UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 33-78866
______________________
MOA HOSPITALITY, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0166914
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 Lee Street, Suite 1000, Des Plaines, Illinois 60016
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 803-1200
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[X] Yes [ ] No
Number of shares of Common Stock, $.01 par value outstanding as of
March 13, 1998: 800,000
<PAGE>
INDEX TO FORM 10-K
Page
Part I
Item 1. Business ........................................... 3
Item 2. Properties ......................................... 8
Item 3. Legal Proceedings .................................. 14
Item 4. Submission of Matters to a Vote of Security Holders. 14
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ............................. 14
Item 6. Selected Financial Data ............................ 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............. 17
Item 8. Financial Statements and Supplementary Data ........ 27
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ............. 27
Part III
Item 10. Directors and Executive Officers of the Registrant . 28
Item 11. Executive Compensation ............................. 31
Item 12. Security Ownership of Certain Beneficial Owners and
Management ...................................... 33
Item 13. Certain Relationships and Related Transactions ..... 33
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K ..................................... 34
Signatures
<PAGE>
PART I
ITEM 1. BUSINESS
General
MOA Hospitality, Inc. and its subsidiaries ("MOA" or the "Company"),
formerly known as Motels of America, Inc., is a leading owner and operator of
national brand affiliated limited service lodging facilities in the United
States. As of December 31, 1997, the Company, directly and through
subsidiaries, operated 138 lodging facilities located in 37 states with a total
of 11,385 rooms. In March 1998, MOA sold a lodging facility resulting in the
Company owning and operating 137 lodging facilities located in 37 states with a
total of 11,336 rooms as of March 20, 1998. The Company's largest
concentrations of lodging facilities are located in the States of Georgia and
Illinois with 13 lodging facilities each. The Company derives less than 8% of
its revenues from lodging facilities located in either the states of Georgia or
Illinois. The Company operates 133 of its lodging facilities pursuant to
franchise or license agreements with the following national brands: Best
Western, Comfort Inn, Day's Inn, Holiday Inn Express, Howard Johnson, Microtel,
Ramada, Ltd., Shoney's Inn, Super 8, Travelodge and Villager Lodge. By
affiliating its lodging facilities with national brands, MOA benefits by
receiving national brand name recognition, national advertising exposure,
central reservation services, exposure in published travel directories, group
tour generated business and other professional services which could not be
duplicated by the Company on a cost-effective basis for its lodging facilities.
The Company was incorporated in 1986 under the laws of the State of
Delaware to continue the business commenced by its predecessors in 1982. The
Company's principal executive offices are located at 701 Lee Street, Suite
1000, Des Plaines, Illinois 60016, telephone (847) 803-1200.
Recent History
Since January 1, 1994, the Company has increased the number of its
lodging properties from 83 properties to 138 properties at December 31, 1997.
This growth was accomplished through acquisitions and development funded
through borrowings and internally generated funds. A summary of the
significant transactions which provided this growth is as follows:
In April 1994, the company in two separate but concurrent
transactions acquired twenty four lodging facilities for approximately $74
million consisting of cash of $59 million and the assumption of $15 million in
mortgage debt. Funding for the transactions was through an $80 million
principal amount public offering of 12% Senior Subordinated Notes due 2004,
Series B (the "Notes"). In conjunction with this offering the Company issued
80,000 shares of common stock to the holders of the Notes for no additional
consideration. During the May through December 1994 period, the Company
acquired in a series of transactions an additional seventeen lodging
facilities for approximately $34.1 million of cash and the assumption of $4.5
million of mortgage debt. In October 1994, the Company, entered into a two-
year $100 million secured line of credit facility (the "NACC credit line")
with Nomura Asset Capital Corporation ("NACC") to provide funding for
acquisitions and related expenses (including refurbishment costs).
<PAGE>
In September 1995, the Company and NACC entered into a financing
transaction (the "Secured Financing") involving the formation of Motels of
America, L.L.C., a limited liability company wholly owned by MOA ("MOA LLC").
MOA and its subsidiaries transferred 93 lodging facilities to MOA LLC and MOA
LLC borrowed on a secured basis $158.8 million from NACC. Proceeds of the
Secured Financing were used to repay existing indebtedness of approximately
$142.2 million (including outstanding indebtedness under the NACC credit line)
and for general corporate purposes. During 1996, ownership of MOA LLC was
transferred from MOA to two of its wholly owned subsidiaries.
In January 1996, the Company acquired nineteen lodging facilities
from Forte USA, Inc., a subsidiary of Forte Hotels, Inc., for approximately
$35.5 million in cash which was financed by $30.9 million of borrowings under
the NACC credit line and from other unaffiliated sources. During 1996, the
Company, in a series of transactions, sold eleven motel properties for $15.8
million in net cash proceeds and $6.3 million in mortgage and other notes
receivable. In November 1996, the Company completed two separate financing
transactions with CS First Boston Corporation ("CSFB") pursuant to which the
Company borrowed approximately $37.2 million. Approximately $29.8 million of
the proceeds were utilized to repay the entire outstanding borrowings under
the NACC credit line; $1.6 million of the proceeds were utilized toward a
partial paydown of the certain borrowings; and the remaining net proceeds were
retained for general corporate purposes. The CSFB borrowings are evidenced by
notes which mature on November 1, 1998 and are secured by first mortgages on
nineteen of the Company's motel properties and a pledge of the stock of one of
the Company's subsidiaries.
In 1997, an affiliate of the Company was formed for the sole purpose
of constructing lodging properties to be acquired by a subsidiary of the
Company upon completion at cost. Such affiliate develops the lodging
properties from its own funds, payments from the Company on account to be
applied towards the purchase price and the proceeds of a $20,000,000
revolving construction loan facility arranged by the affiliate. In connection
with such construction loan facility, the Company has guaranteed completion of
the construction of each property and the subsidiary acquiring the properties
has guaranteed the construction loan facility to a maximum of $10,000,000. In
1997, five (5) such properties were acquired for $12,900,000 of which
$7,800,000 was funded form a $150,000,000 secured loan facility between the
subsidiary acquiring the properties and CS First Boston. This facility
provides, among other things for interest computed at a rate based upon the
thirty (30) day LIBOR rate plus 300 basis points, monthly principal and
interest payments at an 11.5% per annum constant, and repayment in full of
each funding made pursuant to the facility forty-two (42) months after the
date of each such funding. In addition, the Company has pledged its interest
in a wholly owned subsidiary to secure up to $20,000,000 of borrowing under
the facility. As of March 20, 1998, seven additional properties were under
construction and management anticipates approximately $19,000,000 will be
expended to purchase these lodging facilities upon completion. Payments from
the Company on account to be applied towards the future purchases amounted to
$1,841,000 at December 31, 1997. Interest earned by the Company on such payments
in 1997 equaled $558,000.
During 1997, in separate transactions, the Company sold two
properties for an aggregate of $3.9 million consisting of cash in the amount
of $0.1 million, a mortgage note receivable in the amount of $1.0 million and
the buyer's assumption of a mortgage note in the amount of $2.3 million. The
Company remains contingently liable on the note, $2.3 million, in the event
the purchaser does not perform under its obligations.
<PAGE>
In March 1998, the Company sold one of its motels pursuant to a
condemnation related to a highway reconfiguration project for approximately
$1.6 million in cash and realized an approximate $0.5 million gain.
Industry and Competition
The United States lodging industry is generally comprised of two
sectors: full-service facilities and limited-service facilities. Full-
service lodging facilities generally have more extensive common areas
(including restaurants, lounges and extensive meeting room facilities), offer
more services such as bell service and room service, and tend to be larger in
terms of number of rooms than limited-service facilities. MOA's properties
are principally limited-service type lodging facilities. The United States
lodging industry is also categorized into five general price segments (based
on relative pricing in local markets): luxury, upscale, mid-price, economy,
and budget. MOA's properties predominately fall into the economy segment with
a small percentage represented in both the mid-price and budget segments.
Industry estimates indicate that there are over 23,000 lodging facilities
within the mid-price, economy and budget segments. The United States lodging
industry is also generally considered to be relatively fragmented in terms of
ownership. This combination of a large number of competitive lodging
facilities and limited concentration of ownership makes the segment in which
MOA's lodging facilities compete very competitive.
Generally, each of the Company's lodging facilities competes within
its local market with several national and regional brand affiliated lodging
facilities along with many independent competitive lodging facilities. Some
of the more recognizable brands with which the Company's lodging facilities
compete either directly or indirectly include: Budgetel Inns, Comfort Inns,
Day's Inns, Fairfield Inns, Hampton Inns, Holiday Inn Express, LaQuinta Inns,
Motel 6, Ramada, Ltd., Red Roof Inns, Super 8 Motels and Travelodge.
Distinguishing characteristics among competitive lodging facilities include:
convenience of location, degree of curb appeal, reasonableness of room rates,
and in particular with repeat customers the quality and cleanliness of room
accommodations and the level of service.
The Company competes with other lodging facilities for a wide
spectrum of business and leisure travelers who desire consistency in the
quality of their accommodations and demand reasonable prices. They tend to be
value conscious consumers consisting of: construction workers, sales people,
technicians, senior citizens, government and military employees, and vacation
travelers. Due to the nature and location of the Company's lodging
facilities, the Company does not experience any significant degree of advance
bookings typical with many resort facilities nor does any one customer
represent a significant portion of the Company's revenues.
The lodging industry has seen a significant increase in the
construction of new lodging facilities over the course of the past few years.
Management believes this increase is a result of the relative strength of the
Nation's economy which in turn has resulted in greater travel and stronger
operating performance of lodging facilities in general. Management also
believes the increase in new construction has been facilitated by an increased
availability of financing for such projects and a relatively favorable
interest rate environment. Based on the Company's internally prepared annual
surveys of new supply entering the markets in which it competes, the
percentage increase in new supply in such markets appears to have peaked in
1996 with a slightly lower percentage increase experienced in 1997 and an even
lower percentage of known and rumored new supply identified for 1998.
Management believes this increase in new supply of lodging facilities has
negatively affected the occupancy rate at its lodging facilities. Other than
various independent and small chain affiliated lodging facilities, Hampton
Inns, Holiday Express Inns and Fairfield Inns represent the national brands
with the most new rooms being built in the markets in which the Company's
lodging facilities compete. These national brands tend to have higher average
daily rates than the Company's lodging facilities which the Company believes
has allowed it and its direct competitors to continue to raise average daily
rates at a rate in excess of the underlying national inflation rate.
<PAGE>
Demand for the Company's lodging facilities is affected by normally
recurring seasonal patterns. Demand for the Company's lodging facilities is
generally highest during the months of June, July and August and lowest during
the months of December, January and February. As is the case for the lodging
industry in general, demand for the Company's lodging facilities may be
affected by weather, national and regional economic conditions, government
regulations, changes in travel patterns, construction of new lodging
facilities, changes in the degree of competition from existing lodging
facilities and other factors. Management believes the much publicized weather
affect of El Nino began negatively impacting the occupancy of its properties
located in the Southeast during the fourth quarter.
Ownership Structure
At December 31, 1997, the Company had 100% ownership interest, either
directly or through subsidiaries, in 136 of the 138 lodging facilities it
operated. Due to the divesture of a property in the first quarter, these
numbers are reduced by one as of March 20, 1998. The Company was a general
partner with ownership interests of 30% and 50% in two individual limited
partnerships each of which owned one lodging facility as its principal asset.
These partially owned lodging facilities have been consolidated for financial
reporting purposes due to the management and control which the Company
possesses.
Franchise and License Agreements
The Company operates 133 of its lodging facilities pursuant to
franchise or license agreements. Eighty-seven of these agreements are with
Super 8 Motels, Inc. The franchise fees (including royalties, and
contributions to advertising and media funds) range from 6% to 7% of room
revenues. Under the Super 8 franchise agreements, the franchiser is obligated
to: provide certain standardized training programs; publish a travel
directory with information pertaining to all Super 8 motels; maintain an
advertising and reservation fund to be administered by the franchiser for
advertising and promotion; inspect the motels to assure satisfaction of Super
8 specifications and maintain availability of corporate officers and employees
for consultation concerning motel operations. The obligations of the
franchisee include, among other things, maintaining the motel in a manner that
satisfies Super 8 quality assurance standards and compliance with Super 8
rules of operations.
The Super 8 franchise agreements have an initial 20-year term which,
for the Company, results in various ending dates through 2017. The agreements
continue thereafter on a year-by-year basis unless terminated by either party
upon nine months notice. The agreements provide a negotiated area of
geographic protection within which the franchiser is prohibited from
franchising another Super 8 motel.
<PAGE>
The Company has forty-six franchise or license agreements with other
franchisers or licensees. These agreements, which have various terms with
ending dates through 2017, generally provide similar benefits and obligations
as the Super 8 franchise agreements. Not all of franchise and license
agreements for the non Super 8 brands provide for a specific area of
geographic protection in which case, they generally rely on an impact policy
to determine if another lodging facility with the same brand affiliation could
be located within a particular market.
The Company has four standard license agreements with Best Western
International. These agreements provide for an annual renewal.
Operations
The Company believes the ownership and management of its properties
gives it certain competitive advantages over third party managed properties
with which it competes by being able to control all aspects of a lodging
facility's operations and expenditures to maintain such facilities. The
Company also believes it has certain competitive advantages over chain owned
and operated properties because as long as the Company meets a franchisor's
minimum requirements it can tailor the services and product offering of
individual facilities without concerning itself with national consistency.
Management of the Company's lodging facilities is coordinated from
the Company's corporate offices in Des Plaines, Illinois. During 1997, the
Company undertook a reorganization of its management infrastructure and
implemented a more decentralized organization structure whereby many of the
property management support functions previously based out of the corporate
office in Des Plaines, Illinois were moved to various regional offices which
were established.
This decentralization was undertaken in order to enhance the Company's
responsiveness, efficiency and control with respect to the day-by-day
operations of its properties. In conjunction with this reorganization, the
Company recorded a charge in the amount of $750,000 to cover the cost of
restructuring.
The regional offices are located in Independence, Missouri, Indianapolis,
Indiana, Marietta, Georgia and Salt Lake City, Utah. Day-to-day management,
facility renovation, human resources and training, purchasing of operating
supplies and sales and marketing are principally directed from the regional
offices. The executive level functions as well as accounting and construction
continue to be centralized in Des Plaines, Illinois.
The Company has developed and conducts its own training programs which
satisfies most franchiser training requirements. The Company believes its
unique training programs provide a competitive advantage in the management of
motels over individual owner/operators which must rely on franchiser and
industry supplied training material.
Typically, the general manager is the only salaried position at a
property; although, for the larger properties (generally in excess of 100
rooms), an assistant manager and/or salesperson may be present on a salaried
basis. Other employees generally are employed on an hourly basis with
staffing continually adjusted based on occupancy levels. General managers
generally do not reside on site because the Company believes its managers are
more effective if they spend time away from the property and become involved
in the communities where the properties are located. At December 31, 1997,
the Company employed approximately 2,300 employees including approximately 60
full and part-time employees at the corporate office. The employees are not
represented by any labor unions and management believes its ongoing labor
relations with its employees is good.
<PAGE>
The Company utilizes advertising and marketing programs sponsored by
the various franchisers on both a national and regional basis. In addition,
the Company engages in a wide variety of sales and marketing activities at the
local market level including extensive individual sales calls, marketing
blitzes and involvement in local community activities such as Rotary Clubs,
Chambers of Commerce and motel associations. Various properties also promote
special packages in conjunction with local attractions or events. Billboard
advertising represents the single largest sales and marketing expenditure
other than contributions to franchiser sponsored advertising and media funds.
Regulatory Matters
The Company is subject to environmental regulations under various
federal, state and local laws. Certain of these laws may require a current or
previous owner or operator of real estate to clean up designated hazardous or
toxic substances or petroleum product releases affecting the property. In
addition, the owner or operator may be held liable to a governmental entity or
to third parties for damages or costs incurred by such parties in connection
with the contamination.
Certain of the Company's lodging facilities are located on, adjacent
to or in the vicinity of, properties, including gasoline stations, that
contain or have contained storage tanks or that have engaged or may in the
future engage in activities that may release petroleum products or other
hazardous substances into the soil or groundwater.
While there can be no assurance that in the future the foregoing
environmental conditions may not have a material effect on the Company,
management is not aware of any such materially adverse impacts to the Company
due to the existence of contaminants under or near its properties. Except as
described above, management is not aware of any environmental condition with
respect to its lodging facilities that could have a material adverse impact on
the Company's financial condition or results of operations.
The Company's lodging facilities are subject to various other laws,
ordinances and regulations. The Company believes that each facility has the
necessary permits and approvals required to enable the Company to operate its
lodging facilities.
The Company's lodging facilities must comply with Title III of the
Americans With Disabilities Act (the "ADA"). Under the provisions of the ADA,
the Company, as owner of the lodging facilities, is obligated to reasonably
accommodate the patrons of its facilities who have physical, mental or other
disabilities. In addition, the Company is obligated to ensure that alterations
to its lodging facilities conform to the specific requirements of the ADA
implementing regulations. The Company believes that it is in substantial
compliance with all current applicable regulations with respect to
accommodations for the disabled.
Item 2. PROPERTIES
The Company's lodging facilities are typically situated along
interstate highways and in secondary markets, offering a convenient lodging
alternative for many prospective customers. The facilities have an average
size of 83 rooms, though individual properties range from 33 to 187 rooms,
depending on location and business environment. MOA's properties generally do
not offer large meeting or banquet facilities, in-house restaurants, or room
service; and most do not offer recreational facilities such as pools or
fitness centers. The motels do, however, typically provide free coffee, free
local calls, remote control television, fax service, and free parking. In
addition, many nationally and regionally recognized restaurant chains are
generally within close proximity of the motels.
<PAGE>
The Company generally owns its motels in fee simple; however, the
underlying real property of five of the lodging facilities is subject to a
ground lease. Ownership of the buildings and improvements situated on such
properties reverts to the landlord upon the expiration of the lease term.
Most of the Company's properties were designed and built as limited
service economy lodging facilities. As such, they were designed to achieve
functional efficiencies and operate at lower fixed costs than most full
service or upscale lodging facilities. The properties generally employ
individual through-the-wall heating and cooling systems for each room. This
provides cost savings during periods of low occupancy and eliminates the need
to have skilled maintenance personnel on the payroll. Further, the Company's
motels have limited public areas to maintain.
The Company believes that the physical condition and general
appearance of a property have a significant impact on profitability. MOA has
established a strict maintenance and refurbishment program enacted to ensure
high quality and well maintained properties. This program seeks to maximize
the attractiveness of the Company's rooms with prudent levels of capital
investment.
MOA has made capital expenditures (exclusive of acquistions and
development of investment properties) of $7,948,000, $9,857,000 and $7,806,000
in 1997, 1996 and 1995, respectively. These expenditures include not only the
replacement of guestroom carpet and furnishings but also expenditures on
parking lot repavement, exterior renovations and interior public area
renovations including lobby enhancements and other revenue enhancing
improvements such as installation of complete snack shoppe vended areas and
guest laundry facilities. Management believes the level of capital
expenditures made over the past three years is in excess of often cited
industry standards due to the improvements referred to above and as a result
of the deferred maintenance associated with the significant number of
properties acquired in recent years. The following table summarizes capital
expenditures made in 1997, 1996 and 1995 in relation to the year in which such
properties were acquired:
<TABLE>
<CAPTION>
Capital Expenditures Number of Rooms at Year End
-------------------- ---------------------------
Property Acquired 1997 1996 1995 1997 1996 1995
----------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Corporate Office $ 159,000 $ 192,000 $ 171,000
1993 and prior 3,072,000 5,535,000 2,150,000 5,771 5,798 5,811
1994 1,599,000 3,991,000 5,627,000 3,619 3,623 4,512
1995 188,000 139,000 250 250
1996 2,930,000 1,466
---------- ---------- ----------
Total $7,948,000 $9,857,000 $7,948,000
========== ========== ==========
</TABLE>
The Company believes that its facilities are currently well
maintained and conform to the Company's standards for cleanliness and
attractiveness and intends to maintain its facilities in such condition.
<PAGE>
Information pertaining to the Company's 137 lodging facilities operated as of
March 20, 1998 is set forth in the following table.
<TABLE>
<CAPTION>
Number Year
of Year Acquired by
Location Franchise Rooms Built the Company
- -------- --------- ------ ----- -----------
<S> <S> <C> <C> <C>
ALABAMA
Pelham....................... Travelodge 64 1989 1996
ARKANSAS
West Memphis (1)............. Super 8 61 1989 1989
CALIFORNIA
Indio........................ Holiday Inn Express 126 1986 1995
Santa Clara.................. Days Inn 168 1984 1994
Santa Monica................. Best Western 122 1991 1992
Santa Monica (1)............. Pacific Shore 168 1966 1993
West Los Angeles............. Best Western 76 1993 1994
COLORADO
Longmont..................... Super 8 64 1989 1994
DELAWARE
Newark....................... Howard Johnson 141 1969 1996
FLORIDA
Fernandina Beach............. Shoney's 134 1985 1994
Ft. Lauderdale............... Travelodge 118 1987 1996
Ft. Walton Beach............. Shoney's 102 1987 1994
Jacksonville................. Travelodge 119 1986 1996
Melbourne.................... Shoney's 119 1990 1994
Orlando Centroplex (1)....... Travelodge 75 1957 1996
Panama City.................. Super 8 63 1986 1987
Pensacola.................... Super 8 62 1985 1987
GEORGIA
Brunswick.................... Super 8 62 1986 1987
Cartersville................. Super 8 62 1986 1987
Columbus..................... Super 8 74 1985 1987
Douglas...................... Shoney's 100 1986 1994
Dublin....................... Shoney's 100 1984 1994
Fitzgeral.................... Shoney's 108 1985 1994
Greensboro................... Microtel 48 1997 1997
Hinesville................... Shoney's 163 1976 1994
Macon........................ Shoney's 120 1987 1994
Moultrie..................... Shoney's 100 1979 1994
Rome......................... Super 8 62 1986 1987
Vidalia...................... Shoney's 128 1984 1994
Warner Robins................ Super 8 60 1986 1987
IDAHO
Boise........................ Super 8 110 1978 1994
Coeur D'Alene (1)............ Super 8 95 1983 1983
Lewiston..................... Super 8 62 1985 1985
Sandpoint.................... Super 8 61 1984 1984
ILLINOIS
Bloomington.................. Super 8 61 1985 1987
Champaign.................... Super 8 61 1984 1987
Crystal Lake................. Super 8 59 1983 1987
Decatur...................... Super 8 61 1983 1987
East Moline.................. Super 8 63 1988 1988
Litchfield................... Super 8 61 1987 1994
Naperville................... Travelodge 100 1983 1996
Okawville.................... Super 8 40 1985 1988
Peru......................... Super 8 61 1986 1987
South Springfield............ Super 8 122 1987 1994
Springfield.................. Super 8 65 1985 1994
Tuscola...................... Super 8 64 1988 1994
Waukegan..................... Super 8 61 1986 1987
INDIANA
Columbus..................... Super 8 62 1984 1987
Elkhart...................... Shoney's 61 1990 1994
Elkhart...................... Super 8 62 1986 1989
Indianapolis................. Days Inn 161 1985 1994
Muncie....................... Days Inn 62 1990 1994
Muncie....................... Super 8 63 1986 1989
Terre Haute.................. Super 8 118 1985 1994
IOWA
Davenport.................... Super 8 61 1984 1987
Des Moines................... Super 8 152 1985 1994
KANSAS
Leavenworth.................. Super 8 60 1984 1989
Salina....................... Super 8 61 1984 1989
Topeka....................... Super 8 62 1984 1987
KENTUCKY
Danville..................... Super 8 49 1987 1987
Lexington.................... Super 8 62 1987 1987
Louisville................... Super 8 100 1988 1988
Louisville................... Travelodge 108 1983 1996
LOUISIANA
Shreveport................... Super 8 143 1986 1994
MASSACHUSETTS
Milford...................... Days Inn 69 1997 1997
MAINE
Ellsworth.................... Comfort Inn 63 1993 1993
MICHIGAN
Battle Creek................. Super 8 62 1985 1987
Detroit...................... Travelodge 122 1986 1996
Grand Rapids................. Super 8 62 1986 1987
Kalamazoo.................... Super 8 62 1985 1987
Muskegon..................... Days Inn 106 1968 1993
Muskegon..................... Super 8 62 1986 1987
Saginaw...................... Super 8 62 1985 1987
MINNESOTA
Hibbing...................... Super 8 49 1993 1994
Red Wing..................... Super 8 60 1987 1996
Savage....................... Comfort Inn 75 1982 1994
MISSISSIPPI
Vicksburg.................... Super 8 62 1988 1988
MISSOURI
Independence................. Super 8 77 1983 1987
Joplin....................... Super 8 50 1985 1987
Liberty...................... Super 8 60 1980 1987
NW Kansas City............... Super 8 50 1983 1987
St. Joseph................... Super 8 54 1985 1987
St. Louis.................... Super 8 99 1984 1987
Springfield.................. Super 8 50 1985 1987
MONTANA
Billings..................... Ramada Ltd. 116 1978 1994
Billings..................... Super 8 115 1979 1994
Dillon....................... Super 8 48 1985 1989
Great Falls.................. Super 8 117 1978 1994
Helena....................... Super 8 102 1979 1988
Kalispell.................... Super 8 74 1984 1988
NEBRASKA
Fremont...................... Super 8 43 1986 1989
NEVADA
Carson City.................. Super 8 63 1985 1985
Wendover..................... Super 8 74 1988 1988
NEW MEXICO
Las Cruces................... Super 8 61 1981 1987
Raton (1).................... Super 8 48 1983 1987
NEW YORK
East Syracuse................ Super 8 53 1997 1997
NORTH CAROLINA
Greensboro.................. Travelodge 108 1985 1996
Weldon...................... Orchard Inn 49 1973 1993
Wilson...................... Microtel 61 1997 1997
NORTH DAKOTA
Bismarck.................... Super 8 61 1976 1987
Grand Forks................. Super 8 33 1983 1987
Minot....................... Super 8 60 1977 1987
OHIO
Akron....................... Super 8 59 1986 1987
Canton...................... Days Inn 61 1985 1987
Cleveland/Beachwood......... Travelodge 127 1980 1996
Cleveland/Willoughby........ Travelodge 110 1984 1996
Columbus.................... Travelodge 108 1983 1996
St. Clairsville............. Super 8 62 1986 1987
PENNSYLVANIA
Lancaster................... Super 8 101 1990 1990
York........................ Super 8 94 1990 1990
SOUTH CAROLINA
Anderson..................... Super 8 62 1986 1987
Camden....................... Shoney's 84 1989 1994
Charleston................... Orchard Inn 89 1973 1993
Columbia..................... Microtel 48 1997 1997
Columbia..................... Travelodge 106 1985 1996
Greenwood.................... Villager Lodge 62 1986 1987
Hilton Head.................. Shoney's 136 1989 1994
SOUTH DAKOTA
Sioux Falls.................. Super 8 95 1976 1987
TENNESSEE
Chattanooga.................. Best Western 124 1972 1995
Chattanooga.................. Super 8 73 1986 1987
East Memphis................. Super 8 69 1990 1990
Johnson City................. Super 8 63 1986 1987
Knoxville.................... Super 8 137 1975 1993
Union City................... Super 8 61 1989 1989
UTAH
Salt Lake City............... Super 8 120 1983 1988
VIRGINIA
Charlottesville.............. Super 8 65 1986 1987
Richmond..................... Shoney's 117 1985 1994
WASHINGTON
Spokane...................... Super 8 187 1982 1988
Wenatchee.................... Orchard Inn 103 1984 1988
WISCONSIN
Ashland...................... Super 8 70 1984 1988
Janesville................... Super 8 48 1985 1987
Kenosha...................... Super 8 60 1984 1987
Madison...................... Best Western 101 1983 1994
Oshkosh...................... Super 8 61 1987 1994
Rice Lake.................... Super 8 47 1984 1994
WYOMING
Cody......................... Super 8 64 1982 1982
Jackson...................... Super 8 97 1983 1983
Total.................. 11,336
=============================== ======
</TABLE>
(1) Property is subject to a ground lease.
<PAGE>
Item 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings arising in the
ordinary course of business. The Company does not believe that any of these
actions, either individually or in the aggregate, will have a material adverse
effect on the Company's business, results of operations or financial condition.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fiscal quarter ended December
31, 1997 to a vote of the security holders of the Company.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of March 20, 1998, there were approximately 12 holders of record
of the Company's Common Stock. No established public trading market exists
for the Company's common equity. The Company has been advised that since its
original issuance there have been a limited number of privately negotiated
sales of the Common Stock.
The Company has never paid cash dividends on its Common Stock. It is
the Company's present intention to retain all future earnings for use in its
business and, therefore, it does not expect to pay cash dividends on the
Common Stock in the foreseeable future. The declaration and payment of
dividends on the Common Stock is restricted by the indenture relating to the
$80 million principal amount of 12% Senior Subordinated Notes due April 15,
2004, Series B issued by the Company in April 1994 (the "Notes") and the
instruments relating to the Company's other indebtedness.
<PAGE>
Item 6. SELECTED FINANCIAL DATA
The following table sets forth certain consolidated financial
information of the Company and its subsidiaries for the five fiscal years ended
December 31, 1997, which has been derived from the audited financial
statements, with the exception of Operating Data and Same Property Data. This
data should be read in conjunction with the consolidated historical financial
statements of the Company and the notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1993 (1) 1994 (2) 1995 (1) 1996 (1) 1997 (1)
---------- ---------- ---------- ---------- ---------
(dollars in thousands except Ratio, Margin and Operating Data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Total revenues ..................................... $ 58,257 $ 87,067 $ 112,720 $ 128,271 $ 122,367
Costs and expenses:
Motel operating ................................. 28,625 43,245 57,353 67,344 62,333
Marketing and royalty fees ...................... 3,874 5,900 7,643 9,606 8,905
Corporate general and
administrative ............................... 3,371 4,596 5,590 6,833 7,908
Restructuring costs
and impairment losses ........................ - - - - 3,276
Depreciation and amortization(2) ................ 6,609 8,569 12,618 13,995 14,985
--------- --------- ---------- ---------- ----------
Total direct expenses .............................. 42,479 62,310 83,204 97,778 97,407
--------- --------- ---------- ---------- ----------
Net operating income ............................... 15,778 24,757 29,516 30,493 24,960
Interest expense ................................... 11,449 20,297 27,831 31,573 31,373
--------- --------- ---------- ---------- ----------
Income (loss) from operations ...................... 4,329 4,460 1,685 (1,080) (6,413)
Net income (loss) before
extraordinary item .............................. 3,304 414 1,265 687 (3,372)
Net income (loss).................................. 3,796 414 1,533 687 (3,372)
Net income (loss) before
extraordinary item per share .................... $ 4.63 $ 0.53 $ 1.58 $ 0.86 ($4.21)
Net income (loss) per share ........................ 5.32 $ 0.53 $ 1.91 $ 0.86 ($4.21)
Other Financial Data
Net cash provided by operating
activities ...................................... $ 10,176 $ 10,494 $ 8,144 $ 13,477 $ 15,947
Net cash used in investing activities .............. (3,762) (104,474) (10,532) (50,498) (13,648)
Net cash provided by (used in)
financing activities ............................ (9,444) 98,713 7,798 35,371 (1,515)
EBITDA(3) .......................................... 22,387 33,326 42,134 44,487 43,221
EBITDA Margin (% of total
revenues)(3) .................................... 38.43% 38.28% 37.38% 34.70% 35.32%
Net operating revenue margin
(% of total revenues) ........................... 27.08% 28.43% 26.19% 23.66% 20.40%
Refurbishment of investment properties ............. $ 3,455 $ 6,818 $ 7,806 $ 9,857 $ 7,948
Operating Data
Number of motels ................................... 82 125 125 135 138
Number of rooms .................................... 5,781 10,551 10,573 11,317 11,385
REVPAR(4) .......................................... $ 28.11 $ 28.38 $ 28.96 $ 28.96 $ 29.48
ADR(5) ............................................. $ 37.67 $ 37.58 $ 40.25 $ 40.91 $ 43.43
Occupancy percentage(6) ............................ 69.78% 70.18% 66.89% 66.25% 63.75%
Balance Sheet Data
Total assets ....................................... $165,694 $310,567 $ 325,151 $ 368,433 $ 362,859
Total debt ......................................... 141,453 268,191 286,088 327,554 324,989
Total stockholders' equity ......................... 16,326 20,745 22,279 22,966 19,594
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1993 (1) 1994 (2) 1995 (1) 1996 (1) 1997 (1)
---------- ---------- ---------- ---------- ---------
(room revenues in thousands)
<S> <C> <C> <C> <C> <C>
Same Property Data:
76 Motels owned since
January 1, 1993:
Room revenues ................................. $ 48,612 $ 51,018 $ 52,655 $ 52,757 $ 52,475
REVPAR(4) ..................................... $ 27.31 $ 28.67 $ 29.55 $ 28.75 $ 28.71
ADR(5)......................................... $ 36.88 $ 36.45 $ 38.52 $ 38.92 $ 40.67
Occupancy percentage(6) ....................... 69.92% 74.25% 72.26% 71.38% 68.30%
83 Motels owned since
January 1, 1994:
Room revenues ................................. $ 58,577 $ 60,870 $ 61,217 $ 62,147
REVPAR(4) ..................................... $ 29.37 $ 30.46 $ 30.67 $ 31.20
ADR(5) ........................................ $ 37.54 $ 39.73 $ 40.46 $ 42.66
Occupancy percentage(6) ....................... 72.95% 71.44% 70.30% 68.05%
117 Motels owned since
January 1, 1995:
Room revenues ................................. $ 95,704 $ 95,627 $ 96,850
REVPAR(4)...................................... $ 29.71 $ 29.61 $ 30.10
ADR(5) ........................................ $ 40.41 $ 41.04 $ 43.40
Occupancy percentage(6) ....................... 68.85% 67.52% 65.01%
119 Motels owned since
January 1, 1996:
Room revenues ................................. $ 97,143 $ 98,828
REVPAR(4) ..................................... $ 29.28 $ 29.88
ADR(5) ........................................ $ 41.01 $ 43.45
Occupancy percentage(6) ..................... 66.87% 64.50%
</TABLE>
[FN]
(1) Results for the years ended December 31, 1993 and 1995 include gains on
early extinguishment of debt, net of income taxes, of $0.5 million and
$0.2 million, respectively. Results for the years ended December 31, 1994
and 1995 include the writeoff of $3.1 million of deferred costs and the
recovery of $0.5 million of offering costs previously written off,
respectively. The results for years ended December 31, 1995, 1996 and
1997 include a $0.5 million, $2.6 million and $1.1 million gain on the
sale of properties, respectively. Results for the year ended December
31, 1997 included the recording of restructuring costs and the impairment
losses of $3.3 million.
(2) The Company changed its estimate of the useful life of its buildings from
35 to 40 years in 1994. The effect of this change decreased depreciation
by $1,154,000 for the year ended December 31, 1994.
(3) EBITDA represents earnings before interest expense, income taxes,
depreciation, amortization, minority interest, gain on sale of
properties, write-off (recovery) of deferred offerring costs,
restructuring costs and impairment losses and gain on early
extinguishment of debt. EBITDA is not intended to represent cash flow
or any other measure of performance in accordance with GAAP. EBITDA is
included herein because management believes that certain investors find
it to be useful tool for measuring the ability to service debt. EBITDA
should not be construed by the reader as an alternative to operating
income (as determined in accordance with GAAP) as an indicator of the
Company's operating performance, or to cash flows from operating
activities (as determined in accordance with GAAP) as a measure of
liquidity.
(4) Revenue per available room (REVPAR) represents motel operating revenues
divided by the total number of rooms available. Total available rooms
represents the number of rooms available for rent multiplied by the
number of days in the reported period.
(5) The average daily room rate (ADR) represents total room revenues divided
by the total number of rooms occupied.
(6) The occupancy percentage represents total rooms occupied divided by total
available rooms.
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE "SELECTED FINANCIAL
DATA" AND THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE
NOTES THERETO INCLUDED ELSEWHERE HEREIN. THE SUPPLEMENTAL HISTORICAL OPERATING
RESULTS PRESENTED BELOW FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
HAVE BEEN PREPARED ON THE SAME BASIS AS THE AUDITED CONSOLIDATED FINANCIAL
STATEMENTS.
General
MOA operates principally in the economy limited service segment of the
lodging industry. As a result, its average room rates tend to be lower than
the average room rates of full service lodging facilities. However, due to the
limited nature of the public space and ancillary services provided by limited
service motels, the Company's expenses tend to be lower than those of full
service lodging facilities. The profitability of the lodging industry in
general is significantly dependent upon room rental rates and occupancy rates.
Due to the fixed nature of a relatively high portion of the Company's expenses,
changes in either room rates or occupancy percentages result in significant
changes in the operating profit of the Company's motels.
Between January 1, 1995 and December 31, 1997, the Company has acquired,
developed and sold a number of motels in various transactions summarized as
follows:
Number of
Date Transaction Rooms
---- ----------- ---------
September and Purchased two motels located 250
December 1995 in Chattanooga, TN and Indio, CA.
December 1995 Sold two motels located in (260)
Charlotte, NC and Augusta, GA.
January 1996 Purchased nineteen motels 1,794
located in the eastern half
of the United States from
Forte USA, Inc.
January through Purchased two motels located in 201
March 1996 Newark, DE and Red Wing, MN.
Also purchased the land underlying
one of its existing properties.
May 1996 Sold a motel located in (102)
Newport, KY.
June 1996 Sold a motel located in (60)
Waukegan, IL.
<PAGE>
Number of
Date Transaction Rooms
---- ----------- ---------
August 1996 Sold three motels located (306)
in York, PA and Romulus, MI.
September 1996 Sold two motels located in (95)
Niagara Falls, NY and
Pittsfield, MA.
October 1996 Sold three motels located (447)
in West Des Moines, IA,
Phoenix, AZ and Orlando, FL
November 1996 Sold a motel located in (223)
Las Vegas, NV.
January 1997 Sold a motel located in (130)
Kissimmee, FL.
February 1997 Assumed management control 48
of a motel located in
Greensboro, GA which was built
by an affiliate for the Company
and acquired in October 1997.
May 1997 Assumed management control 61
of a motel located in
Wilson, NC which was built
by an affiliate for the
Company and acquired in
October 1997.
September 1997 Assumed management control 117
of two motels located in
Columbia, SC and Milford, MA
which were built by an
affiliate for the Company
and acquired in October 1997.
December 1997 Sold a motel located in (48)
Cambridge, OH.
Purchased a motel located in 53
East Syracuse, NY which was built
by an affiliate. -----
853
=====
<PAGE>
During such period, the Company has in the aggregate expended $53.8
million in cash (net of proceeds from sales of $20 million) in conjunction
with the above listed acquisitions. Cash was funded from internal sources and
$50.3 million in borrowings.
The above listed acquisitions have been accounted for under the
purchase method of accounting and therefore results from operations have been
included only since the earlier of the date of acquisition or date the Company
assumed management control and was at financial risk.
This report contains certain forward-looking statements that reflect
management's current views as well as estimates of future economic
circumstances, industry conditions, company performance and financial results.
The statements are based on many assumptions and factors, including
competition, seasonality and interest rates, as well as risks related to
expansion, leverage and lodging industry conditions. Any changes in such
assumptions or factors could significantly affect results.
<PAGE>
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
The following chart presents certain historical operating results and
statistics discussed herein and is being provided as a supplement to the
audited consolidated financial statements presented elsewhere herein.
<TABLE>
<CAPTION>
Supplemental Operating Results and Statistics
-----------------------------------------------------------------------
(unaudited)
Year Ended December 31
-----------------------------------------------------------------------
Motels Owned Acquisitions/
Both Periods Divestitures Consolidated
---------------------- ---------------------- -----------------------
1997 1996 1997 1996 1997 1996
---------- ---------- ---------- ---------- ---------- -----------
(dollars in thousands, except Other data)
<S> <C> <C> <C> <C> <C> <C>
Motel operations:
Motel operating revenues:
Room revenues .................. $ 98,828 $ 97,143 $ 15,282 $ 22,505 $114,110 $119,648
Ancillary motel revenues........ 6,813 6,408 589 1,787 7,402 8,195
---------- ----------- --------- ----------- --------- -----------
Total motel operating revenues 105,641 103,551 15,871 24,292 121,512 127,843
Motel costs and expenses:
Motel operating expenses........ 53,142 52,387 9,191 14,957 62,333 67,344
Marketing and royalty fees...... 7,438 7,602 1,467 2,004 8,905 9,606
Depreciation and amortization... 11,657 11,305 2,600 1,903 14,257 13,208
---------- ----------- --------- ----------- --------- -----------
Total motel direct expenses... 72,237 71,294 13,258 18,864 85,495 90,158
---------- ----------- --------- ----------- --------- -----------
$ 33,404 $ 32,257 $ 2,613 $ 5,428 36,017 37,685
========== =========== ========= ===========
Corporate operations:
Other revenues ................... 855 428
General and administrative expenses:
Management Operations .......... 4,568 4,893
Construction and development.... 1,032 695
Other general and
administrative ............... 2,308 1,245
Total general and
administrative expenses .... 7,908 6,833
Restructuring costs and
impairment losses .............. 3,276 -
Depreciation and amortization .... 728 787
--------- ------------
(11,057) (7,192)
--------- ------------
Net operating income ............... $ 24,960 $ 30,493
========= ============
Other data:
Number of motels at period end ... 119 119 19 16 138 135
Number of rooms at period end .... 9,640 9,673 1,745 1,644 11,385 11,317
Occupancy percentage ............. 64.50% 66.87% 59.25% 63.75% 63.75% 66.25%
ADR (1) .......................... $ 43.45 $ 41.01 $ 43.26 $ 40.51 $ 43.43 $ 40.91
REVPAR (2) ....................... $ 29.96 $ 29.23 $ 26.62 $ 27.88 $ 29.48 $ 28.96
Net operating income margin (3) .. 20.40% 23.77%
Net motel revenue margin (4) ..... 45.60% 44.84% 34.11% 32.57% 44.06% 42.54%
</TABLE>
[FN]
(1) ADR represents room revenues divided by the total number of rooms
occupied.
(2) REVPAR represents total motel operating revenues divided by the total
number of rooms available.
(3) Net operating income margin represents net operating income divided by
total motel operating revenues plus corporate other revenues.
(4) Net motel revenue margin represents total motel operating revenues less
motel operating expenses and marketing and royalty fees, divided by
motel room revenues.
<PAGE>
Total revenues consist principally of motel operating revenues.
Motel operating revenues are derived from room rentals and ancillary motel
revenues such as charges to guests for food and beverage service, long
distance telephone calls, fax machine use and from vending machines. Other
revenues include interest income, distributions on partnership interests in
excess of the Company's basis in such partnerships and other miscellaneous
income. Total revenues decreased to $122,367,000 in 1997 from $128,271,000 in
1996, a decrease of $5,904,000 or 4.6%.
Motel revenues decreased to $121,512,000 in 1997 from $127,843,000 in
1996, a decrease of $6,331,000 or 5.0%. Approximately $8,421,000 of the
decrease in motel revenues was attributable to the twenty-six motels acquired
and the thirteen motels divested, since January 1, 1996 and an increase in the
motel revenues for motels owned during both periods offset the decrease by
$2,090,000. Motel revenues for motels owned during both periods increased
2.0%. The increase in motel revenues for motels owned during both periods was
attributable to: an increase in the average daily room rate ("ADR"); and a
decrease in the occupancy percentage. The ADR for the motels owned during
both periods increased to $43.45 in 1997 from $41.01 in 1996, an increase of
$2.44 or 6.0%. The increase in ADR is reflective of management's efforts to
increase room rates at its lodging facilities. The occupancy percentage in
1997 for the motels owned during both periods decreased to 64.5% from 66.9% in
1996. Management attributes this decrease to an increase in competitive
supply and other factors outside of its control. Revenue per available room
("REVPAR") for motels owned during both periods increased to $29.96 in 1997
from $29.23 in 1996, an increase of $0.73 or 2.5%. The acquired and divested
motels had an occupancy percentage of 59.25%, an ADR of $43.26 and a REVPAR of
$26.62 for the period which they were owned by the Company in 1997.
Motel operating expenses include payroll and related costs,
utilities, repairs and maintenance, property taxes, linens and other operating
supplies. Motel operating expenses decreased to $62,333,000 in 1997 from
$67,344,000 in 1996, a net decrease of $5,011,000 or 7.4%. Approximately
$5,766,000 of the decrease is attributable to the cost of operating the
acquired and divested motels since January 1, 1996. The cost of operating
motels owned during both periods increased to $53,142,000 in 1997 from
$52,387,000 in 1996, an increase of $755,000 or 1.4%. Motel operating
expenses as a percentage of motel revenues decreased to 51.3% in 1997 from
52.7% in 1996. Motel operating expenses as a percentage of motel revenues for
the motels owned in both periods decreased to 50.3% in 1997 from 50.6% in
1996. The increase in the operating margin for motels owned during both
periods is primarily attributable to the increase in motel operating revenues.
Motel operating expenses as a percent of motel revenues for the acquired and
divested motels was 57.9% in 1997.
Marketing and royalty fees include media advertising, billboard
rental expense, advertising fund contributions and royalty charges paid to
franchisers and other related marketing expenses. Marketing and royalty fees
decreased to $8,905,000 in 1997 from $9,606,000 in 1996, a decrease of
$701,000 or 7.3%. Approximately $537,000 of the decrease in marketing and
royalty fees was attributable to the motels acquired and divested since
January 1, 1996. The marketing and royalty fees for motels owned during both
periods decreased to $7,438,000 in 1997 from $7,602,000 in 1996, a decrease of
$164,000 or 2.2%. For the motels owned during both periods, marketing and
royalty fees as a percent of room revenues decreased to 7.5% in 1997 from 7.8%
in 1996.
<PAGE>
Corporate general and administrative expenses are segregated by the
Company into three separate areas: Management Company Operations, Construction
and Development, and Other. Included in the Management Company Operations
which is the division responsible for the motel operations, are the costs
associated with training, marketing, purchasing, administrative support,
property related legal and accounting costs. The major components of these
costs are salaries, wages and related expenses, travel, rent and other
administrative expenses. The general and administrative expenses for the
Management Operations decreased $325,000 to $4,568,000 in 1997 from $4,893,000
in 1996, a decrease of 6.6%. The decrease is primarily attributable to the
Company's implementation of its decentralized management structure and the
elimination of certain corporate positions which had previously existed. The
general and administrative expenses associated with Construction and
Development increased $337,000 from $695,000 in 1996 to $1,032,000 or 48.5%.
The increase is directly attributable to the increase in development activity
in 1997 compared to 1996 including site location personnel. Other General and
Administrative expenses increased $1,063,000 from $1,235,000 in 1996 to
$2,308,000 in 1997. The increase is due to legal costs incurred in connection
with a lawsuit that the Company initiated against ShoLodge Franchise Systems,
Inc., the franchiser of the Shoney's Inn Franchises operated by the Company
and the creation of a new executive position unrelated to the operations of
the motel properties. As a percentage of total motel operating revenues,
Management Operations general and administrative expenses were 3.8% in both
1997 and 1996.
Restructuring costs and impairment losses in the amount of $3,276,000
were recorded in 1997. Restructuring costs of $750,000 were recorded relating
to the reorganization of the Company's management structure. This
reorganization included the implementation of a decentralized organizational
structure whereby many of the property management support functions previously
based out of the corporate office were moved to various regional offices which
were established throughout the country. The provision for restructuring
costs is intended to cover the associated relocation and severance costs.
Impairment losses of $2,526,000 were recorded in 1997 to reflect the writedown
of certain land held for development to its fair value based on an independent
appraisal of such land obtained in 1998 and to reflect a provision for loss on
the collection of a mortgage note receivable.
Depreciation and amortization increased to $14,985,000 in 1997 from
$13,995,000 in 1996, an increase of $990,000 or 7.1%. Approximately $697,000
of the increase in depreciation and amortization is attributable to the
addition of the motels acquired and divested since January 1, 1996.
Depreciation and amortization with respect to motels owned during both periods
increased $352,000 due to the Company's continued reinvestment in the
properties. Corporate depreciation and amortization decreased $59,000 to
$728,000 in 1997 from $787,000 in 1996.
Net operating income decreased to $24,960,000 in 1997 from
$30,493,000 in 1996, a decrease of $5,533,000 or 18.2%. The decrease in net
operating revenues included a decrease of $619,000 in net motel revenues
(motel revenues less motel operating expenses and marketing and royalty fees).
Of the $619,000 decrease in net motel revenues, $2,118,000 resulted from the
motels acquired and divested since January 1, 1996 offset by an increase in
net motel revenues for motels owned during both periods of $1,499,000 or 3.4%.
Net operating revenue as a percent of total revenues was 20.4% and 23.8% in
1997 and 1996, respectively.
Interest expense decreased to $31,373,000 in 1997 from $31,573,000 in
1996, a decrease of $200,000. The decrease is principally due to a decrease
in outstanding borrowings.
Net income(loss) decreased $4,059,000 to a net loss of $3,372,000 in
1997 from a net income of $687,000 in 1996. Included in the net decrease of
$4,059,000 is a reduction of $903,000 in the net of tax gains realized on the
sale of properties of $678,000 in 1997 and $1,581,000 in 1996. In addition,
for 1997, included in the $4,059,000 reduction in net income is the provision
for the restructuring costs and impairment losses of $2,016,000 net of tax.
<PAGE>
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
The following chart presents certain historical operating results and
statistics discussed herein and is being provided as a supplement to the
audited consolidated financial statements presented elsewhere herein.
<TABLE>
<CAPTION>
Supplemental Operating Results and Statistics
----------------------------------------------------------------------
(unaudited)
Year Ended December 31
----------------------------------------------------------------------
Motels Owned Acquisitions/
Both Periods Divestitures Consolidated
---------------------- ---------------------- ----------------------
1996 1995 1996 1995 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
(dollars in thousands, except Other data)
<S> <C> <C> <C> <C> <C> <C>
Motel operations:
Motel operating revenues:
Room revenues ................... $ 96,568 $ 96,480 $ 23,079 $ 7,745 $119,647 $104,225
Ancillary motel revenues......... 6,385 6,407 1,811 1,492 8,196 7,899
Total motel operating --------- ---------- ---------- ---------- ---------- ----------
revenues...................... 102,953 102,887 24,890 9,237 127,843 112,124
Motel costs and expenses:
Motel operating expenses......... 50,743 49,658 16,601 7,695 67,344 57,353
Marketing and royalty fees....... 7,447 7,080 2,159 563 9,606 7,643
Depreciation and amortization.... 11,273 10,112 1,935 614 13,208 10,726
--------- ---------- ---------- ---------- ---------- ----------
Total motel direct expenses ... 69,463 66,850 20,695 8,872 90,158 75,722
--------- ---------- ---------- ---------- ---------- ----------
$ 33,490 $ 36,037 $ 4,195 $ 365 37,685 36,402
========= ========== ========== ==========
Corporate operations:
Other revenues ................. 428 596
General and administrative
expenses:
Management operations......... 4,893 4,762
Construction and development.. 695 -
Other general and
administrative expenses..... 1,245 828
---------- ----------
Total general and
administrative expenses ...... 6,833 5,590
Depreciation and amortization... 787 1,892
---------- ----------
(7,192) (6,886)
---------- ----------
Net operating income ............. $30,493 $29,516
========== ==========
Other data:
Number of motels at period end.. 118 118 17 7 135 125
Number of rooms at period end... 9,553 9,565 1,764 1,008 11,317 10,573
Occupancy percentage ........... 67.30% 68.55% 62.25% 51.77% 66.25% 66.89%
ADR (1) ........................ $41.01 $40.36 $40.50 $38.94 $40.91 $40.25
REVPAR (2) ..................... $29.43 $29.50 $27.19 $24.04 $28.96 $28.96
Net operating income margin (3). 23.77% 26.19%
Net motel revenue margin (4).... 46.35% 47.83% 26.56% 12.64% 42.54% 45.22%
</TABLE>
[FN]
(1) ADR represents room revenues divided by the total number of rooms
occupied.
(2) REVPAR represents total motel operating revenues divided by the total
number of rooms available.
(3) Net operating income margin represents net operating income divided by
total motel operating revenues plus corporate other revenues.
(4) Net motel revenue margin represents total motel operating revenues
less motel operating expenses and marketing and royalty fees, divided
by motel room revenues.
<PAGE>
Total revenues increased to $128,271,000 in 1996 from $112,720,000 in
1995, an increase of $15,551,000 or 13.8%.
Motel revenues increased to $127,843,000 in 1996 from $112,124,000 in
1995, an increase of $15,719,000 or 14.0%. Approximately $15,653,000 of the
increase in motel revenues was attributable to the twenty-three motels
acquired and the thirteen motels divested, since January 1, 1995 and $66,000
of the increase related to motels owned during both periods. Motel revenues
for motels owned during both periods increased 0.1%. The increase in motel
revenues for motels owned during both periods was attributable to: 1996 having
one additional day; an increase in the average daily room rate ("ADR"); and a
decrease in the occupancy percentage. The ADR for the motels owned during
both periods increased to $41.01 in 1996 from $40.36 in 1995, an increase of
$0.65 or 1.6%. The increase in ADR is reflective of management's efforts to
increase room rates at its lodging facilities. The occupancy percentage in
1996 for the motels owned during both periods decreased to 67.3% from 68.6% in
1995. Management attributes this decrease to an increase in competitive
supply and other factors outside of its control. Revenue per available room
("REVPAR") for motels owned during both periods decreased to $29.43 in 1996
from $29.50 in 1995, a decrease of $0.07 or 0.2%. The acquired and divested
motels had an occupancy percentage of 62.25%, an ADR of $40.50 and a REVPAR of
$27.19 for the period which they were owned by the Company in 1996.
Motel operating expenses include payroll and related costs,
utilities, repairs and maintenance, property taxes, linens and other operating
supplies. Motel operating expenses increased to $67,344,000 in 1996 from
$57,353,000 in 1995, a net increase of $9,991,000 or 17.4%. Approximately
$8,906,000 of the increase is attributable to the cost of operating the
acquired and divested motels since January 1, 1995. The cost of operating
motels owned during both periods increased to $50,743,000 in 1996 from
$49,658,000 in 1995, an increase of $1,085,000 or 2.2%. Payroll and related
costs experienced the most significant increase of all of the motel operation
expenses. Management attributes this increase to the affect of the minimum
wage increase and general tightening of the labor markets in many of the areas
where the Company's motels are located. Motel operating expenses as a
percentage of motel revenues increased to 52.7% in 1996 from 51.1% in 1995.
Motel operating expenses as a percentage of motel revenues for the motels
owned in both periods increased to 49.3% in 1996 from 48.3% in 1995. The
decrease in the operating margin for motels owned during both periods is
primarily attributable to the increase in motel operating expenses. Motel
operating expenses as a percent of motel revenues for the acquired and
divested motels was 66.7% in 1996.
Marketing and royalty fees include media advertising, billboard
rental expense, advertising fund contributions and royalty charges paid to
franchisors and other related marketing expenses. Marketing and royalty fees
increased to $9,606,000 in 1996 from $7,643,000 in 1995, an increase of
$1,963,000 or 25.7%. Approximately $1,596,000 of the increase in marketing
and royalty fees was attributable to the motels acquired and divested since
January 1, 1995. The marketing and royalty fees for motels owned during both
periods increased to $7,447,000 in 1996 from $7,080,000 in 1995, an increase
of $367,000 or 5.2%. For the motels owned during both periods, marketing and
royalty fees as a percent of room revenues increased to 7.7% in 1996 from 7.3%
in 1995.
<PAGE>
Corporate general and administrative expenses are segregated by the
Company into three separate area: Management Operations, Construction and
Development, and Other. Included in the Management Company Operations which
is the division responsible for the motel operations, are the costs associated
with training, marketing, purchasing, administrative support, property related
legal and accounting costs. The major components of these costs are salaries,
wages and related expenses, travel, rent and other administrative expenses.
The general and administrative expenses for the Management Operations
increased $131,000 or 2.8% from $4,762,000 in 1995 to $4,893,000 in 1996. The
increase resulted principally from higher payroll costs. The general and
administrative expenses for Construction and Development relate the employment
of several individuals to facilitate the Company's new construction and
development activities. Other General and Administrative expenses increased
$417,000 or 50.4% from $828,000 in 1995 to $1,245,000 in 1997. The increase
is principally salary related for positions not associated with the motel
operations. As a percentage of total motel operating revenues, Management
Operations general and administrative expenses decreased from 4.2% in 1995 to
3.8% in 1996. The decrease is due to the increase in motel operating revenues
resulting from the acquisition of properties early in 1996 without a
corresponding increase in corporate motel operation personnel.
Depreciation and amortization increased to $13,995,000 in 1996 from
$12,618,000 in 1995, an increase of $1,377,000 or 10.9%. Approximately
$1,321,000 of the increase in depreciation and amortization is attributable to
the addition of the motels acquired and divested since January 1, 1995.
Depreciation and amortization with respect to motels owned during both periods
increased $1,161,000 due to the Company's continued reinvestment in the
properties. Corporate depreciation and amortization decreased $1,105,000 to
$787,000 in 1996 from $1,892,000 in 1995. The decrease is principally a
result of the completion of the amortization of the of deferred financing
costs incurred with respect to the borrowings under the two-year $100 million
secured line of credit facility entered into with Nomura Asset Capital
Corporation ("NACC") in October 1994 (the "NACC credit line").
Net operating income increased to $30,493,000 in 1996 from
$29,516,000 in 1995, an increase of $977,000 or 3.3%. The increase in net
operating revenues included an increase of $3,765,000 in net motel revenues
(motel revenues less motel operating expenses and marketing and royalty fees).
Of the $3,765,000 increase in net motel revenues, $5,151,000 resulted from the
motels acquired and divested since January 1, 1995. Net motel revenues for
motels owned during both periods decreased $1,386,000 or 3.0%. Net operating
revenue as a percent of total revenues was 23.8% and 26.2% in 1996 and 1995,
respectively.
Interest expense increased to $31,573,000 in 1996 from $27,831,000 in
1995, an increase of $3,742,000. The increase is principally due to an
increase in outstanding borrowings utilized to finance the acquisition of
motel properties.
Net income decreased to $687,000 in 1996 from $1,533,000 in 1995. Net
income for 1996 includes the gain on sale of properties of $1,581,000, net of
tax. Net income for 1995 includes the gain on sale of properties of $293,000,
net of tax, the reversal of the writeoff of deferred offering costs of
$247,000, net of tax, and the gain on early extinguishment of debt of
$268,000, net of tax.
Liquidity and Capital Resources
The Company's primary uses of its capital resources include debt service,
capital expenditures (primarily for motel refurbishment) and working capital;
in addition, on a discretionary basis the Company utilizes its capital
resources for the development and acquisition of motel properties.
<PAGE>
The Company's debt service requirements consist of the obligation to make
interest and principal payments on its outstanding indebtedness. As of
December 31, 1997, the Company has principal repayment obligations of
$67,157,000, $6,745,000 and $14,373,000 for the years ending December 31,
1998, 1999 and 2000, respectively. Management has held discussions with
investment bankers regarding the refinancing of mortgage notes in the amount
of $62,645,000 as of December 31, 1997 which require repayment in 1998.
Management has been told by investment bankers that the cash flows derived
from the properties securing the maturing mortgage loans will be sufficient to
allow for the refinancing of such mortgage debt given the current interest
rate environment. As of March 20, 1998 however, the Company had not
definitively arranged for such refinancing and therefore is subject to the
risk that the credit market could be adversely affected by some unforeseen
event. Although the Company currently does not have lines of credit
outstanding, management believes sufficient resources exist to meet its normal
liquidity needs.
In 1997, an affiliate of the Company was formed for the sole purpose of
constructing lodging properties to be acquired by a subsidiary of the Company
upon completion at cost. Such affiliate develops the lodging properties from
its own funds, payments from the Company on account to be applied towards the
purchase price and the proceeds of a $20,000,000 revolving construction loan
facility arranged by the affiliate. In connection with such construction loan
facility, the Company has guaranteed completion of the construction of each
property, and the subsidiary acquiring the properties has guaranteed the
construction loan facility to a maximum of $10,000,000. In 1997, five (5)
such properties were acquired for $12,900,000 of which $7,800,000 was funded
from a new $150,000,000 secured loan facility between the subsidiary acquiring
the properties and CS First Boston. This facility provides, among other
things, for interest computed at a rate based upon the thirty (30) day LIBOR
rate plus 300 basis points, monthly principal and interest payments at an
11.5% per annum constant, and repayment in full of each funding made pursuant
to the facility forty-two (42) months after the date of each such funding. In
addition, the Company has pledged its interest in a wholly owned subsidiary to
secure up to $20,000,000 of borrowing under the facility. As of March 20,
1998, seven additional properties were under construction and management
anticipates approximately $19,000,000 will be expended to purchase these
lodging facilities upon completion. Payments from the Company on account to be
applied towards the future purchases amounted to $1,841,000 at December 31,
1997. Interest earned by the Company on such payments in 1997 equaled
$558,000.
The Company's capital expenditure requirements principally include capital
improvements and the refurbishment of lodging facilities as part of an ongoing
strategy to provide well maintained facilities. The Company made capital
expenditures (exclusive of acquisitions and development of investment
properties) of $7,948,000, $9,857,000 and $7,806,000 in 1997, 1996 and 1995,
respectively. In addition, as of December 31, 1997, the Company has
$1,226,000 of cash restricted for future refurbishment, in accordance with
certain debt agreements. Management is not aware of any unusual required
level of future capital expenditures necessary to maintain its existing
properties.
For the year ended December 31, 1997 cash and cash equivalents increased
$785,000 from $12,247,000 at December 31, 1996 to $13,032,000 at December 31,
1997. A total of $15,948,000 of cash was provided by operating activities,
$13,648,000 of cash was utilized in investing activities and $1,515,000 of
cash was used by financing activities. Net investing activities include:
$10,402,000 of cash utilized for motel development: $7,948,000 expended on
renovation of existing motel properties; $2,512,000 of cash was provided from
a decrease in cash restricted for refurbishment of properties; and $2,190,000
of cash provided from the sale of investment properties and collections on
mortgage and other notes receivable. Cash provided by financing activities
include: $9,798,000 of proceeds from borrowings less $649,000 of deferred
financing costs; $10,350,000 of cash utilized to repay indebtedness; and
$314,000 of cash distributed to minority interests.
<PAGE>
The Company is not currently a party to any proceeding which, in management's
opinion, is likely to have a material adverse effect on the Company's
operating results or financial position.
Impact of Year 2000
The year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. this could result in a
system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Company, in the normal course of operations, is in the process of
replacing its primary financial accounting system that was implemented in
1991. The new system will be year 2000 compliant. The Company has made an
assessment of its other financial systems and believes other than for a few
necessary minor modifications, that they are year 2000 compliant. There can
be no guarantee that the systems of other companies such as banks and
suppliers on which the Company relies upon to transact business in the normal
course will be year 2000 compliant which would possibly cause hardships for
the Company.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements in this Form 10-K.
The supplemental financial information specified by Item 302 of
Regulation S-K is not applicable.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following chart lists the Company's current directors and
executive officers.
Name Age Positions(s) with the Company
---- --- -----------------------------
Paul F. Wallace 61 Director, Chairman and Chief Executive Officer
Alan H. Baerenklau 52 Director, President and Chief Operating Officer
Kurt M. Mueller 41 Director, Chief Financial Officer
Carl W. Desch 82 Director
Louis A. Scarrone, M.D. 74 Director
Ronald P. Stewart 53 Director
Peter W. McClean 54 Director
Philip J. Levien 53 Director
Daniel W. Daniele 42 Executive Vice President
Richard Gerhart 51 Senior Vice President
John D. Simon 51 Secretary & Treasurer
Robert Brandt 57 Vice President & Assistant Secretary
The following is a biographical summary of the experience of the
directors and executive officers of the Company:
Paul F. Wallace, formerly a Director and controlling stockholder of
EconoLodge, has been Chairman and Chief Executive Officer of the Company since
January 1994 and a Director of the Company since August 1992. Mr. Wallace also
serves on the Company's operations committee. Mr. Wallace was President of the
Broadstone Group from July 1978 until June of 1986, and he became the President
again in July of 1993. Mr. Wallace has been Chairman of the Board and
controlling stockholder of the Broadstone Group since July 1981, and is
currently the principal shareholder of a privately-held manufacturing company
and an investor in and operator of various real estate related projects.
Alan H. Baerenklau joined the Company in March 1997 and became a
Director, President and Chief Operating Officer of the Company in April 1997.
Mr. Baerenklau was President and Chief Operating Officer of Florida Hospitality
Group, a hotel development and management company, from 1984 to 1997. Prior to
1984, Mr Baerenklau held various positions with the Howard Johnson Company
including those of General Manager, Regional Manager, Director of Corporate
Real Estate and Vice President of Operations. He is also an investor, partner
and officer in various hotel real estate ventures.
Kurt M. Mueller has been the Chief Financial Officer since April 1997.
Mr. Mueller has been a Director of the Company since he joined MOA in May 1991.
Mr. Mueller was President from January 1994 until April 1997 and as Chief
Operating Officer of the Company from May 1991 until April 1997. Mr. Mueller
also served as Executive Vice President from May 1991 until January 1994. In
addition, Mr. Mueller currently serves on the Company's operations committee
and audit committee. From 1978 to 1991, Mr. Mueller was employed by Ernst &
Young LLP and most recently was a Senior Manager. During his career at Ernst &
Young LLP, he was on the audit staff and, during his last two years, he worked
in the Mergers and Acquisitions Group performing due diligence financial and
operational reviews.
<PAGE>
Carl W. Desch, formerly a Director of EconoLodge, has been a Director
of the Company since April 1993 and serves on the Company's audit committee and
operations committee. Mr. Desch has been Chairman and Director of Citibank (NY
State), N.A. for over five years.
Louis A. Scarrone, M.D., formerly a Director of EconoLodge, has been a
Director of the Company since October 1993. He has been engaged in his own
private practice of internal medicine since 1955.
Ronald P. Stewart, formerly a Director of EconoLodge, has been a
Director of the Company since October 1993. Mr. Stewart has been Headmaster of
York Preparatory School in New York City since 1969 and Chairman of the
Learning Annex of New York since 1992.
Peter W. McClean, has been a Director of the Company since April 1997.
Mr. McClean is currently Senior Vice President and Head of Global Risk
Management for the Bank of Bermuda Limited, based in Hamilton, Bermuda. In his
current position, Mr McClean is responsible for the credit policy, the market
risk policy, the operating risk, the internal audit and the Bank's General
Counsel.
Philip J Levien, formerly a Director and Chairman of the Board of
EconoLodge, has been a Director of the Company since April 1997 and serves on
its audit committee. Mr. Levien has served as a Director of the Broadstone
Group for the past 15 years. Mr Levien has been a Real Estate Developer for
the past 30 years.
Daniel W. Daniele has been Executive Vice President of the Company
since September 1994. From October 1, 1993 until September 1994, Mr. Daniele
served as the Principal and National Director Hospitality Consulting for Ernst
& Young LLP. From March 26, 1991 to September 30, 1993, Mr. Daniele served as
a Senior Manager and National Director Hospitality Consulting for Ernst & Young
LLP. From February 1, 1991 to March 25, 1991, he worked on an independent
consulting basis for Ernst & Young LLP, and from January 2, 1991 to January 31,
1991, he served as a Senior Principal for Pannel, Kerr, Forster. From February
1978 to November 1990, Mr. Daniele was employed by Laventhol & Horwath in
various positions including the Senior Principal and National Director
Economy/Limited-Service Lodging.
Richard Gerhart has been the Senior Vice President of Operations since
joining the Company in April 1997. With over 25 years experience in the
Hospitality industry, he has served in various operations positions with
Marriott Corporation, Registry Hotels, LaQuinta Inns, Remington Hotels and
Motel 6. His responsibilities ranged from property level management positions
to Senior Vice President of Operations.
<PAGE>
John D. Simon has been Secretary and Treasurer of the Company since
joining the Company in August 1996. From April 1995 to August 1996, he worked
as an independent consultant. From January 1990 to March 1995, Mr. Simon was
Vice President-Property Financial Operations for The Balcor Company, a wholly-
owned subsidiary of American Express Co. From October 1988 to December 1989,
he served as Senior Controller for The Balcor Company.
Robert Brandt has been Vice President and Assistant Secretary of the
Company since November 1996. Mr. Brandt has served as Vice President of Budget
Motels Supply Corporation, a subsidiary of MOA, since 1990. From 1986 to 1990,
he was Vice President of DRG Investments,in charge of motel development for the
Company.
Executive officers of the Company are appointed and serve at the
discretion of the Board of Directors. Each director of the Company is elected
for a period of one year and serves until his successor is duly elected and
qualified. None of the directors or executive officers of the Company has a
family relationship with any of the other directors or executive officers of
the Company.
<PAGE>
Item 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company to each of the Chief Executive Officer and the four other most highly
compensated executive officers of the Company, as of the end of the last fiscal
year, for services rendered to the Company in all capacities during the last
three fiscal years:
SUMMARY COMPENSATION TABLE
--------------------------
Name and Principal Position Year Salary($) Bonus($)
- --------------------------- ---- --------- --------
Paul F. Wallace 1997 300,000 --
Chairman and Chief Executive Officer 1996 300,000 --
1995 300,000 --
Alan H. Baerenklau 1997 194,500 --
President and Chief Operating Officer(1)
Kurt M. Mueller 1997 266,667 --
Chief Financial Officer 1996 400,000 50,000
1995 350,000 --
Daniel W. Daniele 1997 250,000 --
Executive Vice President 1996 250,000 100,000
1995 200,000 --
Richard Gerhart
Senior Vice President(2) 1997 95,333
_____________________________
(1) Mr. Baerenklau joined the Company in March 1997.
(2) Mr. Gerhart has been employed by the Company since April 1997.
The Company historically has and intends to continue to pay
discretionary bonuses to key employees, including property managers, as
rewards for superior financial performance. The Company does not maintain any
employee pension, profit sharing or savings plans for its employees nor does
it currently have any stock related plans for key executives.
Members of the Board of Directors do not receive compensation for
serving on the Board except that Messrs. Desch, Kouba, Stewart and Dr.
Scarrone each receive a $5,000 annual retainer and are paid $1,000 for each
meeting. All members of the Board of Directors receive reimbursement of
reasonable expenses incidental to attendance at meetings of the Board of
Directors and all committees.
<PAGE>
Compensation Committee Interlocks and Insider Participation
The Company has no compensation committee of the Board of Directors.
During 1997, no officer or employee of the Company or its subsidiaries
participated in deliberations of the Company's Board of Directors concerning
executive officer compensation.
Employment Agreements and Compensation Arrangements
On September 14, 1994 the Company entered into an employment
agreement with Mr. Daniele providing for the employment of Mr. Daniele as
Executive Vice President of the Company until December 31, 1997. Pursuant to
this agreement, Mr. Daniele was entitled to a base salary each year of
$200,000 in 1995, 1996 and 1997. In addition, pursuant to this agreement Mr.
Daniele is eligible to receive an annual bonus to be determined by the Board
of Directors of the Company.
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the number of shares of Common Stock
beneficially owned by the only entity known to be the beneficial owner of more
than 5% of the Company's Common Stock, by each director and by all directors
and officers of the Company as a group as of March 20, 1998:
<TABLE>
<CAPTION>
Shares of
Common
Stock Beneficially Percent of
Name and Address of Beneficial Owner Owned Class
- ------------------------------------ ------------------ ----------
<S> <C> <C>
Principal Stockholders:
New Image Realty, Inc................................ 677,228 85%
888 Seventh Avenue
Suite 3400
New York, NY 10106
Executive Officers and Directors:
Paul F. Wallace...................................... 684,357(1) 86%
All Directors and Officers as a Group (11 persons)... 684,357(2) 86%
_________________________
</TABLE>
[FN]
(1) Mr. Wallace is President, Chairman of the Board and controlling
stockholder of The Broadstone Group. The Broadstone Group owns 100% of
the outstanding Common Stock of New Image Realty,Inc. ("New Image"),
which owns 85% of the outstanding Common Stock of MOA. Mr. Wallace is
deemed to be a beneficial owner of 677,228 shares of Common Stock of the
Company owned by New Image and 7,129 shares of Common Stock of the
Company issued to Opal Inc. in January 1994.
(2) Includes 677,228 shares of Common Stock of the Company held by New Image
and 7,129 shares of Common Stock of the Company held by Opal Inc. that
are deemed to be beneficially owned by Paul F. Wallace.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company paid $190,000, $185,000 and $243,000 for construction
management, brokerage commissions and for other services performed in 1995,
1996 and 1997, respectively, to a company which Mr. Kouba has a minority
ownership interest. Mr. Kouba resigned as a Director of the Company in
December 1997 citing personal reasons.
The Company is a member of an affiliated group that files a
consolidated tax return for federal income tax purposes. During 1997, the
Company received a payment of approximately $0.4 million and during 1995 and
1996, the Company made payments of approximately $1.3 million and $0.5 million
respectively, to affiliates of Paul F. Wallace, of which approximately $2.2
million is available to offset required future tax payments, if any.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1 & 2. Financial Statements and Schedules
See Index to Financial Statements in this Form 10-K.
3. Exhibits
The Exhibits listed in the accompanying Index to Exhibits are
filed as part of this Form 10-K.
(b) Reports on Form 8-K
None.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
MOA HOSPITALITY, INC. AND SUBSIDIARIES
Years Ended December 31, 1997, 1996 and 1995
Report of Independent Auditors ....................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 ......... F-3
Consolidated Statements of Operations for each of the three years
in the period ended December 31, 1997 ................................ F-4
Consolidated Statements of Changes in Stockholders' Equity for each
of the three years in the period ended December 31, 1997 ............. F-5
Consolidated Statements of Cash Flows for each of the three years in
the period ended December 31, 1997 ................................... F-6
Notes to Consolidated Financial Statements ........................... F-7
All schedules have been omitted because they are not required or are not
applicable, or the required information is included in the financial
statements or notes thereto.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
MOA Hospitality, Inc.
We have audited the consolidated balance sheets of MOA Hospitality,
Inc. (formerly Motels of America, Inc.) and Subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of operations, changes
in stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1997. 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 consolidated financial position of MOA
Hospitality, Inc. and Subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
April 8, 1998
Chicago, Illinois
<PAGE>
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1997 1996
---------------- ---------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .......................... $ 13,032,496 $ 12,247,571
Accounts receivable from property operations ....... 2,240,908 2,794,739
Operating supplies and prepaid expenses ............ 2,199,013 2,879,660
Current portion of mortgage and notes receivable ... 601,445 309,058
-------------- --------------
Total Current Assets ............................... 18,073,862 18,231,028
Investment property:
Operating properties, net of accumulated
depreciation................................ 310,991,915 307,696,323
Land held for development ..................... 2,389,439 4,046,536
-------------- --------------
Total investment property .......................... 313,381,354 311,742,859
Other Assets:
Deposits and other assets .......................... 6,797,533 7,658,003
Restricted cash .................................... 1,226,379 3,738,478
Mortgage and other notes receivable, less current
portion........................................ 6,800,493 8,623,223
Financing and other deferred costs, net of
accumulated amortization of $5,604,511 in 1997
and $4,162,912 in 1996......................... 16,579,356 18,438,910
-------------- --------------
Total Other Assets ................................. 31,403,761 38,458,614
-------------- --------------
Total Assets $ 362,858,977 $ 368,432,501
============== ==============
LIABILITIES, MINORITY INTERESTS AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable ............................. $ 2,693,317 $ 2,176,690
Real estate taxes payable .......................... 2,450,224 2,611,873
Accrued interest payable ........................... 3,624,809 3,692,868
Other accounts payable and
accrued expenses .............................. 4,392,814 3,847,484
Current portion of long-term debt .................. 67,157,229 10,207,437
-------------- --------------
Total Current Liabilities .......................... 80,318,393 22,536,352
Net deferred tax liability ......................... 3,351,684 3,684,565
Long-term debt, less current portion:
Mortgage and other notes payable ................... 181,097,669 240,940,110
12% Senior Subordinated Notes, net of unamortized
discount of $3,265,362 in 1997 and $3,593,603
in 1996........................................ 76,734,638 76,406,397
-------------- --------------
Total Long-term debt, excluding current portion .... 257,832,307 317,346,507
-------------- --------------
Total Liabilities .................................. 341,502,384 343,567,424
-------------- --------------
Minority Interests ................................. 1,762,507 1,899,176
Stockholders' equity:
Common stock, $.01 par value, 1,500,000 shares
authorized; 800,000 shares issued and
outstanding.................................. 8,000 8,000
Additional paid-in capital .................... 15,294,284 15,294,284
Retained earnings ............................. 4,291,802 7,663,617
-------------- --------------
Total stockholders' equity ......................... 19,594,086 22,965,901
-------------- --------------
$ 362,858,977 $ 368,432,501
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1997 1996 1995
--------------- --------------- ----------------
<S> <C> <C> <C>
Revenues:
Motel operating revenues ................... $ 121,511,834 $ 127,842,502 $112,123,889
Other revenues ............................. 855,305 428,277 596,481
-------------- -------------- -------------
Total revenues ............................... 122,367,139 128,270,779 112,720,370
Costs and expenses:
Motel operating expenses ................... 62,333,314 67,343,939 57,353,233
Marketing and royalty fees ................. 8,904,980 9,606,013 7,643,068
General and administrative ................. 7,907,752 6,833,365 5,590,441
Restructuring costs and impairment losses .. 3,276,219 - -
Depreciation and amortization .............. 14,984,942 13,994,963 12,617,306
-------------- -------------- -------------
Total direct expenses ........................ 97,407,207 97,778,280 83,204,048
-------------- -------------- -------------
Net operating income ......................... 24,959,932 30,492,499 29,516,322
Interest expense ............................. 31,372,749 31,572,501 27,830,864
-------------- -------------- -------------
Income (loss) from operations ................ (6,412,817) (1,080,002) 1,685,458
Gain on sale of properties.................... 1,109,622 2,589,029 479,281
Recovery of offering costs ................... - - 404,101
Minority interests............................ (177,617) (334,010) (471,688)
-------------- -------------- -------------
Income (loss) before income taxes and
extraordinary item ......................... (5,480,812) 1,175,017 2,097,152
Income tax expense (benefit).................. (2,108,997) 487,761 831,709
-------------- -------------- -------------
Income (loss) before extraordinary item ...... (3,371,815) 687,256 1,265,443
Gain on early extinguishment of debt, net of
applicable income taxes of $170,734 in 1995. - - 267,946
-------------- -------------- -------------
Net income (loss)............................. $ (3,371,815) $ 687,256 $ 1,533,389
============== ============== =============
Net income (loss) per common share (basic
and diluted):
Income (loss) before extraordinary item .... $ (4.21) $ 0.86 $ 1.58
Extraordinary item ......................... - - 0.33
-------------- -------------- -------------
Net income (loss) per common share ......... $ (4.21) $ 0.86 $ 1.91
============== ============== =============
Weighted average number of
common shares outstanding .................. 800,000 800,000 800,000
============== ============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Retained Stockholders'
Stock Capital Earnings Equity
--------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Balance at January 1, 1995 $ 8,000 $ 15,294,284 $ 5,442,972 $ 20,745,256
Net income ....................... - - 1,533,389 1,533,389
-------- ------------- ----------- -------------
Balance at December 31, 1995 ..... 8,000 15,294,284 6,976,361 22,278,645
Net income ....................... - - 687,256 687,256
-------- ------------- ------------ -------------
Balance at December 31, 1996 ..... 8,000 15,294,284 7,663,617 22,965,901
Net loss ......................... (3,371,815) (3,371,815)
-------- ------------- ------------ -------------
Balance at December 31, 1997...... $ 8,000 $ 15,294,284 $ 4,291,802 $ 19,594,086
======== ============= ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows provided by operating activities:
Net income (loss)................................................ $ (3,371,815) $ 687,256 $ 1,533,389
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation, amortization and accretion
of discount on notes .......................................... 15,313,183 14,286,260 12,875,818
Recovery of offering costs ..................................... - - (404,101)
Impairment losses .............................................. 2,530,219 - -
Minority interests of others in income from operations ......... 177,617 334,010 471,688
Deferred income taxes .......................................... (332,881) (480,994) (607,038)
Gain on sale of properties...................................... (1,109,622) (2,589,029) (479,281)
Gain on early extinguishment of debt ........................... - - (438,680)
Change in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable .......................................... 553,831 54,855 (193,129)
Operating supplies, prepaid expenses,
deposits and other assets ................................... 1,295,880 (1,196,653) (2,706,016)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses ........................ 959,074 1,792,405 (1,268,500)
Accrued interest payable ..................................... (68,059) 589,037 (639,999)
------------- ------------- -------------
Net cash provided by operating activities ......................... 15,947,427 13,477,147 8,144,151
Cash flows used in investing activities:
Acquisition and development of investment properties ............. (10,401,985) (55,021,276) (8,942,596)
Refurbishment of investment properties ........................... (7,948,239) (9,857,347) (7,805,508)
Cash restricted for refurbishment of properties .................. 2,512,099 (1,575,913) 2,020,836
Net proceeds from sales of investment properties ................. 569,892 15,821,148 4,108,055
Collections on mortgage and other notes receivable ............... 1,620,492 135,552 86,865
------------- ------------- -------------
Net cash used in investing activities ............................. (13,647,741) (50,497,836) (10,532,348)
Cash flows provided by financing activities:
Repayment of notes payable ....................................... (10,350,127) (41,674,691) (151,712,095)
Proceeds from notes payable and
Senior Subordinated Notes ....................................... 9,798,728 82,721,234 169,800,000
Distributions to minority interests .............................. (314,286) (314,285) (414,511)
Deferred financing costs and offering costs ...................... (649,076) (5,361,159) (9,875,712)
------------- ------------- -------------
Net cash provided (used) by financing activities .................. (1,514,761) 35,371,099 7,797,682
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents .............. 784,925 (1,649,590) 5,409,485
Cash and cash equivalents at beginning of period .................. 12,247,571 13,897,161 8,487,676
------------- ------------- -------------
Cash and cash equivalents at end of period ........................ $ 13,032,496 $ 12,247,571 $ 13,897,161
============= ============= =============
Supplementary disclosure of cash flow information:
Cash paid during the period for interest ........................ $ 31,440,807 $ 30,732,896 $ 28,218,093
============= ============= =============
Cash paid (received) during the period for income taxes ......... $ (59,941) $ 993,984 $ 1,904,260
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
1. Organization and Basis of Presentation
MOA Hospitality, Inc.(formerly known as Motels of America, Inc.), an
85%-owned subsidiary of New Image Realty, Inc. ("New Image"), owns, develops,
manages, and has equity interests in various national brand affiliated limited
service lodging facilities in 37 states throughout the United States. At
December 31, 1997, the Company's largest concentrations of lodging facilities
were located in the States of Georgia and Illinois with 13 lodging facilities
each. The consolidated financial statements include the accounts of MOA
Hospitality, Inc. and all wholly owned subsidiaries and all entities in which
it has a controlling interest (collectively, the "Company"). All significant
intercompany accounts have been eliminated in consolidation. Certain
reclassifications of prior-period amounts have been made to conform with the
current-period presentation of the classified balance sheet.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents represent liquid assets with a maturity of three
months or less when purchased.
Restricted Cash
Restricted cash represents cash that, under the terms of certain
mortgage notes payable, has been set aside for the refurbishment of motel
properties.
Investment Properties
The Company's operating properties are stated at cost less accumulated
depreciation. Operating properties, excluding land, are depreciated using the
straight-line method over the estimated useful lives of the assets (buildings -
40 years; furniture and equipment - 7 years).
Maintenance and repair costs are expensed as incurred, while
significant improvements, replacements and major renovations are capitalized.
The Company records impairment losses on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. An impairment loss is measured as the difference between the carrying
value and fair value.
<PAGE>
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
2. Summary of Significant Accounting Policies-(Continued)
Financing and Other Deferred Costs
Financing costs are amortized over the terms of the related
indebtedness using the level yield method. Franchise costs are
amortized using the straight-line method over the life of the
related franchise agreement. Organization costs are amortized
using the straight-line method over a period of 60 months.
Earnings Per Share
Earnings per share is based on the weighted average number of
shares of common stock outstanding during each period. In 1997,
the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share". The adoption of Statement No. 128 had no
effect on the Company's earnings per share calculations.
3. Offering Costs
In 1994, in conjunction with the planned offering of a real
estate investment trust, the Company incurred $3,121,000 of costs.
During the fourth quarter of 1994, the offering was suspended due
to a change in market factors and the costs were written off.
During 1995, management determined that the estimated costs
exceeded the actual costs and the Company recovered $404,000 of
the writeoff.
4. Mortgage and Other Notes Receivable
Mortgage notes receivable in the amounts of $6,601,412 and
$6,884,174 at December 31, 1997 and 1996, respectively, represent
notes collateralized by motel properties. The notes provide for
monthly principal and interest (various rates of 8% to 10.5%)
receipts over various terms through 2009, although certain notes
are callable prior to their due dates.
Other notes receivable in the amounts of $800,526 and
$2,048,107 at December 31, 1997 and 1996, respectively, bear
interest at rates from 9% to 11% and are receivable over various
terms through 2016.
Notes receivable of $4,692,262 at December 31, 1997 have been
pledged as collateral for a loan facility in which the Company
participated along with one of its affiliates. The loan facility
has an outstanding balance of $2,442,146.
<PAGE>
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
5. Operating Properties
The major classes of operating properties, at cost, are as
follows:
December 31,
-----------------------------
1997 1996
------------- -------------
Land $ 53,830,545 $ 52,819,337
Buildings 273,244,078 265,228,461
Furniture and Equipment 57,786,496 51,503,219
------------- -------------
384,861,119 369,551,017
Less: Accumulated depreciation (73,869,204) (61,854,694)
------------- -------------
$310,991,915 $307,696,323
============= =============
Depreciation expense equaled $12,151,209, $11,520,181, and
$10,036,922 for the years ended December 31, 1997, 1996 and 1995,
respectively.
6. Notes Payable and Senior Subordinated Notes
In September 1995, the Company completed funding of a
financing transaction with Nomura Asset Capital Corporation
("NACC"). Motels of America, L.L.C. (the "LLC"), a limited
purpose subsidiary, obtained a loan from NACC in the principal
amount of $158.8 million evidenced by a Promissory Note due 2015.
The Note is secured by 93 motel properties owned by the LLC. The
loan requires fixed monthly payments (based on a 20-year
amortization schedule) of principal and interest totaling
approximately $1,390,000 through October 11, 2005; thereafter, if
the loan is not repaid, excess cash flow as defined is applied as
additional principal payments. Interest accrues at 8.62% through
October 11, 2005, and thereafter at a fixed rate per annum equal
to the greater of (i) 10.62% or (ii) the yield as of October 11,
2005 on ten-year U.S. Treasury notes, plus 4.5%.
During 1995 the Company repaid a mortgage note recognizing a
gain of $267,946 net of applicable income taxes of $170,734.
In January 1996, the Company borrowed approximately $24.2
million under a two year $100 million secured line of credit
(interest at LIBOR plus 3.33%) with NACC and $10 million from an
unrelated party to finance the acquisition of nineteen motels from
Forte USA, Inc. (see Note 10). In February and March 1996, the
Company borrowed approximately $700,000 from an unrelated party
and an additional $6.7 million under the NACC line of credit to
finance the acquisition of two additional motel properties and the
land underlying one of its properties (see Note 10). The $10
million note payable, repayable at any time with a maturity date
of January 31, 2001, bears interest, payable quarterly, at 14% per
annum and is secured by a guarantee of New Image.
In November 1996, the Company completed two separate
financing transactions with CS First Boston Corporation ("CSFB")
pursuant to which the Company borrowed approximately $37.2
million. The proceeds were utilized to repay the entire
outstanding borrowings under the NACC line of credit;
and a partial paydown of $1.6 million of the $10 million note
referred to above. The CSFB borrowings
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
6. Notes Payable and Senior Subordinated Notes-(Continued)
are secured by first mortgages on nineteen of the Company's motel
properties and a pledge of the stock of one the Company's
subsidiaries. The terms of the notes and mortgages, among other
things, provide for a floating rate of interest adjusted monthly
based on the thirty-day LIBOR rate plus 3.37% and monthly payments
of principal and interest based on a twenty-year amortization
period. The notes mature on November 1, 1998.
In November 1996, the Company borrowed $3.9 million in a
collateralized loan facility, along with one of its affiliates.
Such loan bears interest at the rate of 250 basis points over the
thirty-day LIBOR rate, payable monthly and matures November 13,
1999.
In April 1997, the Company borrowed $2,000,000 under a
$2,000,000 secured revolving line of credit facility. Terms of
the revolving line of credit include interest payable at the prime
rate plus 100 basis points and a maturity date of May 1, 1998.
The borrowings were repaid on July 17, 1997 and the facility
terminated.
In September 1997, the Company renegotiated the terms of a
maturing mortgage note secured by a motel with an outstanding
principal balance of $1,228,000. The new terms include monthly
payments of interest at a rate of 9.25% and principal based on a
twenty-five year amortization schedule. The mortgage note matures
on September 14, 2000.
In 1997, an affiliate of the Company was formed for the sole
purpose of constructing lodging properties to be acquired by a
subsidiary of the Company upon completion at cost. Such affiliate
develops the lodging properties from its own funds, payments from
the Company on account of the purchase price and the proceeds of
a $20,000,000 revolving construction loan facility arranged by the
affiliate. In connection with such construction loan facility,
the Company has guaranteed completion of the construction of each
property, and the subsidiary acquiring the properties has
guaranteed the construction loan facility to a maximum of
$10,000,000. In 1997, five (5) such properties were acquired for
$12,900,000 of which $7,800,000 was funded form a new $150,000,000
secured loan facility between the subsidiary acquiring the
properties and CS First Boston. This facility provides, among
other things for interest computed at a rate based upon the thirty
(30) day LIBOR rate plus 300 basis points, monthly principal and
interest payments at an 11.5% per annum constant, and repayment in
full of each funding made pursuant to the facility forty-two (42)
months after the date of each such funding. In addition, the
Company has pledged its interest in a wholly owned subsidiary to
secure up to $20,000,000 of borrowing under the facility. As of
March 20, 1998, seven additional properties were under
construction and management anticipates approximately $19,000,000
will be expended to purchase these lodging facilities upon
completion. Payments from the Company on account to be applied
towards the future purchases amounted to $1,841,000 at December 31,
1997. Interest earned by the Company on such payments in 1997 equaled
$558,000.
In 1994, the Company completed an offering of $80,000,000 in
principal amount of 12% Senior Subordinated Notes due April 15,
2004, Series B. In conjunction with this offering, 80,000 shares
of common stock were also issued. These Notes have been
registered under the Securities Act of 1933 and are freely
transferable by holders thereof. Interest on the Notes is payable
semiannually. The Notes are not redeemable at the option of the
Company prior to April 15, 1999. The Company may redeem the Subordinated
Notes at 106% reducing to 100% over the life of the Subordinated Notes plus
any accrued and unpaid interest.
<PAGE>
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Notes Payable and Senior Subordinated Notes-(Continued)
The declaration and payment of dividends is restricted by the
indenture relating to the 12% Senior Subordinated Notes. At
December 31, 1997, dividends were not eligible to be declared and
at December 31, 1996, dividends of $1,683,375 were eligible to be
declared.
A summary of mortgage and other notes payable is as follows:
December 31,
-----------------------------
1997 1996
------------- -------------
Mortgage and other notes:
Mortgage note payable secured by 93 motels,
with interest at 8.62% per annum through
October 10, 2005. Rate equal to greater of
10.62% or ten-year Treasury note plus 4.5%
thereafter. Principal and interest
payable monthly; due October 11, 2015 . . . . $152,188,885 $ 155,416,361
Mortgage notes payable secured by 19 motels
and a pledge of the stock of one of MOA
Hospitality,Inc's subsidiaries, with
interest at a floating rate of LIBOR
plus 3.37%; Principal and interest payable
monthly; due November 1, 1998 . . . . . . . . 35,891,475 37,089,632
Various cross-collateralized, nonrecourse
mortgage notes secured by 7 motels and the
common stock of MOA Portfolio II, Ltd.,
with interest at a floating rate of LIBOR
plus 1.75% with a cap of 9%; monthly
principal and interest payments; due
December 31, 1998 . . . . . . . . . . . . . . 18,396,629 19,485,345
Various mortgage notes payable currently
secured by 9 motels, with fixed interest from
7% to 10.25%; principal and interest
payments payable monthly; due dates from
September 14, 2000 to November 1, 2001 . . . 7,205,967 7,404,715
Various mortgage notes payable currently
secured by 2 motels and undeveloped land,
with variable interest based on prime or
Treasury bill rates; principal and interest
payments payable monthly; due dates through
June 1, 2001 . . . . . . . . . . . . . . . . 3,347,926 5,767,207
<PAGE>
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31,
-----------------------------
1997 1996
------------- -------------
Mortgage note payable secured by a hotel,
with interest at LIBOR plus 1.75%, principal
and interest payments payable monthly, due
January 31, 2000 . . . . . . . . . . . . . . $ 8,827,220 $ 8,981,640
Note secured by notes receivable with interest
at a floating rate of LIBOR plus 2.50%;
monthly principal and interest payment: due
November 13, 1999 . . . . . . . . . . . . . . 2,442,146 3,900,000
Note payable secured by a motel with
fixed interest of 8%; principal and
interest payment payable monthly; repaid
in 1997 . . . . . . . . . . . . . . . . . . . ---- 698,558
Mortgage note payable secured by a guarantee of
New Image Realty, Inc. with a fixed interest
rate of 14%; interest payments payable
quarterly; due January 23, 2001 . . . . . . . 8,400,000 8,400,000
Note payable secured by a pledge of stock of one
of MOA Hospitality, Inc.'s subsidiaries, with an
interest at a floating rate of LIBOR plus 3%;
principal and interest payments payable monthly;
due April 8, 2001 to June 19, 2001 . . . . . . 7,783,995 ----
Industrial development revenue bonds secured
by a motel with interest payable semiannually
at 10.5%; annual sinking fund redemptions
of principal on December 1 through 2016 . . . . 3,585,000 3,645,000
Other notes payable . . . . . . . . . . . . . . . 185,655 359,089
----------- -----------
248,254,898 251,147,547
Less current portion . . . . . . . . . . . . . . (67,157,229) (10,207,437)
------------ ------------
$181,097,669 $240,940,110
============= =============
<PAGE>
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Notes Payable and Senior Subordinated Notes-(Continued)
Principal payments required on notes payable and the Senior
Subordinated Notes are scheduled as follows:
Years ended December 31,
------------------------
1998 $ 67,157,229
1999 6,745,389
2000 14,373,338
2001 21,428,048
2002 5,325,574
Thereafter 213,225,320
------------
$328,254,898
============
7. Leases
The Company leases certain properties, administrative offices,
and equipment under operating leases. The leases generally provide
for the Company to pay taxes, insurance, and maintenance expenses
related to the leased property. Rent expense was approximately
$947,000, $974,000, and $988,000 for the years ended December 31,
1997, 1996 and 1995, respectively.
Minimum annual rentals for leases on properties and the
corporate office for the five years subsequent to December 31, 1997
and thereafter, are approximately as follows:
Years ended December 31,
------------------------
1998 $ 761,000
1999 753,000
2000 759,000
2001 681,000
2002 525,000
Thereafter 17,975,000
-----------
$21,454,000
===========
<PAGE>
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. Restructuring costs and impairment losses
In 1997, restructuring costs of $750,000 were recorded
relating to the reorganization of the Company's management
structure. This reorganization included the implementation of a
decentralized organizational structure whereby many of the property
management support functions previously based out of the corporate
office were moved to various regional offices which were
established throughout the country. Impairment losses of
$2,526,000 were recorded in 1997 to reflect the writedown of
certain land held for development to its estimated fair value and
to reflect a provision for loss on collection of a mortgage note
receivable.
9. Income Taxes
Total income tax expense (benefit) was allocated as follows:
Year Ended December 31,
-----------------------------------------
1997 1996 1995
------------ ------------ ------------
Income (loss) from operations $(2,108,997) $ 487,761 $ 831,709
Extraordinary item -- -- 170,734
------------ ------------ ------------
$(2,108,997) $ 487,761 $1,002,443
============ ============ ============
Income tax expense (benefit) attributable to income from
operations consists of:
Current Deferred Total
------------ ------------ -------------
Year ended December 31, 1997:
U.S. federal $(1,498,879) $ (206,171) $ (1,705,050)
State and local (277,237) (126,710) (403,947)
------------ ------------ -------------
$(1,776,116) $ (332,881) $ (2,108,997)
============ ============ =============
Year ended December 31, 1996:
U.S. federal $ 910,476 $ (516,139) $ 394,337
State and local 58,279 35,145 93,424
------------- ----------- -------------
$ 968,755 $ (480,994) $ 487,761
============= =========== =============
Year ended December 31, 1995:
U.S. federal $ 1,214,098 $ (542,740) $ 671,358
State and local 224,649 (64,298) 160,351
----------- ------------ -------------
$1,438,747 $ (607,038) $ 831,709
=========== ============ =============
<PAGE>
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. Income Taxes-(Continued)
Income tax expense (benefit) differs from the amounts computed
by applying the U.S. federal income tax rate of 34% to income
before income taxes and extraordinary item as a result of the
following:
Year Ended December 31,
-------------------------------------
1997 1996 1995
---------- ----------- -----------
Computed "expected" tax
expense (benefit) $(1,863,476) $399,506 $713,032
Increase in income taxes
resulting from:
State income taxes,
net of federal income
tax effect (266,605) 61,659 105,832
Other, net 21,084 26,596 12,845
----------- --------- ----------
$(2,108,997) $487,761 $831,709
============ ========= ==========
The deferred tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts reported for income tax purposes are as
follows:
December 31,
--------------------------------------
1997 1996
---------------- ------------------
Deferred tax assets:
Reserves $ (1,035,999) $ (364,012)
Certain bankruptcy costs (30,517) (88,890)
Net state operating loss carryforwards (896,012) (896,012)
Partnership investments 16,638 (3,681)
Federal tax credits carryover (633,727) (792,394)
Other, net (443,346) (559,446)
-------------- --------------
Total deferred tax assets (3,022,963) (2,704,435)
Deferred tax liabilities:
Investment properties, principally
due to depreciation and purchase
accounting adjustments 6,374,647 6,389,000
------------- -------------
Total deferred tax liabilities 6,374,647 6,389,000
------------- -------------
Net deferred tax liability $ 3,351,684 $ 3,684,565
============= =============
<PAGE>
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. Income Taxes-(Continued)
The Company is a member of an affiliated group that files a
consolidated tax return for federal income tax purposes and has
entered into a tax allocation agreement with New Image and its
parent corporation. In accordance with the agreement, the
Company's tax liability/benefit will be computed as if the Company
had filed its own consolidated tax return and is subject to tax on
all of its taxable income. During 1997 the Company received a
payment of approximately $0.4 million from the parent and during
1996, the Company made payments of approximately $0.5 million, to
the parent corporation. At December 31, 1997, approximately $2.2
million has been advanced to offset future tax payments to the
parent corporation, if any.
At December 31, 1997, the Company has net operating loss
carryforwards ("NOLs") for state income tax purposes of
approximately $13.3 million. The NOLs, which are subject to
certain limitations, expire at various dates through 2010. At
December 31, 1997, the Company also has approximately $633,000 of
tax credit carryforwards subject to certain limitations, $500,000
of which do not expire.
10. Acquisitions and Divestitures
In December 1995, the Company sold two motel properties for
$4.1 million in cash and a $300,000 note receivable; the Company
recorded gains of $479,281.
In January 1996, the Company acquired nineteen motel
properties from Forte USA, Inc., a subsidiary of Forte Hotels,
Inc., for $35.5 million.
In January through March 1996, the Company acquired two
additional motel properties and the land underlying one of its
properties for approximately $8.2 million.
In May through November 1996, the Company sold eleven motel
properties to unaffiliated parties for approximately $15.8 million
in net cash proceeds and $6.3 million in notes receivable; the
Company recorded a gain of $2.6 million.
During 1997, in separate transactions, the Company sold two
properties for an aggregate of $3.9 million consisting of cash in
the amount of $0.1 million, a mortgage note receivable in the
amount of $1.0 million and the buyer's assumption of a mortgage
note in the amount of $2.3 million. the Company remains
contingently liable on the note, $2.3 million, in the event the
purchaser does not perform under its obligations.
<PAGE>
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10. Acquisitions and Divestitures-(Continued)
Pro forma unaudited results for 1995 assuming the 1996
acquisitions had occurred at the beginning of 1995 are as shown
below.
1995
-----------------
Total revenue $ 131,865,949
Net operating revenue 34,179,661
Income before Extraordinary Gain 2,495,419
Net Income 2,763,365
Income before Extraordinary Gain
per common share 3.45
Net Income per common share 3.12
Depreciation and amortization 13,685,354
Pro forma results for 1997 and 1996 are not shown as such
results would not differ materially from historical results.
In March 1998, the Company sold one of its motels pursuant to
a condemnation related to a highway reconfiguration project for
approximately $1.6 million in cash and realized an approximate $0.5
million gain.
11. Fair Value of Financial Instruments
The following methods and assumptions were used by the Company
in estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in
the balance sheet for cash and cash equivalents approximates
its fair value.
Mortgage and other notes receivable: The fair values of the
Company's mortgage and other notes receivable are estimated
using discounted cash flow analyses, using interest rates
currently being offered for similar loans to borrowers with
similar credit ratings.
Mortgage and other notes payable: The fair values of the
Company's mortgage and other notes payable are estimated using
discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing
arrangements.
12% Senior Subordinated Notes: The fair value of the
Company's 12% Senior Subordinated Notes are based on quoted
market prices.
<PAGE>
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. Fair Value of Financial Instruments-(Continued)
The carrying amounts and fair values of the Company's
financial instruments at December 31 are as follows:
Carrying Carrying
Amount Fair Value Amount Fair Value
---------- ------------- ------------ ------------
Cash and cash
equivalents $13,032,496 $13,032,496 $12,247,571 $12,247,571
Mortgage and
other notes
receivable 7,401,938 7,588,815 8,932,281 9,047,466
Secured notes
payable 248,254,898 249,509,580 251,147,547 250,506,863
12% Senior
Subordinated
Notes 76,734,638 76,000,000 76,406,397 68,800,000
<PAGE>
Supplemental Information to Be Furnished With Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act.
The Company did not submit an annual report to security holders
covering the registrants's last fiscal year. In addition, the Company did not
send proxy statements, any form of proxy or other proxy soliciting material to
security holders with respect to any annual or other meeting of security
holders.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 9th day of
April, 1998.
MOA HOSPITALITY, INC.
By: /s/ Kurt M. Mueller
Kurt M. Mueller
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Paul F. Wallace Director, Chairman and April 9, 1998
Paul F. Wallace Chief Executive Officer
Principal Executive Officer
/s/ Alan H. Baerenklau Director, President and April 9, 1998
Alan H. Baerenklau Chief Operating Officer
/s/ Kurt M. Mueller Director and Chief April 9, 1998
Kurt M. Mueller Financial Officer
Principal Financial Officer
/s/ Carl W. Desch Director April 9, 1998
Carl W. Desch
/s/ Peter W. McClean Director April 9, 1998
Peter W. McClean
/s/ Louis A. Scarrone, M.D. Director April 9, 1998
Louis A. Scarrone, M.D.
/s/ Ronald P. Stewart Director April 9, 1998
Ronald P. Stewart
/s/ Philip J. Levien Director April 9, 1998
Philip J. Levien
<PAGE>
INDEX TO EXHIBITS
Sequential
Exhibit Page
Number Description Number
- ------- ----------- ----------
3.1 Certificate of Incorporation of Motels of America, Inc.
("MOA" or the "Company") as amended to date, incorporated
by reference to Exhibit 3.1 to MOA's Registration
Statement on Form S-1 (No. 33-78866) which became
effective on July 13, 1994 (the "1994 Form S-1").
3.2 By-laws of MOA, incorporated by reference to Exhibit 3.2
to the 1994 Form S-1.
4.1 Indenture dated April 14, 1994 for the 12% Senior
Subordinated Notes due 2004, incorporated by reference
to Exhibit 4.1 to the 1994 Form S-1.
4.2 Registration Rights Agreement dated as of April 14, 1994
by and among MOA, Alex. Brown and BT Securities,
incorporated by reference to Exhibit 4.2 to the 1994
Form S-1.
4.3 Loan Agreement between Motels of America, L.L.C. and
Nomura Asset Capital Corporation ("NACC") dated as of
September 15, 1995, incorporated by reference to Exhibit
4.1 to MOA's Form 8-K filed on November 4, 1995.
4.4 Form of Mortgage, Security Agreement, Assignment of
Rents and Fixture Filing between MOA-TL Corp. and MOA-CS
Corp., as Mortgagor to CS First Boston Mortgage Capital
Corp., as Mortgagee, dated as of November 5, 1996,
incorporated by reference to Exhibit 4.4 to MOA's Form
10-K for the fiscal year ended December 31, 1996 (the
"1996 Form 10-K").
10.1 Note Purchase Agreement dated as of October 20, 1994,
among NACC and MOA, MOA Midwest Corp. and Tri-State
Inns, Inc. (the "Note Purchase Agreement"), incorporated
by reference to Exhibit 10.2 to MOA's Form 10-K for the
fiscal year ended December 31, 1994 (the "1994 Form 10-K").
10.1A Amendment No. 1 to the Note Purchase Agreement, dated as
of October 20, 1994, incorporated by reference to
Exhibit 10.2A to the 1994 Form 10-K.
10.1B Environmental Indemnity Agreement dated as of October
20, 1994, incorporated by reference to Exhibit 10.2B
to the 1994 Form 10-K.
10.1C Amendment No. 2 to the Note Purchase Agreement, dated
as of December 16, 1994, incorporated by reference to
Exhibit 10.1B to MOA's Form 8-K filed on February 7,
1996 (the "1996 Form 8-K").
<PAGE>
Sequential
Exhibit Page
Number Description Number
- -------- ------------ ---------
10.1D Amendment No. 3 to the Note Purchase Agreement, dated
as of January 23, 1996, incorporated by reference to
Exhibit 10.1C to the 1996 Form 8-K.
10.2 Note Purchase Agreement dated as of January 23, 1996,
among NACC and MOA-TL Corp., incorporated by reference
to Exhibit 10.2 to the 1996 Form 8-K.
10.3 $10,000,000 Promissory Note of MOA-TL Holding Corp.
payable to HFS Incorporated, dated as of January 23, 1996,
incorporated by reference to Exhibit 10.3 to the 1996
Form 8-K.
10.4 Asset Purchase Agreement dated as of December 19, 1995,
by and among MOA, Forte Hotels, Inc. and Forte USA, Inc.
(the "Asset Purchase Agreement"), incorporated by
reference to Exhibit 10.4 to the 1996 Form 8-K.
10.4A First Amendment to the Asset Purchase Agreement, dated
as of January 23, 1996, incorporated by reference to
Exhibit 10.4A to the 1996 Form 8-K.
10.5 Employment Agreement of Daniel W. Daniele dated
September 14, 1994, incorporated by reference to
Exhibit 10.14 to the 1994 Form 10-K.
10.6 $20,000,000 Promissory Note of MOA-TL Corp. payable
to CS First Boston Mortgage Capital Corp., dated as
of November 5, 1996, incorporated by reference to
Exhibit 10.6 to MOA's Form 10-K for the fiscal year
ended December 31, 1996 (the "1996 Form 10-K").
10.7 $17,150,000 Promissory Note of MOA-CS Corp. payable
to CS First Boston Mortgage Capital Corp., dated as
of November 5, 1996, incorporated by reference to
Exhibit 10.7 to MOA's Form 10-K for the fiscal year
ended December 31, 1996 (the "1996 Form 10-K").
10.8 Credit facility agreement up to $150,000,000 between
TAD Properties, L.L.C. and Credit Suisse First Boston
Mortgage Capital., date as of December 20, 1996.
10.8A Amendment to credit facility agreement, dated as
of October 8, 1997.
21.1 Subsidiaries of MOA.
<PAGE>
UP TO U.S. $150,000,000
CREDIT FACILITY AGREEMENT
Dated as of December 20, 1996
Between
TAD PROPERTIES, L.L.C.
as Borrower
and
CS FIRST BOSTON MORTGAGE CAPITAL CORP.
as Lender
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS . . . . . . . . . . . . . . 1
1.1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Accounting Terms. . . . . . . . . . . . . . . . . . . . . . . . . 17
1.3. Certain Terms . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE II AMOUNTS AND TERMS OF THE LOANS . . . . . . . . . . . . . . . 17
2.1. The Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.2. Making the Loans. . . . . . . . . . . . . . . . . . . . . . . . . 18
2.3. Earnout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.4. Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.5. Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.6. Reserve Account . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.7. Application of Payments After Event of Default. . . . . . . . . . 22
2.8. Interest Rate Determination and Protection. . . . . . . . . . . . 22
2.9. Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.10. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.11. Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . 23
2.12. Payments and Computations. . . . . . . . . . . . . . . . . . 23
2.13. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.14. Use of Loans . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE III INITIAL APPROVAL OF PROPOSED MOTEL FACILITIES;PREPARATION OF
MORTGAGE DOCUMENTS; PRELIMINARY APPROVAL . . . . . . . . . . 25
3.1. Initial Motels. . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.2. Approval of Proposed Motel Facilities . . . . . . . . . . . . . . 25
3.3. Preparation and Execution of Mortgage Documents . . . . . . . . . 26
ARTICLE IV CONDITIONS OF LENDING. . . . . . . . . . . . . . . . . . . . 26
4.1. Conditions Precedent to Effectiveness . . . . . . . . . . . . . . 26
4.2. Conditions Precedent to Each Loan . . . . . . . . . . . . . . . . 27
4.3. Further Conditions Precedent to Each Loan . . . . . . . . . . . . 30
4.4. Conditions Precedent for an Earnout . . . . . . . . . . . . . . . 31
ARTICLE V REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . 32
5.1. Representations and Warranties as to Borrower . . . . . . . . . . 32
5.2. Representations and Warranties as to the
Borrower and the Approved Motel Facilities. . . . . . . . . . . . 36
5.3. Survival of Representations . . . . . . . . . . . . . . . . . . . 41
ARTICLE VI LIABILITY OF MOA . . . . . . . . . . . . . . . . . . . . . . 41
6.1. Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.2. Bankruptcy/Enforcement. . . . . . . . . . . . . . . . . . . . . . 42
6.3. Reliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE VII AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . 42
7.1. Compliance with Laws, Etc . . . . . . . . . . . . . . . . . . . . 42
7.2. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . 42
7.3. Payment of Taxes, Etc . . . . . . . . . . . . . . . . . . . . . . 43
7.4. Maintenance of Insurance. . . . . . . . . . . . . . . . . . . . . 43
7.5. Preservation of Existence; Single Purpose Entity. . . . . . . . . 43
7.6. Access. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.7. Keeping of Books. . . . . . . . . . . . . . . . . . . . . . . . . 44
7.8. Maintenance of Properties, Etc. . . . . . . . . . . . . . . . . . 44
7.9. Performance and Compliance with Other Covenants . . . . . . . . . 44
7.10. Application of Proceeds. . . . . . . . . . . . . . . . . . . 44
7.11. Financial Statements . . . . . . . . . . . . . . . . . . . . 44
7.12. Reporting Requirements . . . . . . . . . . . . . . . . . . . 45
7.13. Leases and Operating Leases. . . . . . . . . . . . . . . . . 47
7.14. Employee Plans . . . . . . . . . . . . . . . . . . . . . . . 48
7.15. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . 48
7.16. Environmental Matters. . . . . . . . . . . . . . . . . . . . 48
7.17. Maintenance of Reserves/Operating Lease. . . . . . . . . . . 49
7.18. Casualty and Condemnation. . . . . . . . . . . . . . . . . . 49
7.19. Further Assurances . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE VIII NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . 49
8.1. Liens, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.2. Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . 50
8.3. Lease Obligations . . . . . . . . . . . . . . . . . . . . . . . . 51
8.4. Asset Sales/Refinancings. . . . . . . . . . . . . . . . . . . . . 51
8.5. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.6. Change in Nature of Business or Organizational Documents. . . . . 54
8.7. Modification of Material Agreements . . . . . . . . . . . . . . . 54
8.8. Accounting Changes. . . . . . . . . . . . . . . . . . . . . . . . 54
8.9. Transactions with Affiliates. . . . . . . . . . . . . . . . . . . 54
8.10. Environmental Matters. . . . . . . . . . . . . . . . . . . . 54
8.11. Membership Interests . . . . . . . . . . . . . . . . . . . . 55
8.12. Cash Flow. . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.13. ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
ARTICLE IX EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . 55
9.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . 55
9.2. Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ARTICLE X MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 58
10.1. Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . 58
10.2. Notices, Etc . . . . . . . . . . . . . . . . . . . . . . . . 58
10.3. No Waiver; Remedies. . . . . . . . . . . . . . . . . . . . . 59
10.4. Costs; Expenses; Indemnities . . . . . . . . . . . . . . . . 59
10.5. Right of Set-off . . . . . . . . . . . . . . . . . . . . . . 60
10.6. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . 61
10.7. Assignments and Participations . . . . . . . . . . . . . . . 61
10.8. Governing Law; Severability. . . . . . . . . . . . . . . . . 62
10.9. Submission to Jurisdiction; Service of Process . . . . . . . 62
10.10. Section Titles . . . . . . . . . . . . . . . . . . . . . . . 62
10.11. Execution in Counterparts. . . . . . . . . . . . . . . . . . 62
10.12. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 62
10.13. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . 63
10.14. Enforcement by Borrower. . . . . . . . . . . . . . . . . . . 63
<PAGE>
EXHIBITS
Exhibit A - Form of Senior Note
Exhibit A-1 - Form of Mezzanine Note
Exhibit A-2 - Form of Earnout Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Opinion of Counsel for the Borrower
Exhibit C-1 - Form of Opinion of Counsel for the Borrower (re:Security
Documents)
Exhibit D - Form of Opinion of Local Counsel for the Borrower
Exhibit E - Form of Mortgage
Exhibit F - Form of Assignment Agreement
Exhibit G - Form of Security Agreement
Exhibit H - Form of MOA Pledge
Exhibit I - Form of Fixed Payment Certificate
Exhibit J - Form of Subordination, Non-Disturbance and Attornment
Agreement
Exhibit K - Form of Operating Agreement
Exhibit L - Form of Operating Lease
Exhibit M - Form of Acquisition Agreement
Exhibit N - Form of Assignment of Contracts
Exhibit 0 - Form of Assignment of Acquisition Agreement
<PAGE>
CREDIT FACILITY AGREEMENT (this "Agreement"), dated as of the 20th
day of December, 1996, between TAD PROPERTIES, L.L.C., a Delaware limited
liability company (the "Borrower"), and CS FIRST BOSTON MORTGAGE CAPITAL
CORP., a Delaware corporation (the "Lender").
W I T N E S S E T H:
WHEREAS, the Borrower desires to obtain a series of loans from the
Lender in an aggregate amount at any time outstanding of up to $150,000,000 to
provide the Borrower with funds to acquire real estate as more particularly
described herein;
WHEREAS, the Lender is unwilling to make such loans unless the
Borrower joins in the execution and delivery of this Agreement which shall
establish the terms and conditions of such loans;
NOW, THEREFORE, in consideration of the making of the promises and
covenants, agreements, representations and warranties set forth in this
Agreement, the parties hereby covenant, agree, represent and warrant as
follows:
<PAGE>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.1. Defined Terms. As used in this Agreement, the following terms
have the following meanings (such meanings to be equally applicable to both
the singular and plural forms of the terms defined):
"Acquisition Agreement" means that certain Development and Purchase
and Sale Agreement attached hereto as Exhibit M, entered into between Borrower
and Motel Developer.
"Affiliate" means, as to any Person, any Subsidiary of such Person
and any other Person which, directly or indirectly, controls, is controlled by
or is under common control with such Person. For the purposes of this
definition, "control" means the possession of the power to direct or cause the
direction of management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agreement" means this Credit Facility Agreement, together with all
Exhibits and Schedules hereto, as the same may be amended, supplemented or
otherwise modified from time to time.
"Appraisal" means an appraisal using methodologies reasonably
acceptable to the Lender at the time such appraisal is or was made and
performed by a Recognized Appraiser.
"Approved Construction Costs" means, with respect to each Proposed
Motel Facility, the estimated costs, as the same may be amended from time to
time, to be incurred by Motel Developer with respect to acquiring the real
property and constructing the improvements thereon (including but not limited
to, (i) costs for land acquisition and site improvements thereto, (ii) costs
for environmental inspections, soil analysis, title insurance, permits and
other predevelopment items; (iii) all hard costs, including contingency, (iv)
all legal, architectural, engineering and other professional fees and
disbursements, (v) all soft costs incurred in connection with the acquisition
and development, (vi) $20,000 for each Approved Motel Facility representing
the allocable share of all fees payable in connection with the Commitment
(including, but not limited to legal and other professional fees and expenses,
financing and advisory fees payable to the Lender in connection with the
negotiation and execution of this Agreement), (vii) legal fees, title
insurance premiums and other customary closing expenses incurred in connection
with the acquisition of each Approved Motel Facility and the closing of each
respective Loan and (viii) the Motel Developer Supervisory Fee, which
estimated costs set forth in clauses (i) through (viii) of this definition are
set forth on a budget, (and if amended, on an amended budget) submitted to and
approved by the Lender, which approval will not be unreasonably withheld or
delayed.
"Approved Motel Facility" means a Proposed Motel Facility approved by
the Lender pursuant to Section 3.2 hereof and for which a Loan is advanced
pursuant to this Agreement.
"Asset Sale" means any sale, conveyance, transfer, assignment, lease
or other disposition by the Borrower to any Person of any Approved Motel
Facility (other than the leasing of an Approved Motel Facility to an Operating
Lessee pursuant to an Operating Lease).
"Asset Sale Proceeds" means payments received by the Borrower from
any Asset Sale (after repayment of the Loan secured by the respective Approved
Motel Facility), in each case net of the amount of: (i) brokers' and advisors'
fees and commissions payable (other than to an Affiliate of the Borrower) in
connection with such Asset Sale; (ii) all foreign, federal, state and local
taxes payable as a direct consequence of such Asset Sale; (iii) the reasonable
fees and expenses attributable to such Asset Sale, to the extent not included
in clause (i) (except to the extent payable to any Affiliate of the Borrower),
and (iv) customary closing costs and adjustments to the extent not included in
clauses (i) and (iii) of this definition.
"Assignment Agreement" means an agreement substantially in the form
of Exhibit F, executed by the Borrower, Franchisor and the Lender, assigning
to the Lender, each Franchise Agreement.
"Assignment of Contracts" means an agreement substantially in the
form of Exhibit N executed by Borrower.
"Base Rate" means, for any period, a fluctuating interest rate per
annum as shall be in effect from time to time, which rate per annum shall be
equal at all times to the rate of interest announced publicly by Bankers Trust
Company, New York, New York, from time to time, as such bank's prime rate.
"Business Day" means a day of the year on which banks are not
required or authorized to close in New York City and a day on which dealings
are also carried on in the London interbank market.
"Capitalized Lease" means, as to any Person, any lease of property by
such Person as lessee which would be capitalized on a balance sheet of such
Person prepared in conformity with GAAP.
"Capitalized Lease Obligations" means, as to any Person, the
capitalized amount of all obligations of such Person under Capitalized Leases,
in conformity with GAAP.
"Closing Date" means the date on which any Loan is made.
"Code" means the Internal Revenue Code of 1986 (or any successor
legislation thereto), as amended from time to time.
"Collateral" means all property and interests in property and
proceeds thereof now owned or hereafter acquired by the Borrower in or upon
which a Lien is granted under any of the Collateral Documents.
"Collateral Documents" means the Assignment Agreement, the assignment
agreement in respect of the Acquisition Agreement, the Mortgages, the Security
Agreement, the MOA Pledge and any other document now or hereafter executed and
delivered by the Borrower or MOA granting a Lien on any of its property to
secure payment of the Obligations.
"Commitment" has the meaning specified in Section 2.1.
"Contingent Obligation" means, as applied to any Person, any direct
or indirect liability, contingent or otherwise, of such Person with respect to
any Indebtedness or Contractual Obligation of another Person, if the purpose
or intent of such Person in incurring the Contingent Obligation is to provide
assurance to the obligee of such Indebtedness or Contractual Obligation that
such Indebtedness or Contractual Obligation will be paid or discharged, or
that any agreement relating thereto will be complied with, or that any holder
of such Indebtedness or Contractual Obligation will be protected (in whole or
in part) against loss in respect thereof. Contingent Obligations of a Person
include, without limitation, (a) the direct or indirect guarantee, endorsement
(other than for collection or deposit in the ordinary course of business), co-
making, discounting with recourse or sale with recourse by such Person of an
obligation of another Person, and (b) any liability of such Person for an
obligation of another Person through any agreement (contingent or otherwise)
(i) 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 a loan, advance, stock purchase, capital
contribution or otherwise), (ii) to maintain the solvency or any balance sheet
item, level of income or financial condition of another Person, (iii) to make
take-or-pay or similar payments, if required, regardless of non-performance by
any other party or parties to an agreement, (iv) to purchase, sell or lease
(as lessor or lessee) property, or to purchase or sell services, primarily for
the purpose of enabling the debtor to make payment of such obligation or to
assure the holder of such obligation against loss, or (v) to supply funds to
or in any other manner invest in such other Person (including, without
limitation, to pay for property or services irrespective of whether such
property is received or such services are rendered).
"Contract" means any contract, agreement, undertaking, indenture,
note, bond, loan, instrument, lease, conditional sales contract, mortgage,
deed of trust, license, franchise, insurance policy, commitment or other
arrangement or agreement.
"Contractual Obligation" of any Person means any obligation,
agreement, undertaking or similar provision of any security issued by such
Person or of any Contract to which such Person is a party or by which it or
any of its property is bound or to which any of its properties is subject.
"Default" means any event which with the passing of time or the
giving of notice or both would become an Event of Default.
"Default Rate" has the meaning specified in Section 2.4 (e).
"DL" has the meaning specified in Section 4.1(c).
"DOL" means the United States Department of Labor, or any successor
thereto.
"Dollars" and the sign "$" each mean the lawful money of the United
States of America.
"DSCR" means for any specified period the ratio of (a) Net Operating
Income for such period to (b) the debt service payable in such period on all
Indebtedness of the Borrower (assuming that monthly debt service on the Loans
during such period is equal to the greater of: (i) the monthly payment which
would be required to fully liquidate the Loans in twenty-five (25) years
assuming a rate of interest equal to the interest rate in effect with respect
to the Senior Tranche as of the commencement date of such period; and (ii) the
monthly interest payment which would be required in respect of the Loans
during such period assuming a rate of interest equal to eleven and one-half
percent per annum)
"Earnout" has the meaning specified in Section 2.3.
"Earnout Note" means the note delivered by the Borrower to the Lender
in the form of Exhibit A-2 hereto.
"Earnout Tranche" has the meaning specified in Section 2.1.
"Earnout Tranche Rate" means the LIBOR Base Rate plus four and one-
half percent (4-1/2%).
"Environmental Claim" means any accusation, allegation, notice of
violation, action, claim, Environmental Lien, demand, abatement or other Order
or direction (conditional or otherwise) by any Governmental Authority or any
other Person for personal injury (including sickness, disease or death),
tangible or intangible property damage, damage to the environment, nuisance,
pollution, contamination or other adverse effects on the environment, or for
fines, penalties or restriction, resulting from or based upon (i) the
existence, or the continuation of the existence, of a Release (including,
without limitation, sudden or non-sudden accidental or non-accidental
Releases) of, or exposure to, any Hazardous Material or odor, audible noise or
other nuisance, or other Release in, into or onto the environment (including,
without limitation, the air, soil, surface water or groundwater) at, in, by,
from or related to any property owned, operated or leased by the Borrower or
any activities or operations thereof; (ii) the environmental aspects of the
transportation, storage, treatment or disposal of Hazardous Materials in
connection with any property owned, operated or leased by the Borrower or
their operations or facilities; or (iii) the violation, or alleged violation,
of any Environmental Laws, Orders or Environmental Permits of or from any
Governmental Authority relating to environmental matters connected with any
property owned, leased or operated by the Borrower.
"Environmental Laws" means any federal, state, local or foreign law
(including common law), statute, code, ordinance, rule, regulation or other
requirement relating in any way to the environment, natural resources, or
public or employee health and safety and includes, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), 42 U.S.C. Sect. 9601 et seq., the Hazardous Materials Sect.
Tansportation Act, 49 U.S.C. Sect. 1801 et seq., the Federal Insecticide,
Fungicide, and Rodenticide Act, 7 U.S.C. Sect. Sect. 136 et seq., the Resource
Conservation and Recovery Act ("RCRA"), 42 U.S.C. 6901 et seq., the Toxic
Sect. Substances Control Act, 15 U.S.C. 2601 et seq., the Clean Air Act, 42
U.S.C. Sect. 7401 et seq., the Clean Water Sect. Act, 33 U.S.C. Sect. 1251 et
seq., the Occupational Safety and Health Act, 29 Sect. Sect. U.S.C. Sect. 651
et seq., and the Oil Pollution Act of 1990, 33 U.S.C. Sect. 2701 et seq., as
Sect. Sect. such laws have been amended or supplemented, and the Sect.
regulations promulgated pursuant thereto, and all analogous state and local
statutes.
"Environmental Liabilities and Costs" means, as to any Person, all
liabilities, obligations, responsibilities, Remedial Actions, losses, damages,
punitive damages, consequential damages, treble damages, costs and expenses
(including, without limitation, all fees, disbursements and expenses of
counsel, experts and consultants and costs of investigation and feasibility
studies), fines, penalties, sanctions and interest incurred as a result of any
Environmental Claim.
"Environmental Lien" means any Lien in favor of any Governmental
Authority arising under any Environmental Law.
"Environmental Permit" means any Permit required under any applicable
Environmental Laws or Order and all supporting documents associated therewith.
"ERISA" means the Employee Retirement Income Security Act of 1974 (or
any successor legislation thereto), as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control or treated as a single employer with the
Borrower within the meaning of Section 414 (b), (c), (m) or (o) of the Code.
"ERISA Event" means (i) an event described in Sections 4043(b)(1),
(2), (3), (5), (6), (8), (9), (10), (11), (12) or (13) of ERISA with respect
to a Pension Plan; (ii) the withdrawal of the Borrower or any ERISA Affiliate
from a Pension Plan subject to Section 4063 of ERISA during a plan year in
which it was a substantial employer, as defined in Section 4001(a)(2) of
ERISA; (iii) the complete or partial withdrawal of the Borrower or any ERISA
Affiliate from any Multiemployer Plan or the insolvency of any Multiemployer
Plan; (iv) the filing of a notice of intent to terminate a Pension Plan or the
treatment of a plan amendment as a termination under Section 4041 of ERISA;
(v) the institution of proceedings by the PBGC to terminate or appoint a
trustee to administer a Pension Plan or Multiemployer Plan; (vi) the failure
to make any required contribution to a Pension Plan; (vii) any other event or
condition which might reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Pension Plan or Multiemployer Plan; (viii) the imposition
of any liability under Title IV of ERISA, other than for PBGC premiums due but
not delinquent under Section 4007 of ERISA; (ix) a prohibited transaction (as
described in Code Section 4975 or ERISA Section 406) shall occur with respect
to any Plan; or (x) the Borrower or ERISA Affiliate shall request a minimum
funding waiver from the IRS with respect to any Pension Plan.
"Event of Default" has the meaning specified in Section 9.1.
"Final Borrowing Date" means the second anniversary of the date
hereof.
"Final Maturity Date" means with respect to each Loan, the date that
is three and one-half years following the Closing Date thereof.
"Financial Officer's Certificate" has the meaning specified in
Section 7.11(c).
"Fiscal Quarter" means each of the three month periods ending on
March 31, June 30, September 30 and December 31.
"Fiscal Year" means the twelve month period ending on December 31.
"Fixed Earnout Tranche Payment" means an amount (as confirmed and
acknowledged by the Borrower pursuant to the Fixed Payment Certificate) equal
to the greater of: (a) the payment required for the respective Interest Period
in order to fully liquidate each Loan made in respect of an Earnout in twenty-
five (25) years, assuming a rate of interest equal to the Earnout Tranche Rate
determined as of the Closing Date of the respective Earnout; and (b) the
interest accrued on the Earnout Tranche during the respective Interest Period
assuming a rate of interest equal to eleven and one-half percent (11-1/2%) per
annum.
"Fixed Payment Certificate" shall mean a certificate of the Borrower
in the form of Exhibit I executed and delivered by the Borrower on each
Closing Date in which the Borrower shall acknowledge and certify the Fixed
Senior Tranche Payment and Fixed Earnout Tranche Payment (as applicable) as of
each such Closing Date.
"Fixed Senior Tranche Payment" means an amount (as confirmed and
acknowledged by the Borrower pursuant to the Fixed Payment Certificate) equal
to the greater of (a) the payment required for the respective Interest Period
in order to fully liquidate the Senior Tranche portion of the respective Loan
in twenty-five (25) years, assuming a rate of interest equal to the Senior
Tranche Rate determined as of the Closing Date of such respective Loan; and
(b) the interest accrued on the Senior Tranche portion of the respective Loan
during the respective Interest Period assuming a rate of interest equal to
eleven and one-half percent (11-1/2%) per annum.
"Franchise Agreement" means each franchise agreement entered into
between Franchisor and the Borrower, as shall be approved by the Lender (which
approval shall not be unreasonably withheld or delayed).
"Franchisor" means Microtel or such other franchiser under a
Franchise Agreement as shall be approved by the Lender (which approval may be
withheld in the sole and absolute discretion of the Lender).
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute
of Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board, or in such other statements by such
other entity as may be in general use by significant segments of the
accounting profession.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Hazardous Material" means any substance, material or waste which is
regulated by any Governmental Authority of the United States or other national
government, including, without limitation, any material, substance or waste
which is defined as a "hazardous waste," "hazardous material," "hazardous
substance," "extremely hazardous waste," "restricted hazardous waste,"
"contaminant," "toxic waste" or "toxic substance" under any provision of
Environmental Law, which includes, but is not limited to, petroleum, petroleum
products, asbestos, urea formaldehyde and polychlorinated biphenyls.
"Indebtedness" of any Person means (i) all indebtedness of such
Person for borrowed money (including, without limitation, reimbursement and
all other obligations with respect to surety bonds, letters of credit and
bankers, acceptances, whether or not matured) or for the deferred purchase
price of property or services, (ii) all obligations of such Person evidenced
by notes, bonds, debentures or similar instruments, (iii) all indebtedness of
such Person created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property),
(iv) all Capitalized Lease Obligations of such Person, (v) all Contingent
Obligations of such Person, (vi) all obligations of such Person to purchase,
redeem, retire, defease or otherwise acquire for value any Stock or Stock
Equivalents of such Person, valued, in the case of redeemable preferred stock,
at the greater of its voluntary or involuntary liquidation preference plus
accrued and unpaid dividends, (vii) all obligations of such Person under
Interest Rate Contracts, and (viii) all Indebtedness referred to in clause
(i), (ii), (iii), (iv), (v), (vi) or (vii) above secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or in property (including, without limitation,
accounts and general intangibles) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Indebtedness,
(ix) in the case of the Borrower, the Obligations, and (x) all liabilities of
such Person that would be shown on a balance sheet of such Person prepared in
conformity with GAAP.
"Indemnitees" has the meaning specified in Section 10.4.
"Interest Period" shall mean, with respect to each Loan hereunder,
the period commencing on the date of such Loan and ending on the day
immediately preceding the first Business Day of the first calendar month
thereafter, and, thereafter, each period commencing on the first Business Day
in the first calendar month thereafter and ending on the day immediately
preceding the first Business Day of the following calendar month.
Notwithstanding the foregoing, if any Interest Period would otherwise commence
before and end after the Final Maturity Date of a Loan, such Interest Period
shall end on the Final Maturity Date thereof.
"Interest Rate Contracts" means interest rate swap agreements,
interest rate cap agreements, interest rate collar agreements, interest rate
insurance, and other agreements or arrangements designed to provide protection
against fluctuations in interest rates.
"IRS" means the Internal Revenue Service, or any successor thereto.
"Legal Proceedings" means any judicial, administrative or arbitral
actions, suits, proceedings (public or private), claims or governmental
proceedings.
"LIBOR Base Rate" shall mean, for any Interest Period, the interest
rate per annum offered for 30 day deposits in U.S. Dollars in the London
interbank market which appears on Telerate Page 3750 or such other page as may
replace Page 3750 on that service or such other service or services as may be
nominated by The British Bankers' Association for the purpose of displaying
such rate (collectively, "telerate Page 3750") as of 9:00 A.M. New York City
time on the first Business Day of such Interest Period. In the event that (i)
more than one such LIBOR Base Rate is provided, the average of such rate shall
apply or (ii) no such LIBOR Base Rate is published, then the LIBOR Base Rate
shall be determined from such comparable financial reporting company as the
Lender, in its discretion, shall determine.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other),
security interest or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever intended to secure
payment of any Indebtedness or other obligation, including, without
limitation, any conditional sale or other title retention agreement, the
interest of a lessor under a Capitalized Lease Obligation, any financing lease
having substantially the same economic effect as any of the foregoing, and the
filing, under the Uniform Commercial Code or comparable law of any
jurisdiction, of any financing statement naming the owner of the asset to
which such Lien relates as debtor (excluding precautionary filings).
"Loan" means each portion of the Commitment to be made by the Lender
to the Borrower in connection with: (a) the acquisition of each Approved Motel
Facility; or (b) an Earnout.
"Loan Documents" means, collectively, this Agreement, the Notes, the
Collateral Documents and each certificate, agreement or document executed by
the Borrower and delivered to the Lender in connection with or pursuant to any
of the foregoing, as such agreements, documents or instruments may be amended,
modified or supplemented from time to time.
"Lockout Period" means, with respect to each Loan, a period of six
(6) months following the respective Closing Date.
"Managing Member" means TAD Membership Corp., a wholly owned
subsidiary of MOA, as managing member of Borrower under the Operating
Agreement.
"Material Adverse Change" means a material adverse change in any of:
(i) the condition (financial or otherwise), business, performance, prospects,
operations or properties of (A) the Borrower, (B) ten percent of the Approved
Motel Facilities (as measured by the amount of each Loan made in respect of
each Approved Motel Facility, provided, however, that with respect to a
material adverse change which occurs in connection with an Approved Motel
Facility as a result of a default by the respective Operating Lessee, then so
long as TAD Leasing or a new Operating Lessee enters into a new Operating
Lease with respect to such Approved Motel Facility or TAD Leasing assumes the
obligations of such respective lessee under the respective Operating Lease
from and after the date of such assumption, then a material adverse change
shall not be deemed to have occurred with respect to such Approved Motel
Facility for purposes of this clause (B)), or (C) any Franchisor; (ii) the
legality, validity or enforceability of any Loan Document; (iii) the
perfection or priority of the Liens granted pursuant to the Collateral
Documents; (iv) the ability of the Borrower to repay the obligations or to
perform its obligations under any Loan Document; or (v) the rights and
remedies of the Lender under the Loan Documents.
"Mezzanine Note" means the note delivered by the Borrower to the
Lender in the form of Exhibit A-1 hereto.
"Mezzanine Tranche" has the meaning specified in Section 2.1.
"Microtel" means Microtel Inns and Suites Franchising, Inc., a
Georgia corporation.
"MOA" means Motels of America, Inc., a Delaware corporation.
"MOA Pledge" means the stock pledge agreement in the form of Exhibit
H hereto.
"MOA Equity Contribution" means all capital contributions made by (or
on behalf of) MOA to the capital of the Borrower, including, but not limited
to, all costs paid by (or on behalf of) MOA in connection with the acquisition
and construction of each Proposed Motel Facility.
"Mortgages" means the mortgages or deeds of trust made or required
herein to be made by the Borrower in substantially the form of Exhibit E, as
such Mortgages may be amended, supplemented or otherwise modified from time to
time.
"Motel Developer" means TAD Development Corp., a Delaware
corporation.
"Motel Developer Supervisory Fee" means, with respect to each
Approved Motel Facility, a fee payable by Borrower to Motel Developer in an
amount not to exceed three percent (30%) of the total Approved Construction
Costs of such Approved Motel Facility in connection with services rendered by
Motel Developer to Borrower pursuant to a separate agreement between the
Borrower and Motel Developer and approved by the Lender (which approval shall
not be unreasonably withheld or delayed). In no event shall the Motel
Developer Supervisory Fee exceed, in the aggregate, the sum of $6,000,000 with
respect to all of the Approved Motel Facilities (exclusive of out-of-pocket
expenses, such as, but not limited to, expenses for travel, meals, hotel
accommodations and similar such expenses).
"Multiemployer Plan" means, as of any applicable date, a
multiemployer plan, as defined in Section 4001(a)(3) of ERISA, and to which
the Borrower, any of its Subsidiaries, or any ERISA Affiliate is making, is
obligated to make, or within the six-year period ending at such date, has made
or been obligated to make, contributions on behalf of participants who are or
were employed by any of them.
"Net Operating Income" means with respect to each Approved Motel
Facility for any specified period the actual net income derived from such
Approved Motel Facility during such period without regard to the Operating
Lease relating thereto and determined on an accrual basis in accordance with
GAAP adjusted as follows: (a) gross income shall not include room revenues in
excess of room revenues which would have been received assuming a seventy
(70%) percent occupancy rate during the entire specified period, (b) expenses
shall include to the extent not otherwise included in expense (i) a management
fee of five (5%) percent of room revenues, (ii) a franchise fee and a
marketing reservation and advertising fee in the combined amount of eight (8%)
percent of room revenues, (iii) a reserve for furniture, fixtures, equipment
and capital expenditures in the amount of four (4%) percent of room revenues
and (iv) real estate taxes assuming a full assessment and (c) expenses shall
not include (i) interest, (ii) income taxes, (iii) depreciation, amortization
and other non-cash items, and (iv) management fees and franchise and marketing
fees relating to any gross income excluded pursuant to clause (a) of this
definition.
"Non-Disturbance Agreement" means the Subordination, Non-Disturbance
and Attornment Agreement substantially in the form of Exhibit J hereto entered
into between each Operating Lessee and the Lender.
"Notes" means the Senior Note, Mezzanine Note and the Earnout Note.
"Notice of Borrowing" has the meaning specified in Section 2.2(a).
"Obligations" means the Loans and all other advances, debts,
liabilities, obligations, covenants and duties owing by the Borrower to the
Lender or any Indemnitee, of every type and description, present or future,
whether or not evidenced by any note, guaranty or other instrument, arising
under this Agreement or under any other Loan Document, whether or not for the
payment of money, loan, guaranty, indemnification, foreign exchange
transaction or Interest Rate Contract or in any other manner, whether direct
or indirect (including, without limitation, those acquired by assignment),
absolute or contingent, due or to become due, now existing or hereafter
arising and however acquired. The term "Obligations" includes, without
limitation, all interest, charges, expenses, fees, attorneys' fees and
disbursements and any other sum chargeable to the Borrower under this
Agreement or any other Loan Document.
"Operating Agreement" means that certain Amended and Restated
Operating Agreement of the Borrower, to be entered into on the initial Closing
Date by and among MOA, TAD Membership Corp. and the Lender in the form
attached hereto as Exhibit K.
"Operating Lease" means, with respect to each Approved Motel
Facility, a net lease substantially in the form of Exhibit L attached hereto,
between the Borrower, as lessor, and the Operating Lessee, as lessee, which
shall provide that: (a) the fixed annual rent payable thereunder shall not be
less than twelve and nine-tenths percent (12.9%) of the Approved Construction
Costs of such Approved Motel Facility; and (b) the Operating Lessee shall have
the right, from and after the third anniversary of the respective Closing Date
of such Approved Motel Facility, (or, if the Operating Lessee is TAD Leasing,
at any time from and after such Closing Date), to purchase the Approved Motel
Facility at a price of not less than an amount equal to the sum of: (i) the
respective Approved Construction Costs; and (ii) $300,000 with respect to each
Approved Motel Facility which has more than sixty (60) rooms; and (iii)
$200,000 with respect to each Approved Motel Facility which has not more than
sixty (60) rooms; and (iv) if the purchase by the Operating Lessee occurs
during the fifth year of the term of the respective Operating Lease, an amount
equal to the product of $1,000 and the number of rooms in the respective
Approved Motel Facility; and (iv) if the purchase by the Operating Lessee
occurs during the sixth year of the term of the Operating Lease, an amount
equal to the product of $2,000 and the number of rooms in the respective
Approved Motel Facility.
"Operating Lease Reserve" means the reserve held by Borrower pursuant
to each Operating Lease for each Approved Motel Facility in the amount of
$150,000.
"Operating Lessee" means, with respect to each Approved Motel
Facility, the lessee under the Operating Lease as shall be approved by the
Lender (which approval shall not be unreasonably withheld, delayed or
conditioned), provided, however, that the Lender's consent shall not be
required if the operating Lessee is TAD Leasing or Microtel.
"Order" means any order, injunction, judgment, decree, ruling,
assessment or arbitration award.
"Other Taxes" has the meaning specified in Section 2.13(b).
"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Pension Plan" means a plan, other than a Multiemployer Plan, which
is covered by Title IV of ERISA or Code Section 412 and which the Borrower,
any of its Subsidiaries or any ERISA Affiliate maintains, contributes to or
has an obligation to contribute to on behalf of participants who are or were
employed by any of them.
"Permit" means any permit, approval, authorization, license,
variance, registration, permission or consent required from a Governmental
Authority under an applicable Requirement of Law.
"Person" means an individual, partnership, limited liability company,
corporation (including, without limita-tion, a business trust), joint stock
company, trust, unincorporated association, joint venture or other entity, or
a Governmental Authority.
"Plan" means an employee benefit plan, as defined in Section 3(3) of
ERISA which the Borrower or any ERISA Affiliate maintains, contributes to or
has an obligation to contribute to on behalf of participants who are or were
employed by any of them.
"PML DSCR" means for any specified period the ratio of (a) Net
Operating Income for such period to (b) the debt service payable in such
period on all Indebtedness of the respective Operating Lessee (annualized to
assume a full twelve months of operation on a pro forma basis during such
period), assuming that monthly debt service on the respective Purchase Money
Loan during such period is equal to the greater of: (i) the actual debt
service payable in respect of such Purchase Money Loan; and (ii) the monthly
interest which would be required in respect of the Purchase Money Loan during
such period assuming a rate of interest equal to eleven and one-half percent
(11 1/2%) per annum.
"PMM Rate" shall mean an interest rate equal to 3.50% plus the rate
for the most recent auction of direct obligations of the United States having
a maturity of seven (7) years as of the date of determination as published in
H.15 (519), or any successor publication, under the heading "U.S. Government
Securities-Treasury Bills-auction averages (investment)", or if not so
published on such date, the auction average (expressed as a bond equivalent,
on the basis of a year of 365 or 366 days, as applicable, and applied on a
daily basis) as otherwise announced by the United States Department of the
Treasury; provided, however, that if there is no direct obligation of the
United States within 30 days of the seventh anniversary of the date of
calculation, then a rate shall be calculated by an interpolation of the rates
of the two closest Treasury obligations having a maturity most immediately
preceding and following such seventh anniversary date. The interpolated rate
is calculated by (i) multiplying the (A) quotient of (i) the rate difference
between the two such closest Treasury obligations divided by (ii) the number
of months between the two such closest Treasury obligations times (B) the
number of months between the date of the seventh anniversary of the date of
calculation and the immediately preceding Treasury obligation and (2) adding
such product of clause (A) times clause (B) to the rate of the immediately
preceding Treasury obligation.
"Proposed Motel Facility" means a facility located in the continental
United States which offers or shall offer motel services and which the
Borrower desires to acquire using the proceeds of a Loan made by the Lender
hereunder.
"Proposed Motel Facility Statement" means a certificate of a
Responsible Officer providing each of the following:
(a) details of the location of the Proposed Motel Facility;
(b) the budget in respect of the Approved Construction Costs of the
Proposed Motel Facility;
(c) certification (based on information available to the Borrower
after diligent enquiry) as to (A) the proposed annual rent under the proposed
Operating Lease of the Proposed Motel Facility; (B) projected fixed charges
for such Proposed Motel Facility for the next one year period;
(d) a copy of the Operating Lease to be executed by the Borrower and
the Operating Lessee;
(e) a copy of the Franchise Agreement to be executed by the Borrower
and the Franchisor;
(f) a copy of an Appraisal in respect of the Proposed Motel Facility
evidencing that the fair market value of such Proposed Motel Facility is: (i)
not greater than $5,000,000; and (ii) not less than an amount equal to 120% of
the Loan requested by the Borrower in respect of such Proposed Motel Facility;
(g) a credit search in respect of the Operating Lessee performed by
TRW or such other credit search agency reasonably acceptable to the Lender,
together with any other financial statements in respect of such Operating
Lessee that are in the possession of the Borrower;
(h) a Phase I environmental report (and, if required, Phase II
environmental report) which report shall demonstrate, to the reasonable
satisfaction of the Lender, that the Proposed Motel Facility and the
operations thereof are in compliance in all material respects with all
applicable Environmental Laws and are not subject to any Environmental
Liabilities and Costs;
(i) a copy of a recent market study in respect of the Proposed Motel
Facility;
(j) a current title report and survey in respect of the Proposed
Motel Facility, issued by Chicago Title Insurance Company or such other title
company and a surveyor reasonably acceptable to the Lender; and
(k) a written report of an investigation by an engineering
consultant reasonably acceptable to the Lender.
"Purchase Money Loan" has the meaning specified in Section 8.4(e).
"Recognized Appraiser" means a qualified and recognized professional
appraiser as may be selected or approved by the Lender, having at least five
(5) years' prior experience in performing real estate appraisals in the
geographic area where the property being appraised is located, having a
recognized expertise in appraising properties operated as motel facilities.
"Refinancing" means a refinancing of a Loan by the Borrower in
respect of an Approved Motel Facility.
"Release" means any release, spill, emission, leaking, pumping,
pouring, dumping, emptying, injection, deposit, disposal, discharge,
dispersal, leaching or migration on or into the indoor or outdoor environment
or into or out of any property.
"Remedial Action" means all actions including, without limitation,
required or voluntarily undertaken to (i) clean up, remove, treat or in any
other way address any Hazardous Material or other substance in the indoor or
outdoor environment, (ii) prevent the Release or threat of Release, or
minimize the further Release, of any Hazardous Material or other substance so
it does not migrate or endanger or threaten to endanger public health or
welfare or the indoor or outdoor environment, (iii) perform pre-remedial
studies and investigations or post-remedial monitoring and care, or (iv) bring
facilities on any property owned, leased or operated by the Borrower or any of
its Subsidiaries into compliance with all Environmental Laws and Environmental
Permits.
"Requirement of Law" means, as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of
such Person, and all federal, state and local laws, rules and regulations,
including, without limitation, federal, state or local securities, antitrust
and licensing laws, all food, health and safety laws, and all applicable trade
laws and requirements, including, without limitation, all disclosure
requirements of Environmental Laws, ERISA and all orders, judgments, decrees
or other determinations of any Governmental Authority or arbitrator,
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.
"Reserve Account" has the meaning specified in Section 2.6 (a) .
"Responsible Officer" means, with respect to any Person, any of the
principal executive officers or general partners of such Person.
"Security Agreement" means an agreement in substantially the form of
Exhibit I, executed by the Borrower, granting to the Lender a security
interest in the collateral more particularly described therein.
"Senior Note" means the note delivered by the Borrower to the Lender
in the form of Exhibit A hereto.
"Senior Tranche" has the meaning specified in Section 2.1.
"Senior Tranche Rate" means the LIBOR Base Rate plus three percent
(3%).
"Single-Purpose Entity" means a Person, other than an individual,
which (i) is formed or organized solely for the purpose of acquiring and
directly holding an ownership interest in the Approved Motel Facilities, (ii)
does not engage in any business unrelated to the Approved Motel Facilities,
(iii) does not have any assets other than those related to its interest in the
Approved Motel Facilities or any Indebtedness other than as permitted by this
Agreement, the Mortgages or the other Loan Documents, (iv) has its own
separate books and records and has its own accounts, in each case which are
separate and apart from the books and records and accounts of any other Person
and (v) holds itself out as being a Person separate and apart from any other
Person.
"Solvent" means, with respect to any Person, that the value of the
assets of such Person (both at fair value and present fair saleable value) is,
on the date of determination, greater than the total amount of liabilities
(including, without limitation, contingent and unliquidated liabilities) of
such Person as of such date and that, as of such date, such Person is able to
pay all liabilities of such Person as such liabilities mature.
"Stock" means shares of capital stock, beneficial or partnership
interests, membership interests, participations or other equivalents
(regardless of how designated) of or in a corporation or equivalent entity,
whether voting or non-voting, and includes, without limitation, common stock
and preferred stock.
"Stock Equivalents" means all securities convertible into or
exchangeable for Stock and all warrants, options or other rights to purchase
or subscribe for any stock, whether or not presently convertible, exchangeable
or exercisable.
"Subsidiary" means, with respect to any Person, any corporation,
partnership or other business entity of which an aggregate of 500% or more of
the outstanding Stock having ordinary voting power to elect a majority of the
board of directors, managers, trustees or other controlling persons, is, at
the time, directly or indirectly, owned or controlled by such Person and/or
one or more Subsidiaries of such Person (irrespective of whether, at the time,
Stock of any other class or classes of such entity shall have or might have
voting power by reason of the happening of any contingency).
"TAD Leasing" means TD Leasing, LLC, a Delaware limited liability
company, an Affiliate of Borrower
"Taxes" has the meaning specified in Section 2.13(a).
"Title Insurance Policies" has the meaning specified in Section
4.2(m).
"Unfunded Pension Liability" shall mean, at any time, the aggregate
amount, if any, of the sum of (i) the amount by which the present value of all
accrued benefits under each Pension Plan exceeds the fair market value of all
assets of such Pension Plan allocable to such benefits in accordance with
Title IV of ERISA, all determined as of the most recent valuation date for
each such Pension Plan using the actuarial assumptions in effect under such
Pension Plan, and (ii) for a period of five (5) years following a transaction
reasonably likely to be covered by Section 4069 of ERISA, the liabilities
(whether or not accrued) that could be avoided by Borrower or any ERISA
Affiliate as a result of such transaction.
"Yield Maintenance Amount" has the meaning specified in Section
2.5(b).
1.2. Accounting Terms. All accounting terms not specifically defined
herein shall be construed in conformity with GAAP and all accounting
determinations required to be made pursuant hereto shall, unless expressly
otherwise provided herein, be made in conformity with GAAP.
1.3. Certain Terms. (a) The words "herein," "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a
whole, and not to any particular Article, Section, subsection or clause in
this Agreement. References herein to an Exhibit, Schedule, Article, Section,
subsection or clause refer to the appropriate Exhibit or Schedule to, or
Article, Section, subsection or clause in this Agreement.
(b) The term "Lender" includes its successors and each assignee of
the Lender who becomes a party hereto pursuant to Section 10-7.
ARTICLE II
AMOUNTS AND TERMS OF THE LOANS
2.1. The Loans. On the terms and subject to the conditions contained
in this Agreement, the Lender agrees to make Loans to the Borrower from time
to time on any Business Day during the period from the date hereof to and
including the Final Borrowing Date, and to maintain the Loans outstanding to
the Borrower on the Final Borrowing Date from such date until the Final
Maturity Date with respect to each Loan in an aggregate outstanding principal
amount not to exceed ONE HUNDRED FIFTY MILLION DOLLARS ($150,000,000) (the
"Commitment") at any time, to be used for the purposes identified in Section
2.14. Notwithstanding anything set forth herein, amounts prepaid pursuant to
Section 2.5(b) may not be reborrowed. No portion of the Commitment may be
borrowed after the Final Borrowing Date. Each Loan advanced by the Lender in
connection with the acquisition of an Approved Motel Facility: (a) shall in no
event exceed eighty percent (80%) of the Approved Construction Costs of the
respective Approved Motel Facility; and (b) shall be evidenced by the Notes as
follows: (i) the portion of each such Loan up to but not exceeding seventy-one
percent (7l%) of the Approved Construction Costs of the respective Approved
Motel Facility shall be evidenced by the Senior Note (the aggregate amount of
said portion of all Loans funded hereunder is collectively referred to as the
"Senior Tranche"); and (ii) the portion of each such Loan funded in excess of
the Senior Tranche up to but not exceeding nine percent (9%) of the Approved
Construction Costs of the respective Approved Motel Facility shall be
evidenced by the Mezzanine Note (the aggregate amount of said portion of all
Loans funded hereunder is collectively referred to as the "Mezzanine
Tranche"). Each Loan advanced in connection with an Earnout: (x) shall in no
event exceed nine percent (9%) of the Approved Construction Costs of the
respective Approved Motel Facility; and (y) shall be evidenced by the Earnout
Note (the aggregate amount of the Loans funded hereunder in connection with an
Earnout is collectively referred to as the "Earnout Tranche"). The Lender is
authorized to endorse, at any time, the date and amount of the Senior Tranche,
Mezzanine Tranche and Earnout Tranche and the date and amount of each advance
and reduction of principal with respect to the Senior Tranche, Mezzanine
Tranche and Earnout Tranche on the schedule annexed to and constituting a part
of the Senior Note, Mezzanine Note and the Earnout Note (as applicable), which
endorsement shall constitute prima facie evidence of the accuracy of the
information endorsed.
2.2. Making the Loans. (a) Each Loan shall be made upon fulfillment
of the applicable conditions set forth in this Agreement and on notice, given
by the Borrower to the Lender not later than 12:00 noon (New York City time)
on the fifteenth (15th) Business Day prior to the date of the proposed Loan.
Each such notice (a "Notice of Borrowing") shall be in substantially the form
of Exhibit B, specifying therein (i) the date of such proposed Loan, (ii) the
amount of such proposed Loan, (iii) the account or accounts to which the Loan
should be made, and (iv) that the proceeds of the proposed Loan shall be used
for the purchase of an Approved Motel Facility or for an Earnout (as
applicable).
(b) The Lender shall on the date of the proposed Loan, make
available to the Borrower (or as the Borrower may direct) at the account or
accounts specified in the Notice of Borrowing, in immediately available
federal funds, the Loan.
(c) The Borrower shall indemnify the Lender against any actual loss,
cost or expense incurred by the Lender as a result of any failure to fulfill
on or before the date specified in any Notice of Borrowing for a proposed Loan
the applicable conditions set forth in Article IV, including, without
limitation, any loss, cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by the Lender to fund any
Loan to be made by the Lender when such Loan, as a result of such failure, is
not made on such date.
2.3. Earnout. At any time during the period from and after the
twelfth month through and including the eighteenth month following the Closing
Date of each respective Approved Motel Facility, the Borrower shall have a one
time right to request an additional Loan with respect to each respective
Approved Motel Facility (such additional Loan is hereinafter referred to as
"Earnout"), and, subject to the applicable terms and provisions of this
Agreement, the Lender agrees to make such Loans to the Borrower.
2.4. Repayment. (a) The Borrower shall repay the entire unpaid
principal amount of each Loan on the respective Final Maturity Date thereof.
(b) With respect to the Senior Tranche, interest shall accrue at the
Senior Tranche Rate and shall be payable as follows: (i) the Borrower shall
pay the Lender the Fixed Senior Tranche Payment on the first Business Day of
each month (such payments commencing on the first Business Day of the first
calendar month following the month in which the respective Loan hereunder is
made); (ii) in the event the Fixed Senior Tranche Payment is greater than the
total unpaid interest accrued on the Senior Tranche at the Senior Tranche Rate
for the respective Interest Period, then the difference between the Fixed
Senior Tranche Payment and such total accrued interest shall be applied by the
Lender to prepay the principal amount of the respective Loan without payment
of any Yield Maintenance Amount; and (iii) in the event the Fixed Senior
Tranche Payment is less than the total unpaid interest accrued on the Senior
Tranche at the Senior Tranche Rate for the respective Interest Period, then
the Borrower shall be required to pay to the Lender, together with the Fixed
Senior Tranche Payment, an amount equal to the difference between the Fixed
Senior Tranche Payment and such total accrued interest which amount shall be
applied by the Lender to payment of such interest.
(c) With respect to the Mezzanine Tranche, the Borrower shall pay
the Lender interest on the unpaid principal amount of Mezzanine Tranche in
arrears on the first Business Day of each month (such payments commencing on
the first Business Day of the first calendar month following the month in
which the respective Loan hereunder is made) at a rate of interest equal to
fifteen percent (15%) per annum.
(d) With respect to the Earnout Tranche, interest shall accrue at
the Earnout Tranche Rate and shall be payable as follows: (i) the Borrower
shall pay the Lender the Fixed Earnout Tranche Payment on the first Business
Day of each month (such payments commencing on the first Business Day of the
first calendar month following the month in which the respective Loan
hereunder is made); (ii) in the event the Fixed Earnout Tranche Payment is
greater than the total unpaid interest accrued on the Earnout Tranche at the
Earnout Tranche Rate for the respective Interest Period, then the difference
between the Fixed Earnout Tranche Payment and such total accrued interest
shall be applied by the Lender to prepay the principal amount of the Earnout
Tranche without payment of any Yield Maintenance Amount; and (iii) in the
event the Earnout Payment is less than the total unpaid interest accrued on
the Earnout Tranche at the Earnout Tranche Rate for the respective Interest
Period, then the Borrower shall be required to pay to the Lender, together
with the Fixed Earnout Tranche Payment, an amount equal to the difference
between the Fixed Earnout Tranche Payment and such total accrued interest
which amount shall be applied by the Lender to payment of such interest.
(e) During the continuance of an Event of Default, all Loans shall
bear interest accrued, payable on demand, at a rate per annum equal at all
times to five percent (5%) per annum above the applicable interest then in
effect from time to time (the "Default Rate"), provided, however, that
notwithstanding the foregoing, if an Event of Default has occurred and is
continuing as a result of a monetary breach with respect to one or more Loans,
then in each such case, only such Loans in which the monetary breach has
occurred shall bear interest at the Default Rate until such time as: (i) the
Lender accelerates all obligations under this Agreement pursuant to Section
9.2 hereof; or (ii) the occurrence of a Material Adverse Change (provided,
however, that solely for purposes of this Section 2.4(e), the reference to
"ten percent" in clause (B) of the definition of "Material Adverse Change"
shall be deemed to be "fifteen percent"), and upon either event, all Loans
shall then bear interest at the Default Rate.
2.5. Prepayments. (a) The Borrower shall have no right to prepay the
principal amount of any Loan during the respective Lockout Period.
(b) From and after the Lockout Period of each Loan, the Borrower
may, upon at least fifteen (15) days' prior notice to the Lender (stating the
proposed date, the identity of the Approved Motel Facility for which Loan (or
Loans) is being prepaid, and the aggregate principal amount of the prepayment)
prepay the outstanding principal amount of each Loan in whole or in part,
together with accrued interest to the date of such prepayment on the principal
amount prepaid, provided, however, that during the period from the expiration
of the Lockout Period through the first anniversary of the respective Loan,
the Borrower shall also pay to the Lender a sum (the "Yield Maintenance
Amount") equal to one percent (1%) of the principal amount prepaid plus any
costs, fees or expenses incurred by the Lender in connection with such
prepayment including, without limitation, any costs to unwind any LIBOR Base
Rate contracts (if any). The Lender shall deliver notice to the Borrower of
the amount of any Yield Maintenance Amount due with respect to any prepayment
by the Borrower at least three (3) Business Days prior to the date of such
prepayment, which notice shall be conclusive and binding upon the Borrower
absent manifest error. Upon the giving of such notice of prepayment by the
Borrower, the principal amount of the Loan (or Loans) specified to be prepaid
shall become due and payable on the date specified for such prepayment.
(c) The Borrower may prepay each Loan, in whole or in part, without
payment of the Yield Maintenance Amount or any other premium or penalty after
the first anniversary of the Closing Date of the respective Loan.
(d) Notwithstanding anything set forth in the Agreement, the Notes
or any other Loan Documents, in no event shall the Lender have any obligations
to fund Loans in an aggregate amount exceeding the amount of Commitment. If at
any time the aggregate principal amount of Loan (or Loans) outstanding at such
time exceeds the amount of Commitment, the Borrower shall forthwith prepay the
Loans then outstanding in an amount equal to such excess, together with
accrued interest.
2.6. Reserve Account. (a) Purpose. The Borrower shall establish
and maintain with La Salle National Bank, Chicago, Illinois (or another
institution as is acceptable to Borrower and Lender), as deposit bank, in the
circumstances specified in the following sentence an account which shall be
designated the Reserve Account (the "Reserve Account") for the benefit of the
Lender until the Loans are paid in full. Upon the Closing Date of each Loan,
the Borrower shall be required to remit to the Reserve Account: (i) an amount
which, together with the deposits to be made by the Borrower pursuant to
clause (x) of this Section 2.6, shall be sufficient to pay the next
installment of real estate taxes and assessments for the respective Approved
Motel Facility (and thereafter the Borrowers shall further deposit into the
Reserve Account: (x) on the first Business Day of each month, an amount equal
to one-twelfth (1/12) of such annual real estate taxes and assessments for the
respective Approved Motel Facility; and (y) if to the extent such required
monthly deposits are insufficient to permit full payment of the next
installment of such real estate taxes and assessments, the Borrower shall pay
such additional sums as shall be required to complete such payments); and (ii)
such reserves as may be reasonably required by the Lender for the respective
Approved Motel Facility with respect to deferred maintenance, life safety
improvements and/or any Remedial Action. So long as no Event of Default is
continuing, any and all funds remitted to the Reserve Account, together with
any interest earned thereon, shall be held in the Reserve Account solely to
pay for the purposes for which such funds were deposited.
(b) Investment of Funds. All or a portion of any funds in the
Reserve Account may be invested and reinvested by the Lender in one or more
investments bearing interest reasonably acceptable to the Borrower and the
Lender (it being specifically agreed and understood that any investments
constituting Qualified Investments, as defined in the Operating Lease, shall
be deemed acceptable to the Borrower). The Borrower shall include all such
income or gain on the Reserve Account as income of the Borrower for federal
and applicable state tax purposes. Upon delivery to the Lender of invoices,
bills and other statements of charges in respect of the items for which funds
were deposited into the Reserve Account, the Lender shall either pay such
items directly from funds available in the Reserve Account or may make funds
available to the Borrower for payment thereof.
(c) Event of Default. During continuance of an Event of Default, the
Lender may liquidate any and all funds on deposit in the Reserve Account and
use such amount on deposit in the Reserve Account to make payments on account
of the Loans in accordance with the priorities set forth in Section 2.7.
2.7. Application of Payments After Event of Default. All proceeds of
any repayment of the Loans after the occurrence of an Event of Default shall
be applied to pay: first, any reasonable out-of-pocket costs and expenses of
the Lender arising as a result of such repayment; second, any accrued and
unpaid interest then payable with respect to the Loan or the portion thereof
being repaid; and third, the outstanding principal amount of the Loan or the
portion thereof being repaid.
2.8. Interest Rate Determination and Protection. (a) The LIBOR Base
Rate for each Interest Period for Loans evidenced by the Senior Notes and the
Earnout Notes shall be determined by the Lender two Business Days before the
first day of such Interest Period and the Lender shall give prompt notice
thereof to the Borrower of the applicable interest rate determined by the
Lender.
(b) If, the Lender determines, (which determination shall be
conclusive) that (i) quotations of interest rates for the relevant deposits
referred to in the definition of "LIBOR Base Rate" are not being provided in
the relevant amounts or for the relevant maturity for purposes of determining
rates of interest as provided herein; or (ii) the rate of interest referred to
in the definition of "LIBOR Base Rate" upon the basis of which the rate of
interest for such Interest Period is to be determined is not likely to
adequately cover the cost to the Lender of making or maintaining such Loans
for such Interest Period, then, in the cases of the foregoing clauses (i) and
(ii), the Lender shall give the Borrower prompt notice thereof, and so long as
such condition remains in effect, the interest payable on each Loan shall be
calculated, as provided in Section 2.4 hereof, at the Base Rate for the
Interest Period applicable to such Loan, plus the respective margin applicable
to the Senior Notes or the Mezzanine Notes, as such margin may be adjusted so
that the total rate of interest shall be close as practicable to the LIBOR
Base Rate.
2.9. Increased Costs. If, due to either (i) the introduction of or
any change in or in the interpretation of any law or regulation or (ii)
compliance with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law), there shall
be any increase in the cost to the Lender of agreeing to make or making,
funding or maintaining any Loans at the LIBOR Base Rate, then the Borrower
shall from time to time, upon demand by the Lender, pay to the Lender
additional amounts sufficient to compensate the Lender for such increased
cost. A certificate as to the amount of such increased cost, submitted to the
Borrower by the Lender, shall be conclusive and binding for all purposes,
absent manifest error. If the Borrower so notifies the Lender within five
Business Days after the Lender notifies the Borrower of any increased cost
pursuant to the foregoing provisions of this Section 2.9, the Borrower may
either (A) prepay in full all Loans bearing interest at the LIBOR Base Rate
then outstanding and, additionally, reimburse the Lender for such increased
cost in accordance with this Section 2.9, or (B) require the Lender to, and
the Lender shall, convert all Loans bearing interest at the LIBOR Base Rate
into Loans bearing interest at the Base Rate in effect from time to time, and
additionally, reimburse the Lender for such increased cost in accordance with
this Section 2.9, provided that in the event that the election in (B) is made
by the Borrower, the Lender's obligations to make Loans hereunder shall
thereafter be deemed to be obligations to make Loans at the Base Rate in
effect from time to time.
2.10. Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for the Lender to honor its
obligation to maintain Loans hereunder, then the Lender shall promptly notify
the Borrower thereof and the Lender shall be under no obligation to maintain
such Loans, and the Borrower shall immediately prepay such Loans.
2.11. Capital Adequacy. If (i) the introduction of or any
change in or in the interpretation of any law or regulation, (ii) compliance
with any law or regulation, or (iii) compliance with any guideline or request
from any central bank or other Governmental Authority (whether or not having
the force of law) affects or would affect the amount of capital required or
expected to be maintained by the Lender or any corporation controlling the
Lender and the Lender reasonably determines that such amount is based upon the
existence of the Lender's Commitment and Loans and its other commitment and
loans of this type, then, upon demand by the Lender, the Borrower shall pay to
the Lender, from time to time as specified by the Lender, additional amounts
sufficient to compensate the Lender in the light of such circumstances, to the
extent that the Lender reasonably determines such increase in capital to be
allocable to the existence of the Lender's Commitment and Loans. A
certificate as to such amounts submitted to the Borrower by the Lender shall
be conclusive and binding for all purposes absent manifest error.
2.12. Payments and Computations. (a) The Borrower shall make
each payment hereunder and under the Notes not later than 3:00 p.m. (New York
City time) on the day when due, in Dollars, to the Lender at its address
referred to in Section 10.2 in immediately available funds without set-off or
counterclaim, to be applied in accordance with the terms of this Agreement.
Payment received by the Lender after 3:00 p.m. (New York City time) shall be
deemed to be received on the next Business Day.
(b) All computations of interest shall be made by the Lender on the
basis of a year of 360 days for the actual number of days occurring in the
period for which such interest is payable. Each determination by the Lender
of an interest rate hereunder shall be conclusive and binding for all
purposes, absent manifest error.
(c) Whenever any payment hereunder or under the Notes shall be
stated to be due on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of payment of interest or fee, as the
case may be; provided, however, that if such extension would cause payment of
interest on or principal of any Loan to be made in the next calendar month,
such payment shall be made on the next preceding Business Day.
2.13. Taxes. (a) Any and all payments by the Borrower under
each Loan Document shall be made free and clear of and without deduction for
any and all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding taxes
measured by the Lender's net income, and franchise taxes imposed on the
Lender, by the jurisdiction under the laws of which the Lender is organized or
any political subdivision thereof and taxes measured by the Lender's net
income, and franchise taxes imposed on the Lender, by the jurisdiction of the
Lender or any political subdivision thereof (all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If the Borrower shall be required by law
to deduct any Taxes from or in respect of any sum payable hereunder to the
Lender (i) the sum payable shall be increased as may be necessary so that
after making all required deductions (including, without limitation,
deductions applicable to additional sums payable under this Section 2.13) the
Lender receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions, (iii) the
Borrower shall pay the full amount deducted to the relevant taxing authority
or other authority in accordance with applicable law, and (iv) the Borrower
shall deliver to the Lender evidence of such payment to the relevant taxation
or other authority.
(b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies of the United States or any political subdivision thereof or
any applicable foreign jurisdiction which arise from any payment made under
any Loan Document or from the execution, delivery or registration of, or
otherwise with respect to, any Loan Document (collectively, "Other Taxes").
(c) The Borrower will indemnify the Lender for the full amount of
Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes
imposed by any jurisdiction on amounts payable under this Section 2.13) paid
by the Lender and any liability (including, without limitation, for penalties,
interest and expenses) arising therefrom or with respect thereto, whether or
not such Taxes or Other Taxes were correctly or legally asserted. This
indemnification shall be made within 30 days from the date the Lender makes
written demand therefor.
(d) Within 30 days after the date of any payment of Taxes or Other
Taxes, the Borrower will furnish to the Lender, at its address referred to in
Section 10.2, the original or a certified copy of a receipt evidencing payment
thereof.
(e) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained
in this Section 2.13 shall survive the payment in full of the Obligations.
2.14. Use of Loans. The proceeds of the Loans are to be used by
the Borrower in accordance with the terms and provisions of this Agreement
solely for the following purposes: (a) with respect to the Senior Tranche and
Mezzanine Tranche, to pay to Motel Developer the Approved Construction Costs
of the Approved Motel Facilities; (b) with respect to all Loans, to make
payments to MOA in return of the MOA Equity Contribution; (c) with respect to
the Earnout Tranche, to make payments on account of any permitted outstanding
Indebtedness of the Borrower and for general business purposes in the ordinary
course of owning and operating the Approved Motel Facility.
<PAGE>
ARTICLE III
INITIAL APPROVAL OF PROPOSED MOTEL FACILITIES;
PREPARATION OF MORTGAGE DOCUMENTS; PRELIMINARY APPROVAL
3.1. Initial Motels. Notwithstanding anything set forth in this
Agreement to the contrary, the Lender shall have the right, upon written
notice to the Borrower, to terminate this Agreement if, prior to June 1, 1997,
the Borrower has not acquired approval from the Lender with respect to four
Proposed Motel Facilities pursuant to the terms and provisions of Section 3.2
and the Lender has not advanced a Loan with respect to such Proposed Motel
Facilities in accordance with the terms and provisions of this Agreement.
Borrower shall not enter into any written contract with a manufacturer with
respect to the manufacture of the modular components of the Approved Motel
Facilities without the prior approval of the Lender, which approval shall not
be unreasonably withheld or delayed.
3.2. Approval of Proposed Motel Facilities. In the event that the
Borrower desires to acquire a Proposed Motel Facility, the Borrower shall
prior to submitting its Notice of Borrowing in respect of such Loan, request
in writing the Lender's consent to the acquisition thereof, which request
shall be accompanied by a Proposed Motel Facility Statement (together with all
documents referred to therein) in respect of the Proposed Motel Facility and
such other information as the Lender may reasonably require. In the event the
Borrower does not have possession of all of the items required to be delivered
as part of the Proposed Motel Facility Statement, the Borrower may deliver
such items thereof as are then available to the Borrower. The Lender agrees
to endeavor to review such items of the Proposed Motel Facility Statement and,
to the extent practicable without delivery of the missing items of the
Proposed Motel Facility Statement, advise the Borrower whether the Lender
approves such items delivered to the Lender. If the Lender does grant such
approval to any specific items of the Proposed Motel Facility Statement, no
further approval by the Lender of such items shall be required under this
Section 3.2 so long as the information contained in such items continues to be
true, correct and complete and no event occurs which would require the
Borrower to update, amend, supplement or otherwise change any of such items
previously approved by the Lender in order to render same true, correct and
complete. Notwithstanding the foregoing, the Borrower shall not acquire any
Proposed Motel Facility unless the Proposed Motel Facility is approved by the
Lender in accordance with this Section 3.2 and unless a Loan is advanced by
the Lender with respect thereto in accordance with this Agreement. The Lender
shall not approve the acquisition of any Proposed Motel Facility that: (a)
will not be fully operating and open to the public on the date the Loan is
made and be subject to and have the benefit of an Operating Lease and
Franchise Agreement; (b) Lender has not approved the Proposed Motel Facility
Statement (and all items required to be delivered in connection therewith),
which approval shall not be unreasonably withheld or delayed; and (c) any
acquisition, construction or other costs incurred in connection with the
development of the Proposed Motel Facility in excess of the Loan to be made
with respect to such Proposed Motel Facility, has not been paid by MOA, which
payments when made by MOA shall be deemed part of the MOA Equity Contribution.
3.3. Preparation and Execution of Mortgage Documents. Immediately
after the Lender approves an Approved Motel Facility, the Lender shall
commence the preparation of the Loan Documents for such Approved Motel
Facility and the parties shall cooperate and diligently proceed to prepare
such Loan Documents (including, without limitation, ordering commitments from
Chicago Title Insurance Company for the title insurance policies and UCC
searches), retaining counsel, including local counsel for purposes of
reviewing the Loan Documents and rendering opinions with respect to such
documents in form and substance acceptable to the Lender.
<PAGE>
ARTICLE IV
CONDITIONS OF LENDING
4.1. Conditions Precedent to Effectiveness. This Agreement shall
become effective on the date that all of the following conditions shall have
been satisfied:
(a) This Agreement shall have been properly executed and delivered
to the Lender.
(b) The Notes shall have been properly executed and delivered to the
Lender.
(c) The Lender shall have received from Donovan Leisure Newton &
Irvine, 30 Rockefeller Plaza, 40th Floor New York, New York 10112, counsel to
the Borrower ("DL"), its legal opinion in substantially the form attached
hereto as Exhibit C.
(d) The Lender shall have received a certificate by the managing
member of the Borrower, certifying (i) the names and true signatures of its
incumbent officers authorized to sign the Loan Documents to which it is a
party, (ii) a copy of the operating agreement of the Borrower; (iii) that
there have been no changes in such operating agreement.
(e) The Lender shall have received such other certificates,
opinions, documents and instruments relating to this Agreement as may have
been reasonably requested by the Lender, and all company and corporate and
other proceedings, all other documents (including, without limitation, all
documents referred to herein and not appearing as exhibits hereto) and all
legal matters in connection with the Loans shall be satisfactory in form and
substance to the Lender.
(f) The representations and warranties herein shall be true and
correct as of the date hereof.
(g) No Default with respect to the payment of money or Event of
Default shall have occurred and be continuing on the date hereof either before
or after the execution and delivery of this Agreement.
(h) No law or regulation shall have been adopted, no order, judgment
or decree of any Governmental Authority shall have been issued, and no
litigation shall be pending or threatened, which in the good faith judgment of
the Lender would enjoin, prohibit or restrain, or impose or result in the
imposition of any material adverse condition upon, the making or repayment of
the Loans.
(i) The Borrower shall have paid all costs incurred by the Lender in
connection with this Agreement.
4.2. Conditions Precedent to Each Loan. The obligation of the Lender
to make the first Loan for the acquisition of the first Approved Motel
Facility is subject to receipt by the Lender of the items in clauses (a)
through (t) of this Section 4.2 and the receipt by the Lender of the following
(each dated as of the date of such first Closing Date):
(i) the fully executed Security Agreement;
(ii) the fully executed assignment to the Lender of the Acquisition
Agreement in the form of Exhibit O hereto;
(iii) the fully executed MOA Pledge together with all Collateral
pledged thereunder;
(iv) an opinion from DL in the form of Exhibit C-1 hereto;
(v) the fully executed Operating Agreement (and a copy of the
Borrower's certificate of filing (or the -equivalent thereof), as filed with
the Secretary of State of the jurisdiction of organization and in effect on
the Closing Date and certified to be true, correct and complete by the
appropriate Secretary of State as of a date not more than 60 days prior to the
date thereof;
(vi) a good standing certificate of the Borrower from such Secretary
of State; and
(vii) a certificate of an executive officer of MOA certifying: (A)
the names and the signatures of the incumbent officers authorized to sign the
Loan Documents to which it is a party, (B) the certificate of incorporation,
by-laws and authorizing resolutions with respect to the MOA Pledge, the
Agreement and other matters related to this transaction and (C) that there
have been no changes in the certificate of incorporation, by-laws and
authorizing resolutions of each.
The obligation of the Lender to make all Loans for the acquisition of an
Approved Motel Facility (including the first Loan) is subject to satisfaction
of the conditions precedent set forth in Section 4.1, the satisfaction of the
conditions precedent set forth in the immediately preceding paragraph and of
the conditions precedent that the Lender shall have received, on the
respective Closing Date, the following, each dated the respective Closing Date
unless otherwise indicated, in form and substance reasonably satisfactory to
the Lender:
(a) A certificate of the managing member of the Borrower certifying
(i) approval of each Loan Document to which the Borrower is a party, (ii) any
documents evidencing other necessary or company action, and required
governmental and third party approvals, licenses and consents with respect to
each Loan Document to which the Borrower is a party and the transactions
contemplated thereby, (iii) a copy of the Operating Agreement of the Borrower
(or certifying that the copy of same delivered to the Lender pursuant to
Section 4.1 has not been modified, amended or supplemented in any respect),
and (iv) the names and true signatures of each of its members who have been
authorized to execute and deliver any Loan Document or other document required
hereunder to be executed and delivered by or on behalf of such Person.
(b) A good standing certificate with respect to the Borrower dated
not earlier than thirty (30) days prior to the respective Closing Date.
(c) (i) A favorable opinion of local counsel to the Borrower in the
jurisdiction in which the Approved Motel Facility is located, in substantially
the form of Exhibit D, and as to such other matters as the Lender may
reasonably request; and (ii) an update to the opinion delivered pursuant to
Section 4.1(c) reaffirming, as of the Closing Date, the matters opined to
therein.
(d) The Mortgage in respect of the Approved Motel Facility for which
the Loan is being made shall have been properly executed and delivered to the
Lender.
(e) The Assignment Agreement in respect of each Franchise Agreement
shall have been properly executed and delivered to the Lender.
(f) The Assignment of Contracts in respect of the Approved Motel
Facility for which the Loan is being made shall have been properly executed
and delivered to the Lender.
(g) Financing Statements (Form UCC-1) under the Uniform Commercial
Code of all jurisdictions as may be necessary or, in the reasonable opinion of
the Lender, desirable to perfect the Lien created by the Mortgage and the
Security Agreement for the Approved Motel Facility for which the Loan is being
made; copies of Requests for Information or Copies (Form UCC-11), or
equivalent reports, listing all effective financing statements which name the
Borrower, Operating Lessee and Motel Developer (under its present name or any
previous name) as debtor and which are filed in the jurisdictions referred to
above, together with copies of such other financing statements (none of which
shall cover the Collateral purported to be covered by the Mortgage and
Security Agreement).
(h) A copy of the Operating Lease and Franchise Agreement in respect
of the Approved Motel Facility for which the Loan is being made, each
certified by a Responsible Officer.
(i) Evidence that the insurance required by the terms of the
Collateral Documents and by Section 7.4 is in full force and effect.
(j) Such additional documents, information and materials as the
Lender may reasonably request.
(k) The Lender shall have received evidence satisfactory to it that
all costs and accrued and unpaid fees and expenses (including, without
limitation, legal fees and expenses) required to be paid to the Lender on or
before the Closing Date, including, without limitation, those referred to in
Section 10.4 to the extent then due and payable, have been paid.
(l) A certificate, signed by a Responsible Officer of the Borrower,
stating that the statements set forth in Section 4.3 are true and correct on
the Closing Date, after giving effect to the Loan being made on the Closing
Date.
(m) Commitments for title insurance policies (the "Title Insurance
Policies") in the amount of 12% of the Loan (or 10%) of the Loan when a "tie-
in" endorsement is issued in connection with such title insurance policy)
issued by Chicago Title Insurance Company (or such other title company
acceptable to the Lender), in form ALTA 1970 (rev. 10/17/70 and 10/17/84), if
available (or such other form as reasonably acceptable to the Lender),
insuring that the Mortgage is a valid first priority Lien on the Approved
Motel Facility subject only to such exceptions to title as shall be acceptable
to the Lender in its reasonable discretion and containing such endorsements
and affirmative insurance as the Lender may reasonably require and as are
obtainable in the applicable jurisdiction, and true copies of each document,
instrument or certificate required by the terms of each such policy or
Mortgage to be, or have been, filed, recorded, executed or delivered in
connection therewith.
(n) Current ALTA surveys and surveyor's certification as to the
Approved Motel Facility for which the Loan is being made, each in form and
substance reasonably satisfactory to the Lender.
(o) Payment to the Lender, or as the Lender may direct, of all title
insurance premiums, documentary, stamp or intangible taxes, recording fees and
mortgage taxes payable in connection with the recording of any of the Loan
Documents or the issuance of the Title Insurance Policies.
(p) The Fixed Payment Certificate (which the Borrower hereby agrees
shall be binding upon the Borrower with respect to the calculation of payments
required by the Borrower pursuant to Section 2.4(b)), shall have been properly
executed and delivered to the Lender.
(q) The certificate of occupancy (or the legal equivalent thereof)
with respect to the Approved Motel Facility for which the Loan is being made
shall have been issued, together with any other Permits required in connection
with such Approved Motel Facility, and any copies thereof shall have been
delivered to the Lender.
(r) The Borrower shall have deposited into the Reserve Account such
funds as are required pursuant to Section 2.6.
(s) The Borrower shall have delivered to the Lender a Subordination
and Non-Disturbance Agreement properly executed by the Operating Lessee of the
Approved Motel Facility for which the Loan is being made, which Subordination
and Non-Disturbance Agreement Lender agrees to execute, acknowledge and
deliver to Borrower.
(t) To the extent a separate assignment of leases and rents, in
addition to the Mortgage, is customary or required in the jurisdiction in
which the Approved Motel Facility is located, the Borrower shall properly
execute and deliver to the Lender a separate assignment of leases and rents
with respect to the Approved Motel Facility in form and substance reasonably
acceptable to the Lender.
4.3. Further Conditions Precedent to Each Loan. The obligation of
the Lender to make any Loan shall be subject to the further conditions
precedent that the following statements shall be true on the date of such
Loan, before and after giving effect thereto and to the application of the
proceeds therefrom (and the acceptance by the Borrower of the proceeds of such
Loan shall constitute a representation and warranty by the Borrower that on
the date of such Loan such statements are true):
(i) The representations and warranties of the Borrower
contained in Section 4.1, Section 4.2 (with respect to the Approved Motel
Facility for which the Loan is being made) and in the other Loan Documents are
true, accurate and complete on and as of such date as though made on and as of
such date;
(ii) The representations or warranties of the Borrower
contained in Section 4.2 with respect to the Approved Motel Facility
previously acquired by the Borrower shall be true, accurate and complete on
and as of the date as though made on and as of such date, except for any
breach of any of such representations and warranties which shall not
constitute a Material Adverse Change.
(iii) All information and documents contained in the Proposed
Motel Facility Statement shall continue to be true, accurate and complete in
all material respects on the Closing Date of the Loan;
(iv) TAD Membership Corp. (or another Affiliate of MOA) is the
managing member of the Borrower;
(v) Paul W. Wallace (if alive and not incapacitated) is
director or an executive officer of the managing member of the Borrower and
shall not have instituted (nor have instituted against him) an action under
any bankruptcy laws;
(vi) MOA (and/or Affiliates of MOA) hold not less than 51% of
the membership interests of the Borrower in the aggregate; and
(vii) No Default or Event of Default will result from the Loans
being made on such date.
(viii) The execution and delivery of this Agreement and of the
MOA Pledge by MOA is duly authorized by all necessary and appropriate
corporate and legal action of each party and the respective obligations of MOA
set forth in the Agreement and the MOA Pledge are the legal, valid and binding
obligations of each party, enforceable in accordance with their terms.
(ix) The making of the Loans on such date does not violate any
Requirement of Law and is not enjoined, temporarily, preliminarily or
permanently.
4.4. Conditions Precedent for an Earnout. A Loan for an Earnout
shall be made on a Closing Date only when each of the conditions set forth
below shall have been satisfied:
(a) The Borrower shall have previously complied with the terms and
provisions of Section 4.1, 4.2 and 4.3.
(b) The Borrower shall have delivered to the Lender documentation
reasonably satisfactory to Lender to demonstrate that the DSCR of the Approved
Motel Facility for which the Earnout is requested determined on a trailing
twelve month basis as of the date of the request is not less than 1.40:1.0.
(c) The Borrower shall have executed and delivered to the Lender
amendments to the Mortgage for the Approved Motel Facility for which the
Earnout is requested in form and substance reasonably satisfactory to Lender.
(d) The Borrower shall have executed and delivered to the Lender
such amendments to the other Loan Documents relating to Earnout as shall be
reasonably requested by the Lender.
(e) The Lender shall have received from real estate counsel to the
Borrower an update to the opinions described in Section 4.2(c) in form and
substance reasonably satisfactory to the Lender.
(f) The Lender shall have received updates of the items set forth in
clauses (a), (b), (g), (k) and (1) of Section 4.2 with respect to the Approved
Motel Facility for which the Earnout is requested.
(g) The Lender shall have received an endorsement to the existing
Title Insurance Policy (in form and substance reasonably satisfactory to the
Lender) which amends the existing Title Insurance Policy by increasing that
the amount of insurance in an amount equal to 12% of the Earnout and by
bringing forward the date of such policy to the Closing Date of the Earnout.
(h) The Fixed Payment Certificate (which the Borrower hereby agrees
shall be binding upon the Borrower with respect to the calculation of payments
required by the Borrower pursuant to Section 2.4(d)), shall have been properly
executed and delivered to the Lender.
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1. Representations and Warranties as to Borrower. The Borrower
represents and warrants that, as of the date hereof and the Borrower shall
further represent and warrant as of each Closing Date:
(a) Organization of Borrower. The Borrower (i) is a duly organized
and validly existing limited liability company in good standing under the laws
of the State of Delaware, (ii) has the requisite company power and authority
to carry on its business as now being conducted and to own the Approved Motel
Facilities, (iii) is qualified to do business in every jurisdiction in which
an Approved Motel Facility is located and (iv) has the requisite partnership,
corporate or company (as applicable) power to execute and deliver, and perform
its obligations under, the Loan Documents.
(b) Authorization of Agreement. The execution and delivery by the
Borrower of the Loan Documents and the Borrower's performance of its
obligations thereunder and the creation of the security interests and liens
provided for in this Agreement and the other Loan Documents (i) have been duly
authorized by all requisite company action on the part of the Borrower, (ii)
will not violate any provision of any Requirement of Law, any order of any
court or other Governmental Authority, the Operating Agreement or any
indenture or material agreement or other instrument to which the Borrower is a
party or by which the Borrower is bound, and (iii) will not be in conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under or result in the creation or imposition of any Lien of
any nature whatsoever upon any of the property or assets of the Borrower
pursuant to, any such indenture or material agreement or instrument. Other
than those obtained or filed on or prior to the date hereof, the Borrower is
not required to obtain any consent, approval or authorization from, or to file
any declaration or statement with, any Governmental Authority or other agency
in connection with or as a condition to the execution, delivery or performance
by the Borrower of the Loan Documents to which it is a party.
(c) Litigation. Except for claims that are fully covered by valid
policies of insurance held by the Borrower and disclosed in writing to the
Lender, there are no material actions, suits or proceedings at law or in
equity by or before any Governmental Authority or other agency now pending and
served or, to the knowledge of the Borrower, threatened against the Borrower.
(d) Agreements. The Borrower is not in default in any material
respect in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any Contract to which it is
a party or by which it is bound.
(e) No Bankruptcy Filing. The Borrower is not contemplating either
the filing of a petition by it under any state or federal bankruptcy or
insolvency laws or the liquidation of all or a major portion of the Borrower's
assets or property, and the Borrower has no knowledge of any Person that has
threatened the filing of any such petition against it.
(f) Full and Accurate Disclosure. No statement of fact made by or
on behalf of the Borrower in this Agreement contains any untrue statement of a
material fact or omits to state any material fact necessary to make statements
contained herein not misleading.
(g) Location of Chief Executive Offices. The location of the
Borrower's principal place of business and chief executive office is 701 Lee
Street, Suite 100, Des Plaines, Illinois 60616.
(h) Compliance. The Borrower complies in all material respects with
all applicable Requirements of Law. The Borrower is not in default or
violation of any order, writ, injunction, decree or demand of any Governmental
Authority.
(i) ERISA. The assets of the Borrower are not and will not become
treated as "plan assets" under regula-tions currently promulgated under ERISA.
Each Plan, Pension Plan and Multiemployer Plan is in compliance in all
material respects with, and has been administered in all material respects in
compliance with, its terms and the applicable provisions of ERISA, the Code
and any other federal or state law. Other than an application for a favorable
determination letter with respect to a Plan, there are no pending issues or
claims before the IRS, the DOL or any court of competent jurisdiction related
to any Plan. To the Borrower's knowledge, no event has occurred, and there
exists no condition or set of circumstances, in connection with any Plan or
Pension Plan under which the Borrower or any ERISA Affiliate, directly or
indirectly (through an indemnification agreement or otherwise), could be
subject to any material risk of liability under Section 409 or 502(i) of ERISA
or Section 4975 of the Code. No Plan provides or will provide benefits,
including, without limitation, death or medical benefits (whether or not
insured) with respect to any current or former employee of the Borrower or any
ERISA Affiliate beyond his or her retirement or other termination of service
other than (i) coverage mandated by applicable law, (ii) death or disability
benefits that have been fully provided for by fully paid up insurance, (iii)
severance benefits, or (iv) benefits that are normal, in the ordinary course
of business, consistent with past practice and which, in the aggregate, do not
constitute a material proportion of the overall benefits expense of the
Borrower. Neither Borrower nor any ERISA Affiliate, with respect to each
Pension Plan, has failed to make any contribution or pay any amount due as
required by Section 412 of the Code or Section 302 of ERISA. No Pension Plan
shall have an Unfunded Pension Liability.
(j) Not Foreign Person. The Borrower is not a "foreign person"
within the meaning of Sect. 1445(f)(3) of the Sect. Code.
(k) Single-Purpose Entity. (i) The Borrower at all times since its
formation has been, and will continue to be, a duly formed and existing
limited liability company and a Single-Purpose Entity.
(ii) The Borrower at all times since its formation has complied, and
will continue to comply, with the provisions of the Operating Agreement and
the laws of the State of Delaware relating to limited liability companies.
(iii) All customary formalities regarding the company existence of
the Borrower have been observed at all times since its formation and will
continue to be observed.
(iv) The Borrower has at all times since its formation accurately
maintained, and will continue to accurately maintain, its financial
statements, accounting records and other company documents separate from those
of its members, Affiliates of its members and any other Person. The Borrower
has not at any time since its formation commingled, and will not commingle,
its assets with those of its members, any Affiliates of its members, or any
other Person. The Borrower has at all times since its formation accurately
maintained, and will continue to accurately maintain, its own bank accounts
and separate books of account.
(v) The Borrower has at all times since its formation paid, and will
continue to pay, its own liabilities from its own separate assets.
(vi) The Borrower has at all times since its formation identified
itself, and will continue to identify itself, in all dealings with the public,
under the Borrower's own name and as a separate and distinct entity. The
Borrower has not at any time since its formation identified itself, and will
not identify itself, as being a division or a part of any other entity. The
Borrower has not at any time since its formation identified, and will not
identify its members or any Affiliates of its members, as being a division or
part of the Borrower.
(vii) The Borrower has been at all times since its formation and
will continue to be adequately capitalized in light of the nature of its
business.
(viii) The Borrower has not at any time since its formation assumed
or guaranteed, and will not assume or guarantee, the liabilities of its
members (or any predecessor corporation), any Affiliates of its members, or
any other Persons, except as permitted by or pursuant to this Agreement. The
Borrower has not at any time since its formation acquired, and will not
acquire, obligations or securities of its members (or any predecessor
corporation), or any Affiliates of its members. The Borrower has not at any
time since its formation made, and will not make, loans to its members (or any
predecessor corporation), or any Affiliates of its members.
(ix) The Borrower has not at any time since its formation entered
into and was not a party to, and, will not enter into or be a party to, any
transaction with its members (or any predecessor corporation or partnership)
or any Affiliates of its members except in the ordinary course of business of
the Borrower on terms which are no less favorable to the Borrower than would
be obtained in a comparable arm's length transaction with an unrelated third
party.
(l) Investment Borrower Act; Public Utility Holding Borrower Act.
The Borrower is not (i) an "investment company" or a company "controlled" by
an "investment company," within the meaning of the Investment Borrower Act of
1940, as amended, (ii) a "holding company" or a "subsidiary company" of a
"holding company" or an "affiliate" of either a "holding company" or a
"subsidiary company" within the meaning of the Public Utility Holding Borrower
Act of 1935, as amended, or (iii) subject to any other federal or state law or
regulation which purports to restrict or regulate its ability to borrow money.
(m) Corporate Structure; Capitalization. The outstanding shares of
common stock of the Managing Member are validly authorized, validly issued,
fully paid, and nonassessable, without any personal liability attaching to the
ownership hereof, and have not been issued and are not owned or held in
violation of any preemptive rights of stockholders, and are owned of record
and beneficially by MOA free and clear of all liens, security interests,
pledges, charges, encumbrances, stockholders, agreements and voting trusts.
There is no commitment, plan, or arrangement to issue, and no outstanding
option, warrant, or other right calling for the issuance of, any share of
capital stock of the Managing Member or any security or other instrument which
by its terms is convertible into, exercisable for, or exchangeable for capital
stock of the Managing Member. There is outstanding no security or other
instrument which by its terms is convertible into or exchangeable for capital
stock of the Managing Member.
(n) No Defaults. No Event of Default and, to the Borrower's
knowledge, no Default exists under or with respect to any Loan Document.
(o) Labor Matters. The Borrower is not a party to any collective
bargaining agreements.
5.2. Representations and Warranties as to the Borrower and the
Approved Motel Facilities. As of each Closing Date, the Borrower shall
further represent and warrant that:
(a) Title to the Facilities. The Borrower owns good, marketable and
insurable fee simple title to the Approved Motel Facilities free and clear of
all Liens, other than such exceptions to title set forth in the Title
Insurance Policy issued in connection with each Approved Motel Facility.
(b) Compliance. The Borrower, the Operating Lessees and the
Approved Motel Facilities and the Borrower's and Operating Lessee's use
thereof and operations thereat comply in all material respects with all
applicable Requirement of Law (including, without limitation, building and
zoning ordinances and codes). The Borrower is not in default or violation in
any material respect of any order, writ, injunction, decree or demand of any
Governmental Authority.
(c) Use of Proceeds; Margin Regulations. The Borrower will use (and
has used) the proceeds of the Loans for the purposes described in Section
2.14. No part of the proceeds of any Loan will be used for the purpose of
purchasing or acquiring any "margin stock" within the meaning of Regulation U
of the Board of Governors of the Federal Reserve System or for any other
purpose which would be inconsistent with such Regulation U or any other
Regulations of such Board of Governors, or for any purposes prohibited by
Requirement of Law.
(d) Financial Information. All financial data concerning the
Borrower and (to the knowledge of the Borrower) with respect to the Approved
Motel Facilities, that has been delivered by or on behalf of the Borrower to
the Lender is true, complete and correct in all material respects and all
audited financial statements are prepared in accordance with GAAP. Since the
delivery of such data, except as otherwise disclosed in writing to the Lender,
there has been no Material Adverse Change in the financial position of the
Borrower and (to the knowledge of the Borrower) with respect to the Approved
Motel Facilities, or in the results of operations of the Borrower or the
Approved Motel Facilities. The Borrower has not incurred any obligation or
liability, contingent or otherwise, not reflected in such financial data which
might materially adversely affect its business operations or any Approved
Motel Facilities.
(e) Condemnation. No condemnation proceedings have been commenced
or, to the Borrower's knowledge, is contemplated with respect to all or any
portion of any Approved Motel Facility, or for the relocation of roadways
providing access to any Approved Motel Facility.
(f) Other Debt. Except for the Indebtedness permitted under Section
8.2, the Borrower has not borrowed or received other Indebtedness (whether
unsecured or secured by any Approved Motel Facility or any part thereof).
(g) Utilities and Public Access. Each Approved Motel Facility has
adequate rights of access to public ways and is served by adequate water,
sewer, sanitary sewer and storm drain facilities. All public utilities
necessary to the continued use and enjoyment of each Approved Motel Facility
as presently used and enjoyed are located in the public right-of-way abutting
the premises. All roads necessary for the full utilization of each Approved
Motel Facility for its current purpose have been completed and dedicated to
public use and accepted by all Governmental Authorities or are the subject of
access easements for the benefit of each Approved Motel Facility.
(h) Environmental Compliance. Except for matters set forth in the
environmental reports delivered as part of the Proposed Motel Facility
Statement in connection with each Loan:
(i) Borrower is in full compliance with all applicable Environmental
Laws (which compliance includes, but is not limited to, the possession by the
Borrower and/or the Operating Lessees of all environmental permits, licenses
and other governmental authorizations required in connection with the
ownership and operation of each Approved Motel Facility under all applicable
Environmental Laws).
(ii) There is no Environmental Claim pending or, to the knowledge of
the Borrower, threatened (in writing), and no penalties arising under
Environmental Laws have been assessed, against the Borrower, or the Operating
Lessees or, to Borrower's knowledge, against any Person whose liability for
any Environmental Claim the Borrower, the Operating Lessees has or may have
retained or assumed either contractually or by operation of law, and, to
Borrower's knowledge, no investigation or review is pending or threatened (in
writing) by any Governmental Authority, citizens group, employee or other
Person with respect to any alleged failure by the Borrower, or the Operating
Lessees or each Approved Motel Facility to have any environmental permit,
license or other authorization required under, or to otherwise comply with,
any Environmental Law or with respect to any alleged liability of the Borrower
or any Operating Lessee, for any use or Release of any Hazardous Materials.
(iii) To Borrower's knowledge, there have been and are no past or
present Releases of any Hazardous Materials that are reasonably likely to form
the basis of any Environmental Claim against the Borrower or any Operating
Lessee or against any Person whose liability for any Environmental Claim the
Borrower or any Operating Lessee has or may have retained or assumed either
contractually or by operation of law.
(iv) Without limiting the generality of the foregoing, there is not
present at, on, in or under any Approved Motel Facility, PCB-containing
materials owned and operated by or on behalf of Borrower at any Approved Motel
Facility, or, to the knowledge of Borrower, owned or operated by a third
party, asbestos or asbestos containing materials, underground storage tanks or
surface impoundments for Hazardous Materials, or, where supplied by an
Approved Motel Facility, lead in drinking water (except in concentrations that
comply with all Environmental Laws).
(v) No liens are presently recorded with the appropriate land
records under or pursuant to any Environmental Law with respect to any
Approved Motel Facility and, to the best knowledge of the Borrower, no
Governmental Authority has been taking or is in the process of taking any
action that could subject any Approved Motel Facility to Liens under any
Environmental Law.
(vi) There have been no reports of environmental investigations,
studies, audits, reviews or other analyses conducted by or that are in the
possession of the Borrower in relation to an Approved Motel Facility which
have not been made available to the Lender.
(i) No Joint Assessment; Separate Lots. The Borrower shall not
suffer, permit or initiate the joint assessment of any Approved Motel Facility
with any other real property constituting a separate tax lot not owned by the
Borrower and encumbered by the respective Mortgage. Each Approved Motel
Facility is comprised of one or more parcels, each of which constitutes a
separate tax lot and none of which constitutes a portion of any other tax lot.
(j) Assessments. There are no pending or, to the knowledge of the
Borrower, proposed special or other assessments for public improvements or
otherwise affecting any Approved Motel Facility.
(k) Mortgage and Other Liens. Each Mortgage creates a valid and
enforceable first mortgage Lien on the Approved Motel Facility described
therein, as security for the obligations of the Borrower under this Agreement
and the Notes, subject only to such exceptions to title as set forth in the
Title Insurance Policy issued in connection with each Approved Motel Facility.
Each Collateral Document establishes and creates a valid, subsisting and
enforceable Lien on and a security interest in, or claim to, the rights and
property described therein. All property covered by any Collateral Document
is subject to a Uniform Commercial Code financing statement filed and/or
recorded, as appropriate (or irrevocably delivered to an agent for such
recordation or filing) in all places necessary to perfect a valid first
priority Lien with respect to the rights and property that are the subject of
such Collateral Document. All continuations and any assignments of any such
financing statements have been or will be timely filed or refiled, as
appropriate, in the appropriate recording offices.
(l) Enforceability. This Agreement, the Notes and each other Loan
Document are the legal, valid and binding obligations of the Borrower
enforceable against the Borrower in accordance with their terms except as may
be limited by bankruptcy, insolvency, fraudulent conveyance, moratorium or
other similar laws affecting the enforcement of creditors' rights generally
and by general principles of equity. The Notes and such other Loan Documents
are, as of the Closing Date, not subject to any right of rescission, set-off,
counterclaim or defense by the Borrower (including the defense of usury), nor
will the operation of any of the terms of the Notes and such other Loan
Documents, or the exercise of any right thereunder, render any of the
Mortgages unenforceable against the Borrower, in whole or in part, or subject
to any right of rescission, set-off, counterclaim or defense by the Borrower,
including the defense of usury, and the Borrower has not asserted any right of
rescission, set-off, counterclaim or defense with respect thereto. The
obligations of MOA under this Agreement and under the MOA Pledge are the
legal, valid and binding obligations of MOA, enforceable against MOA in
accordance with their terms except as may be limited by bankruptcy,
insolvency, fraudulent conveyance, moratorium or other similar laws affecting
the enforcement of creditors, rights generally and by general principles of
equity.
(m) No Prior Assignment. The Lender is the assignee of the
Borrower's interests under the Operating Leases and (ii) there are no prior
assignments of the Operating Leases (other than to the Lender) or any portion
of the rent due and payable or to become due and payable which are presently
outstanding.
(n) Franchise Agreement. The Franchise Agreement is in full force
and effect and there is no material default, breach or violation existing
thereunder by any party thereto and no event (other than payments due but not
yet delinquent) which, with the passage of time or with notice and the
expiration of any grace or cure period, would constitute a material default,
breach or violation by any party thereunder.
(o) Permits; Certificate of Occupancy. The Borrower has obtained
all Permits necessary to the use and operation of each Approved Motel
Facility. The use being made of each Approved Motel Facility is in material
conformity with the certificate of occupancy and/or Permits for such Facility
and any other restrictions, covenants or conditions affecting such Facility.
(p) Flood Zone. None of the Approved Motel Facilities is located in
a flood hazard area as defined by the Federal Insurance Administration, except
as otherwise disclosed and approved in writing by the Lender.
(q) Physical Condition. Each Approved Motel Facility is free of
structural defects and all building systems contained therein are in good
working order subject to ordinary wear and tear.
(r) Intellectual Property. All material trademarks, trade names and
service marks that the Borrower and (to the knowledge of the Borrower) each
Operating Lessee owns or has pending, or under which it is licensed, are in
good standing and uncontested. The Borrower and (to the knowledge of the
Borrower) each Operating Lessee has not infringed, nor is infringing, and
neither has received notice of infringement with respect to asserted
trademarks, trade names and service marks of others. To the knowledge of the
Borrower, there is no infringement by others of material trademarks, trade
names and service marks of the Borrower or any Operating Lessee.
(s) No Encroachments. All of the improvements which are buildings
or structures included in determining the appraised value of each Approved
Motel Facility lie wholly within the boundaries and building restriction lines
of such Approved Motel Facility except as expressly noted in the respective
Title Insurance Policy or survey of an Approved Motel Facility. No
improvements on adjoining properties encroach upon any Approved Motel
Facility, and no easements or other encumbrances upon any Approved Motel
Facility encroach upon any of the improvements, so as to materially impact the
value or marketability of the Approved Motel Facility. All of the
improvements comply with all material requirements of any applicable zoning
and subdivision laws and ordinances.
(t) Operating Lessee; Compliance with Law. To the best knowledge of
the Borrower, each operating Lessee (i) has full power and authority and the
legal right to lease, manage and operate the Approved Motel Facilities it
operates and to conduct the business in which it is currently engaged with
respect thereto, (ii) is duly qualified or licensed and is in good standing
under the laws of each jurisdiction in which it leases an Approved Motel
Facility, and (iii) is in material compliance with all Requirements of Law
applicable to the Approved Motel Facilities operated by it, or applicable to
the operation or management thereof.
(u) Operating Leases and Franchise Agreements. Each of the
Operating Leases and Franchise Agreements in respect of the Approved Motel
Facilities is in full force and effect and is a legally valid and binding
obligation of the Borrower, Operating Lessees and the Franchisors (as
applicable). The Borrower and, to the knowledge of the Borrower, the
Operating Lessees have not mortgaged, pledged or otherwise encumbered any of
the Operating Leases or Franchise Agreements or its rights thereunder
including, without limitation, its right to obtain rental, interest or other
payments under the Operating Leases, other than by way of such mortgages,
pledges or encumbrances in favor of the Lender or as permitted pursuant to
Section 8.2(a) hereof or Section 8.1(e) hereof. Borrower has not collected any
rents becoming due under any Operating Lease more than 30 days in advance. All
rent and other sums and charges payable by any Operating Lessee under each
Operating Lease and Franchise Agreement are current, no notice of default or
termination under any such Operating Lease or Franchise Agreement is
outstanding, to the knowledge of the Borrower no termination event or
condition or uncured default on the part of the Operating Lessees or
Franchisor exists under any Operating Lease or Franchise Agreement, and to the
knowledge of the Borrower no event of default has occurred which, with the
giving of notice or the lapse of time or both, would constitute such a default
or termination event or condition or uncured default on the part of the
Borrower, operating Lessees or Franchisor (as the case may be).
5.3. Survival of Representations. The Borrower agrees that (i) all
of the representations and warranties of the Borrower set forth in Section 5.1
are made as of the date hereof and each Closing Date, (ii) all of the
representations and warranties of the Borrowers set forth in Section 5.2 and
elsewhere in this Agreement and in the other Loan Documents are made, and
shall be reaffirmed, as of each Closing Date, and (iii) all representations
and warranties made by the Borrower shall survive the delivery of the Notes
and making of the Loans and continue for so long as any amount remains owing
to the Lender under this Agreement, the Notes or any of the other Loan
Documents; provided, however, that the representations set forth in Section
5.2(h) shall survive in perpetuity.
<PAGE>
ARTICLE VI
LIABILITY OF MOA
6.1. Liabilities. MOA hereby executes this Agreement to acknowledge
and confirm MOA's agreement to be liable to the Lender for all costs, claims,
losses, expenses and fees (including, without limitation, attorneys' fees and
disbursements) incurred by the Lender with respect to any of the following:
(a) fraud or material representation by the Borrower; (b) whether prior to or
after an Event of Default, the Borrower's misappropriation of the Operating
Lease Reserve, insurance proceeds, condemnation awards, cash flow, and any
other amounts required to be applied, held or deposited by the Borrower
pursuant to this Agreement, the Operating Lease or the Franchise Agreement and
any other escrow deposits; and (c) for all Environmental Liabilities and
Costs.
6.2. Bankruptcy/Enforcement. In the event: (a) the exercise by the
Lender of any of the Lender's rights and remedies under this Agreement or any
of the Loan Documents is unreasonably delayed, hindered or interfered with in
any manner by any action or inaction (following reasonable request for action
by the Lender) of (or on behalf of) the Borrower or MOA (provided, however,
that the actions or inactions of a party, exercised in good faith with the
intent of protecting such party's interest, shall not be deemed to constitute
actions or inactions intended to cause delay, hindrance or interference) or
(b) in the event the Borrower files for protection under the U.S. Bankruptcy
Code (either voluntary or involuntary, if such involuntary filing is made by
any general partner, member or affiliate of the Borrower or any person acting
in connection with any of the foregoing) then, in case of the occurrence of
the events described in clauses (a) or (b) of this Section 6.2, MOA shall
immediately thereupon be unconditionally and absolutely liable for payment of
all the indebtedness of the Borrower to the Lender under this Agreement and
the Loan Documents, including, without limitation, all costs, claims, losses,
expenses and fees (including, without limitation, attorneys' fees and
disbursements incurred by the Lender as a result of either of the foregoing
(as applicable), and the Lender may enforce all of its rights and remedies
under this Agreement and the Loan Documents directly against MOA as though MOA
were the original borrower hereunder.
6.3. Reliance. MOA acknowledges and confirms that (a) MOA has a
significant economic interest in the Borrower and will benefit from the Loans
made by the Lender to the Borrower pursuant to this Agreement; (b) the terms
and provisions of this Article VI (and the continuing effectiveness hereof) is
a material inducement to the Lender to enter into this Agreement to make the
Loans; and (c) the Lender would not have entered into this Agreement nor make
any Loan to the Borrower unless MOA agreed to the terms and provisions of this
Article VI and the Lender is materially relying upon the terms and provisions
of this Article VI in doing so.
<PAGE>
ARTICLE VII
AFFIRMATIVE COVENANTS
As long as any of the Obligations or any portion of the Commitment
remains outstanding, unless the Lender otherwise consents in writing, the
Borrower agrees with the Lender that:
7.1. Compliance with Laws, Etc. The Borrower shall comply, and
shall cause each of its Operating Lessees to comply in all material respects
with all Requirements of Law, Contractual Obligations, commitments,
instruments, licenses, permits and franchises, including, without limitation,
all Permits.
7.2. Conduct of Business. The Borrower shall (a) conduct in all
material respects, and shall take all reasonable steps to cause each of its
Operating Lessees to conduct in all material respects, its business in the
ordinary course; and (b) perform and observe in all material respects, and
take all reasonable steps to cause each of its Operating Lessees to perform
and observe in all material respects, all the terms, covenants and conditions
required to be performed and observed by it under its Contractual Obligations
(including, without limitation, to pay all rent and other charges payable
under any lease and all debts and other obligations as the same become due),
and do, and shall take all reasonable steps to cause its Operating Lessees to
do, all things necessary to preserve and to keep unimpaired its rights under
such Contractual Obligations.
7.3. Payment of Taxes, Etc. The Borrower shall pay and discharge,
and shall take all reasonable steps to cause each of its Operating Lessees to
pay and discharge, before the same shall become delinquent, all lawful
governmental claims, taxes, assessments, charges and levies, except where
contested in good faith, by proper proceedings, if adequate reserves therefor
reasonably acceptable to the Lender have been established by the Borrower.
7.4. Maintenance of Insurance. The Borrower shall maintain, or
shall take all reasonable steps to cause the Operating Lessees to maintain,
insurance with responsible and reputable insurance companies or associations
in such amounts and covering such risks as is usually carried by companies
engaged in similar businesses and owning similar properties in the same
general areas in which the Borrower operates and as otherwise satisfactory to
the Lender, in its sole judgment exercised reasonably, and, in any event, all
insurance required by any Collateral Document. All such insurance shall name
the Lender as additional insured or loss payee, as the Lender shall determine.
The Borrower will furnish to the Lender from time to time such information as
may be reasonably requested as to such insurance.
7.5. Preservation of Existence; Single Purpose Entity. The Borrower
shall preserve and maintain, and shall take all reasonable steps to cause each
of its Operating Lessees to preserve and maintain, its existence and its
rights (charter and statutory) and franchises. The Borrower shall preserve
and maintain its status as a Single Purpose Entity and comply with the terms
and provisions set forth in Section 5.1(k).
7.6. Access. The Borrower shall upon reasonable advance notice, at
any reasonable time and from time to time, permit the Lender, or any agents or
representatives of the Lender, to (a) examine and make copies of and abstracts
from the records and books of account of the Borrower and each of its
Operating Lessees, (b) visit the properties of the Borrower and each of its
Operating Lessees, (c) discuss the affairs, finances and accounts of the
Borrower and each of its Operating Lessees with any of their respective
officers or directors, and (d) communicate directly with the Borrower's
independent certified public accountants. The Borrower shall authorize its
independent certified public accountants to disclose to the Lender any and all
financial statements and other information of any kind, including, without
limitation, copies of any management letter, or the substance of any oral
information that such accountants may have with respect to the business,
financial condition, results of operations or other affairs of the Borrower or
any of its Operating Lessee.
7.7. Keeping of Books. The Borrower shall keep, and shall take all
reasonable steps to cause each of its Operating Lessees to keep, proper books
of record and account, in accordance with GAAP, in which full and correct
entries shall be made of all financial transactions and the assets and
business of the Borrower and each Operating Lessee.
7.8. Maintenance of Properties, Etc. The Borrower shall maintain
and preserve, and shall take all reasonable steps to cause each of its
Operating Lessees to maintain and preserve, (i) all of its Approved Motel
Facilities in good working order and condition, and (ii) all rights, permits,
licenses, approvals and privileges (including, without limitation, all
Permits) which are necessary in the conduct of its business.
7.9. Performance and Compliance with Other Covenants. The Borrower
shall perform and comply with in all material respects, and shall take all
reasonable steps to cause each of its Operating Lessees to perform and comply
with, each of the covenants and agreements set forth in any Contractual
Obligation to which it or any of Operating Lessee is a party.
7.10. Application of Proceeds. The Borrower shall use the entire
amount of the proceeds of the Loans as provided in Section 2.14.
7.11. Financial Statements. The Borrower shall furnish to the
Lender:
(a) as soon as available and in any event within 45 days after the
end of each Fiscal Quarter of each Fiscal Year, a balance sheet of the
Borrower as of the end of such quarter and consolidated statements of income,
retained earnings and cash flow of the Borrower for the period commencing at
the end of the previous Fiscal Year and ending with the end of such Fiscal
Quarter, all prepared in conformity with GAAP and certified by the chief
financial officer of the Borrower as fairly presenting the financial condition
and results of operations of the Borrower at such date and for such period,
subject to normal year-end audit adjustments, together with (i) a certificate
of said officer stating that no Default or Event of Default has occurred and
is continuing or, if a Default or an Event of Default has occurred and is
continuing, a statement as to the nature thereof and the action which the
Borrower proposes to take with respect thereto, and (ii) a written discussion
and analysis by the management of the Borrower of the financial statements
furnished in respect of such Fiscal Quarter;
(b) as soon as available and in any event within 90 days after the
end of each Fiscal Year, a balance sheet of the Borrower as of the end of such
year and consolidated statements of income, retained earnings and cash flow of
the Borrower for such Fiscal Year, all prepared in conformity with GAAP and
certified, in the case of such financial statements, without qualification as
to the scope of the audit or as to the Borrower being a going concern by an
independent public accountants of recognized national standing, together with
(i) a certificate of such accounting firm stating that in the course of the
regular audit of the business of the Borrower, which audit was conducted by
such accounting firm in accordance with generally accepted auditing standards,
such accounting firm has obtained no knowledge that a Default or Event of
Default has occurred and is continuing, or, if in the opinion of such
accounting firm, a Default or Event of Default has occurred and is continuing,
a statement as to the nature thereof, and (ii) a written discussion and
analysis by the management of the Borrower of the financial statements
furnished in respect of such Fiscal Year;
(c) as soon as available and in any event within 45 days after the
end of each fiscal quarter of each fiscal year, in each case of any Operating
Lessee, consolidated balance sheets and statements of income and cash flow in
respect of such Operating Lessee for such fiscal quarter, all prepared in
conformity with GAAP and certified by the chief financial officer or chief
accounting officer (or such officer's authorized designee) of the Operating
Lessee, duly authorized, as fairly presenting the consolidated financial
conditions and results of operations of such Operating Lessee at such date and
for such period, subject to normal year-end adjustments, together with a
certificate of said officer stating that no Default or Event of Default has
occurred and is continuing under the relevant operating Lease(s) (said
certification, the "Financial Officer's Certificate");
(d) as soon as available, and in any event within 90 days after the
end of each fiscal year of any operating Lessee, consolidated balance sheets
and statements of income, retained earnings and cash flow in respect of such
Operating Lessee for such fiscal year, all prepared in conformity with GAAP
and certified without qualification as to the scope of the audit by
independent public accountants of recognized national standing, together with
a Financial Officer's Certificate; and
(e) within forty-five (45) days after the end of each Fiscal
Quarter, an unaudited operating statement in respect of each Approved Motel
Facility, including occupancy percentages and average rate, accompanied by a
Financial Officer's Certificate.
Notwithstanding the foregoing: (a) the financial statements required
to be delivered by each Operating Lessee to the Borrower pursuant to the
respective Operating Lease may be delivered by the Borrower to the Lender in
lieu of the statements required pursuant to Sections 7.11(c), (d) and (e)
hereof so long as the respective Operating Lease is in full force and effect;
and (b) the Borrower shall not be deemed in default of the provisions of
Section 7.11(c), (d), or (e) hereof if an Operating Lessee fails to deliver
the respective financial statements to the Borrower provided that the Borrower
enforces its rights and remedies under the respective Operating Lease in order
to compel delivery of same.
7.12. Reporting Requirements. The Borrower shall furnish to the
Lender:
(a) prior to any Asset Sale, a notice (i) describing the Approved
Motel Facility being sold and (ii) stating the estimated Asset Sales Proceeds
in respect of such Asset Sale;
(b) as soon as available and in any event within 30 days prior to
the end of each Fiscal Year, an annual budget of the Borrower for the
succeeding Fiscal Year, displaying on a quarterly basis anticipated balance
sheets, forecasted capital expenditures, working capital requirements, rent
revenues, contributions by Operating Lessees to any interest income, net
income, cash flow and sales, all on a consolidated basis;
(c) promptly and in any event within 30 days after the Borrower, any
of its Subsidiaries or any ERISA Affiliate knows or has reason to know that
any ERISA Event has occurred, a written statement of the chief financial
officer or other appropriate officer of the Borrower describing such ERISA
Event or waiver request and the action, if any, which the Borrower and/or
ERISA Affiliates propose to take with respect thereto and a copy of any notice
filed by or with the PBGC, DOL or the IRS pertaining thereto;
(d) promptly and in any event within 10 days after receipt thereof,
a copy of any adverse notice, determination letter, ruling or opinion the
Borrower or any ERISA Affiliate receives from the PBGC, DOL or IRS with
respect to any Plan or Pension Plan;
(e) promptly after the commencement thereof, notice of all material
actions, suits and proceedings before any domestic or foreign Governmental
Authority or arbitrator, affecting the Borrower, or any Operating Lessee
(subject to the Borrower having received notice or knowledge thereof);
(f) promptly and in any event within five (5) Business Days after
the Borrower becomes aware of the existence of (i) any Default or Event of
Default, (ii) any material default under any Operating Lease, Franchise
Agreement or any Contractual Obligation which is material to the business,
prospects, operations or financial condition of the Borrower, or (iii) any
Material Adverse Change or any event, development or other circumstance which
has reasonable likelihood of causing or resulting in a Material Adverse
Change, telephonic or telecopied notice in reasonable detail specifying the
nature of such Default, Event of Default, breach, non-performance, default,
event, development or circumstance, including, without limitation, the
anticipated effect thereof, which notice (if by telephone) shall be promptly
confirmed in writing within five days;
(g) promptly and in any event within five days of the Borrower
learning of any of the following, written notice to the Lender of any of the
following:
(i) the Release or threatened Release of any Hazardous Material
on or from any property owned, operated or leased by the Borrower and any
written order, notice, permit, application or other written communication or
report received by the Borrower or any Operating Lessee in connection with or
relating to any such Release or threatened Release;
(ii) any notice or claim to the effect that the Borrower or any
Operating Lessee is or may be liable to any Person as a result of the Release
or threatened Release of any Hazardous Material into the environment;
(iii) receipt by the Borrower or any Operating Lessee of
notification that any real or personal property of the Borrower or is subject
to an Environmental Lien;
(iv) any Remedial Action taken by the Borrower, any Operating
Lessee or any other Person in response to any Hazardous Material on, under or
about any real property owned, operated or leased by the Borrower;
(v) receipt by the Borrower or any Operating Lessee of any
notice of violation of, or knowledge by the Borrower or any Operating Licensee
that there exists a condition which may result in a violation by the Borrower,
or any Operating Lessee of any Environmental Law; or
(vi) the commencement of any judicial or administrative
proceeding or investigation alleging a violation of any Environmental Law.
(h) upon written request by the Lender, a report providing an update
of the status of any Environmental Claim, Remedial Action or any other issue
identified in any notice or report required pursuant to Section 7.12(g);
(i) promptly, such additional financial and other information
respecting the financial or other condition of the Borrower or any Operating
Lessee, or the status or condition of any real property owned or leased by the
Borrower or the operation thereof which the Borrower is entitled to or can
otherwise reasonably obtain, as the Lender may from time to time reasonably
request; and
(j) such other information respecting the business, properties,
condition, financial or otherwise, or operations of the Borrower or any
Operating Lessee as the Lender may from time to time reasonably request.
7.13. Leases and Operating Leases. The Borrower shall: (i) comply
in all material respects with all of their respective obligations under all
Operating Leases; (ii) not modify, amend, cancel, extend or otherwise change
in any materially adverse manner any of the terms, covenants or conditions of
any Operating Leases; (iii) provide the Lender with a copy of each notice of
default under any operating Leases received by the Borrower immediately upon
receipt thereof and deliver to the Lender a copy of each notice of default
sent by the Borrower under any Operating Lease simultaneously with its
delivery of such notice under such Operating Lease; (iv) notify the Lender,
not later than 30 days prior to the date of the expiration of the term of any
Operating Lease, of the Borrower's intention either to renew or to not renew
any such Operating Lease, and, if the Borrower intends to renew such Lease,
the terms and conditions of such renewal; (v) maintain each Operating Lease in
full force and effect in all material respects and enforce the material
obligations of the Operating Lessee thereunder, in a timely manner; and (vi)
promptly notify the Lender of an Operating Lessee's intention to exercise its
rights under the Operating Lease to acquire an Approved Motel Facility.
7.14. Employee Plans. (a) For each Plan and any related trust
hereafter adopted or maintained by a Borrower or any Subsidiary of the
Borrower or any of its ERISA Affiliates intended to qualify under Code Section
125, 401 or 501, the Borrower shall (i) seek, and cause such of its ERISA
Affiliates to seek, and receive determination letters from the IRS to the
effect that such plan is so qualified; and (ii) cause such plan to be so
qualified.
(b) With respect to each welfare benefit plan, as defined in Section
3(1) of ERISA, hereafter adopted or maintained by any Borrower or any ERISA
Affiliate, Borrower shall comply, or cause each of its ERISA Affiliates to
comply, with the notice and continuation coverage requirements of Section
4980B of the IRC and the regulations thereunder in all material respects.
7.15. Fiscal Year. The Borrower shall maintain as its Fiscal Year
the twelve month period ending on December 31 of each year.
7.16. Environmental Matters. (a) The Borrower shall comply, with
respect to Motel Facilities only, and shall take all reasonable steps to cause
each Operating Lessee to comply in all material respects with all applicable
Environmental Laws currently or hereafter in effect.
(b) If the Lender at any time has a reasonable basis to believe that
there may be a material violation of any Environmental Law by Borrower or any
of its operating Lessees related to any Approved Motel Facility, or real
property adjacent thereto, then Borrower agrees, upon request from the Lender,
to provide the Lender, at Borrower's expense, with such reports, certificates,
engineering studies or other written material or data as the Lender may
reasonably require so as to reasonably satisfy the Lender that Borrower or
such Operating Lessee is in material compliance with all applicable
Environmental Laws. Furthermore, the Lender shall have the right upon prior
notice (except in the case of an emergency) to inspect during normal business
hours any real property owned, operated or leased by Borrower if at any time
the Lender has a reasonable basis to believe that there may be such a material
violation of Environmental Law.
(c) With respect to each Approved Motel Facility, the Borrower
shall, and shall take all reasonable steps to require each Operating Lessee
to, take such Remedial Action or other action as required by Environmental
Laws, as any Governmental Authority requires, except to the extent contested
in good faith and by proper proceedings, or as is appropriate and consistent
with good business practice.
7.17. Maintenance of Reserves/Operating Lease. (a) The Borrower
shall cause each Operating Lessee to maintain adequate fixture and equipment
reserves in respect of each Approved Motel Facility pursuant to the terms of
the Operating Lease and/or Franchise Agreement relating thereto and if
requested by the Lender shall furnish the Lender with copies of any reports,
statements or other information to be supplied to the Borrower pursuant to any
Operating Lease or Franchise Agreement for any Approved Motel Facility. The
Borrower shall not commingle, or permit the commingling of, other funds with
the funds in such reserves except to the extent permitted by the Operating
Lease or Franchise Agreement.
(b) The Borrower shall hold the operating Lease Reserve in
accordance with the terms and provisions of the Operating Lease.
7.18. Casualty and Condemnation. All proceeds of any casualty and
Condemnation in respect of any Approved Motel Facility shall be paid to the
Lender and applied by the Lender as set forth in the Mortgage.
7.19. Further Assurances. At any time upon the request of the
Lender, the Borrower will, promptly and at its expense, execute, acknowledge
and deliver such further documents and do such other acts and things as the
Lender may reasonably request to provide for payment of the Loans made
hereunder and interest thereon in accordance with the terms of this Agreement.
<PAGE>
ARTICLE VIII
NEGATIVE COVENANTS
As long as any of the Obligations or any portion of the Commitment
remains outstanding, without the written consent of the Lender, the Borrower
agrees with the Lender that:
8.1. Liens, Etc. The Borrower shall not create or suffer to exist,
and shall take all reasonable steps to not permit any of the Operating Lessees
to create or suffer to exist, any Lien upon or with respect to any of its
properties, whether now owned or hereafter acquired, or assign, or permit any
of its Operating Lessees to assign, any right to receive income therefrom,
except for the following:
(a) Liens created pursuant to the Loan Documents;
(b) Liens arising by operation of law in favor of materialmen,
mechanics, warehousemen, carriers, lessors or other similar Persons incurred
by the Borrower in the ordinary course of business which secure its
obligations to such Person; provided, however, that the Borrower is not in
default with respect to such payment obligation to such Person, (except with
respect to such Liens which the Borrower is in good faith and by appropriate
proceedings diligently contesting such obligation and adequate provision
reasonably satisfactory to the Lender is made for the payment thereof);
(c) Liens (excluding Environmental Liens) securing taxes,
assessments or governmental charges or levies; provided, however, that the
Borrower is not in default in respect of any payment obligation with respect
thereto unless the Borrower is in good faith and by appropriate proceedings
diligently contesting such obligation and adequate provision reasonably
satisfactory to the Lender is made for the payment thereof; and
(d) Any Lien securing the renewal, extension or refunding of any
Indebtedness or other Obligation secured by any Lien permitted by this Section
8.1 provided that such renewal, extension or refunding is otherwise permitted
by this Agreement and the amount of such Indebtedness or other Obligation
secured by such Lien and the assets subject to such Lien are not increased.
(e) Liens to the extent permitted under Section 8.2(a) hereof.
8.2. Indebtedness. (a) The Borrower shall not create, incur or
suffer to exist, any Indebtedness, or incur, assume, endorse, be or become
liable for, or guarantee, directly or indirectly, or permit or suffer to
exist, any Contingent Obligation, except:
(i) Indebtedness and Contingent Obligations in respect of the
Obligations evidenced by a Loan
Document;
(ii) current liabilities in respect of taxes, assessments and
governmental charges or levies incurred, or claims for labor, materials,
inventory, services, supplies and rentals incurred, or for goods or services
purchased, in the ordinary course of business consistent with the past
practice of the Borrower; and
(iii) other secured and unsecured Indebtedness and Contingent
Obligations provided, however that: (a) the aggregate amount of such other
Indebtedness and Contingent Obligations shall not exceed $10,000,000; (b) any
pledges, guaranties or other Indebtedness or Contingent Obligations by
Borrower in respect of construction financing to be incurred by Motel
Developer for the payment of Approved Construction Costs shall be unsecured;
(c) the terms and provisions of the loan documents and the lender in respect
of such other Indebtedness or Contingent Obligations are approved by the
Lender (which such approval shall not be unreasonably withheld or delayed);
and (d) if any other such Indebtedness or Contingent Obligations is secured by
any Approved Motel Facility or any other collateral securing the Loans, then:
(x) the Lender, shall have the right to receive notice of and to cure any
defaults in respect of any such other Indebtedness or Contingent Obligation;
and (y) any rights pursuant to such Indebtedness or Contingent Obligation to
foreclose upon or in any manner realize upon and Approved Motel Facility or
any other collateral shall be subject to the consent of the Lender which
consent may be withheld in the sole and absolute discretion of the Lender.
(b) The Borrower shall not cancel any claim or Indebtedness
owed to it except for adequate consideration and in the ordinary course of
business.
8.3. Lease Obligations. The Borrower shall not become or remain
liable as lessee or guarantor or other surety with respect to any lessee's
interest under any lease, whether an operating lease or a Capitalized Lease,
of any property (whether real or personal or mixed), whether now owned or
hereafter acquired.
8.4. Asset Sales/Refinancings. (a) Except with respect to the
Operating Leases and except as expressly permitted in this Section 8.4, the
Borrower shall not sell, convey, transfer, lease, pledge, encumber or
otherwise dispose of all or substantially all of its assets or properties, and
shall not (nor permit the Managing Member to), (i) merge with any Person, or
(ii) consolidate with any Person.
(b) The Borrower shall not enter into, consummate or suffer to exist
any Asset Sale except an Asset Sale as permitted pursuant to Section 8.4(c)
below. The Borrower shall not be permitted to enter into or consummate any
refinancing with respect to any Loan except a Refinancing as permitted
pursuant to Section 8.4(c) below.
(c) The Borrower shall not effect, enter into, consummate or suffer
to exist any Asset Sale or Refinancing during the Lockout Period. The
Borrower may effectuate an Asset Sale or Refinancing after the Lockout Period.
In the event of an Asset Sale after the expiration of the Lockout Period, the
Borrower shall forthwith prepay the respective Loan secured by the respective
Approved Motel Facility upon receipt by the Borrower of the proceeds relating
thereto, together with accrued interest to the date of such prepayment on the
principal amount prepaid and a sum equal to the Yield Maintenance Amount (if
any). The balance of any Asset Sale Proceeds shall then be applied as
follows: (i) first, to payment of the Operating Lease Reserve; (ii) second, to
payment to MOA of the MOA Equity Contribution in respect of such Approved
Motel Facility, to the extent MOA has not been previously otherwise reimbursed
therefor; (iii) third, to repayment of the Senior Tranche, then the Mezzanine
Tranche and then the Earnout Tranche (to be applied within each tranche,
however, to each of the Approved Motel Facilities on a pro rata basis or as
otherwise reasonably determined by the Lender and approved by the Borrower
(which approval shall not be unreasonably withheld or delayed and shall be
deemed given if the Borrower fails to respond within ten (10) days after
request thereof)); and (iv) fourth, to the Borrower to be applied and
distributed by the Borrower in accordance with the Operating Agreement. Upon
the payment of Asset Sale Proceeds as set forth in this Section 8.4(c), the
Lender shall release the respective Approved Motel Facility and the other
Collateral in respect of such Approved Motel Facility from the Lien of the
Loan Documents.
(d) In the event of a Refinancing after the Lockout Period, the
Borrower shall simultaneously upon the closing of any Refinancing: (i) convey
the respective Approved Motel Facility to another party; and (ii) prepay the
respective Loan secured by the Approved Motel Facility upon receipt by the
Borrower of the proceeds of the Refinancing relating thereto, together with:
(1) accrued interest to the date of such prepayment on the principal amount
prepaid; (2) a sum equal to the Yield Maintenance Amount (if any); and (3) a
payment equal to fifteen percent (150%) of the Loan prepaid which shall be
applied by the Lender to repayment of the Senior Tranche, then the Mezzanine
Tranche and the Earnout Tranche (to be applied within each tranche, however,
to each of the Approved Motel Facilities on a pro rata basis or as otherwise
reasonably determined by the Lender and approved by the Borrower (which
approval shall not be unreasonably withheld or delayed and shall be deemed
given if the Borrower fails to respond within ten (10) Business Days after
request thereof)). The balance of the proceeds of the Refinancing (if any)
shall be applied and distributed by the Borrower in accordance with the
Operating Agreement.
(e) In the event an Operating Lessee exercises its option to
purchase an Approved Motel Facility as set forth in its Operating Lease, the
Borrower may provide the purchase money financing in connection therewith as
set forth in said Operating Lease (each such financing by the Borrower, a
"Purchase Money Loan"), provided, however, that: (i) ten (10) Purchase Money
Loans may be provided by the Borrower provided such Money Purchase Loans shall
provide for an interest rate of not less than nine and one-half percent (9
1/2%) per annum, a maturity of seven (7) years, monthly principal payments
sufficient to fully liquidate the Purchase Money Loan in twenty (20) years and
shall not permit any prepayment until the last six (6) months of the term of
the respective Purchase Money Loan; (ii) ten (10) additional Purchase Money
Loans may be provided by the Borrower on the same terms set forth in the
immediately preceding clause (i) provided that simultaneously with making such
Purchase Money Loans, MOA shall acquire such Purchase Money Loans from the
Borrower at par, (iii) Purchase Money Loans may be provided by the Borrower in
all cases provided that the amount of such Purchase Money Loans shall not be
more than sixty-five percent (65%) of the value of the respective Approved
Motel Facility as reasonably determined by the Lender and the Borrower (and if
the parties cannot agree, pursuant to an appraisal), the PML DSCR of the
respective Approved Motel Facility on a trailing twelve (12) month basis as of
the date of the acquisition is not less than 1.50:1.0, and, each Purchase
Money Loan shall provide for an interest rate per annum not less than the PMM
Rate, a maturity of seven years, monthly principal payments sufficient to
fully amortize the Purchase Money Loan in twenty (20) years and shall not
permit any prepayment until the last six (6) months of the term of the
respective Purchase Money Loan ; (iv) regardless of the amount of the Purchase
Money Loan and the amount of proceeds paid to the Borrower in excess of such
Purchase Money Loan, the Borrower shall prepay to Lender the respective Loan
secured by the respective Approved Motel Facility upon the acquisition thereof
by the operating Lessee, together with accrued interest to the date of such
prepayment on the principal amount prepaid and a sum equal to the Yield
Maintenance Amount (if any); and (v) the balance of any proceeds (including
any proceeds from the sale of the Approved Motel Facility which are in excess
of the respective Purchase Money Loan and any proceeds from the pledging and
or sale of the respective Purchase Money Loan), after payment of the items set
forth in the immediately preceding clause (iv) hereof, shall be applied as set
forth in clauses (i), (ii), (iii) and (iv) of Section 8.4(c) hereof.
(f) The Borrower shall not sell, pledge, assign or in any way
encumber any interest of Borrower in any Purchase Money Loan unless (1) all
proceeds from any such sale, pledge, assignment or encumbrance of any Purchase
Money Loan (after deducting all customary costs and expenses incurred in
connection with such sale, pledge, assignment or encumbrance) are applied as
set forth in clauses (i), (ii), (iii) and (iv) of Section 8.4(c); (2) in the
event any pledge or other encumbrance is granted with respect to a Purchase
Money Loan, then the Borrower shall convey the respective Purchase Money Loan
to another party; and (3) if the proceeds derived from a pledge or encumbrance
of a Purchase Money Loan are less than the amount of the Purchase Money Loan,
the holder of the Purchase Money Loan shall grant to the Lender a lien in
respect of the Purchase Money Loan in the amount of such deficiency and shall
execute such documents as are reasonably required by the Lender to evidence
and perfect the Lender's lien therein. In addition to the foregoing, the
Borrower shall not sell a Purchase Money Loan to another party unless the
Borrower provides the Lender with a right of first refusal as follows: (i) in
the event the Borrower intends to offer for sale one or more of the Purchase
Money Loans, the Borrower shall give notice to Lender of the terms and
conditions of each such sale (the "ROFR Notice"); (ii) within twenty (20) days
after receipt of the ROFR Notice, the Lender shall have the right to elect, by
notice to the Borrower, to purchase the respective Purchase Money Loans in
accordance with the terms and provisions set forth in the ROFR Notice; and
(iii) if the Lender does not elect to purchase the Purchase Money Loans within
said twenty (20) day period (it being agreed that failure by the Lender to
respond to the ROFR Notice within said twenty (20) day period shall be deemed
to constitute Lender's election not purchase of said Purchase Money Loans),
then the Borrower may proceed with the sale of the respective Purchase Money
Loans in accordance with the terms and provisions set forth in the ROFR
Notice, it being specifically agreed and understood, however, that if the
Borrower fails to complete such sale within ninety (90) days after the date
the ROFR Notice is received by the Lender, then the Lender shall thereafter
continue to have a right of first refusal in connection therewith and Borrower
shall, prior to any sale of such Purchase Money Loans, again comply with the
terms and provisions of the aforesaid clauses (i), (ii) and (iii) of this
Section 8.4(f).
8.5. Investments. The Borrower shall not, directly or indirectly,
make or maintain any loan or advance to any Person or own, purchase or
otherwise acquire, any Stock, Stock Equivalents, other equity interest,
obligations or other securities of, or all or substantially all of the assets
of, any Person or all or substantially all of the assets constituting the
business of a division, branch or other unit operation of any Person, or enter
into any joint venture or partnership with, or make or maintain, any capital
contribution to, or otherwise invest in, any Person.
8.6. Change in Nature of Business or Organizational Documents. (a)
The Borrower shall not make any material change in the nature or conduct of
its business as carried on at the date hereof.
(b) The Borrower shall not amend in any material respect the
Operating Agreement.
8.7. Modification of Material Agreements. The Borrower shall not,
and shall not permit any of the Operating Lessees to alter, amend, modify,
rescind, terminate, supplement or waive in any material respect any of their
respective rights under, or fail to comply in all material respects with, any
of its material obligations arising under any Operating Lease or Franchise
Agreement.
8.8. Accounting Changes. The Borrower shall not make any change in
accounting treatment and reporting practices or tax reporting treatment,
except as required by GAAP or law and disclosed to the Lender.
8.9. Transactions with Affiliates. The Borrower shall not enter
into any transaction directly or indirectly with or for the benefit of any
Affiliate of the Borrower (including, without limitation, employment contracts
or contracts involving the payment of management or consulting fees,
guaranties and assumptions of obligations of any such Affiliate) except for:
(a) transactions in the ordinary course of business (not including brokerage,
financial advisory and other such advisory services) on a basis no less
favorable to the Borrower as would be obtained in a comparable arm's length
transaction with a Person not an Affiliate; (b) salaries and other employee
compensation and benefits to officers or directors of the Borrower
commensurate with current compensation and benefit levels; (c) the purchase of
supplies to be used in the operation of the Approved Motel Facilities,
provided, however, that the cost of such supplies to be paid by the Borrower
shall not exceed the greater of (i) the market cost for such supplies as would
be paid in an arms length transaction with a third party, and (ii) 106% of the
actual cost paid by such Affiliate for the respective supplies; and (d)
transactions expressly permitted pursuant to this Agreement.
8.10. Environmental Matters. (a) The Borrower shall not, and shall
not permit any of the Operating Lessees, or, to the extent practicable, any
other Person to dispose of any Hazardous Material by placing it in or on the
ground or waters of any property owned, operated or leased by the Borrower,
except as in compliance with all applicable Environmental Laws currently and
hereinafter in effect.
(b) The Borrower shall not, and shall not permit any of the
Operating Lessees, or, to the extent practicable, any other Person to, dispose
or to arrange for the disposal of any Hazardous Material on any property
owned, operated or leased by any other Person, except as in compliance with
all applicable Environmental Laws currently and hereinafter in effect.
8.11. Membership Interests. The Borrower shall not permit the
transfer, sale, pledge or encumbrance of any membership interests in the
Borrower which would cause MOA (and/or affiliates of MOA) to hold less than
51% of the membership interests of the Borrower in the aggregate.
8.12. Cash Flow. Except as otherwise permitted pursuant to Section
8.4 hereof, no income and cash flow received by the Borrower shall be
distributed to the members of the Borrower, it being specifically agreed and
understood that any such income and cash flow shall be reinvested into the
operations of the Borrower's business (including funding the costs of
acquiring Approved Motel Facilities). The Borrower shall not, and shall not
permit any operating Lessee, to pledge or assign any of the income or cash
flow related to an Approved Motel Facility.
8.13. ERISA. Neither Borrower nor any ERISA Affiliate shall acquire
any new ERISA Affiliate that (i) maintains or has an obligation to contribute
to a Pension Plan other than a Multiemployer Plan that has an "accumulated
funding deficiency," as defined in Section 302 of ERISA; or (ii) has an
obligation to contribute to a Multiemployer Plan where its share of any
"unfunded vested benefits," as defined in Section 4006(a)(3)(E)(iii) of ERISA
equals or exceeds [$1,000,000]. Additionally, neither Borrower nor any ERISA
Affiliate shall (i) terminate any Pension Plan where such termination could
reasonably be anticipated to result in liability to Borrower; (ii) permit any
accumulated funding deficiency, as defined in Section 302(a)(2) of ERISA, to
be incurred with respect to any Pension Plan; (iii) fail to make any
contributions or fail to pay any amounts due and owing as required by the
terms of any Plan before such contributions or amounts become delinquent; (iv)
make a complete or partial withdrawal (within the meaning of Section 4201 of
ERISA) from any Multiemployer Plan; or (v) at any time fail to provide Lender
with copies of any Plan documents or governmental reports or filings, if
reasonably requested by Lender; such that the liability under any of (i)
through (v) above, or any combination thereof, equals or exceeds [$1,000,000].
<PAGE>
ARTICLE IX
EVENTS OF DEFAULT
9.1. Events of Default. Each of the following events shall be an
Event of Default:
(a) The Borrower shall fail to pay any principal (including, without
limitation, mandatory prepayments of principal) of, or interest on, any Loan,
any fee, any other amount due hereunder or under the other Loan Documents or
other of the Obligations when the same becomes due and payable if such failure
under this clause (a) shall remain unremedied for five (5) days after the date
on which written notice thereof shall have been given to the Borrower by the
Lender; or
(b) (i) Any representation or warranty made or deemed made by the
Borrower in any Loan Document or by the Borrower (or any of its officers) in
writing in connection with any Loan Document shall prove to have been
incorrect in any material respect when first made or deemed made; or (ii) any
representation or warranty made or deemed made by the Borrower in any Loan
Document or by the Borrower (or any of its officers) in writing in connection
with any Loan Document shall become incorrect in any material respect after
the date when first made or deemed made and (with respect to this clause (ii))
the existence of one or more of such incorrect representations or warranties
shall constitute a Material Adverse Change; or
(c) The Borrower shall fail to perform or observer any other term,
covenant or agreement contained in this Agreement or in any Collateral
Document, or in any other Loan Document if such failure under this clause (c)
shall remain unremedied for thirty (30) days after the date on which written
notice thereof shall have been given to the Borrower by the Lender except that
if such failure cannot be cured within such thirty (30) day period, the
Borrower shall be given further time to cure such failure if the Borrower
commences to cure such failure within such thirty (30) day period and
continuously and diligently proceeds to complete such cure; provided, however,
that in no event shall the time to cure a default under this clause (c)
exceed, in the aggregate, 120 days; or
(d) The Borrower shall fail to pay any principal of or premium or
interest on any Indebtedness of the Borrower (excluding Indebtedness evidenced
by the Notes) beyond the period of grace (not to exceed 30 days), if any, with
respect thereto (whether the same becomes due and payable by scheduled
maturity, required prepayment, acceleration, demand or otherwise); or any
other event shall occur or condition shall exist under any agreement or
instrument relating to any such Indebtedness, if the effect of such event or
condition is to accelerate, or to permit the acceleration of, the maturity of
such Indebtedness; or any such Indebtedness shall become or be declared to be
due and payable, or the Borrower shall be required to repurchase or offer to
repurchase such Indebtedness prior to the stated maturity thereof; or
(e) The Borrower or MOA shall generally not pay its debts as such
debts become due, or shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of creditors, or
any proceeding shall be instituted by or against the Borrower or MOA seeking
to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or composition of
it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a custodian, receiver, trustee or other similar
official for it or for any substantial part of its property and, in the case
of any such proceedings instituted against the Borrower or MOA (but not
instituted by it), either such proceedings shall remain undismissed or
unstayed for a period of sixty (60) days or any of the actions sought in such
proceedings shall occur; or the Borrower or MOA shall take any action to
authorize any of the actions set forth above in this subsection (e); or
(f) One or more judgments or orders for the payment of money in an
aggregate amount in excess of $500,000 to the extent not fully covered (except
to the extent of any deductible) by insurance shall be rendered against the
Borrower and either (i) enforcement proceedings shall have been commenced by
any creditor upon such judgment or order, or (ii) there shall be any period of
30 consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; or
(g) An ERISA Event shall occur; or
(h) The Borrower shall have entered into any consent or settlement
decree or agreement or similar arrangement with an Governmental Authority or
any judgment, order, decree or similar action shall have been entered against
the Borrower or in any case based on or arising from the violation of or
pursuant to any Environmental Law, or the generation, storage, transportation,
treatment, disposal or Release of any Hazardous Material; or
(i) Any material provision of any Collateral Document after delivery
thereof shall for any reason cease to be valid and binding on the Borrower (or
MOA), or the Borrower (or MOA) shall so state in writing; or
(j) Any Collateral Document shall, for any reason, cease to create a
valid Lien on any of the Collateral purported to be covered thereby or such
Lien shall cease to be a perfected and first priority Lien, or the Borrower
shall so state in writing; or
(k) There shall occur a Material Adverse Change; or
(l) The Borrower shall default in any material respect in the
observance or performance of any material provision of an Operating Lease.
9.2. Remedies. If there shall occur and be continuing any Event of
Default, the Lender (i) may by notice to the Borrower, declare the obligation
of the Lender to make Loans to be terminated, whereupon the same shall
forthwith terminate, and (ii) may by notice to the Borrower, declare the
Loans, all interest thereon and all other amounts and Obligations payable
under this Agreement to be forthwith due and payable, whereupon the Notes, all
such interest and all such amounts and Obligations together with any Yield
Maintenance Amount which may be payable (to the extent permitted by applicable
law), shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby
expressly waived by the Borrower; provided, however, that upon the occurrence
of the Event of Default specified in subparagraph (e) above, (A) the
obligation of the Lender to make Loans shall automatically be terminated and
(B) the Loans, all such interest and all such amounts and Obligations shall
automatically become and be due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly waived by
the Borrower. In addition to the remedies set forth above, the Lender may
exercise any remedies provided for by the Collateral Documents in accordance
with the terms thereof or any other remedies provided by applicable law.
<PAGE>
ARTICLE X
MISCELLANEOUS
10.1. Amendments, Etc. No amendment or waiver of any provision of
this Agreement nor consent to any departure by the Borrower therefrom shall in
any event be effective unless the same shall be in writing and signed by the
Lender, and then any such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
10.2. Notices, Etc. All notices and other communications provided
for hereunder shall be in writing (including, without limitation, telegraphic,
telex, telecopy or cable communication) and mailed, telegraphed, telexed,
telecopied, cabled or delivered by hand:
If to the Borrower, at its address at:
TAD Properties, L.L.C.
701 Lee Street
Suite 100
Des Plaines, Illinois 60616
Attention: Daniel Danelli
Telecopy Number: (847) 803-1264
with a copy to:
Donovan Leisure Newton & Irvine
30 Rockefeller Plaza, 40th Floor
New York, New York 10112
Attention: Frank W. Cuiffo, Esq.
Telecopy Number: (212) 632-3321
If to the Lender, at its address at
CS First Boston Mortgage Capital Corp.
11 Madison Avenue
5th Floor
New York, New York 10010
Attention: Mr. Marc Warren, Director
Telecopy Number: (212) 325-8163
with a copy to:
Weil Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Fred Weber, Esq.
Telecopy Number: (212) 310-8007
or, as to the Borrower or the Lender, at such other address as shall be
designated by such party in a written notice to the other party. All such
notices and communications shall, when mailed, telegraphed, telexed,
telecopied, cabled or delivered, be effective three (3) Business Days after
being deposited in the mails, delivered to the telegraph company, confirmed by
telex answerback, telecopied with confirmation of receipt, delivered to the
cable company or delivered by hand to the addressee, respectively.
10.3. No Waiver; Remedies. No failure on the part of the Lender to
exercise, and no delay in exercising, any right hereunder or under any Notes
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
10.4. Costs; Expenses; Indemnities. (a) The Borrower agrees to pay
to the Lender or as the Lender may direct (i) on or before the date hereof
(and not including any amounts previously paid) the costs and expenses of the
Lender in connection with the preparation, execution and delivery of this
Agreement, each of the other Loan Documents and each of the other documents to
be delivered hereunder and thereunder, including, without limitation, the
reasonable fees and out-of-pocket expenses of counsel, accountants,
appraisers, consultants or industry experts retained by the Lender with
respect thereto, and (ii) on demand, all costs and expenses of the Lender
(including, without limitation, the fees and out-of-pocket expenses of
counsel, retained by the Lender) in connection with the modification,
amendment or enforcement (whether through negotiation, legal proceedings or
otherwise) of this Agreement and the other Loan Documents.
(b) The Borrower agrees to indemnify and hold harmless the Lender
and its Affiliates, and the directors, officers, employees, agents, attorneys,
consultants and advisors of or to any of the foregoing (including, without
limitation, those retained in connection with the satisfaction or attempted
satisfaction of any of the conditions set forth in Article IV) (each of the
foregoing being an "Indemnitee") from and against any and all claims, damages,
liabilities, obligations, losses, penalties, actions, judgments, suits, costs,
disbursements and expenses of any kind or nature (including, without
limitation, fees and disbursements of counsel to any such Indemnitee and
experts, engineers and consultants and the costs of investigation and
feasibility studies) which may be imposed on, incurred by or asserted against
any such Indemnitee in connection with or arising out of any investigation,
litigation or proceeding, whether or not any such Indemnitee is a party
thereto, whether direct, indirect, or consequential and whether based on any
federal, state or local law or other statutory regulation, securities or
commercial law or regulation, or under common law or in equity, or on
contract, tort or otherwise, in any manner relating to or arising out of or
based upon or attributable to this Agreement, any other Loan Document, any
document delivered hereunder or thereunder, any Obligation, or any act, event
or transaction related or attendant to any thereof, including, without
limitation, (i) arising from any misrepresentation or breach of warranty under
Section 5.2(h) or any Environmental Claim or any Environmental Lien or any
Remedial Action arising out of or based upon anything relating to real
property owned, leased or operated by the Borrower (collectively, the
"Indemnified Matters"); provided, however, that the Borrower shall not have
any obligation under this Section 10.4(b) to an Indemnitee with respect to any
Indemnified Matter caused by or resulting from the gross negligence or willful
misconduct of that Indemnitee, as determined by a court of competent
jurisdiction in a final non-appealable judgment or order.
(c) The Borrower shall indemnify the Lender for, and hold the Lender
harmless from and against, any and all claims for brokerage commissions, fees
and other compensation made against the Lender for any broker, finder or
consultant with respect to any agreement, arrangement or understanding made by
or on behalf of the Borrower in connection with the transactions contemplated
by this Agreement.
(d) The Borrower agrees that any indemnification or other protection
provided to any Indemnitee pursuant to this Agreement (including, without
limitation, pursuant to this Section 10.4) or any other Loan Document shall
(i) survive payment of the Obligations and (ii) inure to the benefit of any
Person who was at any time an Indemnitee under this Agreement or any other
Loan Document.
(e) The provisions of this Section 10.4 shall survive any
termination of this Agreement.
10.5. Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default the Lender is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time
owing by the Lender to or for the credit or the account of the Borrower
against any and all of the Obligations now or hereafter existing whether or
not the Lender shall have made any demand under this Agreement or any Notes or
any other Loan Document and although such Obligations may be unmatured. The
Lender agrees promptly to notify the Borrower after any such set-off and
application made by the Lender; provided, however, that the failure to give
such notice shall not affect the validity of such setoff and application. The
rights of the Lender under this Section are in addition to the other rights
and remedies (including, without limitation, other rights of set-off) which
the Lender may have.
10.6. Binding Effect. This Agreement shall become effective when it
shall have been executed by the Borrower and the Lender and thereafter shall
be binding upon and inure to the benefit of the Borrower and the Lender and
their respective successors and assigns, except that the Borrower shall not
have the right to assign its rights hereunder or any interest herein without
the prior written consent of the Lender.
10.7. Assignments and Participations. (a) The Lender may sell,
transfer, negotiate or assign to one or more other financial institutions all
or a portion of the Commitment, the Loans owing to it and an interest in the
Notes held by it and a commensurate portion of its rights and obligations
hereunder and under the other Loan Documents subject to the proviso to
subparagraph (c) below.
(b) The Lender may sell participations to one or more banks or other
Persons in or to all or a portion of its rights and obligations under the Loan
Documents (including, without limitation, all or a portion of the Commitment,
the Loans owing to it and the Notes held by it). In the event of the sale of
any participation by the Lender, (i) the Lender's obligations under the Loan
Documents shall remain unchanged, (ii) the Lender shall remain solely
responsible to the other parties hereto for the performance of such
obligations, (iii) the Lender shall remain the holder of such Notes and
Obligations for all purposes of this Agreement, and (iv) the Borrower shall
continue to deal solely and directly with the Lender in connection with the
Lender's rights and obligations under this Agreement.
(c) Each participant shall be entitled to the benefits of Sections
2.9, 2.10 and 2.13 as if it were a Lender; provided, however, that anything
herein to the contrary notwithstanding, the Borrower shall not, at any time,
be obligated to pay to any participant of any interest of the Lender, under
Sections 2.10, 2.12 or 2.14, any sum in excess of the sum which the Borrower
would have been obligated to pay Lender in respect of such interest had such
assignment not been effected or had such participation not been sold.
(d) The Borrower shall cooperate with Lender, at no cost or expense
to the Borrower, and any other party to whom the Lender may assign or sell
participations (or negotiate for such assignment or sale) in all or a portion
of the Commitment, the Loans owing to it and an interest in the Notes. Such
cooperation on the part of the Borrower shall include but shall not be limited
to the execution and delivery of amendments, modifications and/or supplements
to one or more Loan Documents, in form and substance as may be required by
Lender, at no cost or expense to the Borrower; provided, however, that such
amendments, modifications and/or supplements do not materially increase the
obligations of the Borrower or materially diminish the rights of the Borrower
under the Loan Documents.
10.8. Governing Law; Severability. This Agreement and the Notes and
the rights and obligations of the parties hereto and thereto shall be governed
by, and construed and interpreted in accordance with, the law of the State of
New York. Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
10.9. Submission to Jurisdiction; Service of Process. (a) Any legal
action or proceeding with respect to this Agreement or the Notes or any
document related thereto may be brought in the courts of the State of New York
or of the United States of America for the Southern District of New York, and,
by execution and delivery of this Agreement, the Borrower hereby accepts for
itself and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. The parties hereto hereby irrevocably
waive any objection, including, without limitation, any objection to the
laying of venue or based on the grounds of forum non conveniens, which any of
them may now or hereafter have to the bringing of any such action or
proceeding in such respective jurisdictions.
(b) The Borrower irrevocably consents to the service of process of
any of the aforesaid courts in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to the
borrower at its address provided herein.
(c) Nothing contained in this Section 10.9 shall affect the right of
the Lender or any holder of the Notes to serve process in any other manner
permitted by law or commence legal proceedings or otherwise proceed against
the Borrower in any other jurisdiction.
10.10. Section Titles. The Section titles' contained in this
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.
10.11. Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
10.12. Entire Agreement. This Agreement, together with all of the
other Loan Documents and all certificates and documents delivered hereunder or
thereunder embody the entire agreement of the parties and supersedes all prior
agreements and understandings relating to the subject matter hereof.
10.13. Waiver of Jury Trial. Each of the parties hereto waives any
right it may have to trial by jury in respect of any litigation based on, or
arising out of, under or in connection with this Agreement or any other Loan
Document, or any course of conduct, course of dealing, verbal or written
statement or action of any party hereto.
10.14. Enforcement by Borrower. Any obligation of the Borrower
under the Loan Documents to enforce the terms and provisions of the Operating
Leases or Franchise Agreements shall be deemed to mean that the Borrower take
such reasonable actions as are necessary under the applicable circumstances to
enforce, preserve and protect the rights and remedies of the Lender in the
respective Collateral and of the Borrower with respect to the respective
Approved Motel Facility, Franchisor or operating Lessee in question,
including, without limitation, the commencement of any actions or proceedings
and/or the termination of an Operating Lease or Franchise Agreement. Upon
request by the Lender, the Borrower shall: (a) advise the Lender what actions
the Borrower has taken with respect to the foregoing obligations hereunder and
shall deliver to the Lender any documentation evidencing such actions; and (b)
take such other actions with respect to (and consistent with) the foregoing
obligations under this Section 10.14 as reasonably requested by the Lender.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
BORROWER: TAD PROPERTIES, L.L.C.
By: TAD Membership Corp., Managing Member
By:
Name: Paul F. Wallace
Title: Vice-President
LENDER: CS FIRST BOSTON MORTGAGE CAPITAL CORP.
By:
Name:
Title:
MOTELS OF AMERICA, INC. hereby executes this Agreement solely to acknowledge
and agree to its obligations under Article VI hereof
MOA: MOTELS OF AMERICA, INC.
By:
Name: Paul F. Wallace
Title: Vice President
IN WITNESS WHEREOF, the parties
hereto have caused this Agreement to be executed by their respective officers
thereunto duly authorized, as of the date first above written.
BORROWER: TAD PROPERTIES, L.L.C.
By:
Name:
Title:
LENDER: CS FIRST BOSTON MORTGAGE CAPITAL CORP.
By:
Name: Marc J. Warren
Title: Vice President
MOTELS OF AMERICA, INC. hereby executes this Agreement solely to acknowledge
and agree to its obligations under Article VI hereof
MOA: MOTELS OF AMERICA, INC.
By:
Name:
Title:
AMENDMENT TO
CREDIT FACILITY AGREEMENT
THIS AMENDMENT TO CREDIT FACILITY AGREEMENT (this "Amendment"), dated
as of October 8, 1997, by and between TAD PROPERTIES, L.L.C., a Delaware
limited liability company (the "Borrower"), and CREDIT SUISSE FIRST BOSTON
MORTGAGE CAPITAL LLC, a Delaware limited liability company (as successor-in-
interest to CS First Boston Mortgage Capital Corp., the "Lender").
W I T N E S S E T H:
WHEREAS, the Borrower and the Lender entered into that certain Credit
Facility Agreement dated as of December 20, 1996 (the "Credit Agreement"); and
WHEREAS, the Borrower and the Lender have agreed to amend the Credit
Agreement as set forth herein.
NOW, THEREFORE, in consideration of TEN DOLLARS and other good and
valuable consideration, the receipt and legal sufficiency of which is hereby
acknowledged, the Borrower and the Lender hereby agree as follows:
1. Capitalized terms not defined herein shall have the meanings
ascribed thereto in the Credit Agreement.
2. (a) The definitions of "Earnout", "Earnout Tranche", "Loan",
"Mezzanine Tranche" and "Senior Tranche" set forth in the Credit Agreement are
hereby deleted in the entirety and the following definitions are hereby
substituted in lieu thereof:
(i) "Earnout" shall mean the amount of the Earnout Tranche allocated
to each Loan.
(ii) "Earnout Tranche" shall mean the aggregate balance of the Loans
allocated to the Earnout Note pursuant to Section 2 16(c)(iii)
hereof.
(iii) "Loan" means each portion of the Commitment to be made by the
Lender to the Borrower in connection with the acquisition of each
Approved Motel Facility including any additional funding provided by
the Lender to the Borrower pursuant to Section 2.15 hereof.
(iv) "Mezzanine Tranche" shall mean the aggregate balance of the
Loans allocated to the Mezzanine Note pursuant to Sections 2.
16(b)(ii) or 2.16(c)(ii) hereof, as applicable.
(v) "Senior Tranche' shall mean the aggregate balance of the Loans
allocated to the Senior Note pursuant to Sections 2.16(a), 2.16(b)(i)
or 2.16(c)(i) hereof, as applicable."
(b) The definition of "Proposed Motel Facility Statement" is hereby
amended by deleting clause (f) thereof in the entirety and the
following is substituted in lieu thereof:
"(f) a copy of an Appraisal in respect of the Proposed Motel
Facility evidencing that the fair market value of such proposed
Motel Facility is not greater than $5,000,000
(c) The definition of Operating Lease is hereby amended by deleting
clause (a) thereof in the entirety and the following is hereby
substituted in lieu thereof:
(a) the fixed annual rent payable thereunder (i) with respect to any
Operating Lease in which the Operating Lessee is TAD Leasing, shall
not be less than twelve and nine-tenths percent (12.9%) of the lesser
of the: (x) respective Approved Construction Costs; and (y) fair
market value as set forth in the Appraisal included with the
respective Proposed Motel Facility Statement; and (ii) with respect
to any Operating Lease in which the Operating Lessee is not TAD
Leasing, shall not be less than ten percent (10%) of such Operating
Lessee's option price to purchase the respective Approved Motel
Facility during the fourth (4th) year of the term of the Operating
Lease as set forth in clause (b) of this definition."
3. The fourth sentence of Section 2.1 of the Credit Agreement (which
commences with the words "Each Loan advanced by the Lender . . .") and the
fifth sentence of Section 2.1 of the Credit Agreement (which commences with
the words "Each Loan advanced in connection with an Earnout . . . ") are
hereby deleted in their entirety and the following is hereby substituted in
lieu thereof:
"Except as expressly provided in Section 2.15 below, each Loan
advanced by the Lender in connection with the acquisition of an Approved Motel
Facility shall in no event exceed seventy percent (70%) of the lesser of: (a)
the Approved Construction Costs of the respective Approved Motel Facility; and
(b) the fair market value of the respective Approved Motel Facility as set
forth in the Appraisal included with the respective.Proposed Motel Facility
Statement. The portion of each Loan to be allocated to and evidenced by the
Senior Note, Mezzanine Note and Earnout Note, respectively, shall be as set
forth in Section 2.16 hereof."
4. Section 2.2(a) of the Credit Agreement is hereby amended by
deleting the phrase "or for an Earnout (as applicable)" set forth on the last
line of said Section 2.2(a).
5. The Lender shall have no obligation to fund any Earnouts as
provided in Section 2.3 of the Credit Agreement and therefore said Section 2.3
and Section 4.4 of the Credit Agreement are hereby deleted in the entirety.
Notwithstanding the foregoing, all other provisions in the Credit Agreement
relating to "Earnout", "Earnout Note", Earnout Tranche," "Earnout Tranche
Rate" and "Fixed Earnout Tranche Payment" shall apply to the term "Earnout" as
the definition of such term has been amended pursuant to this Amendment.
6. Section 2.8(a) of the Credit Agreement is hereby amended by
deleting "Senior Notes" and "Earnout Notes" in the second line of clause (a)
thereof and substituting in lieu thereof respectively "Senior Note" and
"Earnout Note" and by deleting "Senior Notes" in the eighteenth (18th) line of
clause (b) thereof and substituting in lieu thereof "Senior Note".
7. The following is hereby added as Section 2.15 of the Credit
Agreement.
"2.15 Lender Option (a) On or prior to the funding of the thirtieth
(30th) Loan, upon written notice to the Borrower, the Lender shall have the
right (but not the obligation) to:
(i) increase the aggregate amount of all Loans (whether previously
funded or to be funded under the Commitment) to an amount such that each Loan
will be equal to eighty percent (80%) of the lesser of: (x) the Approved
Construction Costs of the respective Approval Motel Facility; and (y) the fair
market value of the respective Approved Motel Facility as set forth in the
Appraisal included with the respective Proposed Motel Facility Statement, or
(ii) increase the aggregate amount of all Loans (whether previously
funded or to be funded under the Commitment) to an amount such that each Loan
will be equal to ninety percent (90%) of the lesser of: (x) the Approved
Construction Costs of the respective Approved Motel Facility; and (y) the fair
market value of the respective Approved Motel Facility as set forth in the
Appraisal included with the respective Proposed Motel Facility Statement.
(b) If the Lender elects to increase each Loan to the eighty percent
(80%) level as described in Section 2.15(a)(i) above, then:
(i) Within ten (10) Business Days after the Borrower receives notice
of such election (but not prior to the date the amount of each Loan funded
prior to the date of such election is increased in accordance with Section
2.15(d)(ii) hereof), the brrower shall convey (or cause to be conveyed) to the
Lender a five percent (5%) membership interest in the Borrower, and
(ii) Within twenty (20) Business Days after the Borrower receives
notice of such election the Lender shall have the right to elect, upon written
notice to the Borrower, to purchase an additional seven and one-half percent
(7 1/2%) membership interest in the Borrower for a payment to the Borrower in
the amount of Five Hundred Thousand Dollars ($500,000). Within ten (10)
Business Days after the Borrower receives notice of such election (but not
prior to the date the amount of each Loan funded prior to the date of such
election is increased in accordance with Section 2.15(d)(ii) hereof), and upon
receipt of the aforesaid payment, the Borrower shall convey (or cause to be
conveyed) to the Lender said seven and one-half percent (7 1/2%) membership
interest in the Borrower; and
(iii) The principal amount of each Loan, as increased, shall be
allocated to and evidenced by the Senior Note and the Mezzanine Note as set
forth in Section 2.16(b) hereof.
(c) If the Lender elects to increase each Loan to the ninety percent
(90%) level as described in Section 2.15(a)(ii) above, then:
(i) Within ten (10) Business Days after the Borrower receives notice
of such election (but not prior to the date the amount of each Loan funded
prior to the date of such election is increased in accordance with Section
2.15(d)(ii) hereof), the Borrower shall convey (or cause to be conveyed) to
the Lender an eleven percent (11%) membership interest in the Borrower;
(ii) Within twenty (20) Business Days after the Borrower receives
notice of such election the Lender shall have the right to elect, upon written
notice to the Borrower, to purchase an additional fifteen percent (15%)
membership interest in the Borrower for a payment to the Borrower in the
amount of One Million Dollars ($1,000,000). Within ten (10) Business Days
after the Borrower receives notice of such election (but not prior to the date
the amount of each Loan funded prior to the date of such election is increased
in accordance with Section 2.15(d)(ii) hereof), and upon receipt of the
aforesaid payment, the Borrower shall convey (or cause to be conveyed) to the
Lender said fifteen percent (15%) membership interest in the Borrower; and
(iii) The principal amount of each Loan, as increased, shall be
allocated to and evidenced by the Senior Note, the Mezzanine Note and the
Earnout Note as set forth in Section 2.16(c) hereof.
(d) If the Lender makes either of the elections set forth in Section
2.15(a)(i) or Section 2.15(a)(ii) hereof, then in either case:
(i) The amount of each Loan funded from and after the date of such
election shall be in accordance with said Sections 2.1 5(a)(i) or 2.15(a)(ii),
as applicable;
(ii) Within a reasonable period of time following said election by
the Lender (but in no event more than ten (10) days following the satisfaction
of the conditions precedent set forth below), the Lender shall increase the
amounts of all prior Loans in accordance with said Sections 2.15(a)(i) or
2.15(a)(ii), as applicable, provided, however, that the following conditions
precedent are satisfied:
(1) The Borrower shall have previously complied with the terms and
provisions of Section 4.1, 4.2 and 4.3 hereof;
(2) The Borrower shall have executed and delivered to the Lender
amendments to the Mortgage for each Approved Motel Facility for which each
increase of Loan is funded, in form and substance reasonably satisfactory to
the Lender;
(3) The Borrower shall have executed and delivered to the Lender such
amendments to the other Loan Documents relating to increase in each Loan as
shall be reasonably requested by the Lender;
(4) The Lender shall have received from real estate counsel to the
Borrower an update to the opinions described in Section 4.2(c) in form and
substance reasonably satisfactory to the Lender;
(5) The Lender shall have received an endorsement to the existing
Title Insurance Policy (in form and substance reasonably satisfactory to the
Lender) which amends the existing Title Insurance Policy by increasing that
the amount of insurance in an amount equal to 120% of the increased Loan and
by bringing forward the date of such policy to the date of the increase of
each Loan, and
(6) The Fixed Payment Certificate previously delivered with
respect to the Loan shall have been revised to reflect the increased amount of
each Loan and shall have been properly executed and delivered to the Lender.
(e) The right to purchase membership interests in the Borrower
pursuant to Sections 2.15(b) or 2.15(c) shall not be transferred by the
Lender, in whole or in part, except to: (i) one or more Affiliates of the
Lender; and/or (ii) with respect to the membership interests to be conveyed
pursuant to Section 2.15(b)(ii) or 2.15(c)(ii) hereof, to one or more
responsible Officers of the Lender or members of their immediate families or
trusts for the benefit of such persons ((i) and (ii) collectively, "Permitted
Transferee"). The conveyance of membership interests to the Lender (and any
Permitted Transferee) pursuant to Sections 2.15(b) or 2.15(c) hereof shall
apply to the respective percentage interests in the Borrower at the time of
the conveyance of such interests and any such conveyance shall be on a fully
diluted basis after giving effect to the exercise of any then outstanding
warrants, options or convertible securities, except: (x) the warrant of even
date herewith issued by the Borrower to the Lender (as the same may be
amended, the "Warrant"); and (y) the issuance or sale to officers and
employees of the Borrower of membership interests representing in the
aggregate up to five percent (5%) of the membership interests in the
Borrower. The Lender (and any Permitted Transferee) shall have the same rights
with respect to registration of the membership interests conveyed to the
Lender (and any Permitted Transferee) pursuant to this Section 2.15 as set
forth in the Warrant with respect to the registration of the interests set
forth therein."
8. The following is hereby added as Section 2.16 to the Credit
Agreement:
"2.16 Allocations.
(a) Prior to such time that the Lender elects to increase the amount
of each Loan pursuant to Section 2.15 hereof, one hundred percent (100%) of
each Loan shall be allocated to and evidenced by the Senior Note.
(b) If the Lender elects to increase each Loan to the eighty percent
(80%) level as more particularly described in Section 2.15(a)(i) hereof,
then:
(i) The portion of each Loan to be allocated to and evidenced by the
Senior Note shall be an amount equal to the product of: (x) the amount of the
Loan, and (y) .8875; and
(ii) The portion of each Loan to be allocated to and evidenced by
the Mezzanine Note shall be an amount equal to the product of: (x) the amount
of the Loan; and (y) .1125
(c) If the Lender elects to increase each Loan to the ninety percent
(90%) level as more particularly described in Section 2.15(a)(ii) hereof,
then:
(i) The portion of each Loan to be allocated to and evidenced by the
Senior Note shall be an amount equal to the product of: (X) the amount of the
Loan; and (y) .7888;
(ii) The portion of each Loan to be allocated to and evidenced by the
Mezzanine Note shall be an amount equal to the product of: (x) the amount of
the Loan; and (y) .1; and
(iii) The portion of each Loan to be allocated to and evidenced by
the Earnout Note shall be an amount equal to the product of: (x) the amount of
the Loan; and (y) .1111.
(d) All amounts to be allocated in accordance with the foregoing
shall be rounded up to the nearest dollar amount such that the sum of the
portions of each Loan allocated to the Senior Note, Mezzanine Note and Earnout
Note (as applicable) equals the total amount of each Loan. Solely for the
avoidance of doubt and providing clarification of the allocations set forth in
this Section 2.16, attached hereto on Schedule A is an example of the
foregoing allocations to the Senior Note, Mezzanine Note and Earnout Note.
9. Exhibit F to the Credit Agreement is hereby deleted in the
entirety and Exhibit F and Exhibit F-i attached hereto are hereby substituted
in lieu thereof.
10. Exhibit H to the Credit Agreement is hereby deleted in the
entirety and Exhibit H attached hereto is hereby substituted in lieu thereof
11. Exhibit L to the Credit Agreement is hereby deleted in the
entirety and Exhibit L attached hereto is hereby substituted in lieu thereof.
12. Schedule A attached hereto is hereby added as Schedule A to the
Credit Agreement.
13. The Credit Agreement, as amended hereby, is in full force and
effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the day and year first written above.
LENDER:
CREDIT SUISSE FIRST
BOSTON MORTGAGE
CAPITAL LLC
By:
Name:
Title.
Authorized Signatory
BORROWER
TAD PROPERTIES, L
L.C.
By: Tad Membership Corp.,
Managing Member
By:
Name:
Title:
Motels of America, Inc. hereby executes this Amendment solely for the purpose
of acknowledging its consent thereto.
MOTELS OF AMERICA, INC.
By:
Name:
Title:
<PAGE>
SCHEDULE A
Example of Allocations
of Each Loan to the Senior Note,
Mezzanine Note and Earnotit Note
1. INITIAL LOAN
Approved Construction Cost ("ACC"): $ 80
Fair Market Value from Appraisal ("FMV"): $100
Loan Amount (Prior to Any Election by $ 56 (.70 of lesser of ACC and FMV)
Lender under Section 2.15)
2. CIRCUMSTANCE ONE: Lender does not elect to increase Loans pursuant to
Section 2.15
Loan Amount Senior Note Mezzanine Note Earnout Note
$56 $56 $0 $0
3. CIRCUMSTANCE TWO: Lender elects to increase each Loan to the 80% level
pursuant to Section 2.15(a)(i):
Loan Amount Senior Note Mezzanine Note Earnout Note
$64 $56.80 $7.20 $0
(.80 of lesser (.8875 of $64) (.1125 of $64)
of ACC and FMV)
4. CIRCUMSTANCE THREE: Lender elects to increase each Loan to the 90% level
pursuant to Section 2.1 5(a)(i) hereof.
Loan Amount Senior Note Mezzanine Note Earnout Note
$72 $56.80 $7.20 $8
(.90 of lesser (.7888 of $72) (.1 of $72) (.1111 of $72)
of ACC and FMV)
Exhibit 21.1
Information pertaining to the subsidiaries of MOA Hospitality, Inc. as
of March 20, 1998 is set forth in the following table:
Name of Subsidiary State of Incorporation
------------------ ----------------------
Ben Franklin Florida Enterprises, Inc. Florida
Broadleaf Hotels, Inc. California
Budget Motel Supply Corporation Delaware
Central Park Motel Corp. Delaware
Gateway Restaurant, Inc. California
Kansas City Hotel Corporation Kansas
Megan Park, Inc. Illinois
Motels of America, L.L.C. Delaware
MOA Centro, Corp Delaware
MOA Investor Corp. Delaware
MOA Membership Corp Delaware
MOA Portfolio II, Ltd. Delaware
MOA-CS Corp. Delaware
MOA-TL Corp. Delaware
MOA-TL Holding Corp. Delaware
Pacshore Initial Corp. Delaware
The Products Group, Inc Delaware
TAD Membership Corp. Delaware
TAD Properties, L.L.C. Delaware
TD Leasing Corp. Delaware
TD Leasing L.L.C. Delaware
<PAGE>
Name of Subsidiary State of Incorporation
------------------ ----------------------
Tri-State Inns, Inc. Georgia
York Motel Corp. Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
INTERIM CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 13,032,496
<SECURITIES> 0
<RECEIVABLES> 9,642,846
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 384,861,119
<DEPRECIATION> 73,869,204
<TOTAL-ASSETS> 362,858,977
<CURRENT-LIABILITIES> 0
<BONDS> 324,989,536
0
0
<COMMON> 8,000
<OTHER-SE> 19,586,086
<TOTAL-LIABILITY-AND-EQUITY> 362,858,977
<SALES> 0
<TOTAL-REVENUES> 122,367,139
<CGS> 0
<TOTAL-COSTS> 71,238,294
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,372,749
<INCOME-PRETAX> (5,480,812)
<INCOME-TAX> (2,108,997)
<INCOME-CONTINUING> (3,371,815)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,371,815)
<EPS-PRIMARY> (4.21)
<EPS-DILUTED> (4.21)
</TABLE>
