
"REPLACED LENDER" has the meaning assigned to that term in subsection
2.9C.
"REPLACEMENT LENDER" has the meaning assigned to that term in
subsection 2.9C.
"RESTORATION" means the construction, design services, labor, materials
and other indirect costs and direct costs required to repair, restore (including
demolition), replace and rebuild all or any portion of a Property (or the
Improvements thereof) following the destruction, damage, loss or Taking thereof.
The term "RESTORE" used as a verb has a corresponding meaning.
"RESTRICTED ASSETS" means, collectively, the Mortgaged Properties, the
capital stock of the Subsidiaries of the Borrower, the Intellectual Property,
Investments permitted pursuant to subsection 6.3(b), and licenses related to
more than one Mortgaged Property.
"RESTRICTED PAYMENTS" means (i) any dividend or other distribution,
direct or indirect, on account of any shares of any class of stock of the
Company now or hereafter outstanding (other than (a) dividends payable in
Qualified Capital Stock of the Company and (b) dividends or distributions by a
Subsidiary of the Company provided that to the extent that a portion of such
dividend or distribution is paid to a holder of Equity Interests of a Subsidiary
other than the Company or a Wholly Owned Subsidiary of the Company, such portion
is not greater than such holder's pro rata aggregate common Equity Interests in
such Subsidiary), (ii) any redemption, retirement, sinking fund or similar
payment, purchase or other acquisition for value, direct or indirect, of any
shares of any equity Securities, now or hereafter outstanding, of the Company or
any of its Subsidiaries that are not Wholly Owned Subsidiaries, (iii) any
payment made to retire, or to obtain the surrender of, any outstanding warrants,
options or other rights to acquire shares of any now or hereafter outstanding,
of the Company or any of its Subsidiaries that are not Wholly Owned Subsidiaries
and (iv) any payment or prepayment of principal of, premium, if any, or interest
on, or redemption, purchase, retirement, defeasance (including in substance or
legal defeasance), sinking fund or similar payment with respect to, any
Indebtedness of the Company or any of its Subsidiaries.
"SAVED INTEREST EXPENSE" means, with respect to any Indebtedness for
any period, the interest expense, computed in accordance with GAAP using the
weighted average interest rate on such Indebtedness during such period, on such
Indebtedness, as such amounts shall be
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determined by Arthur Andersen LLP or other independent accountants of recognized
national standing and certified as such by an Authorized Officer of the Company.
"SCHEDULED PROPERTIES" means the Mortgaged Properties listed on
Schedule 1.1C annexed hereto.
"SECURITIES" means any stock, shares, partnership interests, interests
in limited liability companies, voting trust certificates, certificates of
interest or participation in any profit-sharing agreement or arrangement,
options, warrants, bonds, debentures, notes or other evidences of indebtedness,
secured or unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "SECURITIES" or any certificates of interest,
shares or participations in temporary or interim certificates for the purchase
or acquisition of, or any right to subscribe to, purchase or acquire, any of the
foregoing.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time, and any successor statute.
"SECURITY AGREEMENT" means the Security and Pledge Agreement executed
and delivered by each Loan Party and the Agent on or before the Closing Date,
and thereafter by each other Subsidiary of the Company that becomes a party
thereto, in substantially the form of Exhibit VII annexed hereto, pursuant to
which such Loan Party will pledge and grant a security interest in the
Collateral described therein to Agent for the benefit of the Agent and the
Lenders, as such Security and Pledge Agreement may be amended, restated,
supplemented or otherwise modified from time to time in accordance with the
terms thereof and hereof.
"SECURITY DOCUMENTS" means, collectively, the Mortgages, the
Assignments of Rents and Leases, the Security Agreement, the Cash Management
Letters, Liquor License Agreement, the Tenant Subordination Agreements and all
deeds of trust, deeds to secure debt, mortgages, security agreements, pledge
agreements, assignments and all other instruments or documents (including UCC-1
financing statements, fixture filings, amendments of financing statements or
similar documents required or advisable in order to perfect or maintain the
Liens created by the Security Documents) delivered by any Person pursuant to
this Agreement or any of the other Loan Documents, whether such delivery is
prior to, contemporaneous with or after delivery of this Agreement, in order to
grant to the Agent Liens in real, personal or mixed property of that Person, and
to maintain such Liens as each of the foregoing may be amended, restated,
consolidated, supplemented or otherwise modified from time to time in accordance
with the terms thereof and hereof. Security Documents do not include this
Agreement or the Notes.
"SERVICING AGREEMENTS" means, collectively, the management agreements,
if any, entered into between the Company, on the one part, and each Subsidiary
of the Company that owns a fee or leasehold interest in any Mortgaged Property,
on the other part, in form and substance satisfactory to the Agent delivered on
the Closing Date, as any such agreement may be amended, restated, supplemented
or otherwise modified from time to time in accordance with the terms thereof and
hereof.
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"SUBSIDIARY" means, with respect to any Person, any corporation,
partnership, limited liability company, association, joint venture or other
business entity of which more than 50% of the total voting power of shares of
stock or other ownership interests entitled (without regard to the occurrence of
any contingency) to vote in the election of the Person or Persons (whether
directors, managers, trustees or other Persons performing similar functions)
having the power to direct or cause the direction of the management and policies
thereof is at the time owned or controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a combination
thereof.
"SUBSIDIARY GUARANTOR" means each Loan Party from time to time, that is
party to the Subsidiary Guaranty.
"SUBSIDIARY GUARANTY" means the Subsidiary Guaranty by each Loan Party
(other than the Company) and any other Subsidiary of the Company that becomes a
party thereto in accordance with the terms of this Agreement, including without
limitation subsection 2.10A(i), substantially in the form of Exhibit VI annexed
hereto, as such Subsidiary Guaranty may be amended, restated, supplemented or
otherwise modified from time to time in accordance with the terms thereof and
hereof.
"SURVEY" means, with respect to any Mortgaged Property, a current
survey map prepared by a surveyor licensed in the state in which such Property
is located, reasonably acceptable to the Agent, containing the legal description
of such Property and conforming, and certified by such surveyor to the Agent and
the Lenders and the Title Company as conforming, to the Minimum Standard Detail
Requirements for ALTA/ACSM Land Title Surveys for urban survey class as adopted
by ALTA and American Congress on Surveying & Mapping, and showing, to the extent
possible, all matters described as 1, 2, 3, 4, 6, 7(a), 7(b)(1), 8, 9, 10 and 11
in "Table A/Optional Survey Responsibilities and Specifications" in such Minimum
Standard Detail Requirements; provided, however, that the survey need not meet
the foregoing requirements if the Title Company has eliminated the survey
exception from the Title Policies and all other exceptions to the Title Policies
based upon such survey are acceptable. Any such survey shall contain a
certification by such surveyor to the Agent and the Lenders stating whether the
Mortgaged Property is located in an area having special flood hazards as
identified by the Federal Emergency Management Agency.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill,
Inc., or any successor to the business thereof.
"TAKING" means the taking or appropriation (including by deed in lieu
of condemnation or by voluntary sale or transfer under threat of condemnation or
while legal proceedings for condemnation are pending) of any Mortgaged Property,
or any part thereof or interest therein, for public or quasi-public use under
the power of eminent domain, by reason of any public improvement or condemnation
proceeding, or in any other manner or any damage or injury or diminution in
value through condemnation, inverse condemnation or other exercise of the power
of eminent domain.
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"TAX" or "TAXES" means any present or future tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature and whatever called, on
whomsoever and wherever imposed, levied, collected, withheld or assessed by a
Governmental Authority; provided, however, that "TAX ON THE OVERALL NET INCOME"
of a Person shall be construed as a reference to a tax imposed by the
jurisdiction in which that Person's principal office (and/or, in the case of any
Lender, its lending office) is located or in which that Person is deemed to be
doing business on all or part of the net income, profits or gains of that Person
(whether worldwide, or only insofar as such income, profits or gains are
considered to arise in or to relate to a particular jurisdiction, or otherwise).
"TENANT" means any Person liable by contract or otherwise to pay rent
or a percentage of income, revenue or profits pursuant to a Lease, and includes
a tenant, subtenant, lessee and sublessee.
"TENANT SUBORDINATION AGREEMENT" means any Subordination,
Nondisturbance and Attornment Agreement executed and acknowledged by a Tenant,
the Company or any other Loan Party and the Agent, and reasonably satisfactory
in form and substance to the Agent, as each such agreement may be amended,
restated, supplemented or otherwise modified from time to time in accordance
with the terms thereof and hereof.
"TITLE COMPANY" means Chicago Title Insurance Company or other
nationally recognized title insurance company reasonably acceptable to the
Agent.
"TITLE POLICIES" means, with respect to the Mortgaged Properties, the
paid mortgagee policies of title insurance in the form of a 1970 ALTA loan
policy (or other form of loan policy available in the applicable state and
reasonably acceptable to the Agent) and issued by the Title Company.
"TOTAL MORTGAGED PROPERTY EBITDA" means, for any period and as of any
date of determination, the aggregate Property EBITDA in respect of all Mortgaged
Properties.
"TOTAL PROPERTY EBITDA" means, for any period and as of any date of
determination, the aggregate Property EBITDA for such period in respect of all
Properties.
"TOTAL UTILIZATION" means, as of any date of determination, the sum of
the following, without duplication:
(i) the aggregate principal amount of the outstanding Loans;
plus
(ii) the aggregate amount of reserves against Total
Utilization established by the Company in accordance with the
provisions of subsection 3.1Q in respect of required deferred
maintenance deposits; plus
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(iii) the aggregate amount of reserves against Total
Utilization established by the Company in accordance with the
provisions of subsection 5.16 in respect of required capital reserve
deposits.
"TRANSFER" means any conveyance, assignment, sale, mortgaging,
encumbrance, pledging, hypothecation, granting of a security interest in,
granting of options with respect to or other disposition of (directly or
indirectly, voluntarily or involuntarily, by operation of law or otherwise, and
whether or not for consideration or of record) all or any portion of any legal
or beneficial interest (i) in all or any portion of any Property, or (ii) in any
other assets of any Loan Party or any of its Subsidiaries.
"UNIFORM SYSTEM" means the Uniform System of Accounts for Hotels, 8th
Revised Edition, 1986, as published by the Hotel Association of New York City,
as the same may be further revised from time to time.
"WHOLLY OWNED" means, with respect to any Subsidiary of any Person, a
Subsidiary of the outstanding equity Securities of which (other than any
director's qualifying shares or Investments by foreign nationals mandated by
Applicable Law) are owned directly or indirectly by such Person.
"WORK" has the meaning assigned to that term in subsection 5.11G.
"WORK LETTER" means the letter agreement dated March 14, 1996, as
amended and supplemented, between Bankers and the Company, relating to the
financings contemplated by this Agreement and the Prior Agreement.
1.2 ACCOUNTING TERMS; UTILIZATION OF GAAP FOR PURPOSES OF CALCULATIONS
UNDER AGREEMENT.
Except as otherwise expressly provided in this Agreement, all
accounting terms not otherwise defined herein shall have the meanings assigned
to them in conformity with GAAP. Financial statements and other information
required to be delivered by the Company to the Agent and the Lenders pursuant to
subsection 3.1 shall be prepared in accordance with GAAP as in effect at the
time of such preparation. Calculations in connection with the definitions,
covenants and other provisions of this Agreement shall utilize accounting
principles and policies in conformity with those used to prepare the financial
statements referred to in subsection 4.3(i).
1.3 REFERENCES TO ARTICLES, SECTIONS, EXHIBITS, SCHEDULES AND ATTACHMENTS.
All references appearing in a Loan Document to Articles, Sections,
subsections, clauses, Recitals, Exhibits, Schedules or Attachments are
references to the Articles, Sections, subsections, clauses and Recitals thereof
and to the Exhibits, Schedules or Attachments annexed to such Loan
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Document unless expressly otherwise designated in such Loan Document. All
references appearing in a Loan Document to Exhibits, Schedules and Attachments
are references to such documents as initially annexed to such Loan Document or
as supplemented or revised in accordance with the terms of this Agreement or
such other Loan Document.
1.4 CAPTIONS.
All captions to any Article, Section, subsection, clause, Recital,
Exhibit, Schedule or Attachment in a Loan Document are used for convenience and
reference only and in no way define, limit or describe the scope or intent of,
or in any way affect, such Loan Document.
1.5 DRAFTER.
No inference against or in favor of any party to any Loan Document
shall be drawn from the fact that such party has drafted any portion of any Loan
Document.
1.6 REFERENCES TO PERSONS INCLUDE PERMITTED SUCCESSORS AND ASSIGNS.
Except as otherwise specified in a Loan Document, all references in
such Loan Document to any Person, other than the Company or any of its
Affiliates, shall be deemed to include the successors and assigns of such
Person.
1.7 REFERENCES TO APPLICABLE LAW AND CONTRACTS.
Except as otherwise specified in a Loan Document, all references in
such Loan Document to any Applicable Law or contracts specifically defined or
referred to therein, shall be deemed references to such Applicable Law or
contracts as may be amended, restated, supplemented, consolidated or otherwise
modified from time to time, or, in the case of any such contract, as the terms
thereof may be waived or modified, but only in the case of each such amendment,
waiver or modification of a contract, to the extent permitted by, and effected
in accordance with, the terms thereof and hereof and only to the extent such
amendment, waiver or modification of a contract is not prohibited by any of the
Loan Documents.
1.8 HEREIN.
The words "HEREIN", "HEREINABOVE", "HEREINBELOW", "HEREOF", "HEREUNDER"
and words of similar import, when used in a Loan Document, shall refer to such
Loan Document as a whole.
1.9 INCLUDING WITHOUT LIMITATION.
The words "INCLUDES", "INCLUDING" and similar terms used in any Loan
Document shall be construed as if followed by the words "WITHOUT LIMITATION".
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1.10 GENDER.
Whenever the context so requires, the neuter gender includes the
masculine or feminine and the singular number includes the plural, and vice
versa.
1.11 SINGULAR AND PLURAL.
Any of the terms defined in a Loan Document may, unless the context
otherwise requires, be used in the singular or the plural, depending on the
reference.
1.12 KNOWLEDGE.
As used in this Agreement or in any other Loan Document, the phrases
"TO THE COMPANY'S ACTUAL KNOWLEDGE", "TO THE KNOWLEDGE OF THE COMPANY" and any
variations thereof shall mean, as of any date of determination and after due
inquiry, the actual knowledge or awareness, as of such date, of the Persons who
occupy one or more of the offices of Chairman of the Board of Directors, Chief
Executive Officer, President, Executive Vice President, Chief Financial Officer,
General Counsel, Senior Vice-President/Development, Senior Vice President/Sales
and Marketing, Senior Vice President/Human Resources, Vice President and
Corporate Controller, Secretary, Treasurer, vice presidents of operations and
regional directors of operations; provided, however, that the knowledge of a
vice president of operations or a regional director of operations shall be
imputed to the Company only with respect to matters affecting the region or the
Mortgaged Properties for which such vice president or regional director provides
regional or property management services. The Company represents and warrants
that the foregoing Persons have executive and administrative responsibility for
the Company and its assets and, in the performance of their duties in the
ordinary course of business, would customarily have knowledge of the matters
referred to herein.
SECTION 2.
AMOUNTS AND TERMS OF COMMITMENTS AND LOANS
2.1 PURCHASE OF EXISTING LOANS.
A. PURCHASE AND SALE. Upon and subject to the terms and conditions
herein set forth, the Lenders shall purchase all right, title and interest in
and to the Existing Consolidated Note, the Existing Pool III Note and the loans
evidenced thereby.
B. PURCHASE PRICE. The aggregate purchase price (the "PURCHASE PRICE")
for the Existing Consolidated Note and the loans evidenced thereby shall be
$20,000,000.
C. MANNER OF PAYMENT. The Agent, on behalf of the Lenders, shall pay
the Purchase Price on the Closing Date by causing an amount of same-day funds
equal to $20,000,000 to be credited to the account of Bankers at the offices of
the Agent at 280 Park Avenue, New York, New York 10017.
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<PAGE> 60
D. CONDITIONS TO CLOSING. The obligations of the Lenders to purchase
the Existing Consolidated Note and the loans evidenced thereby shall be subject
to satisfaction of all of the conditions set forth in subsections 3.1B and 3.1C
below.
E. CONSOLIDATION, SPLITTER, AMENDMENT AND RESTATEMENT OF EXISTING LOAN
DOCUMENTS. Simultaneously with the purchase and sale of the Existing Loans, the
Lenders and the Company shall, and hereby do, consolidate the Existing Pool III
Note and the Existing Consolidated Note so that the same shall constitute and
evidence a single indebtedness, and in addition the Lenders and the Company
shall, and hereby do, split such single indebtedness into the several Loans of
each of the several Lenders and amend and restate the Existing Loan Documents in
their entirety so that, from and after the Closing Date, all of the agreements,
covenants, representations, warranties, indemnities, rights and obligations of
the parties to the Existing Loans shall be as provided in this Agreement and the
other Loan Documents and as otherwise provided by Applicable Law with respect to
the Loans hereunder.
2.2 COMMITMENTS; LOANS; NOTES; THE REGISTER.
A. COMMITMENTS. Subject to the terms and conditions of this Agreement
and in reliance upon the representations and warranties of the Company herein
set forth, each Lender hereby severally agrees, subject to the limitations set
forth below with respect to the maximum amount of Loans permitted to be
outstanding from time to time, to lend to the Company from time to time during
the period from the Closing Date to but excluding the Maturity Date an aggregate
amount not exceeding such Lender's Pro Rata Share of the aggregate amount of the
Commitments to be used for the purposes identified in subsection 2.6A. The
original amount of each Lender's Commitment and such Lender's Pro Rata Share is
set forth opposite its name on Schedule 2.2 annexed hereto and the aggregate
original amount of the Commitments is $100,000,000; provided, however, that the
Commitments of the Lenders shall be adjusted from time to time to give effect to
any assignments of the Commitments pursuant to subsection 8.1; provided further,
however, that the amount of the Commitments shall be automatically reduced by
the amount of any reductions to the Commitments made pursuant to subsection
2.5B.
Each Lender's Commitment shall expire on the Maturity Date and all
Loans and all other amounts owed hereunder with respect to the Loans and the
Commitments shall be paid in full no later than the Maturity Date.
Anything contained in this Agreement to the contrary notwithstanding,
the Loans and the Commitments shall be subject to the limitations that the Total
Utilization of the Commitments shall not exceed the least of (i) the Borrowing
Base, (ii) the aggregate amount of the Commitments then in effect and (iii) the
aggregate amount of title insurance pursuant to Title Policies delivered
pursuant to subsections 2.10A(vi) and 3.1F(v).
B. BORROWING MECHANICS. Loans made on any Funding Date shall be in an
aggregate minimum amount of $1,000,000. The Company shall be permitted to
request a Loan pursuant to this subsection 2.2B only twice during any 30 day
period. Whenever the Company desires that the Lenders make Loans, it shall
deliver to the Agent a Notice of Borrowing no later than 10:00
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A.M. (New York time) at least three Business Days in advance of the proposed
Funding Date with respect to a Eurodollar Rate Loan or, in the case of a Loan
bearing interest with reference to the Base Rate, one Business Day in advance of
the proposed Funding Date.
Each Notice of Borrowing shall specify (i) the proposed Funding Date
(which shall be a Business Day), (ii) the amount of Loans requested, (iii)
whether such Loans shall be Base Rate Loans or Eurodollar Rate Loans (it being
understood that all Loans shall be Eurodollar Rate Loans except as otherwise
expressly permitted or required hereunder), (iv) if such Loan is a Eurodollar
Rate Loan, the initial Interest Period applicable thereto, (v) that not more
than one other Funding Date shall have occurred within the 30 days next
preceding the proposed Funding Date, and (vi) that the amount of the proposed
Loan will not cause the Total Utilization of the Commitments to exceed the
Borrowing Base then in effect.
The Company may give the Agent telephonic notice by the required time
of any proposed Loan under this subsection 2.2B; provided, however, that such
notice shall be promptly confirmed in writing by delivery of a Notice of
Borrowing to the Agent on or before the applicable Funding Date. Neither the
Agent nor any Lender shall incur any liability to the Company in acting upon any
telephonic notice referred to above that the Agent believes in good faith to
have been given by a duly Authorized Officer or other Person authorized to
borrow on behalf of the Company or for otherwise acting in good faith under this
subsection 2.2B, and upon funding of Loans by the Lenders in accordance with
this Agreement pursuant to any such telephonic notice the Company shall have
effected Loans hereunder.
The Company shall notify the Agent (who shall notify the Lenders) prior
to the funding of any Loans in the event that any of the matters to which the
Company is required to certify in the applicable Notice of Borrowing is no
longer true and correct as of the applicable Funding Date, and the acceptance by
the Company of the proceeds of any Loans shall constitute a re-certification by
the Company, as of the applicable Funding Date, as to the matters to which the
Company is required to certify in the applicable Notice of Borrowing.
Except as otherwise provided in subsections 2.7B and 2.7C, a Notice of
Borrowing for a Eurodollar Rate Loan (or telephonic notice in lieu thereof)
shall be irrevocable on and after the related Interest Rate Determination Date,
and the Company shall be bound to make a borrowing in accordance therewith.
C. DISBURSEMENT OF FUNDS. All Loans under this Agreement shall be made
by the Lenders simultaneously and proportionately to their respective Pro Rata
Shares, it being understood that no Lender shall be responsible for any default
by any other Lender in that other Lender's obligation to make a Loan requested
hereunder nor shall the Commitment of any Lender be increased or decreased as a
result of a default by any other Lender in that other Lender's obligation to
make a Loan requested hereunder. Promptly after receipt by the Agent of a Notice
of Borrowing pursuant to subsection 2.2B (or telephonic notice in lieu thereof),
the Agent shall notify each Lender of the proposed Loan. Each Lender shall make
its Pro Rata Share of the aggregate amount of the Loan available to the Agent,
in same day funds, at the office of the Agent located at One Bankers Trust
Plaza, New York, New York, not later than 12:00 Noon
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(New York time) on the applicable Funding Date in same day funds in Dollars.
Upon satisfaction or waiver of the conditions precedent specified in subsections
3.1 and 3.2 (in the case of Loans made on the Closing Date) and 3.2 (in the case
of all Loans), the Agent shall make the proceeds of such Loans available to the
Company on the applicable Funding Date by causing an amount of same day funds
equal to the proceeds of all such Loans received by the Agent from the Lenders
to be transferred to the account designated in the Notice of Borrowing.
Unless the Agent shall have been notified by any Lender prior to the
Funding Date for any Loans that such Lender does not intend to make available to
the Agent the amount of such Lender's Loan requested on such Funding Date, the
Agent may assume that such Lender has made such amount available to the Agent on
such Funding Date and the Agent may, in its sole discretion, but shall not be
obligated to, make available to the Company a corresponding amount on such
Funding Date. If such corresponding amount is not in fact made available to the
Agent by such Lender, the Agent shall be entitled to recover such corresponding
amount on demand from such Lender together with interest thereon, for each day
from such Funding Date until the date such amount is paid to the Agent, at the
Federal Funds Effective Rate for three Business Days and thereafter at the Base
Rate. If such Lender does not pay such corresponding amount forthwith upon the
Agent's demand therefor, the Agent shall promptly notify the Company and the
Company shall immediately pay such corresponding amount to the Agent together
with interest thereon, for each day from such Funding Date until the date such
amount is paid to the Agent, at the rate payable under this Agreement for Base
Rate Loans. Nothing in this subsection 2.2C shall be deemed to relieve any
Lender from its obligation to fulfill its Commitment hereunder or to prejudice
any rights that the Company may have against any Lender as a result of any
default by such Lender hereunder.
D. THE REGISTER.
(i) The Agent shall maintain, at its address referred to in
subsection 8.8, a register for the recordation of the names and
addresses of the Lenders and the Commitment and Loans of each Lender
from time to time (the "REGISTER"). The Company, the Agent and the
Lenders may treat each Person whose name is recorded in the Register as
a Lender hereunder for all purposes of this Agreement. The Register
shall be available for inspection by the Company or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(ii) The Agent shall record in the Register the Commitment and
the Loans from time to time of each Lender, and each repayment or
prepayment in respect of the principal amount of the Loans of each
Lender. Any such recordation shall be prima facie evidence of such
matters as against the Company and each Lender, absent manifest error;
provided, however, that failure to make any such recordation, or any
error in such recordation, shall not affect the Company's Obligations
in respect of the applicable Loans.
(iii) Each Lender shall record on its internal records
(including any promissory note described in subsection 2.2D(iv)) the
amount of each Loan made by it and each payment in respect thereof. Any
such recordation shall be prima facie evidence of such
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matters as against the Company absent manifest error; provided,
however, that failure to make any such recordation, or any error in
such recordation, shall not affect the Company's Obligations in respect
of the applicable Loans; provided further, however, that in the event
of any inconsistency between the Register and any Lender's records, the
recordations in the Register shall govern, absent manifest error.
(iv) Any Lender may, by notice to the Agent and the Company,
request that all or part of the principal amount of the Company's Loans
from such Lender hereunder be evidenced by a Note. Within three
Business Days of the Company's receipt of such notice, the Company
shall execute and deliver to the Agent for delivery to the appropriate
Lender a Note in the principal amount(s) of such Loans, payable to the
notifying Lender or, if so specified in such notice, any Person who is
an assignee of such Lender pursuant to subsection 8.1 hereof. If the
foreclosure or other enforcement of any Mortgage or any other Security
Document requires the presentation of a Note evidencing the Obligations
secured by such Security Document and the Company fails or refuses to
comply with a request for such Note, then a copy of this Agreement may
be presented in lieu of such a Note.
2.3 INTEREST ON THE LOANS.
A. RATE OF INTEREST. Subject to the provisions of subsections 2.3E, 2.7
and 2.8, each Loan shall bear interest on the unpaid principal amount thereof
from the date made through maturity (whether by acceleration or otherwise) at a
rate determined by reference to the Adjusted Eurodollar Rate; provided, however,
that in the event that any Loan is to be made on a day when there are already
five (5) Interest Periods outstanding, such Loan shall bear interest at a rate
determined by reference to the Base Rate until the commencement of the next
succeeding Interest Period, at which time such Loan shall be converted
(automatically and without the necessity of any action on the part of any
Person) to a Eurodollar Rate Loan in accordance with subsection 2.3D. The basis
for determining the interest rate with respect to any Loan shall be changed from
time to time in accordance with subsection 2.3D.
Subject to the provisions of subsections 2.3E, 2.5B(iv) and 2.8, the
Loans shall bear interest through maturity as follows:
(i) if a Base Rate Loan, then at a rate equal to the Base Rate
plus 1.00%.
(ii) if a Eurodollar Rate Loan, then at the sum of the
Adjusted Eurodollar Rate plus 2.25%.
B. INTEREST PERIODS. In connection with each Eurodollar Rate Loan, the
Company shall, pursuant to the applicable Notice of Borrowing or Notice of
Continuation, as the case may be, select an interest period (each an "INTEREST
PERIOD") to be applicable to such Loan, which Interest Period shall be at the
Company's option a one, two or three month period; provided, however, that:
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(i) the initial Interest Period for any Eurodollar Rate Loan
shall commence on the Funding Date in respect of such Loan;
(ii) each successive Interest Period shall commence on the day
on which the next preceding Interest Period expires;
(iii) if an Interest Period would otherwise expire on a day
that is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day; provided, however, that, if any Interest
Period would otherwise expire on a day that is not a Business Day but
is a day of the month after which no further Business Day occurs in
such month, such Interest Period shall expire on the next preceding
Business Day;
(iv) any Interest Period that begins on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall, subject to clause (v) of this subsection 2.3B, end on
the last Business Day of a calendar month;
(v) no Interest Period with respect to any portion of the
Loans shall extend beyond the Maturity Date;
(vi) there shall be no more than five (5) Interest Periods
outstanding at any time;
(vii) if five Interest Periods are outstanding, at least one
Interest Period shall be either (a) a one month Interest Period or (b)
an Interest Period with less than 30 days remaining; and
(viii) in the event the Company shall fail to specify an
Interest Period for a Eurodollar Rate Loan in the applicable Notice of
Borrowing or Notice of Continuation, the Company shall be deemed to
have selected an Interest Period of one month.
C. INTEREST PAYMENTS. Subject to the provisions of subsection 2.3E,
interest on the Loans shall be payable monthly in arrears on and to each Payment
Date, upon any prepayment of the Loans (to the extent accrued on the amount
being prepaid) and at maturity (including final maturity).
D. CONVERSION/CONTINUATION. Subject to the provisions of subsections
2.3E and 2.7, each Base Rate Loan shall be automatically converted into a
Eurodollar Rate Loan on the first day of the next succeeding Interest Period,
but in any event within 30 days of the making of such Base Rate Loan; provided,
however, that, unless expressly required by the terms of this Agreement, no Loan
may be made as a Base Rate Loan during the period from December 24 of any year
to and including January 7 of the next succeeding year.
Upon the expiration of any Interest Period applicable to a Eurodollar
Rate Loan, the Company shall continue such Loan as a Eurodollar Rate Loan. The
Company shall deliver a
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Notice of Continuation to the Agent no later than 10:00 A.M. (New York) at least
three Business Days in advance of the proposed continuation date for the
applicable Eurodollar Rate Loan. A Notice of Continuation shall specify (i) the
proposed continuation date (which shall be a Business Day), (ii) the amount and
type of the Eurodollar Rate Loan to be continued, (iii) the nature of the
proposed continuation, (iv) the requested Interest Period (which, if a Potential
Event of Default has occurred and is continuing shall be a one month period),
and (v) that no Event of Default has occurred and is continuing. In lieu of
delivering the above-described Notice of Continuation, the Company may give the
Agent telephonic notice by the required time of any proposed continuation under
this subsection 2.3D; provided, however, that such notice shall be promptly
confirmed in writing by delivery of a Notice of Continuation to the Agent on or
before the proposed continuation date. Upon receipt of written or telephonic
notice of any proposed continuation under this subsection 2.3D, the Agent shall
promptly transmit such notice by telefacsimile or telephone to each Lender.
Neither the Agent nor any Lender shall incur any liability to the
Company in acting upon any telephonic notice referred to above that Agent
believes in good faith to have been given by a duly Authorized Officer or other
Person authorized to act on behalf of the Company or for otherwise acting in
good faith under this subsection 2.3D, and upon continuation of the applicable
basis for determining the interest rate with respect to any Loans in accordance
with this Agreement pursuant to any such telephonic notice the Company shall
have effected a continuation, as the case may be, hereunder.
Except as otherwise provided in subsections 2.3E, 2.7B and 2.7C, a
Notice of Continuation for continuation of a Eurodollar Rate Loan (or telephonic
notice in lieu thereof) shall be irrevocable on and after the related Interest
Rate Determination Date, and Company shall be bound to effect a continuation in
accordance therewith.
E. DEFAULT RATE INTEREST. Upon the occurrence and during the
continuation of any Event of Default, the outstanding principal amount of all
Loans and, to the extent permitted by Applicable Law, any interest payments
thereon not paid when due and any fees and other amounts then due and payable
hereunder, shall thereafter bear interest (including post-petition interest in
any proceeding under the Bankruptcy Code or other applicable bankruptcy laws)
payable upon demand at a rate that is 3% per annum in excess of the interest
rate otherwise payable under this Agreement with respect to the applicable Loans
(or, in the case of any such fees and other amounts, at a rate which is 3% per
annum in excess of the interest rate otherwise payable under this Agreement for
Base Rate Loans); provided, however, that, in the case of Eurodollar Rate Loans,
if such Event of Default is continuing, upon the expiration of the Interest
Period in effect at the time any such increase in interest rate is effective,
such Eurodollar Rate Loans shall thereupon become Base Rate Loans and shall
thereafter bear interest payable upon demand at a rate which is 3% per annum in
excess of the interest rate otherwise payable under this Agreement for Base Rate
Loans. Payment or acceptance of the increased rates of interest provided for in
this subsection 2.3E is not a permitted alternative to timely payment and shall
not constitute a waiver of any Event of Default or otherwise prejudice or limit
any rights or remedies of the Agent or any Lender.
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F. COMPUTATION OF INTEREST. Interest on the Loans shall be computed (i)
in the case of Base Rate Loans, on the basis of a 365-day or 366-day year, as
the case may be, and (ii) in the case of Eurodollar Rate Loans, on the basis of
a 360-day year, in each case for the actual number of days elapsed in the period
during which it accrues. In computing interest on any Loan, the date of the
making of such Loan or the first day of an Interest Period applicable to such
Loan shall be included, and the date of payment of such Loan or the expiration
date of an Interest Period applicable to such Loan shall be excluded; provided,
however, that if a Loan is repaid on the same day on which it is made, one day's
interest shall be paid on that Loan.
2.4 FEES.
A. COMMITMENT FEES. The Company agrees to pay to the Agent, for
distribution to each Lender in proportion to that Lender's Pro Rata Share,
commitment fees for the period from and including the Closing Date to and
excluding the Maturity Date, equal to (i) the average of the daily unused
portion of the Commitments, multiplied by (ii) 0.375% per annum, such commitment
fees to be calculated on the basis of a 360-day year and the actual number of
days elapsed and to be payable quarterly in arrears on the last day of each
calendar quarter, commencing with the first such date to occur after the Closing
Date, and on the Maturity Date. Anything contained in this Agreement to the
contrary notwithstanding, for purposes of calculating the commitment fees
payable by the Company pursuant to this subsection 2.4A, the "unused portion of
the Commitments," as of any date if determination, shall be an amount equal to
the aggregate amount of Commitments as of such date minus the aggregate
principal amount of all outstanding Loans on such date. The commitment fee shall
be payable as provided in this subsection notwithstanding that the amount
available to be borrowed hereunder may be less than the amount of the
Commitments due to the operation of the Borrowing Base.
B. OTHER FEES. The Company agrees to pay to the Agent such other fees
in the amounts and at the times separately agreed upon in writing between the
Company and the Agent.
2.5 REPAYMENTS AND PREPAYMENTS; GENERAL PROVISIONS REGARDING PAYMENTS.
A. SCHEDULED REDUCTIONS OF COMMITMENTS. The Commitments shall be
permanently reduced on the dates and in the amounts set forth below:
<TABLE>
<CAPTION>
Schedule Reduction
DATE of Commitments
---- --------------
<S> <C>
third Anniversary $13,000,000
fourth Anniversary $12,000,000
</TABLE>
; provided that the scheduled reductions of the Commitments set forth above
shall be reduced in connection with any voluntary or mandatory reductions of the
Commitments in accordance with subsection 2.5B(viii).
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B. PREPAYMENTS AND UNSCHEDULED REDUCTIONS IN COMMITMENTS.
(i) Voluntary Prepayments. The Company may, upon not less than
one Business Day's prior written or telephonic notice, in the case of
Base Rate Loans, and three Business Days' prior written or telephonic
notice in the case of Eurodollar Rate Loans, in each case confirmed in
writing to the Agent (which notice the Agent will promptly transmit by
telecopy, telex or telephone to each Lender), at any time and from time
to time prepay any Loans on any Business Day in whole or in part in an
aggregate minimum amount of $1,000,000 and integral multiples of
$500,000 in excess of that amount (or, if less, the total amount of all
outstanding Loans); provided, however, that in the event a Eurodollar
Rate Loan is prepaid on a day other than the last day of the Interest
Period applicable thereto, such prepayment shall be accompanied by the
payment of any amounts payable under subsection 2.7D. Notice of
prepayment having been given as aforesaid, the principal amount of the
Loans specified in such notice shall become due and payable on the
prepayment date specified therein; provided, however, that in the case
of any such withdrawal, the Company shall promptly pay all amounts then
due to the Lenders pursuant to subsection 2.7D. Any such voluntary
prepayment shall be applied as specified in subsection 2.5B(vii).
Amounts prepaid pursuant to this subsection 2.5B(i) may be reborrowed
pursuant to subsection 2.2A.
(ii) Voluntary Reductions of Commitments. The Company may,
upon not less than three Business Days' prior written or telephonic
notice confirmed in writing to the Agent (which notice the Agent will
promptly transmit by telecopy, telex or telephone (confirmed in
writing) to each Lender), at any time and from time to time terminate
in whole or permanently reduce in part, without premium or penalty, the
Commitments in an amount up to the amount by which the Commitments
exceed the Total Utilization of Commitments; provided, however, that
any such partial reduction of the Commitments shall be in an aggregate
minimum amount of $1,000,000 and integral multiples of $1,000,000 in
excess of that amount. The Company's notice to the Agent shall
designate the date (which shall be a Business Day) of such termination
or reduction and the amount of any partial reduction, and such
termination or reduction of the Commitments shall be effective on the
date specified in the Company's notice and shall reduce the Commitment
of each Lender proportionately to its Pro Rata Share. Any such
voluntary reduction of the Commitments shall be applied as specified in
subsection 2.5B(viii).
(iii) Reductions in Borrowing Base Due to Casualty,
Condemnation or Disposition of a Designated Mortgaged Property. If
there shall occur a casualty or Taking with respect to any Designated
Mortgaged Property (or any portion thereof) or a sale or other
permanent disposition of such Designated Mortgaged Property, with
respect to which occurrence a prepayment is required to be made, then
the Borrowing Base shall be recomputed as of such date, after giving
effect to any reduction in the related Property EBITDA or Release.
(iv) Prepayments Due to Borrowing Base. If at any time the
Total Utilization exceeds the Borrowing Base then in effect, as
demonstrated by a Borrowing Base
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Certificate delivered (or required to be delivered) pursuant to
subsection 5.1(ii), the Company shall prepay the Loans in an amount
equal to such excess not later than 5 Business Days after the date that
such Borrowing Base Certificate shall have been delivered (or, if such
Borrowing Base Certificate shall not have been delivered) timely or at
all, on the last day that such Borrowing Base Certificate is permitted
by subsection 5.1(ii) to be delivered). Any mandatory prepayments
pursuant to subsection 2.5B(iv) shall be applied as specified in
subsection 2.5B(vii).
(v) Prepayments from Asset Sales. At any time prior to the
date which is 364 days following the date of receipt of such Net Cash
Proceeds from an Asset Sale (other than a Mortgaged Property which
shall be governed by the Release provisions contained in subsection
2.11) by any Loan Party or any of its Subsidiaries but in any event not
later than the day before the day on which the Company shall be
obligated to pay any amount of such Net Cash Proceeds (or other amount
determined by reference to such Net Cash Proceeds) to satisfy all or
part of any other obligation that may become due by reason of such sale
or other disposition other than any Indebtedness secured by the assets
from which such Net Cash Proceeds were derived, the Company may spend
all or any part of Net Cash Proceeds (or other amount determined by
reference to such Net Cash Proceeds) on a Renovation or Restoration
permitted hereunder or otherwise invest such amounts in property or
assets used in a Hospitality-Related Business; provided that if an
Event of Default resulting from a failure to pay principal or interest
hereunder has occurred and is continuing, the Company shall not use any
part of such Net Cash Proceeds to make any capital expenditures for any
purpose (including, without limitation, the investment of any amount in
any property or assets used in a Hospitality-Related Business, but
excluding the purchase of FF&E and expenditures in furtherance of any
Renovation or Restoration of any Property (including any Property that
is not a Mortgaged Property) that shall have commenced before the
occurrence of such Event of Default and that cannot be terminated
without material cost to the Company or a material adverse effect on
the Property) unless and until the Company shall have prepaid the Loans
in the amounts required by, and in accordance with the provisions of,
the sentence next following. Any amounts not expended in accordance
with the preceding sentence (i) on the day before the day on which the
Company is obligated to apply such amounts to satisfy all or part of
any other obligation that may become due by reason of such sale or
other disposition, other than any Indebtedness secured by the assets
from which such Net Cash Proceeds were derived, or (2) on the date that
is 365 days after the receipt of such Net Cash Proceeds, shall be
applied to prepay the Loans and the Commitments shall be automatically
and permanently reduced by the aggregate amount of such prepayments.
Concurrently with any prepayment of the Loans pursuant to this
subsection 2.5B(v), the Company shall deliver to the Agent an Officer's
Certificate demonstrating the derivation of the Net Cash Proceeds. Any
mandatory prepayments pursuant to this subsection 2.5B(v) shall be
applied as specified in subsection 2.5(B)(vii). Net Cash Proceeds from
the sale of more than one Property shall be deemed expended in the
order in which such amounts were received by the applicable Loan Party
or Subsidiary.
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(vi) Acceleration Due to Reduction of the Facility Amount. In
the event that the aggregate amount of the Commitments at any time is
less than $10,000,000, whether due to a prepayment or reduction in the
Commitments or otherwise, (a) the Commitments shall be automatically
terminated and (b) the Loans outstanding and all other Obligations of
the Company shall become immediately due and payable.
(vii) Application of Prepayments. Each prepayment of the Loans
shall be applied first to Base Rate Loans to the full extent thereof
before application to Eurodollar Rate Loans, in each case in a manner
which minimizes the amount of any payments required to be made by the
Company pursuant to subsection 2.7D.
(viii) Application of Unscheduled Reductions of Commitments.
Any voluntary reduction of the Commitments pursuant to subsection
2.5B(ii) shall be applied to reduce the scheduled reductions of the
Commitments set forth in subsection 2.5A in inverse chronological
order.
C. APPLICATION OF PAYMENTS TO PRINCIPAL AND INTEREST. All payments in
respect of the principal amount of the Loans shall include payment of accrued
interest on the principal amount being repaid or prepaid, and all such payments
shall be applied to the payment of unpaid interest before application to
principal.
D. GENERAL PROVISIONS REGARDING PAYMENTS.
(i) Manner and Time of Payment. All payments by the Company of
principal, interest, fees and other Obligations hereunder and under the
Notes and the other Loan Documents shall be made in same day funds and
without defense, setoff or counterclaim, free of any restriction or
condition, and delivered to the Agent not later than 1:00 P.M. (New
York time) on the date due at its office located at One Bankers Trust
Plaza, New York, New York, for the account of the Lenders; funds
received by the Agent after that time on such due date shall be deemed
to have been paid by the Company on the next succeeding Business Day.
The Company hereby authorizes the Agent to instruct the Cash Manager to
charge its accounts with the Cash Manager (including the Concentration
Account and the Operating Account) in order to cause timely payment to
be made to the Agent of all principal, interest, fees and expenses due
hereunder or under the Notes or the other Loan Documents (subject to
sufficient funds being available in its accounts for that purpose).
(ii) Apportionment of Payments. Aggregate principal and
interest payments shall be apportioned among all outstanding Loans to
which such payments relate, in each case proportionately to the
Lenders' respective Pro Rata Shares. The Agent shall promptly
distribute to each Lender, at its primary address set forth below its
name on the appropriate signature page hereof or at such other address
as such Lender may request, its Pro Rata Share of all such payments
received by the Agent and the facility fees and commitment fees of such
Lender when received by the Agent pursuant to subsection 2.4.
Notwithstanding the foregoing provisions of this subsection 2.5D(ii),
if, pursuant to the
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provisions of subsection 2.5C, any Affected Lender makes Base Rate
Loans in lieu of its Pro Rata Share of any Eurodollar Rate Loans, the
Agent shall give effect thereto in apportioning payments received
thereafter.
(iii) Payments on Business Days. Whenever any payment to be
made hereunder shall be stated to be due on a day that is not a
Business Day, such payment shall be made on the next succeeding
Business Day and such extension of time shall be included in the
computation of the payment of interest hereunder.
(iv) Notation of Payment. Each Lender agrees that before
disposing of the Note held by it, or any part thereof (other than by
granting participations therein), that Lender will make a notation
thereon of all Loans evidenced by that Note and all principal payments
previously made thereon and of the date to which interest thereon has
been paid; provided, however, that the failure to make (or any error in
the making of) a notation of any Loan made under such Note shall not
limit or otherwise affect the obligations of the Company hereunder or
under such Note with respect to any Loan or any payments of principal
or interest on such Note.
2.6 USE OF PROCEEDS.
A. LOANS. Subject to subsection 2.6B, the proceeds of the Loans shall
be applied by the Company for the general corporate purposes of the Company.
B. MARGIN REGULATIONS. No portion of the proceeds of any Loan under
this Agreement shall be used by any Loan Party or any of its Subsidiaries in any
manner that might cause the Loan to violate Regulation G, Regulation U,
Regulation T or Regulation X of the Board of Governors of the Federal Reserve
System or any other regulation of such Board or to violate the Exchange Act, in
each case as in effect on the date or dates of the making of such Loan.
2.7 SPECIAL PROVISIONS GOVERNING EURODOLLAR RATE LOANS.
Notwithstanding any other provision of this Agreement to the contrary,
the following provisions shall govern with respect to the Eurodollar Rate Loans
as to the matters covered:
A. DETERMINATION OF APPLICABLE INTEREST RATE. As soon as practicable
after 10:00 A.M. (New York time) on each Interest Rate Determination Date, the
Agent shall determine (which determination shall, absent manifest error, be
final, conclusive and binding upon all parties) the interest rate that shall
apply to the Eurodollar Rate Loans for which an interest rate is then being
determined for the applicable Interest Period and shall promptly give notice
thereof (in writing or by telephone confirmed in writing) to the Company and
each Lender.
B. INABILITY TO DETERMINE APPLICABLE INTEREST RATE. In the event that
the Agent shall have determined (which determination shall absent manifest error
be final and conclusive and binding upon all parties hereto), on any Interest
Rate Determination Date with respect to any Eurodollar Rate Loans, that by
reason of circumstances affecting the interbank Eurodollar market
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adequate and fair means do not exist for ascertaining the interest rate
applicable to such Loans on the basis provided for in the definition of Adjusted
Eurodollar Rate, the Agent shall on such date give notice (by telefacsimile or
by telephone confirmed in writing) to the Company and each Lender of such
determination, whereupon (i) no Loans may be made as, or converted to Eurodollar
Rate Loans until such time as the Agent notifies the Company and the Lenders
that the circumstances giving rise to such notice no longer exist and (ii) any
Notice of Borrowing or Notice of Continuation given by the Company with respect
to the Loans in respect of which such determination was made shall be deemed to
contain a request that such Loans be made as or converted to Base Rate Loans.
C. ILLEGALITY OR IMPRACTICABILITY OF EURODOLLAR RATE LOANS. In the
event that on any date any Lender shall have determined in good faith (which
determination shall be final and conclusive and binding upon all parties hereto
but shall be made only after consultation with the Company and the Agent) that
the making, maintaining or continuation of its Eurodollar Rate Loans (i) has
become unlawful as a result of compliance by such Lender in good faith with any
law, treaty, governmental rule, regulation, guideline or order (or would
conflict with any such treaty, governmental rule, regulation, guideline or order
not having the force of law even though the failure to comply therewith would
not be unlawful) or (ii) has become impracticable, or would cause such Lender
material hardship, as a result of contingencies occurring after the date of this
Agreement which materially and adversely affect the interbank Eurodollar market,
or the position of such Lender in that market, then, and in any such event, such
Lender shall be an "AFFECTED LENDER" and it shall on that day give notice (by
telefacsimile or by telephone confirmed in writing) to the Company and the Agent
of such determination (which notice the Agent shall promptly transmit to each
other Lender). Thereafter (a) the obligation of the Affected Lender to make
Loans as, or to convert Loans to, Eurodollar Rate Loans shall be suspended until
such notice shall be withdrawn by the Affected Lender, (b) to the extent such
determination by the Affected Lender relates to a Eurodollar Rate Loan then
being requested by the Company to be made or continued hereunder, the Affected
Lender shall make such Loan as, or convert such Loan to, as applicable, a Base
Rate Loan, (c) the Affected Lender's obligation to maintain its outstanding
Eurodollar Rate Loans (the "AFFECTED LOANS") shall be terminated at the earlier
to occur of the expiration of the Interest Period then in effect with respect to
the Affected Loans or when required by law and (d) the Affected Loans shall
automatically convert into Base Rate Loans on the date of such termination.
Except as provided in the immediately preceding sentence, nothing in this
subsection 2.7C shall affect the obligation of any Lender other than an Affected
Lender to make or maintain Loans as, or to convert Loans to, Eurodollar Rate
Loans in accordance with the terms of this Agreement. Once the conditions
causing a Lender to be an Affected Lender no longer exist, such Lender shall,
promptly after it becomes aware thereof, withdraw the notice that it is an
Affected Lender by giving notice (by telecopy or by telephone confirmed in
writing) to the Company and the Agent and such Lender's obligations to make
Eurodollar Rate Loans hereunder shall be immediately reinstated.
D. COMPENSATION FOR BREAKAGE OR NON-COMMENCEMENT OF INTEREST PERIODS.
The Company shall compensate each Lender, upon written request by that Lender
(which request shall set forth in reasonable detail the basis for requesting
such amounts), for all reasonable losses, expenses and liabilities (including
any interest paid by that Lender to lenders of funds borrowed
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by it to make or carry its Eurodollar Rate Loans and any loss, expense or
liability sustained by that Lender in connection with the liquidation or
re-employment of such funds) which that Lender may sustain: (i) if for any
reason (other than a default by that Lender) a borrowing or continuation of any
Eurodollar Rate Loan does not occur on a date specified therefor in a Notice of
Borrowing or a Notice of Continuance, as applicable, or a telephonic request for
borrowing, or a conversion to or continuation of any Eurodollar Rate Loan does
not occur on the date specified therefor, (ii) if any prepayment or conversion
of any of its Eurodollar Rate Loans occurs on a date that is not the last day of
an Interest Period applicable to that Loan, (iii) if any prepayment (including
any prepayment pursuant to subsection 2.5B(i)) or other principal payment of any
of its Eurodollar Rate Loans is not made on any date specified in a notice of
prepayment given by the Company or (iv) as a consequence of any other default by
the Company in the repayment of its Eurodollar Rate Loans when required by the
terms of this Agreement.
E. BOOKING OF EURODOLLAR RATE LOANS. Any Lender may make, carry or
transfer Eurodollar Rate Loans at, to, or for the account of any of its branch
offices or the office of an Affiliate of that Lender.
F. ASSUMPTIONS CONCERNING FUNDING OF EURODOLLAR RATE LOANS. Calculation
of all amounts payable to a Lender under this subsection 2.7 and under
subsection 2.8A shall be made as though that Lender had actually funded each of
its relevant Eurodollar Rate Loans through the purchase of a Eurodollar deposit
bearing interest at the rate obtained pursuant to clause (i) of the definition
of Adjusted Eurodollar Rate in an amount equal to the amount of such Eurodollar
Rate Loan and having a maturity comparable to the relevant Interest Period and
through the transfer of such Eurodollar deposit from an offshore office of that
Lender to a domestic office of that Lender in the United States of America;
provided, however, that each Lender may fund each of its Eurodollar Rate Loans
in any manner it sees fit and the foregoing assumptions shall be utilized only
for the purposes of calculating amounts payable under this subsection 2.7 and
under subsection 2.8A.
2.8 INCREASED COSTS; TAXES; CAPITAL ADEQUACY.
A. COMPENSATION FOR INCREASED COSTS AND TAXES. Subject to the
provisions of subsection 2.8B (which shall be controlling with respect to the
matters covered thereby), in the event that any Lender shall determine (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto) that any law, treaty or governmental rule, regulation
or order, or any change therein or in the interpretation, administration or
application thereof (including the introduction of any new law, treaty or
governmental rule, regulation or order), or any determination of a Governmental
Authority, in each case that becomes effective after the date hereof, or
compliance by such Lender with any guideline, request or directive issued or
made after the date hereof by any central bank or other Governmental Authority
or quasi-governmental authority (whether or not having the force of law):
(i) subjects such Lender (or its applicable lending office) to
any additional Tax (other than any Tax on the overall net income of
such Lender) with respect to this Agreement or any of its obligations
hereunder or any payments to such Lender (or its
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applicable lending office) of principal, interest, fees or any other
amount payable hereunder;
(ii) imposes, modifies or holds applicable any reserve
(including any marginal, emergency, supplemental, special or other
reserve), special deposit, compulsory loan, FDIC insurance or similar
requirement against assets held by, or deposits or other liabilities in
or for the account of, or advances or loans by, or other credit
extended by, or any other acquisition of funds by, any office of such
Lender (other than any such reserve or other requirements with respect
to Eurodollar Rate Loans that are reflected in the definition of
Adjusted Eurodollar Rate); or
(iii) imposes any other condition (other than with respect to
a Tax matter) on or affecting such Lender (or its applicable lending
office) or its obligations hereunder or the interbank Eurodollar
market;
and the result of any of the foregoing is to increase the cost to such Lender of
agreeing to make, making or maintaining Loans hereunder or to reduce any amount
received or receivable by such Lender (or its applicable lending office) with
respect thereto; then, in any such case, the Company shall promptly pay to such
Lender, upon receipt of the statement referred to in the next sentence, such
additional amount or amounts (in the form of an increased rate of, or a
different method of calculating, interest or otherwise as such Lender in its
sole discretion shall determine) as may be necessary to compensate such Lender
for any such increased cost or reduction in amounts received or receivable
hereunder. Such Lender shall deliver to the Company (with a copy to the Agent) a
written statement, setting forth in reasonable detail the basis for calculating
the additional amounts owed to such Lender under this subsection 2.8A, which
statement shall be conclusive and binding upon all parties hereto absent
manifest error. No Person shall be entitled to receive a payment pursuant to
this subsection 2.8A for costs incurred by such Person more than 180 days prior
to delivery of such statement.
B. WITHHOLDING OF TAXES.
(i) Payments to Be Free and Clear. All sums payable by the
Company under this Agreement and the other Loan Documents shall be paid
free and clear of and (except to the extent required by law) without
any deduction or withholding on account of any Tax (excluding in the
case of each Lender and the Agent, Taxes imposed on its income, and
franchise and similar Taxes imposed on it, by a jurisdiction under the
laws of which such Lender is organized or in which its principal
executive office is located or in which its applicable lending office
for funding or booking its Loans hereunder is located) imposed, levied,
collected, withheld or assessed by or within the United States of
America or any political subdivision in or of the United States of
America.
(ii) Grossing-up of Payments. If the Company or any other
Person is required by law to make any deduction or withholding on
account of any such Tax from any sum paid or payable by the Company to
the Agent or any Lender under any of the Loan Documents:
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(a) the Company shall notify the Agent of any such
requirement or any change in any such requirement as soon as
the Company becomes aware of it;
(b) the Company shall pay any such Tax before the
date on which penalties attach thereto, such payment to be
made (if the liability to pay is imposed on the Company) for
its own account or (if that liability is imposed on the Agent
or such Lender, as the case may be) on behalf of and in the
name of the Agent or such Lender;
(c) the sum payable by the Company in respect of
which the relevant deduction, withholding or payment is
required shall be increased to the extent necessary to ensure
that, after the making of that deduction, withholding or
payment, the Agent or such Lender, as the case may be,
receives on the due date a net sum equal to what it would have
received had no such deduction, withholding or payment been
required or made; and
(d) within 30 days after paying any sum from which it
is required by law to make any deduction or withholding, and
within 30 days after the due date of payment of any Tax which
it is required by clause (b) above to pay, the Company shall
deliver to the Agent evidence satisfactory to the other
affected parties of such deduction, withholding or payment and
of the remittance thereof to the relevant taxing or other
authority;
provided, however, that no such additional amount shall be required to
be paid to any Lender under clause (c) above except to the extent that
any change after the date hereof (in the case of each Lender listed on
the signature pages hereof) or after the date such Lender became a
Lender pursuant to subsection 8.1 (in the case of each other Lender) in
any such requirement for a deduction, withholding or payment as is
mentioned therein shall result in an increase in the rate of such
deduction, withholding or payment from that in effect at the date of
this Agreement (in the case of each Lender listed on the signature
pages hereof) or at the date such Lender became a Lender pursuant to
subsection 8.1 (in the case of each other Lender) as the case may be,
in respect of payments to such Lender.
(iii) U.S. Tax Certificates. Each Lender that is organized
under the laws of any jurisdiction other than the United States of
America or any state or other political subdivision thereof shall
deliver to the Agent for transmission to the Company, on or prior to
the Closing Date (in the case of each Lender listed on the signature
pages hereof) or on the date it becomes a Lender pursuant to subsection
8.1 (in the case of each other Lender), and at such other times as may
be necessary in the determination of the Company or the Agent (each in
the reasonable exercise of its discretion), (i) such certificates,
documents or other evidence, properly completed and duly executed by
such Lender (including Internal Revenue Service Form 1001 or Form 4224
or any other certificate or statement of exemption required by Treasury
Regulations Section 1.1441-4(a) or Section 1.1441-6(c) or any successor
thereto) or (ii) a Form W-8 (or any successor form thereto), together
with an annual certificate stating that such Lender (or beneficial
owner,
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as the case may be) (w) is not a "bank" within the meaning of Section
881(c) (3)(A) of the Code, (x) is not a 10-percent shareholder (within
the meaning of Section 871(h)(3)(B) of the Code) of the Company, (y) is
not a controlled foreign corporation related to the Company (within the
meaning of Section 871(h)(4)(B) of the Code) and (z) is not acting as a
conduit entity (within the meaning of U.S. Treasury Regulation Section
1.881-3) to establish that such Lender is not subject to deduction or
withholding of United States federal income tax under Section 1441 or
1442 of the Internal Revenue Code or otherwise (or under any comparable
provisions of any successor statute) with respect to any payments to
such Lender of principal, interest, fees or other amounts payable under
any of the Loan Documents. The Company shall not be required to pay any
additional amount to any Lender under clause (c) of subsection 2.8B(ii)
if such Lender shall have failed to satisfy the requirements of the
immediately preceding sentence or if any deduction, withholding or
payment is required by reason of the failure by such Lender (or, if
such Lender is not the beneficial owner of the Loan, such beneficial
owner) to comply with applicable certification, information,
documentation or other reporting requirements (including, without
limitation, the failure to timely submit a Form 1001, 4224 or W-8
(together with the annual certificate required under clause (ii)
above), as applicable) concerning the nationality, residence, identity
or connections with the United States of America of such Lender (or
beneficial owner, as the case may be) if such compliance is required by
statute or regulation of the United States of America as a precondition
to relief or exemption from such deduction, withholding or payment;
provided, however, that if such Lender shall have satisfied such
requirements on the Closing Date (in the case of each Lender listed on
the signature pages hereof) or on the date it becomes a Lender (in the
case of each other Lender), nothing in this subsection 2.8B(iii) shall
relieve Company of its obligation to pay any additional amounts
pursuant to clause (c) of subsection 2.8B(ii) in the event that, as a
result of any change in any applicable law, treaty or governmental
rule, regulation or order, or any change in the interpretation,
administration or application thereof, such Lender is no longer
properly entitled to deliver forms, certificates or other evidence at a
subsequent date establishing the fact that such Lender is not subject
to withholding as described in the immediately preceding sentence.
(iv) If the Company pays any additional amount under this
subsection 2.8B to a Lender and such Lender determines in its sole
discretion that it has actually received or realized as a result of
such payment any refund or any reduction of, or credit against, its
Taxes in or with respect to the taxable year in which the additional
amount is paid, such Lender shall pay to the Company an amount that the
Lender shall, in its sole discretion, determine is equal to the net
benefit, after tax, which was obtained by the Lender in such year as a
consequence of such refund, reduction or credit.
C. CAPITAL ADEQUACY ADJUSTMENT. If any Lender shall have determined
that the adoption, effectiveness, phase-in or applicability of any law, rule or
regulation (or any provision thereof) regarding capital adequacy, or any change
therein or in the interpretation or administration thereof by any Governmental
Authority, including any central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or its
applicable lending office) with any guideline, request or directive regarding
capital adequacy
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(whether or not having the force of law) of any such Governmental Authority, has
or would have the effect of reducing the rate of return on the capital of such
Lender or any corporation controlling such Lender as a consequence of, or with
reference to, such Lender's Loans or Commitment or participations herein or
other obligations hereunder with respect to the Loans to a level below that
which such Lender or such controlling corporation could have achieved but for
such adoption, effectiveness, phase-in, applicability, change or compliance
(taking into consideration the policies of such Lender or such controlling
corporation with regard to capital adequacy), then from time to time, within
five Business Days after receipt by the Company from such Lender of the
statement referred to in the next sentence, the Company shall pay to such Lender
such additional amount or amounts as will compensate such Lender or such
controlling corporation on an after-tax basis for such reduction. Such Lender
shall deliver to the Company (with a copy to the Agent) a written statement,
setting forth in reasonable detail the basis of the calculation of such
additional amounts, which statement shall be conclusive and binding upon all
parties hereto absent manifest error. No Person shall be entitled to receive a
payment pursuant to this subsection 2.8C for costs incurred by such Person more
than 180 days prior to delivery of such statement.
D. OBLIGATION OF THE LENDERS TO MITIGATE. Each Lender agrees that, as
promptly as practicable after the officer of such Lender responsible for
administering the Loans becomes aware of the occurrence of an event or the
existence of a condition that would cause such Lender to become an Affected
Lender or that would entitle such Lender to receive payments under this
subsection 2.8, it will, to the extent not inconsistent with the internal
policies of such Lender and any applicable legal or regulatory restrictions, use
reasonable efforts (i) to make, fund or maintain the Commitment of such Lender
or the affected Loans of such Lender through another lending office of such
Lender, or (ii) take such other measures as such Lender may deem reasonable, if
as a result thereof the circumstances which would cause such Lender to be an
Affected Lender would cease to exist or the additional amounts which would
otherwise be required to be paid to such Lender pursuant to this subsection 2.8
would be materially reduced and if, as determined by such Lender in its sole
discretion, the making, funding or maintaining of such Commitment or Loans
through such other lending office or in accordance with such other measures, as
the case may be, would not otherwise materially adversely affect such Commitment
or Loans or the interests of such Lender; provided, however, that such Lender
will not be obligated to utilize such other lending office pursuant to this
subsection 2.8D unless the Company agrees to pay all incremental expenses
incurred by such Lender as a result of utilizing such other lending office as
described in clause (i) above. A certificate as to the amount of any such
expenses payable by the Company pursuant to this subsection 2.8D (setting forth
in reasonable detail the basis for requesting such amount) submitted by such
Lender to the Company (with a copy to the Agent) shall be conclusive absent
manifest error.
2.9 REPLACEMENT OF A LENDER.
A. AFFECTED LENDERS. In the event that any Lender shall give notice to
the Company that such Lender is an Affected Lender or that such Lender is
entitled to receive payments under subsection 2.8 or in the event that any
Lender is unable to fund Loans as described in subsection 3.2B(iv), and unless
the circumstances which have caused such payments or which cause such
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Lender to be unable to fund Loans are no longer in effect, the Company may, if
such Lender shall fail to withdraw such notice within five Business Days after
the Company's request for such withdrawal, upon ten days' prior written notice
by the Company to the Agent and such Lender, elect to cause such Lender to
assign its Loans and Commitments in full in accordance with the provisions of
subsection 8.1A to an Eligible Assignee designated by the Company and reasonably
satisfactory to the Agent; provided that at any time prior to the consummation
of any such assignment, the Agent may (but shall have no obligation to)
designate another Eligible Assignee in substitution for the Eligible Assignee
designated by the Company, in which event the applicable Lender shall assign its
Loans and Commitments to such other Eligible Assignee.
B. DEFAULTING LENDERS. In the event that any Lender has defaulted in
its obligations to fund Loans pursuant to subsection 2.2A and such default is
continuing, the Company may, if such Lender shall fail to cure the default
within five Business Days after the Company's request that it cure such default,
elect to cause such Lender to assign its Loans and Commitments in full to an
Eligible Assignee in accordance with the provisions of subsection 8.1A.
C. REPLACEMENT LENDERS. (i) At the time of any replacement pursuant to
this subsection 2.9, the Eligible Assignee (the "REPLACEMENT LENDER") replacing
the applicable Lender (the "REPLACED LENDER") shall enter into one or more
assignment agreements, in form and substance satisfactory to the Agent, pursuant
to which the Replacement Lender shall acquire all of the Commitments and
outstanding Loans of the Replaced Lender and, in connection therewith, shall pay
to the Replaced Lender in respect thereof an amount equal to the sum of (A) an
amount equal to the principal of, and all accrued interest on, all outstanding
Loans of the Replaced Lender, and (B) an amount equal to all accrued, but
theretofore unpaid, fees owing to the Replaced Lender; and
(ii) all obligations of the Company owing to the Replaced
Lender (excluding those specifically described in clause (i) above in
respect of which the assignment purchase price has been, or is
concurrently being, paid) shall be paid by the Company in full to such
Replaced Lender concurrently with such replacement.
Upon the execution of the respective assignment documentation, the payments of
amounts referred to in clauses (i) and (ii) above and, if so requested by the
Replacement Lender, the delivery of the appropriate Note or Notes executed by
the Company, the Replacement Lender shall become a Lender hereunder and the
Replaced Lender shall cease to constitute a Lender hereunder, except with
respect to Company's obligations regarding the indemnification provisions under
this Agreement, which will survive for the benefit of such Replaced Lender.
2.10 ADDITION AND DESIGNATION OF MORTGAGED PROPERTIES.
A. ADDITION OF MORTGAGED PROPERTIES. The Company may, with the prior
written approval of the Agent, which approval may be granted, withheld,
conditioned or delayed in the Agent's sole discretion, add one or more
Properties which are not Mortgaged Properties immediately prior to the time of
such addition (each, an "ADDITIONAL MORTGAGED PROPERTY") as Mortgaged
Properties; provided that, in any event:
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(i) such Additional Mortgaged Property shall be or will be
owned either by the Company or, if approved in writing by the Agent, a
Mortgaged Property Subsidiary; provided that such Mortgaged Property
Subsidiary shall have executed a counterpart of the Subsidiary Guaranty
and the Security Agreement;
(ii) each Additional Mortgaged Property shall include the
entire fee interest or leasehold interest pursuant to a Ground Lease in
a full service hotel, all-suite or limited service hotel, as the case
may be, located in the United States of America and otherwise be of a
type, quality and character consistent with the Company's business plan
and strategy;
(iii) at least 30 days (or such shorter period as shall be
acceptable to the Agent) before the proposed Addition Date, the
Company, at its expense, shall deliver to the Agent the Property
Information with respect to such Additional Mortgaged Property, which
Property Information shall be satisfactory in form and substance to the
Agent, in its sole discretion;
(iv) if such Additional Mortgaged Property is the subject of
an acquisition, all Investments and Guaranties to be made by the
Company and its Subsidiaries in connection with the proposed
acquisition shall be permitted pursuant to subsections 6.3 and 6.4;
(v) if such Additional Mortgaged Property is owned by a
Mortgaged Property Subsidiary, such Mortgaged Property Subsidiary shall
have entered into a Servicing Agreement with the Company and, if a
Liquor License exists with respect to such Additional Mortgaged
Property or is required thereafter, the holders thereof shall have
entered into a Liquor Operation Servicing Agreement, in each case
substantially in the form delivered on or before the Closing Date
pursuant to subsection 3.1H or in such other form as may be reasonably
acceptable to the Agent, which shall provide for Management Fees in
amounts and on other terms satisfactory to the Agent; and
(vi) on or before such Addition Date, the Company, at its
expense, shall deliver to the Agent the following with respect to the
applicable Additional Mortgaged Property:
(a) an Officer's Certificate of the Company setting
forth a schedule of insurance with respect to each of the
insurance policies required pursuant to subsection 5.10, and
the Agent shall be satisfied with the nature and scope of such
insurance policies and each such insurance policy shall name
the Agent on behalf of the Lenders, as loss payee, or as
additional insured, as the case may be,
(b) a statement of Property Gross Revenues and
Operating Expenses and any other expenses with respect to such
Additional Mortgaged Property for the 12 most recently
completed calendar months ending not less than 10 days before
such Addition Date, in reasonable detail satisfactory to the
Agent and certified by the Authorized Officer of the Company
to the effect provided in subsection 6.1(i), mutatis mutandis,
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(c) an Addition Certificate in reasonable detail
satisfactory to the Agent and together with the financial
statements and other information used by the Company to
calculate the Borrowing Base and certified by the Authorized
Officer of the Company and, if applicable, the Mortgaged
Property Subsidiary,
(d) supplements to the Schedules to this Agreement,
the Environmental Indemnity, the Security Agreement and the
Liquor License Agreement reflecting the designation of such
Additional Mortgaged Property, which Schedules shall be
acceptable to the Agent,
(e) each of the other documents and satisfy each of
the other conditions set forth in paragraphs F, G, I, J and K
of subsection 3.1, mutatis mutandis, with respect to such
Additional Mortgaged Property,
(f) an Appraisal with respect to such Additional
Mortgaged Property, which Appraisal shall be satisfactory in
form and substance to the Agent,
(g) executed or certified, conformed copies of any
applicable Acquisition Agreement, and such other documents,
certificates and opinions executed and delivered by or on
behalf of the Company and any of its Subsidiaries as the Agent
or any Lender may reasonably request,
(h) if the Additional Mortgaged Property includes a
leasehold interest, original counterparts of estoppel
certificates and agreements and subordination and
nondisturbance agreements with respect to each of the
applicable Ground Leases, satisfactory in form and substance
to the Agent, and duly executed and acknowledged by each
lessor under such Ground Lease, and
(i) payment pursuant to subsection 8.2 of the
expenses incurred by the Agent in connection with the matters
subject to this subsection 2.10.
B. DESIGNATION OF MORTGAGED PROPERTIES. The Company may designate any
Mortgaged Property as a Designated Mortgaged Property by delivering a written
notice of such designation to the Agent. Upon receipt of such notice, the
applicable Mortgaged Property shall be a Designated Mortgaged Property for all
purposes of this Agreement, including without limitation, the calculation of the
Borrowing Base and, if applicable, the Designated Average Life.
C. REMOVAL OF DESIGNATED PROPERTIES. The Company may, from time to time
after the Closing Date, deliver to the Agent written notice that it elects to
exclude the Property Amount of a specified Mortgaged Property from the
calculation of the Borrowing Base and the Designated Average Life; provided
that, after giving effect to such exclusion, the Borrowing Base shall be at
least equal to the Total Utilization. Upon receipt by the Agent of such notice,
the specified Mortgaged Property shall be excluded from the calculation of the
Borrowing Base and, if applicable, the Designated Average Life unless the
Borrower elects to again designate such Mortgaged Property as provided in
subsection 2.10B, but such Property shall remain a Mortgaged
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Property for all purposes of this Agreement unless such Property is Released
pursuant to subsection 2.11.
D. ADDITION OF CERTAIN PROPERTIES AFTER CLOSING. The Agent, each Lender
and the Company hereby agree that if the Company delivers, on or prior to
December 31, 1996, each item required to be delivered pursuant to subsections
2.10A(vi)(c), (d) and (e) (to the extent such subsection 2.10A(vi)(e) relates to
paragraphs F and I of subsection 3.1) with respect to the Miami Airport West
Amerisuites Property or the Cleveland Independence Amerisuites Property, then
Agent shall approve the addition of the Miami Airport West Amerisuites Property
or the Cleveland Independence Amerisuites Property, as applicable, as an
Additional Mortgaged Property pursuant to subsection 2.10A.
2.11 RELEASES OF MORTGAGED PROPERTIES.
A. MORTGAGED PROPERTIES. At any time and from time to time after the
Closing Date, in connection with the sale or other permanent disposition of any
Mortgaged Property or mandatory prepayments made pursuant to subsection 2.5B(iv)
or otherwise, the Company may obtain a Release of the Lien of the Security
Documents in respect of all, but except as provided below not a portion of, such
Mortgaged Property subject to the following terms and conditions on the
applicable Release Date; provided that no Mortgaged Property shall be Released
within three months of the Addition Date of such Mortgaged Property:
(i) the Company shall have delivered written notice to the
Agent (a) not less than 30 days (or such shorter period as shall be
acceptable to the Agent) prior to the proposed Release Date specifying
the proposed Release Date and such Mortgaged Property and (b) not less
than five (5) days prior to the actual Release Date specifying such
actual Release Date and such Mortgaged Property;
(ii) no Event of Default or Potential Event of Default shall
have occurred and be continuing as of the date of the delivery of the
notice pursuant to clause (i) above (other than any which will be cured
by such Release and, if applicable, the application of proceeds in
connection therewith) and no Event of Default or Potential Event of
Default shall be continuing as of the Release Date after giving effect
to such Release;
(iii) concurrently with such Release, the Borrowing Base shall
be recomputed by giving effect to such Release;
(iv) the Company shall have prepaid the Loans in an amount
equal to the Release Price in respect of such Mortgaged Property;
(v) the Company shall have delivered to the Agent and the
Lenders an Officer's Certificate dated the Release Date, certifying as
to the matters referred to in clause (ii) above and a Borrowing Base
Certificate setting forth in reasonable detail the computation of the
Borrowing Base as of the Release Date and giving effect to such
Release;
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(vi) the Company, at its sole cost and expense, shall have (a)
with respect to any partial Release of the Lien of the Security
Documents in respect of such Mortgaged Property, delivered to the Agent
one or more endorsements to the Title Policy in respect of such
Mortgaged Property insuring that, after giving effect to such partial
Release and with respect to the portion of such Mortgaged Property
which is not being Released, the Liens created by the applicable
Mortgage and insured under such Title Policy are in full force and
effect and unaffected by such partial Release as to the remaining
portion of such Mortgaged Property, (b) prepared any and all documents
and instruments necessary to effect such Release, all of which shall be
satisfactory in form and substance to the Agent, and (c) paid all
reasonable costs and expenses incurred by the Agent and its counsel in
connection with the review, execution and delivery of the release
documents; and
(vii) all other proceedings taken or to be taken in connection
with such Release and all documents incidental thereto shall be
satisfactory in form and substance to the Agent and the Agent's
counsel. The Agent and such counsel shall have received all such
counterpart originals or certified copies of such documents as the
Agent may reasonably request and counsel for the Agent shall have
received such documents and evidence that such counsel shall require in
order to establish compliance with the conditions set forth in this
subsection.
The Company may obtain a Release of the Lien of the Security Documents in
respect of a portion of any Mortgaged Property, if title to such portion has
been permanently Taken, by complying with the foregoing terms and conditions on
the applicable Release Date.
B. EFFECT OF RELEASE. Upon any Release of any Mortgaged Property in
accordance with this subsection 2.11, such Property shall cease to be a
Mortgaged Property for the purposes of this Agreement (other than for purposes
of any indemnity contained herein or in any of the other Loan Documents to the
extent such indemnification applies to such Mortgaged Property, prior to giving
effect to such Release), including subsections 4.2G and 5.8 (to the extent such
subsections apply to such Mortgaged Property and incorporate the Environmental
Indemnity) and subsection 8.3.
C. REVISED SCHEDULES. Upon the Release of any Mortgaged Property
pursuant to this subsection 2.11, the Company shall deliver to the Agent revised
Schedules to this Agreement, the Environmental Indemnity, the Security Agreement
and the Liquor License Agreement, as applicable, reflecting the Release of such
Mortgaged Property, which Schedules shall be satisfactory to the Agent and shall
become effective upon the date of such Release.
SECTION 3.
CONDITIONS PRECEDENT
3.1 CONDITIONS TO EFFECTIVENESS.
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The obligations of Lenders to make Loans hereunder and to pay the
Purchase Price hereunder are subject to the satisfaction of the following
conditions:
A. CORPORATE DOCUMENTS. On or before the Closing Date, each Loan Party
shall deliver or cause to be delivered to the Agent (with, except in the case of
the Notes, sufficient originally executed copies for each Lender and the Agent's
counsel) the following, each, unless otherwise noted, dated the Closing Date:
(i) executed originals of this Agreement, the Security
Agreement, the Intellectual Property License Agreement, the
Environmental Indemnity, a Note in favor of each Lender requesting a
Note under subsection 2.2D(iv) and each other Loan Document to which it
is a party;
(ii) certified copies of its Certificate of Incorporation,
together with (a) a good standing certificate (including verification,
where generally available, of tax good standing) from the Secretary of
State (or similar official) of the State of its jurisdiction of
incorporation and each other state or other jurisdiction in which a
Mortgaged Property owned or leased by such Loan Party is located), each
dated a recent date prior to the Closing-Date and (b) a telegram from
each such Secretary of State (or similar official) certifying as to
the foregoing matters and dated the Closing Date;
(iii) copies of its Bylaws, certified as of the Closing Date
by its corporate secretary or an assistant secretary;
(iv) resolutions of its Board of Directors approving and
authorizing the execution, delivery and performance of each Loan
Document and Related Document to which it is a party, and any other
agreements, documents, instruments and certificates required to be
executed by such Loan Party in connection therewith, certified as of
the Closing Date by its corporate secretary or an assistant secretary
as being in full force and effect without modification or amendment;
and
(v) signature and incumbency certificates of its officers
executing this Agreement and the other Loan Documents to which it is a
party.
B. AUDITOR'S PROCEDURES LETTER. On or before the Closing Date, the
Company shall have delivered executed copies of a procedures letter prepared by
Arthur Andersen LLP, in form and substance reasonably satisfactory to the Agent.
C. EXISTING CONSOLIDATED LOAN DOCUMENTS. On or before the Closing Date,
Bankers shall deliver or cause to be delivered to the Agent, on behalf of the
Lenders, the following:
(i) the original Existing Consolidated Note;
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(ii) an original endorsement to the Existing Consolidated Note
in favor of the Agent duly executed on behalf of Bankers and in form
and substance reasonably satisfactory to the Agent;
(iii) with respect to each mortgage or deed of trust securing
the Existing Consolidating Loan, an original Assignment of Deed of
Trust or Assignment of Mortgage and other Document of Record, as the
case may be, duly executed and acknowledged on behalf of Bankers, as
assignor, in favor of the Agent, as assignee, and in form and
substance, and in a number of counterparts, reasonably satisfactory to
the Agent;
(iv) an original Assignment of Existing Consolidated Loan
Documents duly executed by Bankers, as assignor, in favor of the Agent,
as assignee, and in form and substance, and in a number of
counterparts, reasonably satisfactory to the Agent; and
(v) for each applicable Uniform Commercial Code UCC-1
Financing Statement included in the Existing Loan Documents, a Uniform
Commercial Code UCC-2 or UCC-3 Assignment, as the case may be, duly
executed on behalf of Bankers, as assignor, in favor of the Agent, as
assignee, and in form and substance reasonably satisfactory to the
Agent.
D. FINANCIAL STATEMENTS; CERTIFICATES. On or before the Closing Date,
the Company shall have delivered to the Agent, on behalf of the Lenders, the
following:
(i) the financial statements referred to in subsection 4.3;
(ii) a Compliance Certificate dated as of the Closing Date
with respect to the twelve months ending May 31, 1996;
(iii) a Borrowing Base Certificate dated as of the Closing
Date; and
(iv) an Officer's Certificate of the Company certifying that:
(a) the Company has a minimum Market Equity
Capitalization as of June 21, 1996 of $250,000,000; and
(b) the ratio of (x) Consolidated Total Indebtedness
to (y) the sum of Market Equity Capitalization and
Consolidated Total Indebtedness, expressed as a percentage, is
not greater than 60%.
E. NO MATERIAL ADVERSE EFFECT. Since December 31, 1995, in the sole
opinion of the Agent, no Material Adverse Effect shall have occurred on or
before the Closing Date.
F. SECURITY INTERESTS. On or before the Closing Date, the Company shall
have taken or caused to be taken all such actions as may be necessary or
desirable to give the Agent a valid, enforceable and perfected first priority
Lien on or first priority security interest in the Collateral, subject only to
Liens permitted pursuant to subsection 6.2A, it being understood by each Lender
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that perfection against Persons other than the Company of such Lien on the Rents
may in certain jurisdictions require the Agent to have possession of the Rents.
Such actions shall include the following:
(i) the delivery to the Agent of fully executed and
acknowledged counterparts of the Mortgage, the Assignment of Rents and
Leases, the Liquor License Agreement, the Security Agreement, and all
other Security Documents with respect to the Mortgaged Properties and
the other Collateral, and the delivery of evidence satisfactory to the
Agent that counterparts of the Mortgage, the Assignment of Rents and
Leases and all other documents the Agent desires to have recorded have
been or will be recorded in all places necessary or desirable to create
and maintain (a) valid and enforceable first priority Liens on the fee
simple interest of the Company, as applicable, in the Mortgaged
Properties in favor of the Agent, on behalf of the Agent and the
Lenders, as mortgagee (or as beneficiary in those jurisdictions where
the Lien is granted to a trustee for the benefit of the Agent), (b)
valid and enforceable first priority Liens on the Rents and Leases in
favor of the Agent, on behalf of the Agent and the Lenders, (c) valid
and enforceable first priority Liens in all fixtures at the Mortgaged
Properties, in favor of the Agent, on behalf of the Agent and the
Lenders, as secured party and (d) valid and enforceable first priority
Liens in all other items of Collateral in favor of the Agent on behalf
of the Agent and the Lenders;
(ii) (a) the delivery to the Agent for filing pursuant to the
Security Documents of properly executed financing statements under the
Uniform Commercial Code (or any equivalent or similar legislation), or
any other documents required to be filed by other Applicable Laws,
satisfactory in form and substance to the Agent in each jurisdiction as
may be necessary (in the Agent's reasonable judgment) effectively to
perfect and maintain the security interests in the Collateral created
by such Security Documents and (b) the delivery of evidence that such
financing statements or other documents will have been or will be
recorded in all places necessary or desirable, in the reasonable
judgment of the Agent, to create and maintain valid and enforceable
first priority Liens on the Collateral in favor of the Agent, on behalf
of the Agent and the Lenders, subject only to Liens permitted pursuant
to subsection 6.2A;
(iii) the delivery to the Agent of a title report or
commitment (together with copies of all documents listed therein as
exceptions to title) dated not more than 90 days prior to the Closing
Date with respect to each Mortgaged Property and pro forma Title
Policies dated not more than 30 days prior to the Closing Date with
respect to each Mortgaged Property, each in form and substance
reasonably satisfactory to the Agent;
(iv) the delivery to the Agent of an opinion of counsel in
each state in which any Mortgaged Property is located dated the Closing
Date addressed to the Agent and the Lenders in form and substance
reasonably satisfactory to the Agent;
(v) the delivery to the Agent of the Title Policies or marked
title commitments insuring fee simple or leasehold title to each of the
Mortgaged Properties vested in the
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Company and insuring the first priority of the Liens created under the
Mortgages in an amount for each Mortgaged Property equal to not less
than (a) the most recent appraised value with respect to such Mortgaged
Property, where interstate tie-in endorsement is not available and (b)
where interstate tie-in endorsement is available, after giving effect
to such tie-in endorsement, the lesser of 70% of the aggregate most
recent appraised values of all "tied-in" Mortgaged Properties and
$100,000,000, but in any event in an amount sufficient to avoid any
co-insurance of title losses, in each case subject only to Permitted
Encumbrances, and such other title exceptions as are satisfactory to
the Agent. Such Title Policies shall be reinsured with title insurance
companies acceptable to the Agent in amounts as required by the Agent
subject to facultative reinsurance agreements in form satisfactory to
the Agent. Such Title Policies shall also contain such endorsements and
affirmative insurance provisions as the Agent may reasonably require
and to the extent the same are available in the applicable
jurisdiction, including "comprehensive" endorsements, revolving credit
endorsements, affirmative insurance against mechanic's liens,
provisions relating to construction loans in respect of the Mortgaged
Properties that are to be renovated, survey exceptions, violations of
covenants, conditions and restrictions, encroachments, gap insurance,
contiguity endorsements, tie-in endorsements, access endorsements,
"LAST-DOLLAR" endorsements, survey endorsements, contingent loss/first
loss endorsements, variable rate mortgage endorsements, leasehold
endorsement for Mortgaged Properties that are leaseholds, and any other
endorsements required by the Agent to address issues raised by the
Agent's due diligence or as a matter of Applicable Law to the extent
such endorsement is available at commercially reasonable cost. In
addition, the Company shall have paid to the Title Company or to the
appropriate Governmental Authority all expenses and premiums of the
Title Company in connection with the issuance of such Title Policies or
in connection with any Loan hereunder and an amount equal to the
recording and stamp taxes (including mortgage recording and intangible
and similar Taxes) based on an amount no more than the most recent
appraised value with respect to such Mortgaged Property, in each case
as most recently determined by an Appraisal approved by the Agent on or
before such determination date, payable in connection with recording
the Mortgage and the Assignment of Rents and Leases in the appropriate
county land offices or in connection with any Loans hereunder;
(vi) the delivery to the Title Company of such certificates
and affidavits as the Title Company may reasonably require in
connection with the issuance of the Title Policies;
(vii) the delivery to the Agent of a Survey with respect to
each of the Mortgaged Properties, dated or re-dated to within 120 days
prior to the Closing Date, which Surveys shall be reasonably
satisfactory in form and substance to the Agent;
(viii) the delivery to the Agent of a letter from the
applicable zoning authority with respect to each of the Mortgaged
Properties, reasonably satisfactory to the Agent stating that all
Improvements on each such Mortgaged Property have been constructed and
are being used and operated in material compliance with (a) all
applicable zoning and subdivision Applicable Laws of all Governmental
Authorities or quasi-governmental
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authorities having jurisdiction with respect to each such Mortgaged
Property, and (b) all building permits issued in respect of each such
Mortgaged Property and the certificate of occupancy for each such
Property, including a copy (if available) certified by the Company for
each such Property or other evidence satisfactory to the Agent that the
Mortgaged Properties have been constructed and are being used and
operated in material compliance with all applicable zoning and
subdivision Applicable Laws of all Governmental Authorities or
quasi-governmental authorities having jurisdiction with respect to the
Mortgaged Properties;
(ix) the delivery to the Agent pursuant to the Security
Agreement of the promissory notes or other instruments (in each case
duly endorsed to the order of the Agent, as secured party),
representing the promissory notes and other instruments, if any, to be
pledged on the Closing Date pursuant to the Security Agreement;
(x) the delivery to the Agent, to the extent available, of the
Cash Manager Cash Management Letter with respect to the Concentration
Account and Cash Management Letters for each other financial
institution at which a Deposit Account is located pursuant to the Cash
Management System, which Cash Management Letters and the Cash
Management System shall be in form and substance reasonably
satisfactory to the Agent; and
(xi) the delivery to the Agent of (a) evidence satisfactory to
the Agent that all other filings, recordings and other actions the
Agent deems necessary or advisable to establish, perfect and preserve
the Liens granted to the Agent in the Collateral shall have been made
and (b) such other evidence as the Agent may reasonably request
demonstrating compliance of such Additional Mortgaged Property with all
Applicable Laws.
G. CASUALTY, FLOOD INSURANCE AND WORKERS' COMPENSATION. On or before
the Closing Date, the Company shall have delivered to the Agent (i) duplicate
originals or true and complete copies or other evidence satisfactory to Agent of
each policy of insurance required by this Agreement evidencing (a) the issuance
of such policies, (b) the payment of all premiums payable for the period ending
not earlier than the first Anniversary and (c) coverage which meets all of the
requirements set forth in this Agreement; (ii) an Officer's Certificate dated
the Closing Date to the effect that the insurance coverage required by this
Agreement is in full force and effect, that all annual premiums therefor have
been paid and that the amount of each limit of property insurance provided for
in the policies of insurance delivered to the Agent which evidence such coverage
are sufficient to cover all cost of replacing the property and Improvements
covered thereby; and (iii) evidence satisfactory to the Agent that the Company
is insured for workers' compensation liability with a maximum deductible of
$250,000.
To the extent permitted by law, the Company hereby irrevocably waives,
releases and discharges any and all rights of action, demands and other claims
of any kind or nature against the Agent or any Lender arising from any failure
of the Agent to comply with the National Flood Insurance Act of 1968 (Pub. L.
90-448, 42 U.S.C. Sections 4001, et seq.), the Flood Disaster Protection
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Act of 1973 (Pub. L. 93-234, 42 U.S.C. Sections 4001, et seq.) or the National
Flood Insurance Reform Act of 1994 (Pub. L. 103-325), as such Acts may be
amended, modified, supplemented or replaced from time to time, including any
failure of the Agent to provide the Company with written notification within ten
days prior to the Closing Date whether any Mortgaged Property is in a special
flood hazard area or whether federal disaster relief assistance will be
available in the event of flood damage to any Mortgaged Property.
H. FRANCHISE AGREEMENTS; FRANCHISE ESTOPPEL CERTIFICATES. On or before
the Closing Date, the Company shall have delivered to the Agent (i) executed or
conformed, certified copies of each of the Franchise Agreements and all
amendments thereto entered into on or before the Closing Date that relate to the
Mortgaged Properties, as indicated on Schedule 4.4C annexed hereto, which
Franchise Agreements shall be satisfactory in form and substance to the Agent;
as of the Closing Date, the Franchise Agreements, as so amended, shall be in
full force and effect and no term or condition thereof shall have been further
amended or modified, or waived after the execution thereof; and no Person shall
have failed in any material respect to perform any material obligation or
covenant or satisfy any material condition required by the Franchise Agreements
to be performed or complied with on or before the Closing Date; and (ii)
original counterparts of estoppel certificates and consent agreements with
respect to each Franchise Agreement specified on Schedule 4.4C, satisfactory in
form and substance to the Agent, and duly executed by the franchisee with
respect to the Franchise Agreement.
I. MATERIAL LEASES; TENANT ESTOPPEL CERTIFICATES; TENANT SUBORDINATION
AGREEMENTS. On or before the Closing Date, the Company shall have delivered to
the Agent (i) executed or conformed, certified copies of each Material Lease
with respect to each Mortgaged Property and all amendments thereto and as of the
Closing Date, the Material Leases, as so amended, shall be in full force and
effect and no term or condition thereof shall have been further amended,
modified or waived after the execution thereof; and no Person shall have failed
in any material respect to perform any material obligation or covenant or
satisfy any material condition required by the Material Leases to be performed
or complied with on or before the Closing Date; and (ii) original counterparts
of estoppel certificates and consent agreements with respect to each of the
Material Leases listed on Schedule 3.1I annexed hereto, satisfactory in form and
substance to the Agent, duly executed and delivered by each Tenant party to such
Material Lease; and (iii) unless the applicable Material Lease is subordinated
to the Lien of the applicable Mortgage on terms satisfactory to the Agent, a
Tenant Subordination Agreement with respect to such Material Leases, if any,
satisfactory in form and substance to the Agent, and duly executed by each
tenant party to such Material Lease.
J. ENVIRONMENTAL AUDITS. On or before the Closing Date, the Company
shall have delivered to the Agent and Lenders evidence satisfactory to the
Lenders, in their sole discretion, that (i) there are no material pending or
threatened claims, suits, actions or proceedings arising out of or relating to
the existence of any Hazardous Materials at, in, on, from, around or under any
of the Mortgaged Properties; (ii) each such Mortgaged Property is in compliance
in all material respects with all applicable Environmental
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Laws with respect to such Mortgaged Property; and (iii) no Hazardous Materials
exist at, in, on, from, around or under any such Mortgaged Property, except in
compliance in all material respects with applicable Environmental Laws and all
other Hazardous Materials have been removed from each Mortgaged Property to the
extent required by Applicable Law. Such evidence shall include (a) a
comprehensive environmental audit (which shall include a Phase I environmental
audit and, if necessary or desirable in the Agent's opinion, a Phase II
environmental audit), satisfactory in form and substance to the Agent, conducted
and certified by an Approved Environmental Consultant (the Company shall certify
as of the Closing Date that, as to any environmental audit delivered by the
Company prior to the Closing Date, to the Company's knowledge, the information
contained in such audit remains true, correct and complete), (b) if the report
referred to in clause (a) above is not addressed to the Agent and Lenders, a
reliance letter from such Approved Environmental Consultant with respect to each
such environmental audit addressed to the Agent and Lenders, which reliance
letter shall be satisfactory in form and substance to the Agent, (c) if
requested by the Agent, evidence that all required approvals from all
Governmental Authorities having jurisdiction with respect to the environmental
condition of the Mortgaged Properties, if any, have been obtained, and (d) such
other environmental reports, inspections and investigations as the Agent shall,
in its sole discretion, require, prepared, in each instance, by an Approved
Environmental Consultant, which approvals, reports, inspections and
investigations shall be satisfactory in form and substance to the Agent, in its
sole discretion.
K. ENGINEERING REPORTS. On or before the Closing Date, the Company
shall have delivered to the Agent and the Lenders (i) a written Engineering
Report with respect to each Property dated not more than 120 days prior to the
Closing Date and prepared by an Engineer acceptable to the Agent, which
Engineering Report shall contain repair recommendations the cost of which shall
not exceed the amount of the Deferred Maintenance specified therein with respect
thereto and shall in all other respects be satisfactory in form and substance to
the Lenders ; and (ii) if the report referred to in clause (a) above is not
addressed to the Agent and Lenders, a reliance letter from such Engineer with
respect to each such Engineering Report addressed to the Agent and Lenders,
which letter shall be in form and substance reasonably satisfactory to the
Agent.
L. APPRAISALS. On or before the Closing Date, the Agent and the Lenders
shall have received (i) an Appraisal of each Mortgaged Property dated not more
than 45 days prior to the Closing Date and performed by an Appraiser designated
by the Agent, which Appraisal shall be satisfactory in form and substance to the
Lenders; and (ii) copies of all appraisals, market studies, and similar
information with respect to each of the Mortgaged Properties in the possession
or under the control of the Company or any of its Subsidiaries.
M. OPINIONS OF THE COMPANY'S COUNSEL. On the Closing Date the Company
shall have delivered to the Agent, its counsel and the Lenders (i) executed
copies of each of the favorable written opinions of Willkie Farr & Gallagher,
counsel for the Loan Parties substantially in the form of Exhibit XII annexed
hereto, with such changes as the Agent may approve and dated the Closing Date;
(ii) evidence satisfactory to the Agent that the Company has requested such
counsel to deliver such opinions to the Agent and its counsel and the Lenders.
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N. OPINION OF AGENT'S COUNSEL. On the Closing Date the Lenders shall
have received executed copies of the favorable written opinion of O'Melveny &
Myers LLP, counsel to the Agent, dated as of the Closing Date.
O. NO ADVERSE LITIGATION. Except as set forth on Schedule 4.5 annexed
hereto, as of the Closing Date, there shall not be pending or, to the knowledge
of the Company, threatened, any action, suit, proceeding, governmental
investigation or arbitration against or affecting the Company or any of its
Subsidiaries or any property of the Company or any of its Subsidiaries that has
not been disclosed by the Company in writing pursuant to subsection 4.5 prior to
the execution of this Agreement and that is reasonably likely materially and
adversely to affect any Mortgaged Property or that is reasonably likely to have
a Material Adverse Effect, and there shall have occurred no development not so
disclosed in any such action, suit, proceeding, governmental investigation or
arbitration so disclosed, that, in either event, in the opinion of the Agent, is
reasonably likely to have a Material Adverse Effect. No injunction or other
restraining order shall have been issued and no hearing to cause an injunction
or other restraining order to be issued shall be pending or noticed with respect
to any action, suit or proceeding seeking to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as a result of, the
transactions contemplated by this Agreement or the making of the Loans
hereunder.
P. PAYMENT OF FEES AND EXPENSES. On the Closing Date, the Company shall
have paid to the Agent, for distribution (as appropriate) to the Lenders and the
Agent the fees payable on the Closing Date referred to in subsection 2.4 and any
other fees and expenses payable by the Company to the Agent on the Closing Date
pursuant to subsection 8.2 or otherwise.
Q. DEFERRED MAINTENANCE ACCOUNT. On or before the Closing Date, the
Company shall have either (i) deposited into the Deferred Maintenance Account or
(ii) established a reserve as provided in the definition of Total Utilization in
an amount not less than $1,016,022 in the aggregate, or such other amount as
shall be approved by the Company and the Lenders, and such amount shall be
allocated among the Mortgaged Properties as provided in Schedule 1.1D annexed
hereto.
R. CONTINGENT OBLIGATIONS. The Agent and the Lenders shall have
received and approved a list of all Contingent Obligations substantially in the
form of Schedule 4.3 annexed hereto.
S. HPT TERM SHEET. On or before the Closing Date, the Company shall
have delivered the HPT Term Sheet to the Agent and the Lenders.
T. COMPLETION OF PROCEEDINGS. On or before the Closing Date, all
corporate and other proceedings taken or to be taken in connection with the
transactions contemplated hereby and all documents incidental thereto not
previously found acceptable by the Agent and its counsel shall be reasonably
satisfactory in form and substance to the Agent and such counsel, and the Agent
and such counsel shall have received all such counterpart originals or certified
copies of such documents as the Agent may reasonably request.
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U. OTHER DOCUMENTS. On or before the Closing Date, each Loan Party
shall have delivered to the Agent such other information and documents as the
Agent may reasonably request.
3.2 CONDITIONS TO ALL LOANS.
The obligations of the Lenders to make Loans on each Funding Date or to
pay the Purchase Price on the Closing Date are subject to the following further
conditions precedent:
A. The Agent shall have received before that Funding Date, in
accordance with the provisions of subsection 2.2B, an originally executed Notice
of Borrowing, in each case signed by an Authorized Officer of the Company or by
any executive officer of the Company designated by any of the above-described
officers on behalf of the Company in a writing delivered to the Agent.
B. As of that Funding Date:
(i) the representations and warranties contained herein and in
the other Loan Documents shall be true and correct in all material
respects on and as of that Funding Date to the same extent as though
made on and as of that date, except to the extent such representations
and warranties specifically relate to an earlier date (including
references to "the Closing Date" or "the date hereof"), in which case
such representations and warranties shall have been true and correct in
all material respects on and as of such earlier date;
(ii) no event shall have occurred and be continuing or would
result from the consummation of the borrowing contemplated by such
Notice of Borrowing that would constitute an Event of Default or a
Potential Event of Default, including a breach or violation of Section
4.09 of the Mortgage Note Indenture with respect to the consummation of
such borrowing;
(iii) each Loan Party shall have performed in all material
respects all agreements and satisfied all conditions which this
Agreement provides shall be performed or satisfied by it on or before
that Funding Date;
(iv) no order, judgment or decree of any arbitrator or
Governmental Authority shall purport to enjoin or restrain any Lender
from making the Loans to be made by it on that Funding Date;
(v) the making of the Loans requested on such Funding Date
shall not violate any law including, without limitation, Regulation G,
Regulation T, Regulation U or Regulation X of the Board of Governors of
the Federal Reserve System;
(vi) there shall not be pending or, to the knowledge of the
Company, threatened, any action, suit, proceeding, governmental
investigation or arbitration against
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or affecting the Company of its Subsidiaries that has not been
disclosed by the Company in writing pursuant to subsection 4.5 or
5.1(xii) prior to the making of such Loans and that would be reasonably
likely materially and adversely to affect the Mortgaged Properties,
taken as a whole, or that would be reasonably likely to have a Material
Adverse Effect, and there shall have occurred no development not so
disclosed in any such action, suit, proceeding, governmental
investigation or arbitration so disclosed, that, in either event, in
the opinion of the Agent, would be reasonably likely to have a Material
Adverse Effect; and no injunction or other restraining order shall have
been issued and no hearing to cause an injunction or other restraining
order to be issued shall be pending or noticed with respect to any
action, suit or proceeding seeking to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as a result
of, the transactions contemplated by this Agreement or the making of
Loans hereunder; and
(vii) after giving effect to the proposed Loan, the Borrowing
Base shall not be less than the Total Utilization and the Company shall
have delivered to the Agent the Borrowing Base Certificate for the most
recent calendar month as required pursuant to subsection 5.1(ii); and
(viii) after giving effect to the proposed borrowing, the
Company will be in compliance, on a pro forma basis, with the
provisions of subsections 6.6E and 6.6F.
SECTION 4.
COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and the Lenders to enter into this
Agreement and to make the Loans and to pay the Purchase Price, the Company
represents and warrants to the Agent and the Lenders that the following
statements in this Section 4 are true, correct and complete as of the date this
Agreement is executed and delivered, on the Closing Date and on each Funding
Date.
4.1 ORGANIZATION, POWERS, QUALIFICATION, GOOD STANDING, BUSINESS AND
SUBSIDIARIES.
A. ORGANIZATION AND POWERS. Each Loan Party and each of its
Subsidiaries (other than any Partnership Subsidiary) is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation (which jurisdiction is set forth on Schedule 4.1
annexed hereto). Each such Loan Party and each such Subsidiary has the requisite
corporate power and authority to own and operate its properties (including the
Properties identified as being owned or leased by such Loan Party or such
Subsidiary on Schedule 1.1A and Schedule 1.1B annexed hereto), to carry on its
business as now conducted and as proposed to be conducted, to enter into the
Loan Documents and the Related Documents to which it is a party, to carry out
the transactions contemplated thereby and, in the case of the Company, to issue
and pay the Notes. Each Partnership Subsidiary, if any, is a limited partnership
duly formed and validly existing under the laws of its jurisdiction of
organization and each Partnership Subsidiary has all requisite partnership power
and authority to own and operate its properties (including the
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Properties identified on Schedule 1.1A and Schedule 1.1B as being owned or
leased by such Partnership Subsidiary), to carry on its business as now
conducted and proposed to be conducted, to enter into each Loan Document and
Related Document to which it is a party and to carry out the transactions
contemplated thereby. The books and records of each Loan Party and each of its
Subsidiaries reflect the properties and assets purported to be owned by such
Loan Party or Subsidiary, as applicable.
B. QUALIFICATION AND GOOD STANDING. Each Loan Party and each of its
Subsidiaries is qualified to do business and in good standing in every
jurisdiction where its assets are located and wherever necessary to carry out
its business and operations except where the failure to be qualified or in good
standing could not reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect. The jurisdictions in which each Loan Party
and each of its Subsidiaries owns property or otherwise conducts business as of
the Closing Date are set forth on Schedule 4.1 annexed hereto.
C. CONDUCT OF BUSINESS. The Company and each of its Subsidiaries are
engaged only in the businesses permitted to be engaged in by them pursuant to
subsection 6.14.
D. SUBSIDIARIES. The capital stock of the Company and each of its
Subsidiaries (other than any Partnership Subsidiary) is duly authorized, validly
issued and fully paid and nonassessable. All of the Subsidiaries of each Loan
Party are identified on Schedule 4.1 annexed hereto, as said Schedule 4.1 may be
supplemented from time to time pursuant to subsection 5.1(xxi). Except for the
Common Stock, the capital stock of each Person identified on Schedule 4.1 (as so
supplemented) is not Margin Stock. Schedule 4.1 hereto correctly sets forth the
ownership interests in each Loan Party (other than the Company) and each of its
Subsidiaries, as Schedule 4.1 may be supplemented from time to time pursuant to
the provisions of subsection 5.1(xxi) or 6.7(ii). Each Subsidiary of the Company
is a Wholly Owned Subsidiary.
4.2 AUTHORIZATION OF BORROWING, ETC.
A. AUTHORIZATION OF BORROWING. The execution, delivery and performance
of this Agreement and the other Loan Documents and the Related Documents to
which each Loan Party is a party, the sale of the Existing Pool III Loan to the
Lenders and the amendment and restatement of the Existing Pool III Loan
Documents and the issuance, delivery and payment of the Notes have been duly
authorized by all necessary corporate or partnership action on the part of each
Loan Party, as the case may be.
B. NO CONFLICT. The execution, delivery and performance by each Loan
Party of each Loan Document and each Related Document to which it is a party and
the other transactions contemplated by this Agreement, the other Loan Documents
and the Related Documents do not and will not (i) violate any provision of law
applicable to any Loan Party or any of its Subsidiaries, the Certificate of
Incorporation or Bylaws or partnership agreement of any Loan Party or any of its
Subsidiaries or any order, judgment or decree of any court or other agency of
government binding on any Loan Party or any of its Subsidiaries, (ii) conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under any material
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Contractual Obligation of any Loan Party (including without limitation the
Mortgage Note Indenture, the Convertible Note Indenture, the Reorganization
Securities and the Franchise Agreements), (iii) result in or require the
creation or imposition of any Lien upon any of the properties or assets of any
Loan Party or any of its Subsidiaries (other than Liens securing the
Obligations) or (iv) require any approval of stockholders or any approval or
consent of any Person under any material Contractual Obligation of any Loan
Party other than approvals or consents which will be or have been obtained on or
before the Closing Date or the applicable Funding Date, as the case may be, and
disclosed in writing to the Agent and the Lenders.
C. GOVERNMENTAL CONSENTS. Except as set forth on Schedule 4.2C annexed
hereto, the execution, delivery and performance by each Loan Party of each Loan
Document and each Related Document to which it is a party, and the consummation
of each Acquisition and the other transactions contemplated by this Agreement,
the other Loan Documents and the Related Documents do not and will not require
any registration with, consent or approval of, or notice to, or other action to,
with or by, any Governmental Authority, except for (i) such of the foregoing
which will have been made or obtained on or before the Closing Date or the
applicable Funding Date, as the case may be, and (ii) the recordings and filings
required to perfect the Liens granted pursuant to the Security Documents. As of
the Closing Date, all consents or approvals from or notices to or filings with
any federal, state, or other (domestic or foreign) regulatory authorities
required to be obtained on or before such date in connection with the documents
or transactions described or referred to in the preceding sentence will have
been accomplished in all material respects in compliance in all material
respects with all Applicable Laws. None of the consummation of the transactions
contemplated by this Agreement, the other Loan Documents and the Related
Documents violates any Applicable Law or regulation in any material respect.
D. BINDING OBLIGATION. This Agreement is, and the other Loan Documents
when executed and delivered hereunder will be, the legally valid and binding
obligations of the applicable Loan Parties, enforceable against the applicable
Loan Parties in accordance with their respective terms, except as may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws relating
to or limiting creditors' rights generally, and by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or law).
E. VALID ISSUANCE OF COMMON STOCK. All the issued and outstanding
Common Stock has been duly authorized by all necessary corporate action of the
Company and is validly issued, fully paid and nonassessable. Except as set forth
on Schedule 4.2E annexed hereto, as of the Closing Date no other Securities of
the Company are issued and outstanding, and no Person has any rights to acquire
Securities of the Company.
F. NEW YORK STOCK EXCHANGE LISTING. The Common Stock shall at all times
be duly listed on the New York Stock Exchange, Inc. The Company shall timely
file all reports required to be filed by it with the New York Stock Exchange,
Inc. and the Securities and Exchange Commission.
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G. RELATED DOCUMENTS; REPRESENTATIONS AND WARRANTIES IN OTHER LOAN
DOCUMENTS. As of the date hereof, each Related Document to which any Loan Party
or any of its Subsidiaries is a party is in full force and effect and no term or
condition thereof has been amended or modified in any material respect, except
as disclosed herein. Each Loan Party has delivered to the Agent complete and
correct copies of all Related Documents to which such Loan Party or any of its
Subsidiaries is a party (including in each case all exhibits and schedules
thereto), as amended, modified or waived to date, and of all material notices or
other writings delivered to or by such Loan Party or such Subsidiary in
connection therewith. Each of the representations and warranties given by each
Loan Party in each Loan Document (other than this Agreement) to which it is a
party are true and correct and such representations and warranties are hereby
incorporated herein by this reference with the same effect as though set forth
in their entirety herein.
4.3 FINANCIAL CONDITION; NO MATERIAL ADVERSE EFFECT; CONTINGENT OBLIGATIONS.
A. FINANCIAL CONDITION. The Company has heretofore delivered to the
Agent, at the Agent's request, the following financial statements and
information: the audited consolidated balance sheet of the Company and its
Subsidiaries as at December 31, 1995 and the related consolidated statements of
income, stockholders' equity and cash flows of the Company and its Subsidiaries
for the year then ended, (ii) the unaudited consolidated balance sheet of the
Company and its Subsidiaries as at March 31, 1996 and the related consolidated
statements of income, stockholders' equity and cash flows of the Company and its
Subsidiaries for the 3 months then ended, (iii) the unaudited statements of
Property Gross Revenues and Operating Expenses for each of the Mortgaged
Properties for the year ended December 31, 1995 and the twelve months ended May
31, 1996. The statements referred to in clause (i) of the preceding sentence
were prepared in conformity with GAAP and fairly present, in all material
respects, the financial position of the Company and its Subsidiaries as at the
date thereof and the results of operations of the Company and its Subsidiaries
for the period then ended, subject to changes resulting from audit and normal
year end adjustments. Schedule 4.3 annexed hereto sets forth all material
Contingent Obligations, contingent liabilities and liabilities for taxes,
long-term lease or unusual forward or long-term commitments other than those
permitted by this Agreement and incurred since the date of the most recent
financial statements referred to above or delivered pursuant to subsections
5.1(iv) or (v), or the notes to such financial statements. Such financial
statements or notes include all such obligations and commitments required to be
included therein in accordance with GAAP.
B. NO MATERIAL ADVERSE EFFECT. Since December 31, 1995, no conditions
or events have occurred that has had or could reasonably be expected to have,
either indivi- dually or in the aggregate, a Material Adverse Effect or (ii) a
material adverse effect on the Mortgaged Properties taken as a whole.
C. CONTINGENT OBLIGATIONS. As of the Closing Date, the Loan Parties and
their respective Subsidiaries are not directly or indirectly liable with respect
to any Contingent Obligations other than as set forth on Schedule 4.3 annexed
hereto or, with respect to such
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Contingent Obligations, in amounts greater than the respective estimated maximum
amounts specified thereon.
4.4 MORTGAGED PROPERTIES; EXISTING LOANS.
A. MORTGAGED PROPERTIES. Each of Schedule 1.1A and Schedule 1.1B
correctly sets forth the interest of each Loan Party and each of its
Subsidiaries in each of the Mortgaged Properties and the other Properties,
respectively. There are no outstanding options, rights of first refusal, rights
of first offer or similar rights to purchase or otherwise acquire such fee
interest or leasehold interest, as the case may be, in any such Mortgaged
Property, other than options and rights owned by a Loan Party or Subsidiary
thereof, as applicable. Such Loan Party or Subsidiary thereof, as applicable,
has good and marketable fee simple title to, or a valid leasehold interest in,
the Mortgaged Properties and good title to the remainder of the Collateral
purported to be owned by it, free and clear of all Liens, in each case except
Permitted Encumbrances and Liens permitted pursuant to subsection 6.2A. All
material fixtures, furnishings, attachments and equipment necessary for the
operation, use and occupancy of each such Mortgaged Property have been installed
or incorporated into such Mortgaged Property and, each Loan Party or Subsidiary
thereof, as applicable, is the sole owner of all of the same, free and clear of
all chattel mortgages, conditional vendor's liens and other liens, and security
interests other than Permitted Encumbrances and Liens Permitted pursuant to
subsection 6.2A. Except as heretofore disclosed in writing by the Company to the
Agent, no tax liens have been filed against the Company or any of its
Subsidiaries and/or any of their respective properties, including any Mortgaged
Property, other than Liens for non-delinquent real property taxes.
B. SERVICING AGREEMENTS. The Servicing Agreements, if applicable, with
respect to the Mortgaged Properties, in each case with all amendments thereto
that have been or will be entered into on or before the Closing Date, are listed
on Schedule 4.4B annexed hereto. The Servicing Agreements, as so amended,if any,
will be in full force and effect and no term or condition thereof will have been
further amended or modified, or waived after the execution thereof, in each
instance in any material respect; and no Person will have failed in any respect
to perform any obligation or covenant or satisfy any condition required by the
Servicing Agreements to be performed or complied with on or before the Closing
Date except where failure to do so comply will not then have had and could not
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.
C. FRANCHISE AGREEMENTS. Each of the Franchise Agreements and all
amendments thereto entered into on or before the Closing Date are listed on
Schedule 4.4C annexed hereto. The Franchise Agreements, as so amended, are in
full force and effect in all material respects and no term or condition thereof
has been further amended or modified, or waived after the execution thereof,
except as disclosed herein; and no Person has failed in any respect to perform
any obligation or covenant or satisfy any condition required by the Franchise
Agreements to be performed or complied with on or before the Closing Date except
where failure to do so comply will not then have had and could not reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect.
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D. LEASES. Each Material Lease with respect to each Mortgaged Property
and all amendments thereto that have been entered into on or before the Closing
Date are listed on Schedule 4.4D annexed hereto. As of the date hereof, the
Material Leases, as so amended, are in full force and effect in all material
respects and no term or condition thereof has been further amended or modified,
or waived after the execution thereof, except as disclosed herein; and no Person
will have failed in any respect to perform any obligation or covenant or satisfy
any condition required by the Material Leases to be performed or complied with
on or before the Closing Date except where failure to so comply will not then
have had and could not reasonably be expected to have, either individually or in
the aggregate, a Material Adverse Effect.
E. LIQUOR LICENSES. The owner of each Liquor License issued in
connection with each Mortgaged Property is set forth on Schedule 4.4E annexed
hereto and each such Liquor License is validly issued and in full force and
effect. The owner of each Liquor License has the legal right to utilize each
such Liquor License in connection with the operation of any restaurant, bar or
other alcoholic beverage service located at the applicable Mortgaged Property.
All cash and other revenues and receipts from the operation by any owner of a
Liquor License of an alcoholic beverage service at any Mortgaged Property are
collected by the licensee thereof and are then deposited directly into Deposit
Accounts subject to the Cash Management System.
4.5 LITIGATION; ADVERSE FACTS.
Except as set forth in Schedule 4.5 annexed hereto, there is no action,
suit, proceeding, arbitration or governmental investigation (whether or not
purportedly on behalf of the Company or any of its Subsidiaries) at law or in
equity or before or by any Governmental Authority, or changes to Applicable Law,
pending or, to the knowledge of the Company, threatened against or affecting any
Loan Party or any of its Subsidiaries, any Property or any other property of the
Company or any of its Subsidiaries that has had, or could reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect. No
Loan Party nor any of its Subsidiaries is (i) subject to of any Applicable Law
that has had, or could reasonably be expected to have, either individually or in
the aggregate, a Material Adverse Effect or (ii) in violation of or in default
with respect to (a) any Applicable Law not described in the foregoing subclause
(a) which could result in criminal liability or (b) any Applicable Law, except
any which could not reasonably be expected to result, either individually or in
the aggregate, a Material Adverse Effect. To the knowledge of the Company, there
are no pending or threatened actions, suits or proceedings to revoke, attack,
invalidate, rescind or modify the zoning affecting any Mortgaged Property or any
Authorizations heretofore issued with respect to any Mortgaged Property or
asserting in writing that such Authorizations or the zoning affecting any
Mortgaged Property do not permit the continued use of such Mortgaged Property as
contemplated by the Loan Documents except any which could not reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect. Except as set forth on Schedule 4.5, to the knowledge of the Company, no
Person has asserted any claimed material violation of Applicable Laws arising
from the operation, use or occupancy of the Properties which has not been cured.
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4.6 TAXES.
Except to the extent permitted by subsection 5.4 and as set forth on
the financial statements delivered pursuant to subsections 3.1C and 4.3, (i) all
federal, state and material local Tax returns and reports relating to any Loan
Party or any of its Subsidiaries or the Properties required to be filed have
been timely filed (or extensions have been obtained), and all Taxes,
Impositions, assessments, fees and other governmental charges upon any Loan
Party or any of its Subsidiaries or upon the Properties which are due and
payable have been paid when due and payable and (ii) the Company does not know
of any proposed material Tax assessment against any Loan Party or any of its
Subsidiaries or the Properties. Except as set forth in Schedule 4.6 annexed
hereto, as of the Closing Date neither any Loan Party nor any of its
Subsidiaries (a) has executed or filed with the Internal Revenue Service or any
other Governmental Authority any agreement or other document extending, or
having the effect of extending, the period for assessment or collection of any
Taxes, assessments, fees or other governmental charges or (b) has any obligation
under any written Tax sharing agreement or agreement regarding payments in lieu
of Taxes.
4.7 PERFORMANCE OF AGREEMENTS; MATERIALLY ADVERSE AGREEMENTS.
No Loan Party nor any of its Subsidiaries is in default in the
performance, observance or fulfillment of any of the material obligations,
covenants or conditions contained in any Contractual Obligation, and no
condition exists that, with the giving of notice or the lapse of time or both,
would constitute such a default. Except as disclosed on Schedule 4.7, no Loan
Party nor any of its Subsidiaries is a party to or otherwise subject to any
agreement or instrument, any charge or other internal restriction or any
Contractual Obligation which by its terms or effect (i) prohibits or restricts
such Loan Party or Subsidiary from acquiring, loaning or disposing of any
Mortgaged Property or other Collateral, or any interest therein, or (ii)
otherwise restricts the conduct by such Loan Party or any of its Subsidiaries of
any business, except in each case where the consequences, direct or indirect, of
any violation thereof could not reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. No Loan Party nor
any of its Subsidiaries is a party to or is otherwise subject to any agreement
or instrument, any charter or other internal restriction or any Contractual
Obligation which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect or materially
adversely affect the Mortgaged Properties, taken as a whole.
4.8 GOVERNMENTAL REGULATION; SECURITIES ACTIVITIES.
No Loan Party nor any of its Subsidiaries is subject to regulation
under the Public Utility Holding Company Act of 1935 (15 U.S.C. Sections 79, et
seq.), the Federal Power Act, the Interstate Commerce Act (49 U.S.C. Sections 1,
et seq.) or the Investment Company Act of 1940 (15 U.S.C. Sections 80a-1, et
seq.) or under any other federal or state statute or regulation which could
limit its ability to incur Indebtedness or which could otherwise render all or
any portion of the Obligations unenforceable. No Loan Party nor any of its
Subsidiaries is engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying any
Margin Stock.
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4.9 EMPLOYEE BENEFIT PLANS.
A. ERISA. Each Loan Party, each of its Subsidiaries and each of their
respective ERISA Affiliates are in compliance in all material respects with all
applicable provisions and requirements of ERISA and the regulations and
published interpretations thereunder with respect to each Employee Benefit Plan,
and have performed their respective obligations under each Employee Benefit Plan
except to the extent that any noncompliance or nonperformance could not
reasonably be expected to have, either individually or in aggregate, in a
Material Adverse Effect. The sponsor of each Employee Benefit Plan which is
intended to qualify under Section 401(a) of the Internal Revenue Code has
received a determination letter from the Internal Revenue Service concluding
that such Employee Benefit Plan is so qualified, and to the knowledge of each
Loan Party, each of its Subsidiaries and each of their respective ERISA
Affiliates, no event has occurred, amendment been adopted or action been taken
that would cause such Employee Benefit Plan to lose its qualified status.
B. ERISA EVENT. No ERISA Event has occurred or is reasonably expected
to occur which could be reasonably be expected to have, either individually or
in the aggregate, a Material Adverse Effect.
C. UNFUNDED BENEFIT LIABILITIES. As of the most recent valuation date
for any Pension Plan, the amount of unfunded benefit liabilities (as defined in
Section 4001(a)(18) of ERISA), either individually or in the aggregate for all
Pension Plans (excluding for purposes of such computation any Pension Plans with
respect to which assets exceed benefit liabilities), does not exceed $1,000,000.
D. POTENTIAL WITHDRAWAL LIABILITY. As of the most recent valuation date
for each Multiemployer Plan for which the actuarial report is available, the
potential liability of the Loan Parties, their Subsidiaries and their respective
ERISA Affiliates for a complete withdrawal from such Multiemployer Plan (within
the meaning of Section 4203 of ERISA), when aggregated with such potential
liability for a complete withdrawal from all Multiemployer Plans, based on
information available pursuant to Section 4221(e) of ERISA, does not exceed
$2,000,000.
4.10 CERTAIN FEES.
No broker's or finder's fee or commission will be payable by any Loan
Party or any of its Subsidiaries with respect to this Agreement or any of the
transactions contemplated hereby (other than the fees payable pursuant to this
Agreement), and the Company hereby indemnifies the Agent and the Lenders
against, and agrees that it will hold the Agent and the Lenders harmless from,
any claim, demand or liability for any such broker's or finder's fees or
commissions payable by the Company alleged to have been incurred in connection
herewith or therewith and any expenses (including reasonable fees, expenses and
disbursements of counsel) arising in connection with any such claim, demand or
liability.
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4.11 SOLVENCY.
After giving effect to the consummation of the other transactions
contemplated by this Agreement, the other Loan Documents and the Related
Documents, with respect to each Loan Party and each of its Subsidiaries, (i) (a)
the then fair saleable value of the property of such Person is (y) greater than
the total amount of liabilities (including contingent liabilities) of such
Person and (z) not less than the amount that will be required to pay the
probable liabilities on such Person's then existing debts as they become
absolute and matured considering all financing alternatives and potential asset
sales reasonably available to such person; (b) such Person's capital is (or will
be, as the case may be), not unreasonably small in relation to its business or
any contemplated or undertaken transaction; and (c) such Person does not intend
to incur, or believe (nor should it reasonably believe) that it will incur,
debts beyond its ability to pay such debts as they become due; and (ii) such
Person is (or will be, as the case may be), "SOLVENT" within the meaning given
that term and similar terms under Applicable Laws relating to fraudulent
transfers and conveyances. For purposes of clause (i) of the preceding sentence,
the amount of any contingent liability at any time shall be computed as the
amount that, in light of all of the facts and circumstances existing at such
time, represents the amount that can reasonably be expected to become an actual
or matured liability.
4.12 DISCLOSURE.
No representation or warranty of any Loan Party contained in this
Agreement, the other Loan Documents and the Related Documents to which it is a
party or in any other document, certificate or written statement furnished to
the Agent or the Lenders by or on behalf of any Loan Party for use in connection
with the transactions contemplated by the Loan Documents and the Related
Documents (as from time to time superseded by subsequent materials furnished to
the Agent) contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact (known to such Loan Party, in the
case of any document not furnished by it) necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances in which the same were made or will be made, as the case may be.
The projections and pro forma financial information contained in such materials
(as from time to time superseded by subsequent materials furnished to the Agent)
are based or will be based upon good faith estimates and assumptions believed to
be reasonable at the time made, it being recognized by the Agent and the Lenders
that such projections as to future events are not to be viewed as facts and that
actual results during the period or periods covered by any such projections may
differ materially from the projected results. There is no fact known (or which
should upon the reasonable exercise of diligence be known) to the Company (other
than matters of a general economic nature) that has had, or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect and that has not been disclosed in any of the Loan Documents and the
Related Documents to which any Loan Party is a party as of the date hereof or in
such other documents, certificates and statements furnished to the Lenders for
use in connection with the transactions contemplated hereby.
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4.13 LIENS ON THE COLLATERAL.
A. GENERAL. The provisions of this Agreement and the Security Documents
are effective to create and maintain, upon proper filing or recording or taking
of possession, as applicable, in favor of the Agent on behalf of the Lenders
valid and legally enforceable Liens on or security interests in all of the
Mortgaged Properties and all of the remainder of the Collateral and, when all
necessary and appropriate recordings and filings have been effected in all
necessary and appropriate public offices, and payment is made of any applicable
mortgage recording and/or intangible taxes, and taking possession, as
applicable, this Agreement and the Security Documents will constitute perfected
Liens on and security interests in all of such Mortgaged Properties and all of
the remainder of the Collateral to the extent such Liens and security interests
can be perfected by filing, recording or taking possession prior and superior to
all other Liens except Permitted Encumbrances; provided, however, that the
perfection against Persons other than the Company of such a Lien on the Rents in
respect of such Mortgaged Properties may in certain jurisdictions require the
Agent to have possession of such Rents and/or control of such Mortgaged
Properties.
B. MORTGAGES. Each Mortgage upon execution and delivery of such
Mortgage by the Company will be a valid and enforceable first priority Lien on
the Mortgaged Property that such Mortgage purports to encumber, and such
Mortgage, when such Mortgage is recorded in the real property records of the
county in which such Mortgaged Property encumbered by such Mortgage is located
and upon payment of any applicable mortgage recording and or intangible taxes,
will be a perfected, valid and enforceable first priority Lien on the portion of
such Mortgaged Property which constitutes real property in favor of the Agent,
which Mortgaged Property will then be free and clear of all Liens having
priority over the first Lien of such Mortgage, except for Permitted
Encumbrances.
C. ASSIGNMENTS OF RENTS AND LEASES. Each Assignment of Rents and
Leases, upon execution and recordation of such Assignment of Rents and Leases in
the real property records of the county in which the Mortgaged Property affected
by such Assignment of Rents and Leases is located and upon payment of any
applicable recording or intangible taxes, will be, a perfected, valid and
enforceable first priority present assignment of the Leases affecting such
Mortgaged Property and of the Rents of and from such Mortgaged Property, which
Mortgaged Property will then be free and clear of all Liens having priority over
the Assignment of Rents and Leases, except for Permitted Encumbrances. As of the
Closing Date, the Company represents that upon recordation of each Assignment of
Rents and Leases the Agent has taken all actions necessary to obtain, and as of
the Closing Date the Agent has, a valid and perfected first priority assignment
of the Rents from the Mortgaged Properties and of all security for the Leases
affecting such Mortgaged Properties, including cash or securities deposited as
security under such Leases subject to the prior right of the Tenants making such
deposits; provided, however, that the perfection against Persons other than the
Company of such a Lien on the Rents in respect of such Mortgaged Properties may
in certain jurisdictions require the Agent to have possession of such Rents
and/or control of such Mortgaged Properties.
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D. MECHANICS' LIENS. Except as permitted by the definition of Permitted
Encumbrances, there are no existing mechanics' liens affecting any Mortgaged
Property.
E. FILINGS AND RECORDINGS. All filings (including all financing
statements and all assignments of financing statements under the Uniform
Commercial Code) have been delivered to the Agent for filing in each public
office in which such filings and recordings are required or advisable to perfect
the Liens and security interests in each of the Mortgaged Properties and the
other Collateral granted by the Loan Parties pursuant to the Security Documents
and, except for the filing of continuation statements with respect to such
financing statements as may be required or advisable to be filed at periodic
intervals, no periodic refiling or periodic recording is presently required to
protect and preserve such Liens and security interests.
4.14 ZONING; AUTHORIZATIONS.
A. ZONING. Except as set forth on Schedule 4.14A annexed hereto, the
use and operation by each Loan Party or any of its Subsidiaries, as applicable,
of each Mortgaged Property as a commercial hotel with related uses, separate and
apart from any other properties, constitutes a legal use under applicable zoning
regulations (as the same may be modified by special use permits or the granting
of variances) and complies in all material respects with all Applicable Laws and
all applicable Insurance Requirements, and does not violate any, material
restrictions of record or any material agreement affecting any Mortgaged
Property (or any portion thereof) to which such Loan Party or such Subsidiary is
a party or by which such Loan Party, such Subsidiary or such Mortgaged Property
(or portion thereof) is bound. Except as set forth on Schedule 4.14A annexed
hereto or pursuant to Permitted Encumbrances, neither the zoning nor any right
of access to or use of any Mortgaged Property is to any extent dependent upon or
related to any real property other than such Mortgaged Property.
B. AUTHORIZATIONS. There have been issued in respect of each Mortgaged
Property all material Authorizations necessary to own, operate, use and occupy
such Mortgaged Property in the manner operated by the Loan Parties and their
respective Subsidiaries as of the date hereof and contemplated by the Loan
Parties and their respective Subsidiaries to be operated on and after the
Closing Date (including any required permits relating to Hazardous Materials).
To the knowledge of the Company, except as set forth on Schedule 4.14B annexed
hereto, there have been issued in respect of each Mortgaged Property all
Authorizations necessary, required or desirable to own, operate, use and occupy
such Mortgaged Property in the manner currently operated by the Tenants under
any Material Lease and contemplated to be operated by the Tenants on and after
the Closing Date (including any required permits relating to Hazardous
Materials), other than any such Authorizations which, if not obtained, could not
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. Each such Authorization is in full force and effect,
and no Loan Party nor any of its Subsidiaries nor, to the knowledge of the
Company, any prior owner thereof, has received any notice of violation or
revocation thereof except for those which could not reasonably be expected to
have, either individually or in the aggregate, a Material Adverse Effect.
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4.15 PHYSICAL CONDITION; ENCROACHMENT.
Except as disclosed on Schedule 4.15 annexed hereto or on the
Engineering Reports delivered pursuant to subsection 2.10 or 3.1K (ii) or (iii),
each Mortgaged Property is free of structural defects and is in good repair
(normal wear and tear excepted) and all building systems contained therein and
all other items of Collateral are in good working order subject to ordinary wear
and tear, except as disclosed in the Engineering Reports, and is free and clear
of any damage that would affect materially and adversely the value of such
Mortgaged Property or the use of such Property for its intended purposes. To the
knowledge of the Company, other than as described in the Title Policy and in any
Survey, no Improvement at any Mortgaged Property encroaches upon any building
line, setback line, side yard line or any recorded or visible easement.
4.16 INSURANCE.
All insurance required to be maintained by the Loan Parties and their
respective Subsidiaries pursuant to this Agreement or any other Loan Document is
in full force and effect in accordance with the terms thereof. As to each
Mortgaged Property located in an area identified by the Federal Emergency
Management Agency as having special flood hazards, if flood insurance is
available, a flood insurance policy is in effect. All premiums have been paid
with respect to each insurance policy required to be maintained by the Company
and its Subsidiaries pursuant to this Agreement or any other Loan Document.
Schedule 4.16 annexed hereto contains a complete and accurate description of all
policies of insurance that will be in effect as of the Closing Date.
4.17 LEASES.
As of the date hereof, there is no material default or event which with
notice or lapse of time or both would constitute a material default under any of
the provisions of any Material Lease affecting any Mortgaged Property. No
litigation is currently pending or has been threatened by any Tenant in
connection with any Material Lease affecting any Property that has had, or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.
4.18 ENVIRONMENTAL REPORTS; ENGINEERING REPORTS; APPRAISALS; MARKET STUDIES.
To the knowledge of the Company, the Company has delivered to the Agent
and the Lenders correct and complete copies of all environmental audits,
engineering reports, appraisals and market studies with respect to each
Mortgaged Property that any Loan Party or any of its Subsidiaries has in its
possession.
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4.19 NO CONDEMNATION OR CASUALTY.
Except as disclosed to the Agent pursuant to subsection 5.11, no
condemnation or Taking (including relocation of any roadways abutting any
Property or change in grade of such roadways or denial of access to any
Mortgaged Property) are pending and served nor, to the knowledge of the Company,
threatened against any Mortgaged Property in any manner whatsoever and (ii) as
of the Closing Date, no casualty requiring expenditures in excess of $50,000
exists as to any Mortgaged Property.
4.20 UTILITIES AND ACCESS.
To the extent necessary for the utilization of each Mortgaged Property
in accordance with its current use, telephone services, gas, steam, electric
power, storm sewers, sanitary sewers and water facilities and all other utility
services are available to each Mortgaged Property, are adequate to serve each
such Mortgaged Property and are not subject to any conditions, other than normal
charges to the utility supplier, which would limit the use of such utilities.
All streets and easements necessary for the occupancy and operation of each
Mortgaged Property are available to the boundaries of the Land. All necessary
rights-of-way for all roads, which are sufficient to permit each Mortgaged
Property to be utilized fully for its current use, have been completed and are
serviceable, and, to the knowledge of the Company, all public rights-of-way
through or adjacent to the Mortgaged Properties have been acquired and dedicated
and accepted for maintenance and public use by the applicable Governmental
Authorities.
4.21 INTELLECTUAL PROPERTY.
A. OWNERSHIP; IP LICENSE AGREEMENTS. The Loan Parties and their
respective Subsidiaries own, or are licensed to use or otherwise have the lawful
right to use, the Intellectual Property material to the Company and its
Subsidiaries as a whole and, except as set forth on Schedule 4.21A annexed
hereto, all such Intellectual Property is fully protected and to the extent
permitted by Applicable Law and deemed reasonably necessary by the Company duly
and properly registered, filed or issued in the appropriate office and
jurisdictions for such registrations, filing or issuances. All registered
Intellectual Property and all pending applications and the jurisdictions in
which such Intellectual Property is registered and the Loan Party holding rights
therein are identified in Schedule 4.21A. Each of the license agreements
(together with any such agreements entered into after the Closing Date, the "IP
LICENSE AGREEMENTS") pursuant to which any Loan Party or any of its Subsidiaries
has rights to use any material Intellectual Property as of the Closing Date is
identified in Schedule 4.21A. Each Loan Party and each of its Subsidiaries is in
compliance with the material terms of each IP License Agreement to which it is a
party and each such License Agreement is in full force and effect, except where
the failure to be in compliance or the failure to be in full force and effect
will not result in an Event of Default hereunder.
B. NO MATERIAL ADVERSE CLAIMS. (i) No claim has been asserted by any
Person with respect to the use of any such Intellectual Property, or challenging
or questioning the validity or effectiveness of any such Intellectual Property
and the Company does not know of any valid basis
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for any such claim; and (ii) the use of such Intellectual Property by each Loan
Party and each of its Subsidiaries does not infringe on the rights of any
Person, subject to such claims and infringements as do not, in the aggregate,
give rise to any liability on the part of any Loan Party or any of its
Subsidiaries, except in the case of (i) and (ii) for claims or infringements
which could not reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect. The consummation of the transactions
contemplated by this Agreement will not in any manner or to any extent impair
the ownership of (or the license to use, as the case may be) any of such
Intellectual Property by any Loan Party or any of its Subsidiaries.
4.22 WETLANDS.
To the knowledge of the Company and except as disclosed on Schedule
4.22 annexed hereto, none of the Improvements on any Mortgaged Property are
constructed on land designated by any Governmental Authority having land use
jurisdiction as wetlands.
4.23 CASH MANAGEMENT SYSTEM.
The summary of the Cash Management System attached hereto as Schedule
4.23 is accurate and complete in all material respects as of the Closing Date.
No Loan Party nor any of its Subsidiaries owns any Deposit Account which relates
to any Mortgaged Property that is not described in Schedule 4.23 or otherwise
permitted pursuant to subsection 5.15. There has been no change to the Cash
Management System (other than as permitted by subsection 5.15) since the Closing
Date except such changes as have been disclosed to the Agent in writing and
approved by the Agent.
4.24 LABOR MATTERS.
There are no strikes or other labor disputes against any Loan Party or
any of its Subsidiaries, pending or, to the knowledge of the Loan Parties,
threatened that have had or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect.
4.25 EMPLOYMENT AND LABOR AGREEMENTS.
Except as disclosed on Schedule 4.25 annexed hereto, there are no
employment agreements covering management employees of any Loan Party or any of
its Subsidiaries and there are no collective labor agreements covering any
employees of any Loan Party or any of its Subsidiaries. Each Loan Party and each
of its Subsidiaries is in compliance with the terms and conditions of all such
collective bargaining agreements.
SECTION 5.
COMPANY'S AFFIRMATIVE COVENANTS
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The Company covenants and agrees that, so long as the Commitments
hereunder shall remain in effect and until payment in full of the Loans and the
other Obligations, the Company shall perform and shall cause each of its
Subsidiaries to perform all covenants in this Section 5.
5.1 FINANCIAL STATEMENTS AND OTHER REPORTS.
The Company will maintain and cause each of its Subsidiaries to
maintain a system of accounting established and administered in accordance with
sound business practices to permit preparation of consolidated and consolidating
financial statements in conformity with GAAP. The Company will deliver to the
Agent and the Lenders:
(i) Monthly Property Operating Statements: as soon as
available and in any event within 20 days after the end of each
calendar month of each calendar year, an operating statement with
respect to each Mortgaged Property and a consolidated operating
statement with respect to all Mortgaged Properties, in each case for
the 12 month period ending on the last day of such calendar month, in
substantially the form of Exhibit XV annexed hereto and in reasonable
detail satisfactory to the Agent and certified by an Authorized Officer
of the Company stating that such operating statements and consolidated
operating statements fairly present, in all material respects, the
results of operations of the Mortgaged Properties for the periods
indicated;
(ii) Borrowing Base Certificates: as soon as available and in
any event (a) within 20 days after the end of each calendar month of
each calendar year, a Borrowing Base Certificate, in reasonable detail
satisfactory to the Agent and certified by an Authorized Officer of the
Company, calculated as of the last day of such calendar month, (b)
within five (5) days after the delivery of a written notice pursuant to
subsection 5.11E (but in no event later than the occurrence or
effectiveness of the event or condition required to be specified in
such written notice), a Borrowing Base Certificate calculated as of the
date of the occurrence or effectiveness of the event or condition
specified therein, in reasonable detail satisfactory to the Agent (c)
within five (5) days after the delivery of a written notice of
renovation or restoration pursuant to subsection 5.11G (but in no event
later than the commencement of a Material Renovation/Restoration), a
Borrowing Base Certificate calculated as of the date of commencement of
any related Material Renovation/Restoration, in reasonable detail
satisfactory to the Agent and together with the financial statements
and other information used by the Company to calculate the Borrowing
Base, (d) within five (5) days after a casualty and at least five (5)
days prior to a Taking with respect to, or the Release of, any
Mortgaged Property (or any portion thereof), a Borrowing Base
Certificate calculated as of the date of such casualty, Taking or
Release, in reasonable detail satisfactory to the Agent and together
with the information used by the Company to calculate the Borrowing
Base, and (e) upon written request from the Agent or at the option of
the Company, a Borrowing Base Certificate calculated as of the date
requested by the Agent in such request or selected by the Company, as
the case may be, in reasonable detail satisfactory to the Agent;
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(iii) Quarterly Property Operating Statements: as soon as
available and in any event within 45 days after the end of each
calendar quarter of each year, (a) an operating statement with respect
to each Mortgaged Property, (b) a consolidated operating statement with
respect to all Mortgaged Properties and (c) a consolidated operating
statement with respect to all Designated Mortgaged Properties, in each
case for such calendar quarter (and, in the case of clauses (a) and
(c), setting forth in comparative form the corresponding figures for
the corresponding calendar quarter of the prior year, all of the
foregoing in reasonable detail satisfactory to the Agent and certified
by an Authorized Officer of the Company stating that such statements of
Property Gross Revenues and Operating Expenses and other expenses
fairly present, in all material respects, the results of operations of
the Properties indicated for the periods indicated;
(iv) Quarterly Financial Statements: as soon as available and
in any event within 45 days after the end of each calendar quarter of
each calendar year, the consolidated balance sheet of the Company and
its Subsidiaries as at the end of such calendar quarter and the related
consolidated statements of income, stockholders' equity and cash flows
of the Company and its Subsidiaries for such calendar quarter and for
the period from the beginning of the then current calendar year to the
end of such calendar quarter, setting forth in each case in comparative
form the corresponding figures for the corresponding periods of the
previous year all in reasonable detail and certified by an Authorized
Officer of the Company stating that they fairly present, in all
material respects, the financial condition of the Company and its
Subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated, subject to
changes resulting from audit and normal year-end adjustments;
(v) Year-End Financial Statements: as soon as available and in
any event within 90 days after the end of each calendar year, (a) the
consolidated balance sheet of the Company and its Subsidiaries as at
the end of such calendar year and the related consolidated statements
of income, stockholders' equity and cash flows of the Company and its
Subsidiaries for such calendar year, setting forth in each case in
comparative form the corresponding figures for the previous calendar
year all of the foregoing in reasonable detail and certified by an
Authorized Officer of the Company stating that they present fairly, in
all material respects, the financial condition of the Company and its
Subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated, and (b) in
the case of such consolidated financial statements, a report thereon of
Arthur Andersen LLP or other independent accountants of recognized
national standing selected by the Company and reasonably satisfactory
to the Agent, which report shall be unqualified, shall express no
doubts about the ability of the Company and its Subsidiaries to
continue as a going concern and shall state that such consolidated and
consolidating financial statements fairly present, in all material
respects, the financial position of the Company and its Subsidiaries as
at the dates indicated and the results of their operations and their
cash flows for the periods indicated in conformity with GAAP applied on
a basis consistent with prior years (except as otherwise disclosed in
such financial statements) and that the examination by such accountants
in connection with
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such consolidated financial statements has been made in accordance with
generally accepted auditing standards;
(vi) Officer's and Compliance Certificates: together with each
delivery of financial statements of the Company and its Subsidiaries
pursuant to subdivisions (i), (iii), (iv), and (v) above, (a) an
Officer's Certificate of the Company stating that the signers have
reviewed the terms of this Agreement and have made, or caused to be
made under their supervision, a review in reasonable detail of the
transactions and condition of the Company and its Subsidiaries and the
Collateral during the accounting period covered by such financial
statements and state that such review has not disclosed the existence
during or at the end of such accounting period, and that the signers do
not have knowledge of the existence as at the date of such Officer's
Certificate, of any condition or event that constitutes an Event of
Default or Potential Event of Default, or, if any such condition or
event existed or exists, specifying the nature and period of existence
thereof and what action the Company has taken, is taking and proposes
to take with respect thereto; and (b) a Compliance Certificate
demonstrating in reasonable detail compliance during and at the end of
the applicable accounting periods with the covenants set forth in
Section 6;
(vii) Accountants' Certification: together with each delivery
of financial statements of the Company pursuant to subdivisions (v)
above, a written statement by Arthur Andersen LLP or other independent
accountants of recognized national standing selected by the Company and
reasonably satisfactory to the Agent giving the report thereon (a)
stating in substance that their audit examination has included a review
of the terms of this Agreement and the other Loan Documents as they
relate to accounting matters, (b) stating whether, in connection with
their audit examination, any condition or event that constitutes an
Event of Default or Potential Event of Default has come to their
attention and, if such a condition or event has come to their
attention, specifying the nature and period of existence thereof;
provided, however, that such accountants shall not be liable by reason
of any failure to obtain knowledge of any such Event of Default or
Potential Event of Default that would not be disclosed in the course of
their audit examination, and (c) stating in substance that based on
their audit examination nothing has come to their attention that causes
them to believe either or both that the information contained in the
certificates delivered therewith pursuant to subdivision (vi) above is
not correct or that the matters set forth in the Compliance
Certificates delivered therewith pursuant to subdivision (vi) above for
the applicable calendar year are not stated in accordance with the
terms of this Agreement;
(viii) Accountants' Reports: promptly upon receipt thereof
(unless restricted by applicable professional standards), copies of all
reports submitted to the Company by Arthur Andersen LLP or any other
independent accountants in connection with each annual, interim or
special audit of the consolidated financial statements of the Company
and its Subsidiaries made by such accountants, including any comment
letter submitted by such accountants to management in connection with
their annual audit;
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(ix) Quarterly FF&E and Capital Items Reports; Certain
Contingent Obligations: as soon as available and in any event within 25
days after the end of each calendar quarter, (a) a statement as to the
Company's reserves for FF&E as of the last day of such quarter and as
to the amount actually spent by the Company on FF&E and Capital Items
during such quarter with respect to each Mortgaged Property, in
reasonable detail satisfactory to the Agent and certified by an
Authorized Officer of the Company and (b) a list of all material
Contingent Obligations, contingent liabilities and liabilities for
taxes, long-term lease or unusual forward or long-term commitments that
were not set forth in the financial statements delivered pursuant to
this subsection 5.1 (including the notes thereto) or on Schedule 4.3
annexed hereto.
(x) SEC Filings and Press Releases: promptly upon their
becoming available, copies of (a) all financial statements, reports,
notices and proxy statements sent or made available generally by the
Company to its security holders, (b) all regular and periodic reports
and all registration statements (other than on Form S-8 or a similar
form) and prospectuses, if any, filed by the Company with the New York
Stock Exchange, Inc., any other securities exchange or with the
Securities and Exchange Commission or any Governmental Authority or
private regulatory authority, and (c) all press releases and other
statements made available generally by the Company or any of its
Subsidiaries to the public or to the security holders of the Company;
(xi) Events of Default, etc.: promptly upon the Company
obtaining knowledge (a) of any condition or event that constitutes an
Event of Default or Potential Event of Default, or becoming aware that
the Agent or any Lender has given any notice or taken any other action
with respect to a claimed Event of Default or Potential Event of
Default, (b) that any Person has given any notice to the Company or
taken any other action with respect to a claimed default or event or
condition of the type referred to in subsection 7.1B, 7.1C, 7.1D or
7.1E, (c) of any condition or event that constitutes or may (upon the
giving or receiving of notice or the lapse of time, later, or
otherwise) a default, a potential event of default, an event of default
(in each case, as defined in the agreement or instrument creating,
evidencing or governing any such Indebtedness) under or with respect to
any Indebtedness in an aggregate principal amount of $1,000,000 or more
(other than the Indebtedness hereunder), or any Related Document, or
becoming aware that any agent, trustee, lender or security holder with
respect thereto has given any notice or taken any other action with
respect to such condition or event, (d) of any condition or event that
would be required to be disclosed in a current report filed by the
Company with the Securities and Exchange Commission on Form 8-K (Items
1, 2, 4, and 6 of such Form as in effect on the date hereof) if the
Company were required to file such reports under the Exchange Act, (e)
that there has commenced, or is intended to be commenced, a Material
Renovation/Restoration of any Property with respect to which a written
notice of renovation or restoration shall not previously have been
delivered to the Agent or (f) of the occurrence of any event or change
that has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect, an
Officer's Certificate specifying the nature and period of existence of
such condition, event or change, or specifying the notice given or
action taken by any such Person and the nature
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of such claimed Event of Default, Potential Event of Default, default,
event or condition, and what action the Company has taken, is taking
and proposes to take with respect thereto;
(xii) Litigation or Other Proceedings: (a) promptly upon the
Company obtaining knowledge of (x) the institution of any action, suit,
proceeding (whether administrative, judicial or otherwise),
governmental investigation or arbitration against or affecting the
Company or any of its Subsidiaries, or any property of the Company or
such Subsidiary (collectively, "PROCEEDINGS") not previously disclosed
in writing by the Company to the Lenders or (y) any material
development in any Proceeding that, in any case:
(a) if adversely determined, could reasonably be
expected to have, a material adverse effect on any Mortgaged
Property or to have, either individually or in the aggregate,
a Material Adverse Effect; or
(b) seeks to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as
a result of, the transactions contemplated hereby;
written notice thereof together with such other information as may be
reasonably available to the Company to enable the Agent and its counsel
to evaluate such matters; and (b) within 90 days after the end of each
calendar year, a schedule of all Proceedings involving an alleged
liability of, or claims against or affecting, the Company and its
Subsidiaries equal to or greater than $1,000,000 individually or
$5,000,000 in the aggregate, and promptly after request by the Agent
such other information as may be reasonably requested by the Agent to
enable the Agent and its counsel to evaluate any of such Proceedings;
(xiii) ERISA Events and Notices: (a) promptly upon becoming
aware of the occurrence of or forthcoming occurrence of any ERISA
Event, a written notice specifying the nature thereof, what action the
Company or any of its Subsidiaries or any of their respective ERISA
Affiliates has taken, is taking or proposes to take with respect
thereto and, when known, any action taken or threatened by the Internal
Revenue Service, the Department of Labor or the PBGC with respect
thereto; and (b) with reasonable promptness, copies of (x) each
Schedule B (Actuarial Information) to the annual report (Form 5500
Series) filed by the Company or any of its ERISA Affiliates with the
Internal Revenue Service with respect to each Pension Plan; (y) all
notices received by the Company or any of its ERISA Affiliates from a
Multiemployer Plan sponsor concerning an ERISA Event; and (z) copies of
such other documents or governmental reports or filings relating to any
Employee Benefit Plan as the Agent shall reasonably request;
(xiv) Financial Plans: as soon as practicable and in any event
no later than November 30 of each year, projected financial statements
for each Mortgaged Property for the next succeeding calendar year (or,
if reasonably requested by the Agent, the five next succeeding calendar
years) setting forth in detail each line item appearing in the form
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of projected financial statement set forth in Schedule 5.1 annexed
hereto, together with an explanation of the assumptions on which such
forecasts are based, and such other information and projections as the
Agent may reasonably request for any Mortgaged Property, all the
Mortgaged Properties or the Company or any of its Subsidiaries;
(xv) Insurance: as soon as practicable and in any event by the
last day of each calendar year, a report in form and substance
reasonably satisfactory to the Agent outlining all material insurance
coverage maintained as of the date of such report by the Company and
its Subsidiaries and all material insurance coverage planned to be
maintained by the Company and its Subsidiaries in the next succeeding
calendar year;
(xvi) Environmental Audits and Reports: as soon as practicable
following receipt thereof, copies of all environmental audits and
reports, whether prepared by personnel of the Company or any of its
Subsidiaries or by independent consultants, with respect to material
environmental matters at any Property or which relate to an
Environmental Claim which could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect;
(xvii) Board of Directors: with reasonable promptness, written
notice of any change in the Board of Directors of the Company;
(xviii) Change in Name or Chief Place of Business: (a)
notification of any change in any Loan Party's name, identity or
corporate structure within 30 days of such change and (b) 30 days'
prior written notice of any change in any Loan Party's executive office
or chief place of business;
(xix) UCC Search Report: as promptly as practicable upon the
request of the Agent after delivery to the Agent of any UCC financing
statement executed by any Loan Party pursuant to subsection 3.1D(ii) or
5.9A, copies of completed UCC searches evidencing the proper filing,
recording and indexing of all such UCC financing statements and listing
all other effective financing statements that name such Loan Party as
debtor, together with copies of all such other financing statements not
previously delivered to the Agent by or on behalf of the Company or
such Loan Party;
(xx) Notices with Respect to Properties: (i) immediately upon
the Company's acquiring actual knowledge of the same, a written notice
with respect to the occurrence or effectiveness of any event or
condition that could reasonably be expected to have a material adverse
effect on one or more of the Mortgaged Properties or to cause the
Property EBITDA in respect of any Designated Mortgaged Property to be
excluded for purposes of calculating the Borrowing Base; and (ii) at
least 20 days prior to the commencement of any Material
Restoration/Renovation of any Mortgaged Property, a written notice of
renovation or restoration with respect thereto and upon the completion
of such Material Renovation/Restoration, a written notice of such
completion;
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(xxi) Supplements to Schedules: if at any time, the
information contained on any Schedule to this Agreement or any other
Loan Document is incomplete or incorrect, the Company shall promptly
and, in any event prior to the next Funding Date, deliver to the Agent
written information that completes or corrects such Schedule; provided
that unless such information (other than any information provided with
respect to Schedules 4.19, 4.21 and 4.25) is approved in writing by the
Agent, such information shall not be deemed to supplement the
applicable Schedule (other than Schedules 4.19, 4.21 and 4.25) for
purpose of this Agreement and the other Loan Documents unless such
information solely reflects an action by the Company which it is
expressly permitted pursuant to the terms of the Loan Documents; and
(xxii) Other Information: with reasonable promptness, such
other information and data with respect to the Loan Parties and their
respective Subsidiaries, the Properties (separately and for all
Properties), the Leases, the other Collateral and the other assets and
liabilities of the Loan Parties and their respective Subsidiaries, as
from time to time may be reasonably requested by the Agent.
5.2 COMMON STOCK.
The Company shall (i) cause its Common Stock to be duly listed on the
New York Stock Exchange, Inc. and (ii) file timely all reports required to be
filed by the Company with the New York Stock Exchange, Inc. or the National
Association of Securities Dealers, Inc., as the case may be, and the Securities
and Exchange Commission.
5.3 CORPORATE EXISTENCE.
Except as permitted pursuant to subsection 6.7, each Loan Party shall,
and shall cause each of its Subsidiaries to, at all times preserve and keep in
full force and effect its corporate or partnership existence and all
Authorizations, rights and franchises material to its business.
5.4 TAXES AND POTENTIAL LIEN CLAIMS; TAX CONSOLIDATION.
A. TAXES AND POTENTIAL LIEN CLAIMS. Each Loan Party shall, and shall
cause each of its Subsidiaries to, pay or discharge or cause to be paid or
discharged all Taxes and Impositions imposed upon any Loan Party or any of its
Subsidiaries, or payable by any Loan Party or any of its Subsidiaries with
respect to any Property or other assets or in respect of any of the franchises,
business, income or other property of any Loan Party or any of its Subsidiaries
before the same shall become delinquent and before any penalty accrues thereon,
and will pay, discharge or otherwise satisfy or cause to be paid, discharged or
otherwise satisfied at or before maturity or before they become delinquent, all
claims, including claims for labor, supplies, materials and services that, if
unpaid, might become a Lien (other than a Lien permitted by subsection 6.2) on
the property of any Loan Party or any of its Subsidiaries; provided, however,
that if, by law, any such Imposition is payable, or may at the option of the
taxpayer be paid, in installments, the Company may pay the same or cause it to
be paid, together with any accrued interest on the unpaid balance of such
Imposition, in installments as the same become due and
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before any fine, penalty, interest or cost may be added thereto for the
nonpayment of any such installment and interest; provided further, however, that
no such charge or claim (other than the Notes and any Obligations arising under
any of the Loan Documents) needs to be paid if (i) such charge or claim is being
diligently contested in good faith by appropriate proceedings, (ii) reserves
consistent with GAAP or otherwise consented to by the Agent shall have been made
therefor by such Loan Party or such Subsidiary, (iii) such charge or claim does
not constitute and is not secured by any Lien (other than a Lien permitted by
subsection 6.2) on any portion of the Collateral and none of the Collateral is
in jeopardy of being sold, forfeited or lost during or as a result of such
contest, (iv) none of any Loan Party, or any of its Subsidiaries, the Agent or
any Lender could become subject to any civil fine or penalty not adequately
reserved against (in the case of any Loan Party or Subsidiary thereof) or
criminal fine or penalty, in each case as a result of non-payment of such charge
or claim and (v) such contest has not had and could not reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect.
Upon request by the Agent, each Loan Party shall, and shall cause each of its
Subsidiaries to, deliver to the Agent all receipts evidencing the payment of all
such Taxes, Impositions, assessments, levies, permits, fees, rents and other
public charges imposed upon or in respect of or assessed against any Loan Party,
any of its Subsidiaries or any of their respective properties or assets.
B. TAX CONSOLIDATION. Each Loan Party will not, and will not permit any
of its Subsidiaries to, file or consent to the filing of any consolidated income
tax return with any Person other than the Company and its Subsidiaries.
5.5 MAINTENANCE OF PROPERTIES; REPAIR; ALTERATION.
A. MAINTENANCE, REPAIR AND ALTERATION. Each Loan Party shall, and shall
cause each of its Subsidiaries to, (i) maintain or cause to be maintained each
Mortgaged Property and all other items of Collateral in a manner consistent for
hotel properties and related property, and other property and assets
constituting the Collateral, in each case of the same quality and character and
shall keep or cause to be kept every part thereof and its other properties in
good condition and repair, reasonable wear and tear excepted, and make all
reasonably necessary repairs, renewals or replacements thereto as may be
reasonably necessary to conduct the business of such Loan Party and its
Subsidiaries; (ii) not remove, demolish or structurally alter, or permit or
suffer the removal, demolition or structural alteration of, any of the
Improvements relating to a Mortgaged Property if the cost of such removal,
demolition or structure alteration (together with the cost of any related
Renovation) would exceed $500,000 in the case of any individual Mortgaged
Property or $2,000,000 in the aggregate in the case of all Mortgaged Properties
(measured, with respect to the applicable Mortgaged Properties, on a cumulative
basis from the applicable Addition Date), except as expressly permitted
hereunder or with the prior written consent of the Agent; (iii) complete
promptly and in a good and workmanlike manner any Improvements which may be now
or hereafter constructed on any Mortgaged Property and, subject to subsection
5.11, promptly restore in like manner any portion of such Improvements which may
be damaged or destroyed thereon from any cause whatsoever, and pay when due all
claims for labor performed and materials furnished therefor; (iv) comply in all
material respects with all Applicable Laws, applicable Insurance Requirements
and all covenants, conditions and
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restrictions now or hereafter affecting any Mortgaged Property or other item of
Collateral or any part thereof or requiring any alterations or improvements; and
(v) not commit, or permit, any waste of the Collateral which constitutes real
property.
B. ENVIRONMENTAL REPAIRS. The Company shall complete, or cause to be
completed, all environmental repairs and recommendations set forth on Schedule
5.5B annexed hereto by the applicable dates set forth on Schedule 5.5B.
5.6 INSPECTION; LENDER MEETING; APPRAISALS.
A. INSPECTION AND LENDER MEETING. Upon reasonable notice and at such
reasonable times during normal business hours and as often as may be reasonably
requested, each Loan Party shall, and shall cause each of its Subsidiaries to,
permit any authorized representatives designated by the Agent to visit and
inspect any Mortgaged Property, including its and their financial and accounting
records, tenant leasing files and other management books and records, and to
make copies and take extracts therefrom, and to discuss its and their affairs,
operations, finances and accounts with its and their officers, property managers
and independent accountants (provided that any Loan Party or any such Subsidiary
may, if it so chooses, be present at or participate in any such discussion)
Without in any way limiting the foregoing, the Company will, upon the request of
the Agent, participate in a meeting with the Agent and the Lenders once during
each calendar year to be held at the Company's corporate offices (or such other
location as may be agreed to by the Company and the Agent) at such time as may
be agreed to by the Company and the Agent.
B. APPRAISALS. The Agent may from time to time (and shall upon the
written request of the Company, which request shall be made no more than once in
each calendar year) obtain Appraisals of any Mortgaged Property (which
Appraisals shall, if applicable with respect to any approved Renovation of such
Property, contain an estimate of the appraised value of such Property upon
completion of such Renovation) and each Loan Party shall, and shall cause each
of its Subsidiaries to, cooperate fully with the Appraiser selected by the Agent
to conduct such Appraisals; provided that the Agent shall not request an
Appraisal for any Property more than once in each calendar year unless the Agent
reasonably believes that an event has occurred which could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect. In the event that any Loan Party or any of its Subsidiaries obtains an
appraisal of one or more of the Mortgaged Properties other than pursuant to this
subsection, the Company shall deliver a copy of such appraisal to the Agent
promptly upon the completion thereof and the Agent may elect, in its sole
discretion and subject to Applicable Laws, to treat such appraisal as an
"APPRAISAL." In the event that the Agent obtains an Appraisal of one or more of
the Mortgaged Properties, the Agent shall deliver a copy of such Appraisal to
the Company upon the completion thereof. If any Appraisal is made with respect
to a Designated Mortgaged Property, the Appraisal shall thereafter be taken into
account in calculating the Property Amount with respect to such Designated
Mortgaged Property, except, in the case of an increase in Appraised Value, to
the extent specified by the Company.
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5.7 COMPLIANCE WITH LAWS, AUTHORIZATIONS, ETC.
Each Loan Party shall, and shall cause each of its Subsidiaries to,
comply in all material respects with the requirements of all Applicable Laws,
except where such noncompliance could not reasonably be expected, either
individually or in the aggregate, (i) to result in any criminal liability or
(ii) to have a Material Adverse Effect. Each Loan Party shall, and shall cause
each of its Subsidiaries to, keep all material Authorizations which are from
time to time required for the use and operation of each Mortgaged Property in
full force and effect.
5.8 PERFORMANCE OF LOAN DOCUMENTS AND RELATED DOCUMENTS.
A. LOAN DOCUMENTS. Each Loan Party shall, and shall cause each of its
Subsidiaries to, observe and perform, or cause to be observed and performed all
its covenants, agreements, conditions and requirements contained in each of the
Loan Documents to which it is or will be a party in accordance with the terms
thereof and will maintain the validity and effectiveness of such Loan Documents.
B. RELATED DOCUMENTS. Each Loan Party shall, and shall cause each of
its Subsidiaries to, observe and perform, or cause to be observed and performed
in all material respects, all its material covenants, agreements, conditions and
requirements contained in each of the Related Documents to which it is a party
in accordance with the terms thereof. Each Loan Party shall take no action, nor
permit any action to be taken, which will release any party to the Related
Documents from any of such party's obligations or liabilities thereunder, or
will result in the termination, modification or amendment, or will materially
impair the validity or effectiveness, of any Related Document except as
expressly provided for herein and therein, which termination, modification,
amendment, release, invalidity or ineffectiveness could reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect. The
Company shall give the Agent written notice of any material default by any party
to any Related Document promptly after such default becomes known to the
Company.
5.9 PAYMENT OF LIENS.
A. REMOVAL BY LOAN PARTIES. In the event that, notwithstanding the
covenants contained in subsection 6.2, a Lien not otherwise permitted under
subsection 6.2 may encumber any Mortgaged Property, other item of Collateral or
Restricted Asset or any portion thereof, the Company shall promptly discharge or
cause to be discharged by payment to the lienor or lien claimant or promptly
secure removal by bonding or deposit with the county clerk or otherwise or, at
the Agent's option, promptly obtain insurance against, any such Lien or
mechanics' or materialmen's claims of lien filed or otherwise asserted against
any Mortgaged Property, other item of Collateral or Restricted Asset or any
portion thereof or against any funds due any contractor, subcontractor,
materials supplier or laborer within 30 days after the date of notice thereof;
provided that this subsection 5.9A shall not be deemed to be a consent to any
such Lien or an waiver of any Event of Default or Potential Event of Default
resulting therefrom. The Company shall exhibit to the Agent upon request all
receipts or other satisfactory evidence of payment of taxes, assessments, Liens
or any other item which may cause any such Lien to be
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filed against any Mortgaged Property, other items of Collateral or Restricted
Asset of any Loan Party or any of its Subsidiaries. Each Loan Party and each of
its Subsidiaries shall fully preserve the Lien and the priority of each of the
Mortgages and the other Security Documents without cost or expense to the Agent
or the Lenders.
B. REMOVAL BY THE AGENT. If any Loan Party or any of its Subsidiaries
fails to promptly discharge or remove any such Lien or mechanics' or
materialmen's claim of lien, other than the Liens permitted pursuant to
subsection 6.2, within 30 days after the receipt of notice thereof, then the
Agent may, but shall not be required to, procure the release and discharge of
such Lien, mechanics' or materialmen's claim of lien and any judgment or decree
thereon, and in furtherance thereof may, in its sole discretion, effect any
settlement or compromise with the lienor or lien claimant or post any bond or
furnish any security or indemnity as the Agent, in its sole discretion, may
elect. In settling, compromising or arranging for the discharge of any Liens
under this subsection, the Agent shall not be required to establish or confirm
the validity or amount of the Lien. The Company agrees that all costs and
expenses expended or otherwise incurred pursuant to this subsection 5.9
(including reasonable attorneys' fees and disbursements) by the Agent shall be
paid by the Company in accordance with the terms hereof.
C. TITLE SEARCHES. In the event that the Agent believes that a Lien not
otherwise permitted under subsection 6.2 may encumber any Mortgaged Property,
other item of Collateral or any Restricted Asset or any portion thereof, the
Agent may, at the expense of the applicable Loan Party or Subsidiary thereof,
obtain an updated title and/or lien search regarding such Mortgaged Property,
other item of Collateral or Restricted Asset.
5.10 INSURANCE.
A. RISKS TO BE INSURED. With respect to each Mortgaged Property, each
Loan Party shall procure or cause to be procured, and each Loan Party shall
maintain or cause to be maintained continuously in effect, insurance coverage
issued by an insurer (i) authorized to issue such insurance in all applicable
jurisdictions, (ii) rated "A" (or its equivalent) or better by Alfred M. Best
Company, Inc., (iii) with a financial size rating of "IX" (or its equivalent) or
better with respect to the Company's umbrella liability policy and "X" (or its
equivalent) with respect to all other coverage, in each case by Alfred M. Best
Company, Inc., and (iv) otherwise satisfactory to the Agent. Each Loan Party
shall pay, and shall cause each of its Subsidiaries to pay, in a timely manner
all premiums due in connection therewith. All insurance policies shall be issued
by insurers doing business as admitted licensed carriers in the state where such
Mortgaged Property is located, and shall be authorized and licensed to issue
insurance in such state. The insurance to be procured and maintained by the
Company is the following:
(i) Casualty. The Company shall keep, or shall cause its
Subsidiaries to keep, each Mortgaged Property insured for the benefit
of the Agent, in each case, as follows:
(a) All Risk of Physical Loss. Insurance with respect
to the Improvements now or hereafter located on the Mortgaged
Properties and any alterations or additions thereto and the
furniture, fixtures and equipment against any peril
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included within the classification "All Risks of Physical
Loss" with extended coverage (including fire, lightning,
windstorm, sprinkler, hail, explosion, riot, riot attending a
strike, civil commotion, vandalism, malicious mischief,
terrorist acts, aircraft, vehicle and smoke) in an amount
equal to the full insurable value of such Improvements and
such furniture, fixtures and equipment. The term "FULL
INSURABLE VALUE" shall mean the actual replacement cost of
such Improvements and such furniture, fixtures and equipment
(without taking into account any depreciation, and exclusive
of excavations, footings and foundations, landscaping and
paving) determined annually by an insurer, a recognized
independent insurance broker or an appraiser selected (and
approved by the Agent) and paid by the applicable Loan Party
or its Subsidiary; provided, however, that such amount shall
be sufficient to prevent such Loan Party or such Subsidiary
from becoming a co-insurer, and the policy shall contain a
stated value endorsement to that effect.
(b) Builder's Risk. During any period of construction
of Improvements and any repair, restoration, Renovation or
replacement thereof, a standard builder's all risk policy
(completed value non-reporting form) for an amount at least
equal to the full insurable value of the work to be performed
and equipment, supplies and materials to be furnished, as
shall be reasonably approved by the Agent for such purpose,
the coverage of which shall include the hazards described in
subsection 5.10A(i)(a) and building collapse; provided,
however, that such policy may be obtained by a contractor if
it names the Agent and the Company as additional named
insureds and if it otherwise complies with this Agreement.
Such policy shall contain a stated value endorsement so that
no co-insurance provision shall be applicable to any loss
thereunder. Such policy shall contain the provision that
"permission is hereby granted to complete and/or occupy" upon
the earlier to occur of substantial completion of any discrete
increment of the work or a Tenant taking occupancy of any
Mortgaged Property (or portion thereof) as to which work was
being performed.
(c) Flood. Insurance against damage or loss by flood
as to any Mortgaged Property that is located in an area now or
subsequently designated as an area having special flood
hazards and in which flood insurance has been made available
under the National Flood Insurance Act of 1968 (Pub. L. 90-
448, 42 U.S.C. Sections 4001, et seq.), the Flood
Disaster Protection Act of 1973 (Pub. L. 93-234, 42 U.S.C.
Sections 4001, et seq.) or the National Flood Insurance
Reform Act of 1994 (Pub. L. 103-325), as such Acts may be
amended, modified, supplemented or replaced from time to time,
on such basis and not less than such amounts as shall be
reasonably approved by the Agent, but not less than the amount
required by law. If any Loan Party or any of its Subsidiaries
fails to obtain flood insurance as required, the Agent may
purchase such flood insurance, and the Company shall pay all
premiums and other costs and expenses incurred by the Agent.
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(d) Boilers. Broad form boiler and machinery
insurance (without exclusion for explosion) covering all
boilers, boiler tanks, heating and air conditioning equipment,
pressure vessels, auxiliary piping and similar apparatus,
machinery and equipment located in, on or about each Mortgaged
Property insuring against damage or loss from boilers, boiler
tanks, heating and air conditioning equipment, pressure
vessels, auxiliary piping and similar apparatus, machinery and
equipment and insurance against loss of occupancy or use
arising from any such breakdown in such amounts as are
generally available at reasonable premiums and are generally
required by institutional lenders for properties comparable to
the Mortgaged Properties.
(e) Business Interruption or Rental Income Insurance.
Business interruption and/or loss of rental value or use and
occupancy insurance insuring against business interruption at
and against loss of rental income from each Mortgaged Property
due to any of the hazards listed in subsection 5.10A(i)(a)
above in an amount sufficient to avoid any co-insurance
penalty and to provide proceeds for a period not less than one
year of loss.
(f) Earthquake Insurance. With respect to any
Mortgaged Property located in California or other area at high
risk for earthquakes, as determined by the Agent, and at the
discretion of the Agent, earthquake insurance on such basis
and in such amounts as shall be reasonably required by the
Agent.
(ii) Worker's Compensation. Each Loan Party shall maintain,
and shall cause each of its Subsidiaries to maintain, for itself and
for each Mortgaged Property at which such Loan Party or such Subsidiary
maintains employees, statutory workers' compensation insurance (to the
extent the risks to be covered thereby are not already covered by other
policies of insurance maintained by such Loan Party or such
Subsidiary), in statutory amounts as required by law.
(iii) Liability. The Company shall procure and maintain:
(a) Comprehensive General Liability Insurance.
Comprehensive general liability insurance, on an occurrence
basis in the amount of $1,000,000 per occurrence per Mortgaged
Property and $3,000,000 in the aggregate per Mortgaged
Property covering each Loan Party, each of its Subsidiaries
and the Agent against claims for bodily injury, death and
property damage (including claims and legal liability to the
extent insurable imposed upon the Agent and all court costs
and attorneys' fees and expenses), arising out of or connected
with the possession, use, leasing, operation, maintenance or
condition of each Mortgaged Property or occurring in, upon or
about or resulting from each Mortgaged Property, or any drive,
sidewalk, curb or passageway adjacent thereto (to the extent
insurable), which insurance shall include blanket contractual
liability coverage which insures contractual liability (to the
extent insurable) under the indemnification set forth in
subsection 8.3 of this Agreement (but such coverage
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or the amount thereof shall in no way limit such
indemnification), garage liability (if applicable), products
liability (if applicable) and elevator liability (if
applicable) coverage and during any period of construction of
any Improvements, owner's and contractor's protective
liability coverage, including completed operations liability
coverage.
(b) Employer's Liability. Employer's liability
insurance on such basis and in such amounts as shall be
reasonably required by the Agent.
(c) Public Liability and Property Damage. Broad form
public liability and property damage insurance on an
occurrence basis in connection with any Renovation being
performed at any Mortgaged Property, to be carried by any
contractor or construction manager or by any Person, including
any Loan Party or any of its Subsidiaries, performing a
similar function, including "Course of Construction" coverage
in the amount of $1,000,000 per occurrence and $3,000,000 in
the aggregate.
(d) Liquor Liability and Dram Shop Insurance. Liquor
liability and dram shop insurance on such basis and in such
amounts as shall be reasonably required by the Agent.
(e) Umbrella Liability. Umbrella liability to be
maintained in excess of the comprehensive general liability,
employer's liability, public liability and property damage,
liquor liability and dram shop insurance required pursuant to
subsections 5.10A(iii)(a) through 5.10A(iii)(d) above,
inclusive, in an amount not less than $50,000,000 per
occurrence and in the annual aggregate, written on a per
location basis covering all the Mortgaged Properties.
(iv) Additional Insurance. Each Loan Party shall procure and
maintain, and shall cause each of its Subsidiaries to procure and
maintain, such other insurance with respect to the Mortgaged Properties
against loss or damage of the kinds from time to time customarily
insured against and in such amounts as are generally available at
reasonable premiums and are generally required by institutional lenders
for properties comparable to the Mortgaged Properties.
B. POLICY PROVISIONS. Each policy of insurance maintained in respect of
any Loan Party, any of its Subsidiaries and/or any Mortgaged Property pursuant
to this subsection 5.10 shall (a) in the case of each category of public
liability insurance, name such Loan Party or such Subsidiary, as the case may
be, as insured and name the Agent (for the benefit of the Lenders) as an
additional insured, and in the case of all other insurance required under this
Agreement (other than any such policy maintained solely in respect of one or
more hotel properties that is not a Mortgaged Property), name the Agent (for the
benefit of the Lenders) as an additional insured or as a loss payee, as Agent
shall require; (b) except in the case of public liability insurance and workers'
compensation insurance, provide that all proceeds thereunder shall be payable to
the Agent pursuant to a standard first mortgagee endorsement, without
contribution,
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that all losses with respect to each Mortgaged Property shall be paid
directly to the Agent, without contribution by any similar insurance carried by
the Agent and that adjustment and settlement of any material loss shall be
subject to the reasonable approval of the Agent; (c) include effective waivers
by the insurer of all rights of subrogation against any loss payee, additional
insured or named insured; (d) permit the Agent to pay the premiums and continue
any insurance upon failure of such Loan Party or such Subsidiary, as the case
may be, to pay premiums when due, upon the insolvency of such Loan Party or such
Subsidiary, as the case may be, or through foreclosure or other transfer of
title to such Mortgaged Property; (e) provide that such insurance shall not be
impaired or invalidated by virtue of any act, failure to act, negligence of, or
violation of declarations, warranties or conditions contained in such policy by
such Loan Party or such Subsidiary, as applicable, the Company, the Agent, the
Lenders or any other named insured, additional insured or loss payee, except for
the willful misconduct of the Agent or the Lenders knowingly in violation of the
conditions of such policy, the occupation or use of such Mortgaged Property for
purposes more hazardous than permitted by the terms of the policy, any
foreclosure or other proceeding or notice of sale relating to such Mortgaged
Property or any change in the possession of such Mortgaged Property without a
change in the identity of the holder of actual title to such Mortgaged Property
(provided that with respect to items (3) and (4) any notice requirements of the
applicable policies are satisfied); (f) be subject to a deductible, if any, not
greater than $50,000 (or, with respect to coverage for wind damage or earthquake
damage, such greater amount as shall not exceed 5% of the affected Mortgaged
Property's agreed value); (g) contain an endorsement providing that none of the
Agent, the Lenders or such Loan Party or such Subsidiary, as applicable, shall
be, or shall be deemed to be, a co-insurer with respect to any risk insured by
such policy; and (h) provide that if all or any part of such policy shall be
canceled or terminated, or shall expire, the insurer will forthwith give notice
thereof to each named insured, additional insured and loss payee and that no
cancellation, termination, expiration, reduction in amount of, or material
change (other than an increase) in, coverage thereof shall be effective until at
least 30 days (or 10 days in the case of non-payment for premiums) after receipt
by each named insured, additional insured and loss payee of written notice
thereof.
C. INCREASES IN COVERAGE. The policy limits of any policy of insurance
required hereunder shall be increased from time to time to reflect what a
reasonable prudent owner of land and improvements similar in type and locality
to each Mortgaged Property would carry.
D. PAYMENT OF PROCEEDS. If any such insurance proceeds required to be
paid to the Agent are instead made payable to the Company or any Loan Party or
Subsidiary thereof, the Company hereby appoints the Agent as its
attorney-in-fact, irrevocably and coupled with an interest, to endorse and/or
transfer any such payment to the Agent. Notwithstanding anything to the contrary
contained herein, all Insurance Proceeds attributable to insurance required
pursuant to subsection 5.10A(i)(e) shall be paid to and retained by the
applicable Loan Party so long as no Event of Default shall be continuing.
E. DELIVERY OF COUNTERPART POLICIES; EVIDENCE. Each Loan Party shall
deliver, and shall cause each of its Subsidiaries to deliver, to the Agent on
the Closing Date valid evidence of insurance acceptable to the Agent for the
policies of insurance required by this Agreement or
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any other Loan Document to be carried evidencing (i) the issuance of such
policies, (ii) the payment of all premiums payable for the period ending not
earlier than the first anniversary of the Closing Date and (iii) coverage which
meets all of the requirements set forth in this Agreement. At each time after
the Closing Date that any Loan Party or any of its Subsidiaries is required by
this Agreement or by any Security Document or any other Loan Document to deliver
evidence of insurance, such Loan Party shall deliver, or shall cause such
Subsidiary to deliver, such evidence of valid policies of insurance acceptable
to the Agent evidencing (a) the issuance of the policies of insurance required
by this Agreement or other Loan Document to be carried, (b) the payment of all
premiums then due to the applicable insurer, (c) coverage which meets all of the
requirements set forth in this Agreement or other Loan Document, and (d) that
the required policies are in full force and effect.
F. REPLACEMENT OR RENEWAL POLICIES. Not less than 10 days prior to the
expiration, termination or cancellation of any insurance policy which any Loan
Party or any of its Subsidiaries is required to maintain hereunder, such Loan
Party shall obtain, or shall cause such Subsidiary to obtain, a replacement or
renewal policy or policies (or a binding commitment for such replacement or
renewal policy or policies), which shall be effective no later than the date of
the expiration, termination or cancellation of the previous policy, and shall
deliver to the Agent a valid binder in respect of such policy or policies in the
same form and containing the same information as the expiring policy or policies
required to be delivered by each Loan Party and its Subsidiaries pursuant to
subsection 5.10E or a copy of the binding commitment for such policy complying
with all the requirements of this subsection, followed by a certified true copy
of the policy or policies when issued.
G. MATERIAL CHANGE IN POLICY. Each Loan Party shall deliver, and shall
cause each of its Subsidiaries to deliver, to the Agent concurrently with each
material change in any insurance policy covering any part of the Mortgaged
Properties required to be maintained by each Loan Party and its Subsidiaries
hereunder, a valid binder or policy endorsement with respect to such changed
insurance policy certified by the insurance company issuing such policy, in the
same form and containing the same information as the original evidence of
insurance required to be delivered by each Loan Party and its Subsidiaries
pursuant to subsection 5.10E.
H. REPORTS OF INSURANCE BROKER. Upon request of the Agent, for so long
as any portion of the Loans is outstanding, each Loan Party shall, and shall
cause each of its Subsidiaries to, within 120 days following the end of each
calendar year commencing with the end of 1996, and concurrently with the
delivery of each replacement policy or a binding commitment for the same
pursuant to subsection 5.10F deliver to the Agent a report from a reputable and
experienced insurance broker, or from the insurer, setting forth the particulars
as to all insurance obtained by any Loan Party or any of its Subsidiaries
pursuant to this subsection 5.10 and then in effect and stating that all
premiums then due thereon have been paid to the applicable insurers, that the
same are in full force and effect and that, in the opinion of such insurance
broker or insurer, such insurance otherwise complies in all material respects
with the requirements of this subsection (or if such report shall not be
available after such Loan Party or such Subsidiary shall have used reasonable
efforts to provide the same, such Loan Party or such Subsidiary, as applicable,
will
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deliver to the Agent an Officer's Certificate containing the information to be
provided in such report).
I. SEPARATE INSURANCE. Each Loan Party will not take out, nor will it
permit any of its Subsidiaries to take out, separate insurance concurrent in
form or contributing in the event of loss with that required to be maintained
pursuant to this subsection unless such insurance complies with all of the
requirements of this subsection.
5.11 CASUALTY AND CONDEMNATION.
A. NOTICE OF CASUALTY. Upon the occurrence of any damage to or loss or
destruction of all or any portion of any Mortgaged Property, whether or not
covered by insurance, which results in, or is reasonably expected to result in,
any Insurance Proceeds, (i) the Company shall promptly deliver to the Agent
written notice of the same which shall, among other things, describe such
casualty, and (ii) as soon as practicable but in any event prior to the
commencement of Restoration of such Mortgaged Property, the Company shall inform
the Agent of the details of such casualty, including the Company's plans with
respect thereto.
B. INSURANCE PROCEEDS. All Insurance Proceeds in respect of a Mortgaged
Property or (other than Insurance Proceeds attributable to insurance required
pursuant to subsection 5.10A(ii) and (iii) and 5.10A(i)(e)) and the right
thereto are hereby irrevocably assigned and pledged by each Loan Party to the
Agent for the benefit of the Lenders, and the Agent on behalf of the Lenders is
authorized, at its option, to collect and receive all of the same and to give
proper receipts and acquittances therefor; provided, however, that such Loan
Party shall have the right to cause the Agent to apply Insurance Proceeds in
accordance with subsections 5.11E, 5.11F and 5.11G. Each Loan Party agrees to
execute and to cause each of its Subsidiaries to execute such further
assignments and pledges of any Insurance Proceeds in respect of Mortgaged
Properties as the Agent may reasonably require and shall otherwise cooperate
with the Agent in obtaining for the Agent and the Lenders the benefit of any
Insurance Proceeds lawfully or equitably payable in respect of any such
Mortgaged Property. In no event shall any Loan Party or any of its Subsidiaries
settle, adjust or compromise any claim for Insurance Proceeds in respect of any
Mortgaged Property in excess of $300,000 without the prior written consent of
the Agent, which shall not be unreasonably withheld, delayed or conditioned. If
any Loan Party or any of its Subsidiaries receives any Insurance Proceeds
resulting from such casualty in respect of any Mortgaged Property, such Loan
Party shall promptly endorse and transfer, or cause such Subsidiary to endorse
and transfer, such Insurance Proceeds to the Agent and each Loan Party covenants
that until so paid over to the Agent, such Loan Party or such Subsidiary, as
applicable, shall hold such Insurance Proceeds in trust for the benefit of the
Agent and shall not commingle such Insurance Proceeds with any other funds or
assets of such Loan Party or Subsidiary or any other Person. If, prior to the
receipt by the Agent of such Insurance Proceeds, any Mortgaged Property shall
have been transferred upon foreclosure of the applicable Mortgage (or by deed in
lieu thereof), (x) the property transferred in such foreclosure (or deed in
lieu) shall include the right to collect such Insurance Proceeds to the extent
permitted by law and (y) to the extent not included in the property transferred,
the Agent shall have the right to receive such Insurance Proceeds to the extent
of any deficiency found to be due upon such sale,
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with legal interest thereon, and reasonable counsel fees, costs and
disbursements incurred by the Agent in connection with the collection of such
Insurance Proceeds. The Agent may, but shall not be obligated to, make proof of
loss if not made promptly by the applicable Loan Party or Subsidiary thereof.
Upon the occurrence and during the continuance of an Event of Default (but not
otherwise), the Agent is hereby authorized and empowered by the Company to
settle, adjust or compromise any claims for damage, destruction or loss
thereunder, with or without the consent of any Loan Party or any of its
Subsidiaries (and the Company hereby irrevocably appoints and constitutes the
Agent as the Company's lawful attorney-in-fact, coupled with an interest and
with full power of substitution, for such purpose).
C. NOTICE OF CONDEMNATION; NEGOTIATION AND SETTLEMENT OF CLAIMS. The
Loan Parties shall, and shall cause their respective Subsidiaries to, promptly
deliver written notice to the Agent upon obtaining knowledge of the institution,
or the proposed institution, of any bona fide action or proceeding for the
Taking of all or any portion of any Mortgaged Property which will cost (or may
reasonably be expected to cost) more than $300,000 to Restore. The Agent shall
have the right to participate in any negotiation, action or proceeding relating
to any such action or proceeding affecting any Mortgaged Property, and no
settlement or compromise of any claim in connection with any such action or
proceeding shall be made without the consent of the Agent, which consent shall
not be unreasonably withheld, delayed or conditioned. Upon the occurrence of any
Taking with respect to a Mortgaged Property which will cost (or may reasonably
be expected to cost) more than $300,000 to Restore, as determined by the Company
and so certified in an Officer's Certificate delivered to the Agent, as soon as
practicable thereafter but in any event prior to the commencement of any
Restoration of such Mortgaged Property, the Company shall deliver to the Agent a
written notice of renovation or restoration which shall, among other things,
describe the applicable Taking, the Company's plans with respect to Restoration
of such Mortgaged Property.
D. CONDEMNATION PROCEEDS. All Condemnation Proceeds in respect of each
of the Mortgaged Properties and the right thereto are hereby irrevocably
assigned and pledged by each Loan Party to the Agent for the benefit of the
Lenders, and the Agent on behalf of the Lenders is authorized, at its option, to
collect and receive all such Condemnation Proceeds and to give proper receipts
and acquittances therefor; provided, however, that such Loan Party shall have
the right to cause the Agent to apply Condemnation Proceeds in accordance with
subsections 5.11E, 5.11F and 5.11G. Each Loan Party agrees to execute, and to
cause each of its Subsidiaries to execute, such further assignments of any
Condemnation Proceeds in respect of any Mortgaged Property as the Agent may
reasonably require and shall otherwise cooperate with the Agent in obtaining for
the Agent and the Lenders the benefit of any Condemnation Proceeds lawfully or
equitably payable in respect of such Mortgaged Property. In no event shall any
Loan Party or any of its Subsidiaries settle, adjust or compromise any claim for
Condemnation Proceeds in excess of $300,000 in respect of any Mortgaged Property
without the prior written consent of the Agent, which shall not be unreasonably
withheld, delayed or conditioned. If any Loan Party or any of its Subsidiaries
receives any Condemnation Proceeds resulting from such condemnation in respect
of any Mortgaged Property, such Loan Party or such Subsidiary shall promptly
endorse and transfer such Condemnation Proceeds to the Agent and each Loan Party
covenants that until so paid over to the Agent, such Loan Party or Subsidiary,
as the case may
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be, shall hold such Condemnation Proceeds in trust for the benefit of the Agent
and shall not commingle such Condemnation Proceeds with any other funds or
assets of such Loan Party or Subsidiary or any other Person. If, prior to the
receipt by the Agent of such Condemnation Proceeds, the portion of the Mortgaged
Property, subject to such action or proceeding shall have been sold on
foreclosure of the applicable Mortgage (or by deed in lieu thereof), the Agent
shall have the right to receive such Condemnation Proceeds to the extent (x)
such Condemnation Proceeds are attributable to a Taking occurring prior to
foreclosure or delivery of any deed in lieu thereof and (y) of any deficiency
found to be due upon such sale, with legal interest thereon, and reasonable
counsel fees, costs and disbursements incurred by the Agent in connection with
the collection of such Condemnation Proceeds. The Agent may, but shall not be
obligated to, make proof of loss if not made promptly by the applicable Loan
Party or Subsidiary thereof. Upon the occurrence and during the continuance of
an Event of Default (but not otherwise), the Agent is hereby authorized and
empowered by each Loan Party to settle, adjust or compromise any claims for
Condemnation Proceeds with or without the consent of such Loan Party or any of
its Subsidiaries (and the Company hereby irrevocably appoints and constitutes
the Agent as the Company's lawful attorney-in-fact, coupled with an interest and
with full power of substitution, for such purpose).
E. CERTAIN MINOR CASUALTIES AND TAKINGS. In the event of any casualty
or Taking with respect to a Mortgaged Property, which will cost (or may
reasonably be expected to cost) less than $300,000 to Restore, as determined by
the Company and so certified in an Officer's Certificate delivered to the Agent:
(i) the Company shall commence the Restoration of such
Mortgaged Property and may deliver to the Agent, no more frequently
than once in any thirty day period, an Officer's Certificate to the
Agent certifying (a) the aggregate amount of expenditures made by the
Company in furtherance of the Restoration since the commencement of the
Restoration or, if applicable, the delivery of the preceding Officer's
Certificate and (b) if applicable, that the Restoration has been
completed;
(ii) upon receipt of an Officer's Certificate pursuant to
clause (i) above, the Agent shall reimburse the Company for the
expenditures referred to in such Officer's Certificate in an aggregate
amount not greater than the amount of Insurance Proceeds then held by
the Agent with respect to such casualty or Taking and, the Restoration
is complete, pay to the Company all remaining Insurance Proceeds then
held by the Agent with respect to such casualty or Taking to the
Company.
F. REDUCTION OF BORROWING BASE; PAYMENT OF RELEASE PRICE. In the event
of any casualty or Taking with respect to a Mortgaged Property, which will cost
(or may reasonably be expected to cost) more than $300,000 to Restore, as
determined by the Company and so certified in an Officer's Certificate delivered
to the Agent, the Company shall elect by written notice delivered to the Agent
as soon as practicable thereafter, but in any event before the earlier of (i)
twenty-one (21) days after the occurrence of such casualty or Taking and (ii)
the commencement of the Restoration of such Mortgaged Property, either:
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(a) to Release such Mortgaged Property pursuant to subsection
2.11, prepay the Loans in an amount equal to the Release Price with
respect to such Mortgaged Property and recompute the Borrowing Base as
provided in subsection 2.5B(iii) or
(b) if all the following conditions shall be satisfied, to
Restore such Property pursuant to subsection 5.11G:
(1) the Maturity Date shall then not have occurred;
(2) no Potential Event of Default or Event of Default
shall have occurred and be continuing;
(3) the Agent shall have determined that the Company
is in compliance in all respects with the provisions of
subsection 5.11G;
(4) the Agent shall have determined, in its
reasonable discretion, that Restoration of such Property is,
under the circumstances then existing, physically and
economically feasible and can be completed in accordance with
subsection 5.11G on or before a date not less than six months
prior to the Maturity Date;
(5) the Loan Parties and their respective
Subsidiaries shall have business interruption insurance
complying with subsection 4.10 in an amount at least equal to
the reduction in Property EBITDA with respect to such
Mortgaged Property, if any, which the Company reasonably
expects to suffer during the period of Restoration;
(6) either (A) the Net Insurance/Condemnation
Proceeds shall be sufficient to complete the costs of such
Restoration, as determined by the Agent in its reasonable
discretion, or (B) the Loan Parties and their respective
Subsidiaries shall have provided a letter of credit
satisfactory to the Agent, in its reasonable discretion (or
other collateral reasonably satisfactory to the Agent), for
the amount of any shortfall in the amount of Net
Insurance/Condemnation Proceeds necessary to cover the costs
to complete such Restoration.
If the Loan Parties and their respective Subsidiaries shall fail to
satisfy the conditions set forth in clause (b) of the preceding sentence or in
subsection 5.11G with respect to the related Mortgaged Property, or shall fail
to diligently and continuously prosecute the Work to completion, as determined
by the Agent, in its reasonable discretion, then, the Borrowing Base shall be
recomputed as provided in subsection 2.5B(iii), the Company shall prepay the
Loans in an amount equal to the Release Price with respect to such Mortgaged
Property and the Agent shall apply any or all remaining Insurance Proceeds or
Condemnation Proceeds, as applicable, towards such prepayment and the Mortgaged
Property shall be Released pursuant to subsection 2.11.
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G. RESTORATION WITH NET INSURANCE/CONDEMNATION PROCEEDS. In the event
of any casualty or Taking with respect to a Mortgaged Property, which will cost
(or may reasonably be expected to cost) more than $300,000 to Restore, as
determined by the Company and so certified in an Officer's Certificate delivered
to the Agent, if any of the Loan Parties and their respective Subsidiaries
elects to Restore a Mortgaged Property, pursuant to this subsection 5.11G and
the conditions set forth in clause (ii) of the first sentence of subsection
5.11F are satisfied, all Net Insurance/Condemnation Proceeds shall be held by
the Agent in an interest-bearing account at the Agent, with all interest to be
held therein until completion and final inspection of the Work, and shall be
applied by the Agent to the payment of the cost of Restoring such Mortgaged
Property so damaged or destroyed or of the portion or portions of such Mortgaged
Property not so Taken (the "WORK") and shall be paid out from time to time to
the Company as the Work progresses, subject to retainage as determined by the
Agent and otherwise in accordance with any conditions reasonably imposed by the
Agent but subject to each of the following conditions:
(i) The Company shall promptly (and in any event within 90
days after the applicable casualty or Taking) commence, or cause the
commencement of, Restoration of such Mortgaged Property.
(ii) If the Work is structural or if the cost of the Work, as
estimated by the Company, shall exceed with respect to a Mortgaged
Property, the lesser of 25% of the Property Amount with respect to such
Mortgaged Property and $300,000, the Work shall be in the charge of an
architect or Engineer. Before any Loan Party or any of its Subsidiaries
commences any Work, other than temporary work to protect property or
prevent interference with business, the Agent shall have approved the
plans and specifications and the general contract for the Work to be
submitted by such Loan Party or such Subsidiary, which approval shall
not be unreasonably withheld, delayed or conditioned. Such plans and
specifications shall provide for such Work that, upon completion
thereof, the Improvements shall (x) be in compliance in all material
respects with all Applicable Laws and (y) be at least equal in value
and general utility to the Improvements which were on such Property
prior to the casualty or Taking. Such plans and specifications shall be
accompanied by (1) a signed estimate of the Company, or, if an
architect or Engineer is required to supervise the Work, such architect
or Engineer, stating the estimated cost of completing the Work, which
estimate shall bear the architect's or Engineer's seal if not made by
the Company and (2) to the extent necessary at such stage of the Work,
certified copies of all Authorizations required in connection with the
commencement and performance of the Work.
(iii) Each request for payment shall be made on seven days'
prior notice to the Agent and shall be accompanied by paid invoices and
by a certificate to be made by such architect or Engineer, if one be
required under clause (ii) above, otherwise by an Officer's Certificate
of the Company, stating (a) that all of the Work completed has been
done in substantial compliance with the approved plans and
specifications, if any be required under said clause (ii) above, (b)
that the sum requested is justly required to reimburse any of the Loan
Parties and their respective Subsidiaries for payments made by the
applicable Loan Party or Subsidiary thereof to, or is justly due to,
the contractor, subcontractors,
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materialmen, laborers, engineers, architects or other Persons rendering
services or materials for the Work (giving a brief description of such
services and materials), and that when added to all sums previously
paid out by the Agent does not exceed the cost of the Work done to the
date of such certificate, and (c) that either (x) the amount of such
proceeds remaining in the hands of the Agent, or (y) the amount of such
funds, plus funds in the hands of the applicable Loan Party or
Subsidiary thereof from other sources irrevocably committed to the
completion of the Work in a manner satisfactory to the Agent
(including delivery of such funds to the Agent for application to pay
the costs of the Restoration), will be sufficient on completion of
the Work to pay for the same in full (giving in such reasonable
detail as the Agent may require an estimate of the cost of such
completion).
(iv) Each request shall be accompanied by waivers of lien
satisfactory to the Agent covering that part of the Work for which
payment or reimbursement is being requested and by a search prepared by
the Title Company satisfactory to the Agent establishing that there has
not been filed with respect to such Mortgaged Property any mechanics'
or other lien or instrument for the retention of title in respect of
any part of the Work not discharged of record or bonded to the
reasonable satisfaction of the Agent and insuring the continued
priority of the Mortgage and Assignment of Rents and Leases on such
Mortgaged Property.
(v) The request for any payment after the Work has been
completed shall be accompanied by (a) evidence that the improvements
being rebuilt, repaired or restored have been accomplished in
accordance with all Applicable Laws and the certificate of occupancy,
if applicable; and (b) final lien waivers for all labor, materials and
supplies from all contractors, subcontractors and materialmen.
(vi) After commencing the Work, the Company shall, subject to
Excusable Delays, perform, or shall cause the applicable Loan Party or
Subsidiary thereof to perform, the Work diligently and in good faith in
a good and workmanlike manner to completion in accordance with the
approved plans and specifications, if applicable.
(vii) The Company shall have obtained and maintained, or shall
have caused the applicable Loan Party or Subsidiary thereof to obtain
and maintain, completed value builders' risk (all risk) insurance with
an insurer reasonably satisfactory to the Agent, and with loss payable
to the Agent.
(viii) The Agent shall have received, or the Company shall
have done, each other item reasonably requested by the Agent.
All costs and expenses of any Restoration, including, without
limitation, any Work, Engineer's fees, architect's fees or contractors fees and
the cost and expenses of complying with this subsection 5.11G, shall be for the
account of the Company.
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Upon completion of the Work and payment in full therefor, the Agent
will return to the Company the amount of any unspent Insurance Proceeds or
Condemnation Proceeds then or thereafter in the hands of the Agent on account of
the casualty or Taking that necessitated such Work, together with all
undisbursed accrued interest thereon. Nothing in this subsection shall prevent
the Agent from applying at any time all or any part of the Insurance Proceeds or
Condemnation Proceeds to the curing of any Potential Event of Default or Event
of Default under this Agreement or any other Loan Document.
H. ENGINEER'S INSPECTION. At any time after the Agent becomes aware of
a casualty or Taking involving an aggregate amount in excess of $300,000 (as
reasonably determined by the Company and so certified in an Officer's
Certificate delivered to the Agent) the Agent may hire an independent engineer
to inspect the applicable Mortgaged Property and the Agent may deem any related
Restoration not complete unless the engineer approves the Restoration. The cost
of such inspection shall be for the account of the Company.
5.12 RENOVATIONS.
A. NOTICE OF RENOVATION; RENOVATION PLANS. If the Company or any of its
Subsidiaries intends to Renovate any Mortgaged Property and such Renovation
shall constitute a Material Renovation/Restoration, the Company shall, prior to
the commencement of any such Renovation, deliver to the Agent the following: (i)
a written notice of renovation or restoration with respect thereto, which shall,
among other things, described the Company's plans with respect to such
Renovation and the nature and extent of any interruption in operations
(including the percentage of available rooms that will be out-of-order and the
duration of any such unavailability) caused by the Renovation; (ii) a project
budget (as revised and supplemented from time to time in accordance with this
subsection 5.12A, the "RENOVATION BUDGET") satisfactory in form to the Agent and
setting forth, among other things, the aggregate costs for such Renovation, and
the aggregate cost for each line item in such budget; (iii) an estimated time
schedule for such Renovation, satisfactory in form to the Agent and setting
forth, among other things, the projected completion date, the number of rooms
that will be unavailable for business as a result of such Renovation and the
duration of such unavailability; (iv) a description of such Renovation in
reasonable detail as may be requested by the Agent (as revised and supplemented
from time to time in accordance with this subsection 5.12A, the "RENOVATION
PLANS") which shall be reasonably satisfactory in form and substance to the
Agent; and (v) all such other information or materials with respect to the
Renovation that the Agent may reasonably request. In the event the Company, or
any applicable Subsidiary changes the scope of the intended Renovation, revises
the Renovation Budget (including the estimated amounts contained therein), or
revises or modifies the Renovation Plans, the Company shall promptly deliver to
the Agent a supplement to the Renovation Budget or Renovation Plans or a revised
Renovation Budget or revised Renovation Plans, as applicable, which shall be
satisfactory in form and substance to the Agent.
B. CONDUCT OF RENOVATION; COSTS. The Company shall, or shall cause its
Subsidiaries to, complete the Renovation promptly, in a good and workmanlike
manner and in accordance with the Renovation Plans. All costs and expenses of
any Renovation, including,
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without limitation, the cost and expenses of complying with this subsection
5.12, shall be for the account of the Company.
C. COMPLETION CERTIFICATE. Upon completion of the Renovation, the
Company shall promptly deliver to the Agent a written notice of completion with
respect thereto.
D. ENGINEER'S INSPECTION. At any time after the Agent becomes aware of
a Renovation involving an aggregate amount in excess of $300,000 (as reasonably
determined by the Company and so certified in an Officer's Certificate delivered
to the Agent), the Agent may, hire an independent engineer to inspect the
applicable Mortgaged Property and the related Renovation and the Agent may deem
such Renovation not complete unless the engineer approves such Renovation. The
cost of such inspection shall be for the account of the Company.
5.13 BRUNDAGE CLAUSE.
In the event of the enactment of or change in (including a change in
interpretation of) any Applicable Law (i) deducting or allowing any Loan Party
or any of its Subsidiaries to deduct from the value of any Mortgaged Property
for the purpose of taxation any Lien thereon, (ii) subjecting any Lender to any
tax in respect of, or changing the basis of taxation in respect of, the
Mortgages, or the manner of collection of such taxes, or (iii) for the taxation
of mortgages or debts secured by mortgages or in the means of collection of any
such tax, in each such case, so as to affect any Lender or the Notes or the
Mortgages or any other Loan Document, and the result is to increase the taxes
imposed upon or the cost to any Lender of maintaining the Loans, or to reduce
the amount of any payments receivable under the Notes, the Mortgages or any
other Loan Document, or to invalidate the Lien created by any Security Document,
then, in any such event, the Company shall, within ten days of receipt of a
request therefor, pay to such Lender additional amounts to compensate for such
increased costs or reduced amounts; provided, however, that if any Lender makes
such a request, or if the Lien created by any Security Document may be
invalidated, then the Company shall have the right, and, in the case of such
invalidation, shall have the obligation, to reduce the Commitments and prepay
the Loans, in accordance with the provisions of this Agreement and the Notes;
provided further, however, that if any such payment or reimbursement shall be
unlawful or would constitute usury or render the Loans wholly or partially
usurious under Applicable Law, then the Agent may, in its sole discretion,
declare the Loans immediately due and payable and/or require the Company to pay
or reimburse the Lenders for payment of the lawful and non-usurious portion
thereof not less than 180 days after notice of such declaration.
5.14 INTEREST RATE PROTECTION.
In the event and to the extent that the sum of (i) the aggregate
principal amount of the Loans plus (ii) the aggregate principal amount of other
Indebtedness of the Company and its Subsidiaries bearing interest or requiring
other payments to be made based on a rate that is not fixed to maturity exceeds
50% of the Consolidated Total Indebtedness ("EXCESS DEBT") of the Company and
its Subsidiaries, then, within five Business Days from the day such excess
occurs, the Company shall obtain and thereafter shall maintain (until such time
as no such Excess Debt
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is outstanding) interest rate protection on terms and with counterparties
acceptable to the Agent in a notional amount at least equal to the Excess Debt
as in effect from time to time.
5.15 CASH MANAGEMENT SYSTEM; AGENT RIGHTS; APPLICATION OF CASH FLOW; DEPOSITORY
ACCOUNT NAMES.
A. CASH MANAGEMENT SYSTEM. Each Loan Party shall, and shall cause each
of its Subsidiaries to, maintain the Cash Management System as described in
Schedule 4.23; provided that the Company shall deliver the Cash Management
Letter for each account in the Cash Management System to the Agent no later than
the date that is 90 days after the Closing Date or shall close any account with
respect to which a Cash Management Letter cannot be obtained and open a
substitute account with respect to which a Cash Management Letter can be
delivered by such date; provided, further, that each Loan Party may open and
close Local Accounts and make other changes to the Cash Management System in the
ordinary course of business upon prior written notice to the Agent and as long
as (i) no Event of Default or Potential Event of Default has occurred and is
continuing or would result therefrom, (ii) such changes, either individually or
in the aggregate are not adverse to either the Agent or any Lender (in its
capacity as a Lender) or impair any rights, priority or perfection of the Agent
under the Security Documents, (iii) in the case of any closing of any Local
Account, a replacement Deposit Account reasonably satisfactory to the Agent is
opened by such Loan Party or such Subsidiary, as the case may be, and a Cash
Management Letter is entered into with respect to such replacement Deposit
Account prior to the closing of such Local Account and (iv) except as expressly
permitted by this subsection 5.15A, all Receipts of each Loan Party continue to
be collected and distributed pursuant to procedures subject to Cash Management
Letters at all times.
B. AGENT RIGHTS. All funds on deposit in the Local Accounts of each
Loan Party and each of its Subsidiaries shall be transferred at least weekly to
the Concentration Account, and each Loan Party agrees to perform and comply and
to cause each of their respective Subsidiaries to perform and comply with the
following covenants and agreements:
(i) Receipts shall be received and held by the Company and
such Subsidiary and any of their respective officers, employees,
agents, managers or other Persons acting for or in concert with the
Company or such Subsidiary to make collections for or on behalf of the
Company or such Subsidiary (collectively, "COLLECTING AGENTS"), in
trust for the Agent as Collateral. Notwithstanding any other provision
of this Agreement or any other Loan Document, all Receipts shall be
paid by the obligor thereon into the Deposit Accounts subject to the
Cash Management System. At least weekly, each Loan Party, or any
Collecting Agent, shall deposit or shall cause to be deposited, all
Receipts into the Concentration Account or other Deposit Accounts
included in the Cash Management System and (except as expressly
permitted pursuant to subsection 5.15A) subject to Cash Management
Letters on or before the first Business Day following receipt thereof
after receipt in the applicable accounting office of the Company or
such Subsidiary, as applicable and as soon as practical in the case of
Receipts received in any other manner.
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(ii) As long as no Event of Default shall have occurred and be
continuing, unless otherwise notified by the Company, the Agent shall
instruct the Cash Manager to transfer Receipts on deposit in the
Concentration Account to another account maintained by the Company at
the Cash Manager and designated in writing by the Company to the Cash
Manager; provided that such instructions by the Agent to the Cash
Manager may be in the form of standing instructions that authorize the
Cash Manager to transfer amounts in accordance with the Company's
request until the Agent notifies the Cash Manager otherwise. Upon the
occurrence and during the continuance of an Event of Default, the Agent
may instruct the Cash Manager to transfer amounts on deposit in the
Concentration Account to an account maintained at the Agent.
(iii) Effective upon the occurrence and during the continuance
of an Event of Default without the need of any further action by Loan
Parties, each Loan Party irrevocably makes, constitutes and appoints
the Agent, and all Persons designated by Agent for that purpose
(including the Cash Manager), at any time, as such Loan Party's true
and lawful attorney-in-fact to endorse such Loan Party's name on any
checks, notes, drafts or any other form of payment relating to
Collateral or Receipts or proceeds of Collateral or Receipts that come
into the Agent's or the Cash Manager's possession or under the Cash
Manager's or the Agent's control; provided, however, that such
appointment by such Loan Party of the Agent as such Loan Party's
attorney-in-fact shall in no case impose upon the Agent or any such
Person any obligation or duty to take any actions on behalf of such
Loan Party or any fiduciary obligations with respect to such Loan
Party.
C. APPLICATION OF CASH FLOW.
Upon the occurrence and during the continuance of an Event of Default,
the Agent may, in its sole discretion in accordance with subsection 5.15B(iv),
apply funds on deposit in the Deposit Accounts and other Receipts received by
the Agent, (i) to the payment of (a) all Operating Expenses for the Mortgaged
Properties; (b) all scheduled payments of rent, principal or interest with
respect to the Indebtedness permitted hereunder related to the Mortgaged
Properties; and (c) real estate taxes related to the Mortgaged Properties;and/or
(ii) to the payment of the Obligations. In the event that the Agent determines
to apply funds or Receipts to the payment of the foregoing expenses, the Company
shall deliver to the Agent (x) within five days of the first day of each
calendar month, a budget setting forth the estimated Operating Expenses and
other amounts set forth above for such calendar month, (y) within three Business
Days of the date on which the Company desires a disbursement to be made, but not
more frequently than once in any calendar week, a request for disbursements with
respect to Operating Expenses and amounts set forth above for such calendar week
and (z) such other budgets and related information as the Agent may request, in
its sole discretion. Upon receipt of any such request for disbursements, the
Agent may, in its sole discretion, transfer or instruct the Cash Manager to
transfer funds on deposit in the Concentration Account to an interest bearing
operating account of the Company at the Agent which account shall be pledged to
secure the Obligations in a manner satisfactory to the Agent in its sole
discretion to be applied to the payment of amounts set forth in such request for
disbursements and approved by the Agent.
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<PAGE> 131
D. NAMES ON DEPOSITORY ACCOUNTS. The Company shall cause each Local
Account listed on Schedule 4.23 annexed hereto in respect of a Mortgaged
Property to be changed to the extent necessary so that such Deposit Account is,
at all times on and after the Closing Date, maintained by and in the name of the
Company or any Mortgaged Property Subsidiary.
5.16 CAPITAL EXPENDITURES.
On the first Business Day of each calendar quarter commencing October
1, 1996, the Company shall do the following:
(i) either (a) deposit or cause to be deposited into the
Capital Reserve Account an amount equal to the remainder of (1) 1.00%
of Property Gross Revenues for each of the Mortgaged Properties that
have been in full operation for at least 36 complete, consecutive
calendar months following the completion of construction thereof as of
the end of such preceding calendar quarter for the 12 most recently
completed calendar months for which the Agent and the Lenders have
received the financial statements referred to in subsection 5.1(i)
minus (2) the aggregate amount that shall then have been deposited by
the Company or any of its Subsidiaries in Other Capital Reserve
Accounts pursuant to the requirements of related Indebtedness (other
than the Loans) permitted hereunder for such calendar quarter or,
without duplication, the amount incurred by the Company or its
Subsidiaries for Capital Items in respect of such Mortgaged Properties
for such calendar quarter (b) if no Event of Default or Potential Event
of Default then exists, increase the amount of the Total Utilization by
the amount calculated pursuant to clause (a) above; and
(ii) deliver to the Agent a schedule with respect to (a) the
allocation of such amount among such Mortgaged Properties, which
allocation shall reflect the amounts determined with respect to the
Mortgaged Properties pursuant to the preceding clause (i), and (b) the
allocation of the resulting balance in the Capital Reserve Account
among the Mortgaged Properties, which allocation shall reflect the
allocation of all deposits in the Capital Reserve Account pursuant to
this subsection 5.16 and all transfers therefrom pursuant to this
subsection 5.16.
So long as no Event of Default or Potential Event of Default has occurred and is
continuing, upon the Company's written request and not more frequently than once
each month, the Agent shall transfer funds to the Company then on deposit in the
Capital Reserve Account for the payment of costs of Capital Items or for the
deposit of funds into Other Capital Reserve Accounts, in each case in amounts
not greater than the amount of funds then required by the terms of the related
Indebtedness to be so deposited; provided, however, that the aggregate amount of
such funds applied towards Capital Items or for deposit in Other Capital Reserve
Account in respect of any Property shall not exceed the aggregate amount of
funds deposited in the Capital Reserve Account in respect of such Property.
Together with each such request, the Company shall deliver to the Agent, upon
the request of the Agent, copies of bills and other documentation as may be
reasonably required by the Agent to establish that such Capital Items or such
deposits in such Other Capital Reserve Accounts, as the case may be, are then
due.
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<PAGE> 132
5.17 MANAGEMENT OF PROPERTIES; LIQUOR LICENSES.
A. MANAGEMENT OF PROPERTIES. The Company shall (i) manage and operate
each of the Mortgaged Properties in a commercially reasonable and prudent
manner, and (ii) to the extent the Company charges a fee for managing any
Mortgaged Property, not charge more than would be charged by an independent
third party providing such services. No Person other than the Company shall have
substantial authority over the management and operation of any Mortgaged
Property.
B. LIQUOR LICENSES. The Company shall cause each liquor license related
to any Mortgaged Property to be issued to, and held in the name of, the Company.
5.18 FURTHER ASSURANCES.
A. ASSURANCES. Without expense or cost to the Agent or the Lenders,
each Loan Party shall, and shall cause each of its Subsidiaries to, from time to
time hereafter execute, acknowledge, file, record, do and deliver all and any
further acts, deeds, conveyances, mortgages, deeds of trust, deeds to secure
debt, security agreements, pledges, assignments, financing statements and
continuations thereof, notices of assignment, transfers, certificates,
assurances and other instruments as the Agent may from time to time reasonably
require in order to carry out more effectively the purposes of this Agreement or
the other Loan Documents and to subject any Mortgaged Property or other items of
Collateral, intended now or hereafter to be covered, to the Liens and security
interests created by the Security Documents, to perfect and maintain such Liens
and security interests, and to assure, convey, assign, transfer and confirm unto
the Agent the property and rights hereby conveyed and assigned or intended now
or hereafter to be conveyed or assigned or which any Loan Party or any such
Subsidiary may be or may hereafter become bound to convey or to assign to the
Agent or for carrying out the intention of or facilitating the performance of
the terms of this Agreement, or any other Loan Documents or for filing,
registering or recording this Agreement or any other Loan Documents. Promptly
upon request or, in an emergency, upon demand, each Loan Party shall execute and
deliver, and hereby authorizes the Agent to execute and file in the name of such
Loan Party, to the extent the Agent may lawfully do so, one or more financing
statements, chattel mortgages or comparable security instruments to evidence
more effectively the Lien and security interest hereof upon the Collateral.
B. EXECUTION OF SUBSIDIARY GUARANTIES. If any Subsidiary of the Company
Guarantees the Mortgage Notes or any other Indebtedness of the Company, such
Subsidiary shall, concurrently with the effectiveness of such Guaranty, execute
and deliver to the Agent a Guaranty of the Obligations satisfactory in form and
substance to the Agent.
C. FILING AND RECORDING OBLIGATIONS. Each Loan Party shall pay all
filing, registration and recording fees and all expenses incident to the
execution and acknowledgement of any Mortgage or other Loan Document, including
any instrument of further assurance, and shall pay all mortgage recording Taxes,
transfer Taxes, general intangibles Taxes and governmental stamp and other
Taxes, duties, imposts, assessments and charges arising out of or in connection
with
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<PAGE> 133
the execution, delivery, filing, recording or registration of any Mortgage
or other Loan Document, including any instrument of further assurance, or by
reason of its interest in, or measured by amounts payable under, the Notes, the
Mortgages or any other Loan Document, including any instrument of further
assurance, and shall pay all stamp Taxes and other Taxes required to be paid on
the Notes or any other Loan Document; provided, however, that such Loan Party
may contest in good faith and through appropriate proceedings, any such Taxes,
duties, imposts, assessments and charges; provided further, however, that such
Loan Party shall pay all such Taxes, duties, imposts and charges when due to the
appropriate taxing authority during the pendency of any such proceedings. If any
Loan Party fails to make any of the payments described in the preceding sentence
within 10 days after notice thereof from the Agent (or such shorter period as is
necessary to protect the loss of or diminution in value of any Collateral by
reason of Tax foreclosure or otherwise, as determined by the Agent, in its sole
discretion), the Agent may (but shall not be obligated to) pay the amount due
and such Loan Party shall reimburse all amounts in accordance with the terms
hereof. If Applicable Law prohibits any Loan Party from paying such Taxes,
charges, filing, registration and recording fees, excises, levies, stamp Taxes
or other Taxes, then the Agent may declare the Property Amount with respect to
the applicable Mortgaged Property in accordance with the terms of this Agreement
to be immediately due and payable without premium or penalty not less than 30
days after such declaration. Notwithstanding the foregoing, no Loan Party shall
be obligated to pay any income, franchise or doing business taxes pursuant to
this subsection 5.18C.
D. COSTS OF DEFENDING AND UPHOLDING THE LIEN. The Agent may, upon at
least five days' prior notice to the Company, (i) appear in and defend any
action or proceeding, in the name and on behalf of the Agent, the Lenders, any
Loan Party or any of its Subsidiaries, in which the Agent or any Lender is named
or which the Agent in its sole discretion determines is reasonably likely to
materially adversely affect any Mortgaged Property, or other Collateral, any
Mortgage, the Lien thereof or any other Loan Document and (ii) institute any
action or proceeding which the Agent reasonably determines should be instituted
to protect the interest or rights of the Agent and the Lenders in any Mortgaged
Property or other Collateral or under this Agreement or any other Loan Document.
The Company agrees that all costs and expenses expended or otherwise incurred
pursuant to this subsection (including reasonable attorneys' fees and
disbursements) by the Agent shall be paid by the Company or reimbursed to the
Agent, as the case may be, immediately upon demand.
E. COSTS OF ENFORCEMENT. The Company agrees to bear and shall pay or
reimburse the Agent and the Lenders in accordance with the terms of subsection
8.2 for all sums, costs and expenses incurred by the Agent and the Lenders
(including reasonable attorneys' fees and the expenses and fees of any receiver
or similar official) of or incidental to the collection of any of the
Obligations, any foreclosure (or Transfer in lieu of foreclosure) of this
Agreement, any Mortgage or any other Loan Document or any sale of all or any
portion of any Mortgaged Property or all or any portion of the other Collateral.
F. FURNISHING OF DOCUMENTS. The Company shall, at its sole cost and
expense, furnish to the Agent all instruments, documents, boundary surveys,
footing or foundation surveys, certificates, plans and specifications,
Appraisals, title and other insurance reports and agreements,
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<PAGE> 134
and each and every other document, certificate, agreement and instrument
required to be furnished by a Loan Party pursuant to the terms of the Loan
Documents.
SECTION 6.
COMPANY'S NEGATIVE COVENANTS
The Company covenants and agrees that, so long as the Commitments
hereunder shall remain in effect and until payment in full of the Loans and the
other Obligations, the Company shall perform and shall cause each of its
Subsidiaries to perform all covenants in this Section 6.
6.1 INDEBTEDNESS.
The Loan Parties will not, and will not permit any of their respective
Subsidiaries to, directly or indirectly, create, incur, assume, or otherwise
become directly or indirectly liable with respect to, any Indebtedness or,
solely to the extent in excess of $10,000,000, any Contingent Obligations or
refinance, exchange or refund existing Indebtedness, or become liable with
respect to any Guaranty, in each case owed to or for the benefit of any Person
other than the Company or any of its Wholly Owned Subsidiaries that are
guarantors of the Obligations; provided that, if (i) no Event of Default (or
event subject to subsection 7.1A that would be an Event of Default with the
lapse of time) has occurred and is continuing, (ii) the Company and its
Subsidiaries are in compliance with subsections 6.6C and 6.6D (assuming, for
purposes of such calculations, that the Company has incurred Indebtedness in an
amount equal to the amount of the proposed Indebtedness or Guaranty) and (iii)
the Company and its Subsidiaries are in compliance with the debt incurrence
provisions of all other Indebtedness of the Company and its Subsidiaries, then
the Company and its Subsidiaries may incur, create, assume, refinance, exchange,
refund or otherwise become directly or indirectly liable for, Indebtedness or
become liable with respect to Guaranties and Contingent Obligations, as the case
may be, if such Indebtedness or Guaranties (and, if applicable, any security
into which it is convertible or for which it is exchangeable), whether upon the
happening of any event (excluding the occurrence of an event of default provided
that such event of default has not occurred) or otherwise:
(a) does not mature, become payable or require the payment of
any principal amount thereof (or any other amount in lieu thereof) and,
with respect to such
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<PAGE> 135
Indebtedness, shall not be mandatorily redeemable, pursuant to a
sinking fund or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, before the date that is 91 days after the
Maturity Date;
(b) has required principal payments (or any other amount in
lieu thereof), or payments to be made under a Guaranty, prior to the
Maturity Date, but does not mature or become payable prior to the
Maturity Date; provided that (1) the sum of the aggregate principal
payments (or any other amount in lieu thereof) due in respect of
Indebtedness incurred pursuant to this clause (b) after the Closing
Date plus the aggregate amount of payments in respect of Guaranties
does not exceed (y) $50,000,000 during the period from the Closing Date
to and including the Maturity Date and (z) the applicable amount set
forth below during the corresponding year set forth below:
<TABLE>
<CAPTION>
PERIOD MAXIMUM AMOUNT
<S> <C>
Closing Date-12/31/96 $10,000,000
1/1/97-12/31/97 $10,000,000
1/1/98-12/31/98 $15,000,000
1/1/99-12/31/99 $15,000,000
1/1/00-12/31/00 $15,000,000
</TABLE>
and (2) such Indebtedness does not provide for aggregate amortization
payments in any year in excess of the aggregate amount of amortization
payments that would be due in respect of such Indebtedness if
amortization were calculated on a level pay basis over a 15 year
schedule;
(c) refinances Indebtedness in existence on the Closing Date;
provided that the aggregate amount of principal payments (or any other
amounts in lieu thereof) due during the period from the Closing Date to
and including the Maturity Date in respect of such refinancing
Indebtedness does not exceed the aggregate amount of such payments due
during the period from the Closing Date to and including the Maturity
Date in respect of the Indebtedness that was refinanced; or
(d) in addition to any Indebtedness or Guaranties described in
clauses (a)-(c) above, matures, becomes payable or requires the payment
of any principal amount thereof (or any other amount in lieu thereof)
prior to or after the Maturity Date; provided that the aggregate
principal amount of Indebtedness incurred pursuant to this clause (d)
after the Closing Date shall not exceed $20,000,000.
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<PAGE> 136
6.2 LIENS AND RELATED MATTERS.
A. PROHIBITION ON LIENS. The Loan Parties shall not, and shall not
permit any of their respective Subsidiaries to, directly or indirectly, create,
incur, assume or permit to exist any Lien on or with respect to any Restricted
Asset, whether now owned or hereafter acquired, or any income or profits
therefrom, or file or permit the filing of, or permit to remain in effect, any
financing statement or other similar notice of any Lien with respect to any such
property, asset, income or profits under the Uniform Commercial Code of any
State or under any similar recording or notice statute, except (i) Permitted
Encumbrances, (ii) pledges of stock of Subsidiaries in existence on the Closing
Date and approved by the Agent and other pledges of the stock of a Subsidiary to
secure transactions permitted under subsection 6.11, provided that all of the
assets of such Subsidiary and each Subsidiary of such Subsidiary are subject to
such permitted sale-leaseback transaction, (iii) pledges of stock of a
Subsidiary of the Company to secure Indebtedness of such Subsidiary; provided
that substantially all the assets of such Subsidiary, and of all the
Subsidiaries of such Subsidiary, are also pledged to secure such Indebtedness
and such Indebtedness is not secured by the assets of, or otherwise recourse to,
the Company or any of its other Subsidiaries.
B. EQUITABLE LIEN IN FAVOR OF LENDERS. If any Loan Party or any of its
Subsidiaries shall create or assume any Lien upon any Restricted Asset, whether
now owned or hereafter acquired, other than Liens excepted by the provisions of
subsection 6.2A, the Company shall make or cause to be made effective provision
whereby the Obligations will be secured by such Lien equally and ratably with
any and all other Indebtedness secured thereby as long as any such Indebtedness
shall be so secured; provided, however, that, notwithstanding the foregoing,
this covenant shall not be construed as a consent by the Agent or any Lender to
the creation or assumption of any such Lien not permitted by the provisions of
subsection 6.2A.
C. NO FURTHER NEGATIVE PLEDGES. The Loan Parties shall not and shall
not permit any of their respective Subsidiaries to, directly or indirectly,
enter into any agreement prohibiting the creation or assumption of any Lien
(whether in favor of the Lenders or otherwise) upon any of the Mortgaged
Properties or other Collateral, whether now owned or hereafter acquired.
D. NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS TO THE COMPANY OR OTHER
SUBSIDIARIES. Except as provided herein, the Loan Parties shall not, and shall
not permit any of their respective Subsidiaries to, directly or indirectly,
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any such Subsidiary to
(i) pay dividends or make any other distributions on any of Subsidiary's capital
stock owned by the Company or any other Subsidiary of the Company, (ii) repay or
prepay any Indebtedness owed by such Subsidiary to the Company or any other
Subsidiary of the Company, (iii) make loans or advances to the Company or any
other Subsidiary of the Company, or (iv) transfer any of its property or assets
to the Company or any other Subsidiary of the Company, except for such
encumbrances or restrictions existing under or by reasons of:
(a) Existing Indebtedness in existence on the Closing Date, as
in effect on the Closing Date;
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<PAGE> 137
(b) the Mortgage Note Indenture and the Mortgage Notes;
(c) applicable law;
(d) any instrument governing Indebtedness or Capital Stock of
a Persons acquired by the Company or any of its Subsidiaries or any
Person that becomes a Subsidiary as in effect at the time of such
acquisition or such Person becoming a Subsidiary (except to the extent
such Indebtedness was incurred in connection with or, if incurred
within one year prior to such acquisition or such Person becoming a
Subsidiary, in contemplation of such acquisition or such Person
becoming a Subsidiary), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so
acquired;
(e) any instrument governing Indebtedness or Capital Stock of
a Person who becomes a Guarantor as in effect at the time of becoming a
Subsidiary Guarantor (except to the extent such Indebtedness was
incurred in connection with or, if incurred within one year prior to
the time of becoming a Subsidiary Guarantor, in contemplation of such
Subsidiary Guaranty), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person who
became a Subsidiary Guarantor
(f) by reason of customary non-assignment and net worth
provisions in leases entered into in the ordinary course of business
and consistent with past practices;
(g) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature
described in clause (d) above on the property so acquired;
(h) Indebtedness permitted pursuant to subsection 6.1(c)
provided that the restrictions contained in the agreements governing
such Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced;
(i) customary restrictions in security agreements or mortgages
securing Indebtedness of a Subsidiary to the extent such restrictions
restrict the transfer of the property subject to security agreements
and mortgages; or
(j) minimum net worth or other provisions contained in leases
entered into by Subsidiaries of the Company permitted pursuant to
subsection 6.11 which restrictions are not applicable to any Person, or
the properties or assets of any Person, other than such Subsidiary.
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<PAGE> 138
6.3 INVESTMENTS AND JOINT VENTURES.
The Loan Parties shall not and shall not permit any of their respective
Subsidiaries to, directly or indirectly, make any Investment (other than Cash
Equivalents) in any Person, including any Affiliate or Joint Venture; provided
that if (i) no Event of Default or Potential Event of Default has occurred and
is continuing and (ii) the Company would be able to incur $1 of additional
Indebtedness pursuant to the Mortgage Note Indenture (as in effect on the
Closing Date), the Company and its Subsidiaries may make Investments in
Subsidiaries of the Company or other Persons engaged only in Hospitality Related
Businesses (excluding casinos and other gaming properties) located in the United
States of America in an aggregate amount not to exceed the sum of (1)
$25,000,000 plus (2) 25% of the Consolidated Net Income of the Company and its
Subsidiaries for the period (taken as one accounting period) from July 1, 1996
to the end of the most recently completed fiscal quarter for which financial
statements have been delivered to the Agent pursuant to subsection 5.1(iv);
provided further that, (a) the Company shall not, and shall cause its
Subsidiaries to not, pledge or permit a lien on, or any security interest in,
any such Investment except for pledges of the Capital Stock of a Subsidiary of
the Company permitted pursuant to clauses (ii) and (iii) of subsection 6.2A.,
(b) upon the occurrence and during the continuance of an Event of Default, no
further investments may be made in Investments described in clauses (iii) or
(vi) of the definition of Cash Equivalents and (c) notwithstanding anything to
the contrary contained in this Agreement, neither the Company nor any of its
Subsidiaries shall purchase or otherwise acquire any notes receivable or other
debt instruments secured by real estate at any time after the Closing Date
without the prior written consent of the Agent.
For the purpose of this subsection 6.3 and without limiting any other
method of making an Investment, the Company and its Subsidiaries shall be deemed
to make an Investment in each Investment owned by a Person at the time such
Person becomes a Subsidiary of the Company or any of its Subsidiaries; provided,
however, that the Investment by the Company of up to $10,300,000 in the HPT
Subsidiary in connection with the HPT Transaction shall be permitted and
excluded from the foregoing computation.
6.4 CONTINGENT OBLIGATIONS.
The Loan Parties shall not and shall not permit any of their respective
Subsidiaries to, directly or indirectly, create or become liable with respect to
Contingent Obligations in an aggregate amount in excess of $10,000,000 at any
time unless the excess amount of such Contingent Obligations are permitted
subsection 6.1.
6.5 RESTRICTED PAYMENTS.
The Loan Parties shall not, and shall not permit any of their
respective Subsidiaries to, directly or indirectly, declare, order, pay, make,
give or publish notice or fix a date in respect of or set apart any sum for any
Restricted Payment, enter into an agreement or make any commitment to effect any
of the foregoing or take any other similar action in furtherance of or otherwise
in connection with the foregoing; provided that, (i) if no Potential Event of
Default or Event of Default exists and the Company would be able to incur $1 of
additional Indebtedness
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<PAGE> 139
pursuant to the Mortgage Note Indenture (as in effect on the Closing Date), the
Company may purchase, redeem, acquire, cancel or otherwise retire for value
shares of Capital Stock of the Company, options on any such shares or related
stock appreciation rights or similar securities held by officers and employees
or former officers and employees (or their estates or beneficiaries under their
estates), upon death, disability, retirement, severance or termination of
employment; provided that the aggregate consideration paid therefor shall not
exceed $200,000 in any consecutive 12-month period; (ii) the Company and its
Subsidiaries may make Restricted Payments (but not any voluntary prepayments) in
respect of Indebtedness permitted pursuant to subsection 6.1 in accordance with,
and to the extent required by, the terms and provisions of the applicable
Indebtedness; (iii) the Company may prepay Indebtedness permitted pursuant to
subsection 6.1 with the proceeds of refinancing indebtedness permitted pursuant
to subsection 6.1(c) and (iv) the Company may prepay Indebtedness permitted
pursuant to subsection 6.1(d), provided that the aggregate amount of principal
payments prior to the Maturity Date in respect of such Indebtedness shall not
exceed $20,000,000.
6.6 FINANCIAL COVENANTS.
A. MINIMUM CONSOLIDATED NET WORTH. The Company shall not permit at any
time its Consolidated Net Worth to be less than $200,000,000 and no more than
10% of such Consolidated Net Worth may consist of security deposits (or similar
cash holdback requirements) of Subsidiaries engaged in sale-leaseback
transactions pursuant to subsection 6.11.
B. MINIMUM MARKET EQUITY CAPITALIZATION. The Company shall not permit
at any time its Market Equity Capitalization to be less than the lesser of (i)
50% of the Market Equity Capitalization of the Company as of the Closing Date
and (ii) an amount equal to the Market Equity Capitalization of the Company as
of such date of determination that bears the same percentage relationship to the
Market Equity Capitalization of the Company as of the Closing Date as the
percentage relationship that the aggregate Market Equity Capitalization of the
Comparable Companies as of such date of determination bears to the aggregate
Market Equity Capitalization of such Comparable Companies as of the Closing
Date. For the purposes of this subsection 6.6B, the term "COMPARABLE COMPANIES"
means Persons that own or operate hotels as one of their primary business
activities, as such Persons shall be selected from time to time by the Agent and
approved by the Company, which approval shall not be unreasonably withheld,
conditioned or delayed. On the date hereof, such Comparable Companies are
Bristol Hotel Company, Host Marriott Corp., La Quinta Inns, Inc., Red Lion Inns
Hotels & Inns, and John Q. Hammons Hotels, Inc.
C. MINIMUM INTEREST COVERAGE RATIO. As of the last day of any month
occurring during any of the periods set forth below, the Company shall not
permit the ratio of (i) Consolidated EBITDA to (ii) the sum of (a) Consolidated
Interest Expense (calculated in accordance with GAAP) plus (b) all capitalized
interest expense to be less than the correlative ratio indicated (such amounts
to be determined with reference to the preceding 12-month period ending on such
last day):
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<PAGE> 140
<TABLE>
<CAPTION>
=======================================================
PERIOD MINIMUM INTEREST
COVERAGE RATIO
=======================================================
<S> <C>
from and including Closing 2.00 to 1.00
Date - to but excluding the
first Anniversary
-------------------------------------------------------
from and including first
Anniversary - to but 2.00 to 1.00
excluding the second
Anniversary
-------------------------------------------------------
from and including second
Anniversary - to but 2.25 to 1.00
excluding the third
Anniversary
-------------------------------------------------------
from and including third
Anniversary - to but 2.50 to 1.00
excluding the fourth
Anniversary
-------------------------------------------------------
from and including fourth
Anniversary and thereafter 2.75 to 1.00
=======================================================
</TABLE>
D. MAXIMUM TOTAL DEBT LEVERAGE RATIO. As of the last day of any month
occurring during any of the periods set forth below, the Company shall not
permit the ratio of (i) Consolidated Total Indebtedness to (ii) Consolidated
EBITDA to exceed the correlative ratio indicated (Consolidated Total
Indebtedness to be determined as of such last day and Consolidated EBITDA to be
determined with reference to the preceding 12-month period ending on such day):
<TABLE>
<CAPTION>
===================================================
PERIOD MAXIMUM TOTAL
DEBT LEVERAGE RATIO
===================================================
<S> <C>
Closing Date-12/31/96 6.250 to 1.00
---------------------------------------------------
1/1/97-12/31/97 5.375 to 1.00
---------------------------------------------------
1/1/98-12/31/98 5.000 to 1.00
---------------------------------------------------
1/1/99-12/31/99 5.000 to 1.00
---------------------------------------------------
1/1/00-Maturity Date 4.500 to 1.00
===================================================
</TABLE>
E. MAXIMUM TOTAL DEBT/MARKET EQUITY CAPITALIZATION RATIO. As of the
last day of any month occurring during any of the periods set forth below, the
Company shall not permit the quotient of (i) Consolidated Total Indebtedness of
the Company and its Subsidiaries divided by (ii) the sum of (a) Consolidated
Total Indebtedness of the Company and its Subsidiaries plus (b) the Market
Equity Capitalization to exceed the correlative percentage indicated:
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<PAGE> 141
<TABLE>
<CAPTION>
=================================================
PERIOD PERCENTAGE
=================================================
<S> <C>
from and including Closing 60%
Date - to but excluding the
first Anniversary
-------------------------------------------------
from and including first
Anniversary - to but 60%
excluding the second
Anniversary
-------------------------------------------------
from and including second
Anniversary - to but 55%
excluding the third
Anniversary
-------------------------------------------------
from and including third
Anniversary - to but 55%
excluding the fourth
Anniversary
-------------------------------------------------
from and including fourth
Anniversary and thereafter 55%
=================================================
</TABLE>
F. MAXIMUM TOTAL DEBT/NET WORTH. As of the last day of any month
occurring during any of the periods set forth below, the Company shall not
permit the quotient of (i) Consolidated Total Indebtedness of the Company and
its Subsidiaries divided by (ii) the sum of (a) Consolidated Total Indebtedness
plus (b) Consolidated Net Worth to exceed the correlative percentage indicated:
<TABLE>
<CAPTION>
====================================================
PERIOD PERCENTAGE
====================================================
<S> <C>
Closing Date-first 68%
Anniversary
----------------------------------------------------
first Anniversary - second
Anniversary 68%
----------------------------------------------------
second Anniversary - third
Anniversary 65%
----------------------------------------------------
third Anniversary - fourth
Anniversary 65%
----------------------------------------------------
fourth Anniversary -
Maturity Date 65%
====================================================
</TABLE>
; provided that during any one period of six consecutive months during the
period from the Closing Date to the second anniversary thereof, the applicable
percentage set forth above may be up to 70%.
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6.7 FUNDAMENTAL CHANGES.
The Loan Parties shall not, and shall not permit any of their
respective Subsidiaries to alter the corporate or legal structure of any Loan
Party in any manner that adversely affects the Agent or the Lenders, to
incorporate or otherwise organize any Subsidiaries, or to enter into any
transaction of merger or consolidation, or liquidate, wind-up or dissolve itself
(or suffer any liquidation or dissolution), or make or permit any Transfer or
Transfer any Property except that, from time to time after the Closing Date:
(i) so long as no Event of Default or Potential Event of
Default has occurred and is continuing or would be caused thereby, upon
the prior approval of the Agent, in its sole discretion, any Wholly
Owned Subsidiary of the Company may be merged with or into the Company
or another Wholly Owned Subsidiary, or be liquidated, wound up or
dissolved, or all or any part of its business, property or assets may
be conveyed, sold, leased, transferred or otherwise disposed of, in one
transaction or a series of transactions, to the Company; provided,
however, that, in the case of such a merger, the Company shall be the
continuing or surviving corporation;
(ii) the Company and any Subsidiary (other than a Mortgaged
Property Subsidiary) may create one or more Subsidiaries (including,
without limitation, Property Subsidiaries); provided that each such
Subsidiary shall be a Wholly Owned Subsidiary of the Company or another
Wholly Owned Subsidiary and;
(iii) the Company and its Subsidiaries may make Transfers;
provided that if the aggregate fair market value of the assets subject
to any Transfer, is equal to or greater than $5,000,000 (whether in one
transaction or a series of related transactions), at least 75% of the
consideration for such Transfer shall be cash; and
(iv) the Company and its Subsidiaries may create, incur,
assume and permit to exist any Lien permitted pursuant to subsection
6.2.
6.8 ZONING AND CONTRACT CHANGES AND COMPLIANCE.
The Loan Parties shall not and shall not permit any of their respective
Subsidiaries to initiate or consent to any zoning reclassification of any
Mortgaged Property or seek any variance under any existing zoning ordinance or
use or permit the use of any Mortgaged Property in any manner that could result
in such use becoming a non-conforming use under any zoning ordinance or any
other applicable land use law, rule or regulation. The Loan Parties shall not
and shall not permit any of their respective Subsidiaries to initiate or consent
to any change in any laws, requirements of Governmental Authorities or
obligations created by private contracts and Material Leases which now or
hereafter could reasonably be likely to materially and adversely affect the
ownership, occupancy, use or operation of any Mortgaged Property without the
prior written consent of the Agent.
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6.9 NO JOINT ASSESSMENT; SEPARATE LOTS.
Each Loan Party shall not suffer, permit or initiate nor shall it
permit any of its Subsidiaries to suffer, permit or initiate, the joint
assessment of any Mortgaged Property (i) with any other real property
constituting a separate tax lot (other than another Mortgaged Property) and (ii)
with any portion of any Mortgaged Property which may be deemed to constitute
personal property, or any other procedure whereby the lien of any Taxes which
may be levied against any such personal property shall be assessed or levied or
charged to any Mortgaged Property as a single lien. Each Mortgaged Property is
comprised of one or more parcels, each of which, to the knowledge of the
Company, constitutes a separate tax lot (except with respect to any lot
constituting another Property) and none of which constitutes a portion of any
other tax lot.
6.10 TRANSACTIONS WITH AFFILIATED PERSONS.
The Loan Parties shall not, and shall not permit any of their
respective Subsidiaries to, directly or indirectly, enter into or permit to
exist any transaction (including, without limitation, the purchase, sale, lease
or exchange of any property, the rendering of any service or the making of any
Investment) with any holder of 5% or more of any class of equity Securities of
the Company or any Affiliate of any of the foregoing or of the Company on terms
that are less favorable than those that could be obtained in a comparable
transaction at the time on an arms-length basis from any Person who is not such
a holder or Affiliate; provided that with respect to any transaction or series
of transactions involving aggregate payments in excess of $5,000,000, a majority
of the members of the Board of Directors of the Company who are not officers,
employees, partners, beneficiaries, principals or holders of 5% or more of any
class of equity Securities of the Company or any Affiliate of the foregoing or
the Company shall determine that the terms thereof are not less favorable to
such Loan Party or Subsidiary, as the case may be, than those that might be
obtained in a comparable transaction or series of transactions at the time on an
arms-length basis from Persons who are not such a holder or Affiliate; provided,
however, that the foregoing restriction shall not apply to (i) any transaction
between the Company and any Subsidiary Guarantor or between any Subsidiary
Guarantors, (ii) reasonable and customary fees paid to members of the Boards of
Directors of the Company and its Subsidiaries, (iii) reasonable compensation
payable or paid to senior management personnel of the Company and (iv) any
transaction described in Schedule 6.10 annexed hereto.
6.11 SALE-LEASEBACK TRANSACTIONS.
The Loan Parties shall not, and shall not permit any of their
respective Subsidiaries to, directly or indirectly, enter into any arrangement
with any Person providing for the leasing by any Loan Party or any of its
Subsidiaries of any real or tangible personal property, which property has been
or is to be sold or transferred by any Loan Party or any of its Subsidiaries to
such Person in contemplation of such leasing, unless (i) the aggregate fair
market value of Properties subject to such transaction, at the date thereof,
shall not exceed $103,000,000, (ii) the leasehold interests in the subject
Properties shall be held by one or more Subsidiaries of the Company, and (iii)
Indebtedness or other obligations of any such Subsidiary (including obligations
under the related leases) may be secured by any or all the assets of such
Subsidiary
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but shall not be secured by the assets of, or otherwise recourse to, the Company
or any of its other Subsidiaries.
6.12 SALE OR DISCOUNT OF RECEIVABLES.
The Loan Parties shall not, and shall not permit any of their
respective Subsidiaries to, directly or indirectly, sell with recourse, or
discount or otherwise sell for less than the face value thereof, any of its
notes (other than mortgages and notes owned by the Loan Parties on the Closing
Date) or accounts receivable; provided that the Company may discount sell or
otherwise sell for less than the face value mortgages and notes acquired after
the Closing Date and accounts receivable owned on the Closing Date or acquired
thereafter if the aggregate discount realized in all such sales pursuant to this
proviso after the Closing Date does not exceed $5,000,000.
6.13 TRANSFER OF SUBSIDIARY STOCK.
Except as expressly permitted pursuant to subsection 6.7(i) or in
connection with an Asset Sale in compliance with the provisions of subsection
2.5B(v), the Loan Parties shall not, and shall not permit any of their
respective Subsidiaries to directly or indirectly Transfer any shares of capital
stock or other equity Securities of any of its Subsidiaries, except to qualify
directors if required by Applicable Laws or permit Investments by foreign
nationals mandated by Applicable Law.
6.14 CONDUCT OF BUSINESS.
From and after the Closing Date, the Loan Parties shall not, and shall
not permit any of their respective Subsidiaries to, directly or indirectly, (i)
engage in any business other than the acquisition, ownership, renovation,
management, operation and disposition of all-suite, full-service and
limited-service hotels and development of all-suite hotels, (ii) convert or
reposition any Property into any hotel other than an all-suite, full service or
limited-service hotel or (iii) convert or reposition any Mortgaged Property from
(a) an all-suite hotel to a full service or limited service hotel, (b) a full
service hotel to an all-suite or limited service hotel or (c) a limited service
hotel to an all-suite or full service hotel.
6.15 MANAGEMENT OF MORTGAGED PROPERTIES.
The Loan Parties shall not, and shall not permit any of their
respective Subsidiaries to, enter into or otherwise become obligated with
respect to, any agreement regarding the management or operation of any Mortgaged
Property.
6.16 MATERIAL LEASES.
With respect to the Mortgaged Properties, the Loan Parties shall not,
and shall not permit any of their respective Subsidiaries to, (i) enter into any
Lease other than Leases incidental to the operation of the Mortgaged Properties
as hotels or (ii) enter into any Material Lease without the prior written
approval of the Agent, which approval shall not be unreasonably withheld,
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conditioned or delayed; it being understood and agreed that if after the Closing
Date any Loan Party or any of its Subsidiaries enters into a Material Lease, the
Agent may require that the Tenant thereunder enter into a Tenant Subordination
Agreement reasonably satisfactory in form and substance to the Agent. In the
event any Material Lease necessary to the operation of any Mortgaged Property as
a hotel is terminated, the applicable Loan Party or Subsidiary thereof shall
replace such Lease with a suitable comparable Lease within a reasonable period
of time following such termination. The Loan Parties shall not, and shall not
permit any of their respective Subsidiaries to, enter into any Material Lease or
other agreement subsequent to the date hereof with any Person that would,
evaluated alone or in conjunction with any then existing Leases or other
agreements, result in a Material Adverse Effect.
6.17 ISSUANCE OF PREFERRED STOCK.
Neither the Company nor any of its Subsidiaries shall issue any Capital
Stock which by its terms (or the terms of any Security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund or
otherwise redeemable at the option of the holder thereof, no whole or in part,
before the date that is 91 days after the Maturity Date.
6.18 FISCAL YEAR.
The Company shall not change its fiscal year-end from December 31.
6.19 INTELLECTUAL PROPERTY; FRANCHISE AGREEMENTS.
A. INTELLECTUAL PROPERTY. The Loan Parties shall not, and shall not
permit any of their respective Subsidiaries, to Transfer any Intellectual
Property unless the Company shall have determined that the Intellectual Property
so Transferred is no longer material to the business, operations, condition
(financial or otherwise) or prospects of the Company and its Subsidiaries.
B. FRANCHISE AGREEMENTS. The Loan Parties shall not, and shall not
permit any of their respective Subsidiaries to, enter into or otherwise become
obligated with respect to, any Franchise Agreement with respect to a Mortgaged
Property, except that, from time to time after the Closing Date, the Company may
(subject to subsection 6.10) enter into Franchise Agreements as a franchisor;
provided, that (i) each hotel property subject to such Franchise Agreement shall
be of a type, quality and character consistent with the Company's business plan
and strategy, (iv) the Loan Parties and their respective Subsidiaries may not
make any Investment in, or become liable with respect to any Guaranty for the
benefit of, or make any payment to any Person owning or leasing the hotel
property subject to such Franchise Agreement or otherwise in connection with
such Franchise Agreement, and (iii) such Franchise Agreement shall not
constitute, have the form of or contain provisions creating a leasehold interest
in any real or personal property. Neither the Company nor any of its
Subsidiaries shall terminate or amend any Franchise Agreement with respect to a
Mortgaged Property in any material respect without the prior written consent of
the Agent.
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SECTION 7.
EVENTS OF DEFAULT; REMEDIES
7.1 EVENTS OF DEFAULT.
If any of the following conditions or events ("EVENTS OF DEFAULT")
shall occur:
A. FAILURE TO MAKE PAYMENTS WHEN DUE. Failure to pay any installment of
principal of any Loan or any Release Price when due or any interest or any other
amount due under this Agreement within three days after the due date, in each
case, whether at stated maturity, by acceleration, by notice of voluntary
prepayment, by mandatory prepayment or otherwise;
B. DEFAULT IN OTHER AGREEMENTS. (i) Failure of the Company or any of
its Subsidiaries to pay when due (at maturity, upon acceleration or otherwise)
any principal of or interest on or any other amount payable in respect of one or
more items of Indebtedness (other than Indebtedness referred to in subsection
7.1) or Contingent Obligations (a) in an aggregate principal amount of
$10,000,000 or more, with respect to Indebtedness or Contingent Obligations that
are recourse to the Company and its Subsidiaries or (b) in an aggregate
principal amount of $30,000,000 or more, with respect to Indebtedness or
Contingent Obligations that are non-recourse to the Company and its
Subsidiaries, in each case beyond the end of any grace period provided therefor;
or (ii) breach or default by Company or any of its Subsidiaries with respect to
any other material term of (a) one or more items of Indebtedness or Contingent
Obligations in the individual or aggregate principal amounts referred to in
clause (i) above or (b) any loan agreement, mortgage, indenture or other
agreement relating to such item(s) of Indebtedness or Contingent Obligation(s),
if the effect of such breach or default is to cause, or to permit the holder or
holders of that Indebtedness or Contingent Obligation(s) (or a trustee on behalf
of such holder or holders) to cause, that Indebtedness or Contingent
Obligation(s) to become or be declared due and payable prior to its stated
maturity or the stated maturity of any underlying obligations, as the case may
be (upon the giving or receiving of notice, lapse of time, both, or otherwise);
provided that, for purposes of this subsection 7.1C any Indebtedness owed by a
Subsidiary of the Company shall be deemed to be non-recourse if it is secured by
substantially all the assets of such Subsidiary and each Subsidiary of such
Subsidiary, but is not secured by the assets of, or otherwise recourse to, the
Company or any of its other Subsidiaries; or
C. BREACH OF CERTAIN COVENANTS. Failure of the Company to perform or
comply with any term or condition contained in subsection 2.6, 5.14, 5.15 or
Section 6 (other than 6.2 except to the extent that a default under subsection
6.2 is caused by the imposition of a Lien created or evidenced by an agreement,
instrument or other document signed by or filed at the direction of the Company
or any of its Subsidiaries, 6.4 and 6.17); or
D. BREACH OF WARRANTY. Any representation, warranty, certification or
other statement of any Loan Party or any of its Subsidiaries made in this
Agreement or in any other Loan Document or in any Related Document to which such
Loan Party or such Subsidiary is a party or in any statement or certificate at
any time given in writing pursuant hereto or thereto or
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in connection herewith or therewith shall be false in any material respect on
the date as of which made and such default shall not have been remedied or
waived within 30 days after the earlier of (i) such Loan Party's or such
Subsidiary's obtaining knowledge of such default and (ii) receipt by such Loan
Party or such Subsidiary of notice from the Agent of such default; provided,
however, that if such default cannot be cured solely by the payment of money and
the cure of such default requires a period in excess of 30 days, and if such
Loan Party or such Subsidiary, as applicable, is diligently and continuously
prosecuting such cure, then such default shall not be an Event of default unless
such Loan Party or such Subsidiary fails to cure such default within 90 days,
after such Loan Party or such Subsidiary obtain knowledge or notice thereof, as
the case may be; or
E. INVALIDITY OF LOAN DOCUMENT; FAILURE OF SECURITY; REPUDIATION OF
OBLIGATIONS. At any time after the execution and delivery thereof, (i) any Loan
Document (other than a Security Document) or any material provision thereof
shall cease to be in full force and effect (other than in accordance with its
terms) or shall be declared null and void; (ii) any Security Document or any
material provision thereof shall cease to be in full force and effect (other
than by reason of a release of Collateral thereunder in accordance with the
terms hereof or thereof, or any other termination of such Security Document in
accordance with the terms hereof or thereof) or shall be declared null and void,
or the Agent shall not have or shall cease to have a valid and perfected first
priority Lien or security interest in any Collateral purported to be covered
thereby, in each case for any reason other than the failure of the Agent to take
any action within its control; or (iii) any Loan Party shall contest in writing
the validity or enforceability of any Loan Document in writing or deny in
writing that it has any further liability, including with respect to future
advances by the Lenders, under any Loan Document to which it is a party; or
F. PROHIBITED TRANSFERS. Any Loan Party attempts to assign its rights
under this Agreement or any other Loan Document or any interest herein or
therein, or if any Transfer occurs other than in accordance with this Agreement
and the other Loan Documents; or
G. OTHER DEFAULTS UNDER LOAN DOCUMENTS OR RELATED DOCUMENTS. Any Loan
Party or any of its Subsidiaries shall default in the performance of or
compliance with any term contained in this Agreement or any other Loan Document
or any material term of any Related Document to which such Loan Party or such
Subsidiary is a party, other than any such term referred to in any other clause
of this subsection 7.1, and such default shall not have been remedied or waived
within 30 days after the earlier of (i) such Loan Party's or such Subsidiary's
obtaining knowledge of such default or (ii) receipt by such Loan Party or such
Subsidiary of notice from the Agent of such default; provided, however, that if
such default cannot be cured solely by the payment of money and the cure of such
default requires a period in excess of 30 days, and if such Loan Party or such
Subsidiary is diligently and continuously prosecuting such cure, then such
default shall not be an Event of Default unless such Loan Party or such
Subsidiary fails to cure such default within 90 days after any Loan Party or any
of its Subsidiaries obtains knowledge or notice thereof, as the case may be; or
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H. INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (i) A court
having jurisdiction in the premises shall enter a decree or order for relief in
respect of any Loan Party or any of its Subsidiaries in an involuntary case
under the Bankruptcy Code or under any other applicable bankruptcy, insolvency
or similar law now or hereafter in effect, which decree or order is not stayed;
or any other similar relief shall be granted under any applicable federal or
state law; or (ii) an involuntary case shall be commenced against any Loan Party
or any of its Subsidiaries under the Bankruptcy Code or under any other
applicable bankruptcy, insolvency or similar law now or hereafter in effect; or
a decree or order of a court having jurisdiction in the premises for the
appointment of a receiver, liquidator, sequestrator, trustee, custodian or other
officer having similar powers over any Loan Party or any of its Subsidiaries, or
over all or a substantial part of its property, shall have been entered; or
there shall have occurred the involuntary appointment of an interim receiver,
trustee or other custodian of any Loan Party or any of its Subsidiaries for all
or a substantial part of its property; or a warrant of attachment, execution or
similar process shall have been issued against any substantial part of the
property of any Loan Party or any of its Subsidiaries, and any such event
described in this clause (ii) shall continue for 60 days unless dismissed,
bonded or discharged; or
I. VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (i) Any Loan
Party or any of its Subsidiaries shall have an order for relief entered with
respect to it or commence a voluntary case under the Bankruptcy Code or under
any other applicable bankruptcy, insolvency or similar law now or hereafter in
effect, or shall consent to the entry of an order for relief in an involuntary
case, or to the conversion of an involuntary case to a voluntary case, under any
such law, or shall consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial part of its
property; or any Loan Party or any of its Subsidiaries shall make any assignment
for the benefit of creditors; or (ii) any Loan Party or any of its Subsidiaries
shall be unable, or shall fail generally, or shall admit in writing its
inability, to pay its debts as such debts become due; or the Board of Directors
of any Loan Party or any of its Subsidiaries (or any committee thereof) shall
adopt any resolution or otherwise authorize any action to approve any of the
actions referred to in clause (i) above or this clause (ii); or
J. JUDGMENTS AND ATTACHMENTS. Any money judgment, writ or
warrant of attachment or similar process involving individually or in the
aggregate at any time an amount in excess of $1,000,000 (in either case not
adequately covered by insurance as to which a solvent and unaffiliated insurance
company has acknowledged coverage in writing) shall be entered or filed against
the Company or any of its Subsidiaries or any of their respective assets and
shall remain undischarged, unvacated, unbonded or unstayed for a period of 60
days (or in any event later than five days prior to the date of any proposed
sale thereunder); or
K. DISSOLUTION. Any order, judgment or decree shall be entered against
any Loan Party or any of its Subsidiaries decreeing the dissolution or split up
of such Loan Party or that Subsidiary and such order shall remain undischarged
or unstayed for a period in excess of 30 days; or
L. EMPLOYEE BENEFIT PLANS. There shall occur one or more ERISA Events
which individually or in the aggregate results in or could reasonably be
expected to result in a Material
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<PAGE> 149
Adverse Effect; or there shall exist an amount of unfunded benefit liabilities
(as defined in Section 4001(a)(18) of ERISA), either individually or in the
aggregate for all Pension Plans, which exceeds $1,000,000; or
M. MATERIAL ADVERSE EFFECT. Any event or change shall occur that has
caused or evidences, either in any case or in the aggregate, a (i) material
adverse effect upon the business, operations or condition (financial or
otherwise) of the Company and its Subsidiaries, taken as a whole, and (ii) a
material impairment of the ability of the Company or any of its Material
Subsidiaries to perform, or of the ability of the Agent or the Lenders to
enforce, any material obligation of the Company or any of its Material
Subsidiaries under the Loan Documents; or
N. CHANGE OF CONTROL. Any Change of Control shall occur; or
O. EMPLOYMENT OF SIMON AND ELWOOD. Either of David Simon or John Elwood
cease to be employed in a senior position by the Company for any reason
(including the voluntary termination of such employment by David Simon or John
Elwood) except in the event of death or disability of either of David Simon or
John Elwood or the termination of any or all of their employment by the Company
for cause; or
P. OWNERSHIP OF SUBSIDIARIES. The Company shall cease to own, directly
or indirectly, all the equity Securities of any Subsidiary that at the time in
question is obligated with respect to a Subsidiary Guaranty.
THEN (i) upon the occurrence of any Event of Default described in subsection
7.1I or 7.1J, each of (a) the unpaid principal amount of and accrued interest on
the Loans and (b) all other Obligations shall automatically become immediately
due and payable, without notice, presentment, demand, protest or other
requirements of any kind, all of which are hereby expressly waived by the
Company and the obligations of each Lender to make any Loan shall thereupon
terminate, and (ii) upon the occurrence and during the continuance of any other
Event of Default, the Agent may, in its sole discretion, by written notice to
the Company, declare all or any portion of the amounts described in clauses (a)
and (b) above to be, and the same shall forthwith become, immediately due and
payable and the obligation of each Lender to make any Loan shall thereupon
terminate.
The occurrence of any condition or event may constitute an Event of
Default (or a Potential Event of Default) under more than one provision of this
subsection 7.1.
7.2 REMEDIES.
A. Upon the occurrence of an Event of Default, all or any one or more
of the rights, powers, privileges and other remedies available to the Agent or
the Lenders against the Company under this Agreement, the Notes, the Mortgages,
the Security Documents or any of the other Loan Documents, or at law or in
equity, may be exercised by the Agent, in such order as the Agent in its own
sole discretion at any time and from time to time, whether or not all or any
portion of the Obligations shall be declared due and payable, and whether or not
the Agent shall
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have commenced any foreclosure proceeding or other action for the enforcement of
its rights and remedies under any of the Loan Documents with respect to all or
any portion of the Mortgaged Property. Without limiting the generality of the
foregoing, the Agent shall have the right in its sole discretion to bring an
action or proceeding against any Loan Party without first seeking recourse
against the Collateral or any part thereof, and the Agent shall have the right
to seek recourse against such portions of or all of the Collateral in such order
and such manner as the Agent in its sole discretion shall determine. Any such
actions taken by the Agent shall be cumulative and concurrent and may be pursued
independently, singly, successively, together or otherwise, at such time and in
such order as the Agent in its sole discretion may determine, to the fullest
extent permitted by law, without impairing or otherwise affecting the other
rights and remedies of the Agent or the Lenders permitted by law, equity or
contract or as set forth herein or in the other Loan Documents.
B. In the event of the foreclosure or other action by the Agent to
enforce its remedies in connection with one or more of the Mortgaged Properties
or any other Collateral, whether such foreclosure (or other remedy) yields net
proceeds in an amount less than, equal to or more than the Property Amount of
such Mortgaged Property, the Agent shall apply all net proceeds received to
repay the Obligations, the Obligations shall be reduced to the extent of such
net proceeds and the remaining portion of the Obligations shall remain
outstanding and secured by the Mortgages and the other Loan Documents, it being
understood and agreed by the Company that the Company is liable for the
repayment of the Obligations and that any "excess" foreclosure proceeds are part
of the cross-collateralized and cross-defaulted security granted to the Agent on
behalf of the Lenders pursuant to the Mortgages; provided, however, that, if the
Agent so elects, the Loans and the Notes shall be deemed to have been
accelerated only to the extent of the net proceeds actually received by the
Lenders with respect to any individual Mortgaged Property (or, in the event that
the Agent on behalf of the Lenders is the purchaser of such Mortgaged Property
by Credit Bid at a foreclosure sale, the Loans and the Notes shall be deemed to
have been accelerated only at such time as the Agent subsequently disposes of
such Property and then only to the extent of the amount of such Credit Bid) and
applied in reduction of the Obligations in accordance with the provisions of
this Agreement and the Notes, after payment by the Company of all transaction
costs and expenses and costs of enforcement.
C. It is intended that the Liens of the Mortgages shall each be
construed and treated as a separate, distinct Lien for the purpose of securing
the entire Obligations secured thereby in the same manner as though each
Mortgaged Property was mortgaged and transferred to the Agent on behalf of the
Lenders by a separate and distinct mortgage and security agreement, so that if
it should at any time appear or be held that any Mortgage fails to mortgage, and
transfer to the Agent on behalf of the Lenders a Lien upon and the title to any
Mortgaged Property, or any part thereof, as against creditors of the Company
other than the Lenders or otherwise, such failure shall not operate to affect in
any way the transfer of the other Mortgaged Properties or any part thereof to
the Agent on behalf of the Lenders; but nothing contained herein or in the
Mortgages shall be construed as requiring the Agent on behalf of the Lenders to
resort to any Mortgaged Property for the satisfaction of the Obligations secured
thereby in preference or priority to any other Mortgaged Property thereby
conveyed, but the Agent, acting in its sole discretion may seek satisfaction out
of all of the Mortgaged Property or any part thereof.
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D. In addition to any rights now or hereafter granted under applicable
law and not by way of limitation of any such rights, upon the occurrence and
during the continuance of any Event of Default the Agent is hereby authorized by
the Company at any time or from time to time, without notice to the Company or
to any other Person, any such notice being hereby expressly waived, to the
extent permitted by Applicable Law, to set off and to appropriate and to apply
any and all deposits (general or special, including Indebtedness evidenced by
certificates of deposit, whether matured or unmatured, but not including trust
accounts) and any other Indebtedness at any time held or owing by the Agent to
or for the credit or the account of the Company against and on account of the
obligations and liabilities of the Company to the Agent under this Agreement and
the Notes, including all claims of any nature or description arising out of or
connected with this Agreement or any other Loan Document, irrespective of
whether or not (i) the Agent shall have made any demand hereunder or (ii) the
principal of or the interest on the Loan or any other amounts due hereunder
shall have become due and payable pursuant to subsection 8.1 and although said
obligations and liabilities, or any of them, may be contingent or unmatured.
E. Upon the occurrence and during the continuance of an Event of
Default, the Agent, in its sole discretion, shall have the right, to the extent
permitted by law, to impound and take possession of books, records, notes, and
other documents evidencing the Company's Deposit Accounts, accounts receivable
and other claims for payment of money (including Rents) arising in connection
with the Mortgaged Properties, to give notice to the obligors thereunder of the
Agent's interest therein, and to make direct collections on such Deposit
Accounts, accounts receivable and claims.
F. Upon the occurrence and during the continuance of a default in the
payment of any principal or interest of any Indebtedness owed or alleged to be
owed by the Company or any Subsidiary, and following the initiation of any
proceeding or the taking of any other action to collect the payment thereof by
the Person entitled to such payment, which proceeding or action could reasonably
be expected to directly affect any Collateral, the Agent may, in its sole
discretion, advance either to such Person or to the Company, for payment to such
Person, all or any portion of the amount of such payment, to the extent the
Agent deems necessary or proper to protect the security of the Collateral. Each
such advance shall be deemed a Loan hereunder and shall be subject to the
provisions of this Agreement.
G. The rights, powers and remedies of the Agent and the Lenders under
this Agreement shall be cumulative and not exclusive of any other right, power
or remedy which the Agent or the Lenders may have against the Company pursuant
to this Agreement or the other Loan Documents executed by or with respect to the
Company, or existing at law or in equity or otherwise. The rights, powers and
remedies of the Agent and the Lenders may be pursued singly, concurrently or
otherwise, at such time and in such order as the Agent, acting in its own sole
discretion, may determine. No delay or omission to exercise any remedy, right or
power accruing upon an Event of Default shall impair any such remedy, right or
power or shall be construed as a waiver thereof, but any such remedy, right or
power may be exercised from time to time and as often as may be deemed
expedient. A waiver of any Event of Default or Potential Event of Default with
respect to the Company shall not be construed to be a waiver of any subsequent
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Event of Default or Potential Event of Default by the Company or to impair any
remedy, right or power consequent thereon.
SECTION 8.
MISCELLANEOUS
8.1 ASSIGNMENTS AND PARTICIPATIONS IN LOANS.
A. GENERAL. Each Lender shall have the right at any time to (i) sell,
assign, transfer or negotiate to any Eligible Assignee (provided that such
Eligible Assignee complies with the requirements of subsection 2.8B(iii) as of
the date it becomes a Lender hereunder, to the extent applicable), or (ii) sell
participations to any Person in, all or any part of its Commitment or any Loan
or Loans made by it or participations therein or any other interest herein or in
any other Obligations owed to it; provided, however, that no such assignment or
participation shall, without the consent of the Company, require the Company to
file a registration statement with the Securities and Exchange Commission or
apply to qualify such assignment or participation under the securities laws of
any state; and provided, further that no such sale, assignment, transfer or
participation of any participation therein may be made separately from a sale,
assignment, transfer or participation of a corresponding interest in the Loan
Commitment and the Loans of the Lender effecting such sale, assignment, transfer
or participation. In the case of any assignment authorized under this subsection
8.1, (i) the Agent shall notify the Company of the effective date of such
assignment, (ii) as of such effective date, the assignee shall be a party hereto
and, to the extent that rights and obligations hereunder have been assigned to
it, shall have the rights and obligations of a Lender hereunder and (iii) the
assigning Lender shall, to the extent that its rights and obligations hereunder
have been assigned by it, relinquish its rights and be released from its
obligations under this Agreement. In the event of an assignment hereunder, the
Commitments shall be modified to reflect the Commitments of such assignee.
Except with respect to the portion of the Loans and Commitments assigned
pursuant to this subsection 8.1, no Lender shall, as between the Company and
such Lender, be relieved of any of its obligations hereunder as a result of any
sale, assignment, transfer or negotiation of, or any granting of participations
in, all or any part of its Commitment or the Loans, or other Obligations owed to
such Lender.
B. PARTICIPATIONS. The Company and each Lender hereby acknowledge and
agree that, solely for purposes of subsections 2.7, 2.8, and 8.5, (i) any
participation will give rise to a direct obligation of the Company to the
participant and (ii) the participant shall be considered to be a "Lender";
provided that no participant shall be entitled to receive any greater amount
pursuant to such subsections than the transferor Lender would have been entitled
to receive in respect of the amount of the participation effected by such
transferor Lender to such participant had no such participation occurred and the
Company shall reduce the amount payable to the transferor Lender by the amount
payable to the participant.
C. ASSIGNMENTS TO FEDERAL RESERVE BANKS. In addition to the assignments
and participations permitted under the foregoing provisions of this subsection
8.1, any Lender may assign and pledge all or any portion of its Loans and the
other Obligations owed to such Lender
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to any Federal Reserve Bank as collateral security pursuant to Regulation A of
the Board of Governors of the Federal Reserve System and any operating circular
issued by such Federal Reserve Bank. No Lender shall, as between the Company and
such Lender, be relieved of any of its obligations hereunder as a result of any
such assignment and pledge.
D. INFORMATION. Each Lender may furnish any information concerning the
Company and its Subsidiaries in the possession of that Lender from time to time
to assignees and participants (including prospective assignees and
participants).
8.2 EXPENSES.
Whether or not the transactions contemplated hereby shall be
consummated, the Company agrees to pay promptly (i) all the costs of furnishing
all opinions of counsel for the Company and the other Loan Parties (including
any opinions requested by the Agent) as to any legal matters arising hereunder
and of the each Loan Party's performance of and compliance with all agreements
and conditions on its part to be performed or complied with under this Agreement
and the other Loan Documents including with respect to confirming compliance
with environmental, insurance and solvency requirements and with respect to the
Security Documents and the Liens created pursuant thereto; (ii) actual costs and
expenses of creating, perfecting and maintaining Liens in favor of the Agent for
the benefit of the Lenders pursuant to any Loan Document, including filing and
recording fees and expenses, mortgage recording taxes and transfer and stamp
taxes, title searches, title insurance premiums, UCC searches and UCC filing
charges; (iii) all the reasonable out-of-pocket expenses incurred by the Agent
and payable to auditors, accountants, architects, engineers or appraisers and
any environmental or other consultants, advisors and agents employed or retained
by the Agent or its counsel in connection with performing due diligence,
including obtaining and reviewing any Appraisals, any environmental audits or
reports, market surveys, title reports, surveys and similar information; (iv)
all the reasonable fees, expenses and disbursements of counsel for the Agent in
connection with the negotiation, preparation, execution and administration of
the Loan Documents and the syndication of the Loans, including, without
limitation, in connection with any consents, amendments, waivers or other
modifications to the Loan Documents; (v) all reasonable expenses incurred by the
Agent, including, without limitation, the reasonable fees, expenses and
disbursements of counsel for the Agent (including allocated costs of internal
counsel) in connection with (a) the administration of the Loan Documents and any
consents, amendments, waivers or other modifications thereto, and (b) the
preparation or review of any documents or matters requested by any Loan Party;
and (vi) after the occurrence of an Event of Default, all costs and expenses,
including reasonable attorneys' fees and costs of settlement, incurred by the
Agent and the Lenders in enforcing any Obligations of or in collecting any
payments due from the Company hereunder or under the other Loan Documents by
reason of such Event of Default or in connection with any refinancing or
restructuring of the credit arrangements provided under this Agreement in the
nature of a "work-out" or pursuant to any insolvency or bankruptcy proceedings.
8.3 INDEMNITY.
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A. INDEMNITY. In addition to the payment of expenses pursuant to
subsection 8.2, whether or not the transactions contemplated hereby shall be
consummated, the Company agrees to defend, indemnify, pay and hold harmless the
Agent, the Documentation Agent, Lenders and Bankers and their respective
Affiliates and Persons deemed to be "CONTROLLING PERSONS" thereof within the
meaning of the Securities Act or the Exchange Act and the respective directors,
officers, employees, agents, attorneys and representatives of the foregoing
(collectively, "INDEMNIFIED PERSONS" and individually, an "INDEMNIFIED PERSON"),
to the full extent lawful, from and against any and all losses, claims, damages,
liabilities, costs and expenses or other obligations of any kind or nature
whatsoever incurred by each such Indemnified Person (including fees, charges and
disbursements of both counsel and the allocated costs and expenses of internal
counsel for such Indemnified Person) which are related to, arise out of or
result from (a) any untrue statements or alleged untrue statements or omissions
or alleged omissions to state therein a material fact necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading, in each case made or, to the extent contemplated by the Work Letter,
the Loan Documents, to be made, by or on behalf of any Loan Party or any of its
Affiliates, (x) in the representations and warranties of the Loan Parties
contained in the Loan Documents, (y) in or pursuant to the Work Letter, the
Original Financing Letter, the Loan Documents or the Related Documents or (z)
otherwise in connection with the Work Letter, the Original Financing Letter, the
Loan Documents or the Related Documents, (b) with respect to information
provided by or on behalf of any Loan Party or any of their Affiliates for use in
connection with any syndication, assignment or participation of any portion of
the Commitments, the Loans, the Notes, the other Loan Documents or the
Obligations, or in connection with the Original Financing Letter, any Loan
Document or any Related Document or any transactions contemplated hereby or
thereby, (c) the transactions contemplated by the Loan Documents (including the
Lenders' agreements to make the Loans or the use or intended use of the proceeds
thereof) or any enforcement of any of the Loan Documents (including any sale of,
collection from, or other realization upon any of the Collateral or the
enforcement of the Subsidiary Guaranty), (d) any actions taken or omitted to be
taken by an Indemnified Person with the consent of the Company or in conformity
with the instructions of the Company, or (e) any other transactions contemplated
by the Work Letter, the Original Financing Letter, the Loan Documents or the
Related Documents and will reimburse each Indemnified Person for all reasonable
costs and expenses, including fees and disbursements of both outside and
internal counsel for such Indemnified Person, as they are incurred, in
connection with investigating, preparing for, or defending any formal or
informal claim, action, suit, investigation, inquiry or other proceeding,
whether or not in connection with pending or threatening litigation, caused by
or arising out of or in connection with the foregoing, whether or not such
Indemnified Person is named as a party thereto and whether or not any liability
results therefrom. The Company shall not, however, be responsible for any
losses, claims, damages, liabilities, costs or expenses pursuant to clauses (c),
(d) or (e) of the preceding sentence which have resulted primarily from the bad
faith or recklessness of such Indemnified Person as determined by a final
judgment of a court of competent jurisdiction. Neither the Agent nor any other
Indemnified Person shall have any liability (whether direct or indirect, in
contract or tort otherwise) to any of the Loan Parties and their respective
Affiliates or any director, officer, employee, agent or representative of any of
the foregoing, or any other person, for or in connection with the foregoing, or
otherwise arising out of or in any way relating to the matters contemplated by
the Work Letter, the Original Financing
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Letter, the Loan Documents, the Related Documents or any commitment to lend
except for such liability for losses, claims, damages, liabilities, costs or
expenses of any Indemnified Person pursuant to clauses (c), (d) or (e) of the
preceding sentence to the extent they are determined to have resulted primarily
from the bad faith or recklessness of such Indemnified Person as determined by a
final judgment of a court of competent jurisdiction and in no event shall the
Agent or any other Indemnified Person be responsible for or liable to any of the
Loan Parties or any of their respective Affiliates or any other Person for
consequential, punitive or exemplary damages. The Company further agrees that
the Loan Parties shall not, nor shall they permit their respective Subsidiaries
to, without the prior written consent of the Agent and Bankers, settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action, suit, investigation, inquiry or other proceeding in respect of
which indemnification is actually sought hereunder unless such settlement,
compromise or consent includes an unconditional release of the Agent and each
other Indemnified Person hereunder from all liability arising out of such claim,
action, suit, investigation, inquiry or other proceeding.
B. PROCEDURE. If any action, suit, investigation, inquiry or other
proceeding is commenced, as to which an Indemnified Person proposes to demand
indemnification hereunder, such Indemnified Person shall notify the Company with
reasonable promptness; provided, however, that any failure by such Indemnified
Person to notify the Company shall not relieve the Company or any of its
Affiliates from its obligations hereunder (except to the extent that the Company
or such Affiliate is prejudiced in a material respect by such failure to so
promptly notify). The Company shall be entitled to assume the defense of any
such action, suit, investigation, inquiry or other proceeding, including the
employment of counsel reasonably satisfactory to the Indemnified Person and the
payment of all reasonable fees and expenses incurred in connection therewith.
The Indemnified Person shall have the right to employ separate counsel in any
such action, suit, investigation, inquiry or other proceeding, or to participate
in the defense thereof, but the fees and expenses of such counsel shall be at
the expense of the Indemnified Person unless (i) the Company has agreed to pay
such fees and expenses, (ii) the Company shall have failed promptly upon written
demand therefor to assume the defense of such action, suit, investigation,
inquiry or other proceeding, and employ counsel reasonably satisfactory to the
Indemnified Person in connection therewith or (iii) such Indemnified Person
shall have been advised by counsel that there exists actual or potential
conflicting interests between the Company and such Indemnified Person, including
situations in which one or more legal defenses may be available to such
Indemnified Person that are different from or additional to those available to
the Company, in which case, if such Indemnified Person notifies the Company in
writing that it elects to employ separate counsel at the expense of the Company,
the Company shall not have the right to assume the defense of such action or
proceeding on behalf of such Indemnified Person; provided, however, that the
Company shall not, in connection with any one such action, suit, investigation,
inquiry or other proceeding or separate but substantially similar or related
actions, suits, investigations, inquiries or other proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys at
any time for all such Indemnified Persons (in addition to local counsel), which
firm shall be designated in writing by the Agent.
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C. CONTRIBUTION. In order to provide for just and equitable
contribution with respect to matters subject to subsection 8.3A if a claim for
indemnification is made pursuant to these provisions but is found in a final
judgment by a court of competent jurisdiction (not subject to further appeal)
that such indemnification is not available for any reason (except, with respect
to indemnification sought solely pursuant to subsection 8.3A, for the reasons
specified in the second sentence of subsection 8.3A), even though the express
provisions hereof provide for indemnification in such case, or is insufficient
to hold an Indemnified Party harmless, then the Company, on the one hand, and
the Agent, the Lenders or Bankers, on the other hand, shall contribute to such
loss, claim, damage, liability, cost or expense for which such indemnification
or reimbursement is held unavailable or is insufficient in such proportion as is
appropriate to reflect the relative benefits to the Loan Parties and their
respective Affiliates, on the one hand, and the Agent, Lenders or Bankers, on
the other hand, in connection with the transactions described in the Original
Financing Letter, the Loan Documents and the Related Documents, as well as any
other equitable considerations. The parties agree that for the purpose of this
subsection 8.3C, the relative benefits to the Loan Parties and their respective
Affiliates, on the one hand, and the Agent, Lenders and Bankers, on the other
hand shall be deemed to be in the same proportion as the proceeds received or to
be received by the Loan Parties from the Loan Documents bears to the fees paid
or to be paid to the Agent, Lenders and Bankers under the Loan Documents.
Notwithstanding the foregoing, the Agent, Lenders and Bankers shall not be
required to contribute under this subsection 8.3C any amount in excess of the
amount of fees actually received by the Agent, Lenders and Bankers,
respectively, in respect of the Loan Documents. The Company, Agent, Bankers and
the Lenders agree that it would not be just and equitable if contribution
pursuant to this subsection 8.3C were determined by pro rata allocation or by
any other method which does not take into account the equitable considerations
referred to in this subsection 8.3C.
D. NO LIMITATION. The foregoing rights to indemnity and contribution
shall be in addition to any rights that any Indemnified Person may have at
common law or otherwise and shall remain in full force and effect following the
completion or any termination of the transactions contemplated by the Work
Letter, the Original Financing Letter, the Loan Documents and the Related
Documents. In no event shall the Agent, the Lenders, or Bankers be responsible
or liable to any person for consequential damages which may be alleged as a
result of the Work Letter, the Original Financing Letter, the Loan Documents and
the Related Documents or any transaction contemplated thereby.
E. INDEPENDENCE OF INDEMNITY. The Company acknowledges and agrees that
the provisions of this subsection 8.3 are separate from and in addition to the
provisions contained in the Work Letter, the Original Financing Letter and the
Environmental Indemnity.
8.4 NO JOINT VENTURE OR PARTNERSHIP.
The Lenders and the Company acknowledge and agree that the relationship
created hereunder or under the other Loan Documents is that of creditor/debtor.
The Company acknowledges and agrees that (a) the Company through its directors,
officers and employees, is a knowledgeable and sophisticated business
practitioner with particular expertise and broad
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experience in the area of real estate acquisition and finance; (b) the Agent and
the Lenders individually and collectively, do not owe, and have expressly
disclaimed, any fiduciary or special obligation to the Company and/or any of the
Company's partners, agents, or representatives; and (c) nothing contained in
this Agreement or any other Loan Document shall affect the relationship between
the Lenders and the Company as that of creditor/debtor hereunder and under the
other Loan Documents. Nothing herein or therein is intended to create a joint
venture, partnership, tenancy-in-common, or joint tenancy relationship between
the Company, any other Loan Party or Subsidiary thereof and the Agent or any
Lender nor to grant the Agent or the Lenders any interest in the Mortgaged
Property other than that of mortgagee or lender.
8.5 RATABLE SHARING.
The Lenders hereby agree among themselves that if any of them shall,
whether by voluntary payment (other than a voluntary prepayment of Loans made
and applied in accordance with this Agreement), by realization upon security,
through the exercise of any right of set-off or banker's lien, by counterclaim
or cross action or by the enforcement of any right under the Loan Documents or
otherwise, or as adequate protection of a deposit treated as cash collateral
under the Bankruptcy Code, receive payment or reduction of a proportion of the
aggregate amount of principal, interest, fees and other amounts then due and
owing to that Lender hereunder or under the other Loan Documents (collectively,
the "AGGREGATE AMOUNTS DUE" To such Lender) which is greater than the proportion
received by any other Lender in respect of the Aggregate Amounts Due to such
other Lender, then the Lender receiving such proportionately greater payment
shall (i) notify the Agent and each other Lender of the receipt of such payment
and (ii) apply a portion of such payment to purchase participations (which it
shall be deemed to have purchased from each seller of a participation
simultaneously upon the receipt by such seller of its portion of such payment)
in the Aggregate Amounts Due to the other Lenders so that all such recoveries of
Aggregate Amounts Due shall be shared by all Lenders in proportion to the
Aggregate Amounts Due to them; provided, however, that if all or part of such
proportionately greater payment received by such purchasing Lender is thereafter
recovered from such Lender upon the bankruptcy or reorganization of the Company
or otherwise, those purchases shall be rescinded and the purchase prices paid
for such participations shall be returned to such purchasing Lender ratably to
the extent of such recovery, but without interest. The Company expressly
consents to the foregoing arrangement and agrees that any holder of a
participation so purchased may exercise any and all rights of banker's lien,
set-off or counterclaim with respect to any and all monies owing by the Company
to that holder with respect thereto as fully as if that holder were owed the
amount of the participation held by that holder.
8.6 AMENDMENTS AND WAIVERS.
No amendment, modification, termination or waiver of any
provision of this Agreement or any other Loan Document or consent to any
departure by any Loan Party therefrom, shall in any event be effective without
the written concurrence of the Agent. Any waiver or consent shall be effective
only in the specific instance and for the specific purpose for which it was
given. No notice to or demand on the Company in any case shall entitle the
Company to any other or further notice or demand in similar or other
circumstances. Any amendment, modification, termi-
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ation, waiver or consent effected in accordance with this subsection 8.6 shall
be binding upon each Lender at the time outstanding, each future Lender and, if
signed by the Company, on the Company. The Company shall be entitled to
conclusively assume that any written amendment, modification, termination or
waiver of any Loan Document executed by the Agent has been duly authorized, to
the extent necessary, by the Lenders.
8.7 INDEPENDENCE OF COVENANTS.
All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or would otherwise be within
the limitations of, another covenant shall not avoid the occurrence of an Event
of Default or Potential Event of Default if such action is taken or condition
exists.
8.8 NOTICES.
Unless otherwise specifically provided herein, any notice or other
communication herein required or permitted to be given shall be in writing and
may be personally served, telexed, or sent by telefacsimile or courier service
and shall be deemed to have been given when delivered in person or by courier
service, upon receipt of telefacsimile or telex; provided, however, that notices
to the Agent shall not be effective until received. For the purposes hereof, the
address of each party hereto shall be as set forth under such party's name on
the signature pages hereof or (i) as to the Company and the Agent, such other
address as shall be designated by such Person in a written notice delivered to
the other parties hereto and (ii) as to each other party, such other address as
shall be designated by such party in a written notice delivered to the Agent.
8.9 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
A. All representations, warranties and agreements made herein shall
survive the execution and delivery of this Agreement and the making of the Loans
hereunder and, notwithstanding anything in this Agreement or implied by law to
the contrary, the representations and warranties set forth in subsection 4.2G
(to the extent it incorporates the Environmental Indemnity) shall survive the
payment in full of the Obligations and the termination of this Agreement.
B. Notwithstanding anything in this Agreement or implied by law to the
contrary, the agreements of the Company set forth in subsections 2.7, 2.8, 3.5A,
3.6, 6.8 (to the extent it incorporates the Environmental Indemnity), 8.2, 8.3
and 8.5 shall survive the payment in full of the Obligations and the termination
of this Agreement.
8.10 AGENT'S DISCRETION.
Whenever pursuant to this Agreement or any other Loan Document the
Agent exercises any right given to it to approve or disapprove, or any
arrangement or term is to be satisfactory to the Agent, the decision of the
Agent to approve or disapprove or to decide whether
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arrangements or terms are satisfactory or not satisfactory shall (except as is
otherwise specifically herein provided) be in the sole discretion of the Agent.
The Company acknowledges and agrees that, notwithstanding anything in this
Agreement to the contrary, certain decisions to be made by the Agent under this
Agreement may be subject to or determined by the further decision by the Lenders
or a percentage of the Lenders.
8.11 OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF THE LENDERS' RIGHTS.
The obligations of the Lenders hereunder are several and no Lender
shall be responsible for the obligations or Commitment of any other Lender
hereunder. Nothing contained herein or in any other Loan Document, and no action
taken by the Lenders pursuant hereto or thereto, shall be deemed to constitute
the Lenders as a partnership, an association, a joint venture or any other kind
of entity. The amounts payable at any time hereunder to each Lender shall be a
separate and independent debt, and each Lender shall be entitled to protect and
enforce its rights arising out of this Agreement and it shall not be necessary
for any other Lender to be joined as an additional party in any proceeding for
such purpose.
8.12 REMEDIES OF THE COMPANY.
In the event that a claim or adjudication is made that the Agent or any
Lender or their respective agents has acted unreasonably or unreasonably delayed
acting in any case where by law or under this Agreement, the Notes, the
Mortgages or the other Loan Documents, the Agent, such Lender or such agent, as
the case may be, has an obligation to act reasonably or promptly, the Company
agrees that none of the Agent, such Lender or such agents, shall be liable for
any monetary damages, and the Company's sole remedies shall be limited to
commencing an action seeking injunctive relief or declaratory judgement. The
parties hereto agree that any action or proceeding to determine whether the
Agent or any Lender has acted reasonably shall be determined by an action
seeking declaratory judgment.
8.13 MARSHALLING; PAYMENTS SET ASIDE.
Neither the Agent nor any Lenders shall be under any obligation to
marshal any assets in favor of the Company, any other Loan Party or any other
party or against or in payment of any or all of the Obligations. To the extent
that the Company or any other Loan Party makes a payment or payments to the
Lenders or the Agent (or to the Agent for the benefit of the Lenders), or the
Agent or the Lenders enforce any security interests or the Agent exercises its
rights of setoff, and such payment or payments or the proceeds of such
enforcement or setoff or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, any other state
or federal law, common law or any equitable cause of action, then, to the extent
of such recovery, the obligation or part thereof originally intended to be
satisfied, and all Liens, rights and remedies therefor or related thereto, shall
be revived and continued in full force and effect as if such payment or payments
had not been made or such enforcement or setoff had not occurred.
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8.14 MAXIMUM AMOUNT.
A. It is the intention of the Company and the Lenders to conform
strictly to the usury and similar laws relating to interest from time to time in
force, and all agreements between the Loan Parties and their respective
Subsidiaries and the Lenders, whether now existing or hereafter arising and
whether oral or written, are hereby expressly limited so that in no contingency
or event whatsoever, whether by acceleration of maturity hereof or otherwise,
shall the amount paid or agreed to be paid in the aggregate to the Lenders as
interest hereunder or under the other Loan Documents or in any other security
agreement given to secure the indebtedness of the Company to the Lenders, or in
any other document evidencing, securing or pertaining to the indebtedness
evidenced hereby, exceed the maximum amount permissible under applicable usury
or such other laws (the "MAXIMUM AMOUNT"). If under any circumstances whatsoever
fulfillment of any provision hereof, or any of the other Loan Documents, at the
time performance of such provision shall be due, shall involve exceeding the
Maximum Amount, then, ipso facto, the obligation to be fulfilled shall be
reduced to the Maximum Amount. For the purposes of calculating the actual amount
of interest paid and/or payable hereunder in respect of laws pertaining to usury
or such other laws, all sums paid or agreed to be paid to the holder hereof for
the use, forbearance or detention of the indebtedness of the Company evidenced
hereby, outstanding from time to time shall, to the extent permitted by
Applicable Law, be amortized, pro-rated, allocated and spread from the date of
disbursement of the proceeds of the Notes until payment in full of all of such
indebtedness, so that the actual rate of interest on account of such
indebtedness is uniform through the term hereof. The terms and provisions of
this subsection shall control and supersede every other provision of all
agreements between the Company or any endorser of the Notes and the Lenders.
B. If under any circumstances any Lender shall ever receive an amount
which would exceed the Maximum Amount, such amount shall be deemed a payment in
reduction of the principal amount of the Loans and shall be treated as a
voluntary prepayment under subsection 2.5B(i) and shall be so applied in
accordance with subsection 2.5 hereof or if such excessive interest exceeds the
unpaid balance of the Loans and any other indebtedness of the Company in favor
of such Lender, the excess shall be deemed to have been a payment made by
mistake and shall be refunded to the Company.
8.15 SEVERABILITY.
In case any provision in or obligation under this Agreement or any Note
or any other Loan Document shall be invalid, illegal or unenforceable in any
jurisdiction or under any set of circumstances, the validity, legality and
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction or under any other set of circumstances,
shall not in any way be affected or impaired thereby.
8.16 HEADINGS.
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Section and subsection headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
8.17 APPLICABLE LAW.
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT
LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW
YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
8.18 SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon the parties hereto and their
respective successors and assigns and shall inure to the benefit of the parties
hereto and the successors and assigns of the Agent and the Lenders (it being
understood that the Lenders' rights of assignment are subject to subsection
8.1). Neither the Company's rights or obligations hereunder nor any interest
therein may be assigned or delegated by the Company.
8.19 CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE COMPANY ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY
OBLIGATIONS THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING
AND DELIVERING THIS AGREEMENT, THE COMPANY, FOR ITSELF AND IN CONNECTION WITH
ITS PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE
NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH
PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL, RETURN RECEIPT REQUESTED, TO COMPANY AT ITS ADDRESS PROVIDED IN
ACCORDANCE WITH SUBSECTION 8.8;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE
IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER COMPANY
IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE
CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT;
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(V) AGREES THAT THE AGENT RETAINS THE RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING
PROCEEDINGS AGAINST THE COMPANY IN THE COURTS OF ANY OTHER
JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 8.19
RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO
THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW
SECTION 5-1402 OR OTHERWISE.
8.20 WAIVER OF JURY TRIAL.
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY DEALINGS BETWEEN
THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE
LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED HEREBY
AND THEREBY. The scope of this waiver is intended to be all-encompassing of any
and all disputes that may be filed in any court and that relate to the subject
matter of this transaction, including contract claims, tort claims, breach of
duty claims and all other common law and statutory claims. Each party hereto
acknowledges that this waiver is a material inducement to enter into a business
relationship, that each has already relied on this waiver in entering into this
Agreement and the other Loan Documents, and that each will continue to rely on
this waiver in their related future dealings. Each party hereto further warrants
and represents that it has reviewed this waiver with its legal counsel and that
it knowingly and voluntarily waives its jury trial rights following consultation
with legal counsel.
THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR
IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS
SUBSECTION 8.20 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS
OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER.
In the event of litigation, this Agreement may be filed as a written consent to
a trial by the court.
8.21 COUNTERPARTS; EFFECTIVENESS.
This Agreement and any amendments, waivers, consents or supplements
hereto or in connection herewith may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
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counterpart so that all signature pages are physically attached to the same
document. This Agreement shall become effective upon the execution of a
counterpart hereof by each of the parties hereto and receipt by the Company and
the Agent of written or telephonic notification of such execution and
authorization of delivery thereof.
8.22 MATERIAL INDUCEMENT.
The Company acknowledges that its representations, warranties,
covenants and agreements contained in this Agreement and the other Loan
Documents, including its covenants and agreements to pay Release Prices are
material inducements to the Lenders to enter into this Agreement and to make the
Loans, that the Lenders have already relied on such representations, warranties,
covenants and agreements in entering into this Agreement and agreeing to make
the Loans (notwithstanding any investigation heretofore or hereafter made by or
on behalf of the Lenders), and that the Lenders will continue to rely on such
representations, warranties, covenants and agreements in their future dealings
with the Company. The Company understands that the Release Prices are designed
to afford to the Lenders a predictable return on their investment in the Loans,
that the Release Prices will be required to be paid by the Company in connection
with all voluntary and involuntary prepayments of the principal amount of the
Loans and reductions in the Commitments (except as specifically set forth to the
contrary in subsection 2.5B), and that the payment of the Release Prices in
connection with involuntary prepayments beyond the Company's control (such as
upon the occurrence of a casualty or a Taking) will be required. The Company
agrees that its representations, warranties, covenants and agreements contained
in this Agreement and the other Loan Documents, including its covenants and
agreements to pay Release Prices, are reasonable in purpose and scope. The
Company represents and warrants that it has reviewed this Agreement and the
other Loan Documents with its legal counsel and that it knowingly and
voluntarily is entering into this Agreement and the other Loan Documents
following consultation with legal counsel.
8.23 ENTIRE AGREEMENT.
This Agreement is evidence of the indebtedness incurred pursuant hereto
and, taken together with all of the other Loan Documents and all certificates
and other documents delivered to the Agent and the Lenders hereunder and
thereunder, embodies the entire agreement and supersede all prior agreements,
written and oral, relating to the subject matter hereof.
8.24 CONFIDENTIALITY.
Each Lender and the Agent, severally and not jointly, agrees to
exercise commercially reasonable efforts to keep any non-public information
delivered or made available to such Lender or the Agent pursuant to the Loan
Documents, which any Loan Party or its authorized representative has identified
as confidential information, confidential from any Person other than Persons
employed by or retained by such Lender or the Agent who are or are expected to
become engaged in evaluating, approving, structuring or administering the Loans
and other extensions of credit or Obligations hereunder; provided, that nothing
herein shall prevent any Lender or the Agent from disclosing such information to
any bona fide assignee, transferee or participant that
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has agreed to comply with this subsection 8.24 in connection with the
contemplated assignment or transfer of any Commitments, Loans or other
extensions of credit or Obligations hereunder or participation therein or as
required or requested by any Governmental Authority or representative thereof or
pursuant to legal process or in connection with the exercise of any remedy under
the Loan Documents.
8.25 DOCUMENTATION AGENT.
The Documentation Agent, as such, shall have no duties or obligations
whatsoever with respect to this Agreement, the Notes or any other document or
any matter related thereto.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
COMPANY:
PRIME HOSPITALITY CORP.
/s/ Douglas W. Vicari
By: ---------------------------------------
Name: Douglas W. Vicari
Title: Vice President
Notice Address:
Prime Hospitality Corp.
700 Route 46 East
Fairfield, New Jersey 07007-2700
Attention: President and Law Department
S-1
<PAGE> 166
AGENT:
BANKERS TRUST COMPANY,
as Agent
/s/ Laura S. Burwick
By: -----------------------------------------
Name: Laura S. Burwick
Title: Vice President
Notice Address:
Bankers Trust Company
280 Park Avenue
New York, New York 10017
Attention: Laura S. Burwick
LENDERS:
BANKERS TRUST COMPANY,
as a Lender
/s/ Laura S. Burwick
By: -----------------------------------------
Name: Laura S. Burwick
Title: Vice President
Notice Address:
Bankers Trust Company
280 Park Avenue
New York, New York 10017
Attention: Laura S. Burwick
S-2
<PAGE> 167
CREDIT LYONNAIS NEW YORK BRANCH,
as Documentation Agent and as Lender
/s/ Rick Rohrbach
By: -----------------------------------------
Name: Rick Rohrbach
Title: First Vice President
Notice Address:
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019
Attention: Linda Eisenberger
S-3
<PAGE> 168
MIDLANTIC BANK, NATIONAL ASSOCIATION,
as a Lender
/s/ Gregory J. McManus
By: ------------------------------------------
Name: Gregory J. McManus
Title: Vice President
Notice Address:
Midlantic Bank, National Association
Two Tower Center, 18th Floor
East Brunswick, New Jersey 08816
Attention: Gregory J. McManus
S-4
<PAGE> 1
EXHIBIT 5.1
[Willkie Farr & Gallagher Letterhead]
July 26, 1996
Prime Hospitality Corp.
700 Route 46 East
Fairfield, NJ 07007-2700
Re: Registration Statement on Form S-3 (No. 333-7431)
Ladies and Gentlemen:
Prime Hospitality Corp. (the "Company") has requested our opinion in connection
with the Registration Statement on Form S-3 (No. 333-7431) (the "Registration
Statement") relating to 8,625,000 shares of Common Stock, par value $.01 per
share (the "Shares") of the Company.
We have examined copies of the Certificate of Incorporation and ByLaws of the
Company, the Registration Statement, all resolutions adopted by the Company's
Board of Directors and other records and documents that we have deemed
necessary for the purpose of this opinion. We have also examined such other
documents, papers, statutes and authorities as we have deemed necessary to form
a basis for the opinion hereinafter expressed.
In our examination, we have assumed the genuineness of all signatures and the
conformity to original documents of all copies submitted to us. As to various
questions of fact material to our opinion, we have relied on statements and
certificates of officers and representatives of the Company and public
officials. In rendering this opinion, we have also assumed that there will be
no changes in applicable law or facts between the date hereof and any date of
issuance of the Shares and that the provisions of all applicable federal and
state securities laws have been complied with.
Based upon and subject to the foregoing, we are of the opinion that (i) the
Company has been duly organized and is validly existing as a corporation in
good standing under the laws of the State of Delaware and (ii) the Shares, when
duly sold, issued and paid for in accordance with the terms of the Prospectus
included as part of the Registration Statement, will be duly authorized and
validly issued and will be fully paid and non-assessable.
<PAGE> 2
Prime Hospitality Corp.
July 26, 1996
Page 2
We hereby consent to (i) the filing of this opinion as an exhibit to the
Registration Statement, (ii) the incorporation by reference of this opinion in
an abbreviated registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, to register additional shares of Common
Stock in an amount and at a price that together represent no more than 20% of
the maximum aggregate offering price set forth in the Registration Statement
and (iii) the reference to our firm under the caption "Legal Matters" in the
Registration Statement.
Very truly yours,
Willkie Farr & Gallagher
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Prime Hospitality Corp.:
As independent public accountants, we hereby consent to the use of our
report dated January 31, 1996, except with respect to the matters discussed in
Note 16 as to which the date is July 2, 1996, covering the Company's
consolidated financial statements for the years ended December 31, 1993, 1994
and 1995 and to all references to our firm included in or made a part of this
Registration Statement.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
July 26, 1996
