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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) January 30, 1998
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Realty ReFund Trust
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(Exact Name of Registrant as Specified in its Charter)
Ohio
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(State or Other Jurisdiction of Incorporation)
001-07062 34-6647590
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(Commission File Number) (I.R.S. Employer Identification No.)
925 Euclid Avenue, Suite 1750, Cleveland, Ohio 44115
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(Address of Principal Executive Offices) (Zip Code)
(216) 622-0046
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(Registrant's Telephone Number, Including Area Code)
1385 Eaton Center, Cleveland, Ohio 44114
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(Former Name or Former Address, if Changed Since Last Report)
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Item 1. Changes in Control of Registrant.
In accordance with the terms of the Formation Agreement approved at the
1997 annual shareholders' meeting held on January 28, 1998, the trustees
(Alan M. Krause, James H. Berick, Alvin M. Kendis, Frank L. Kennard and
Samuel S. Pearlman) and executive officers (Alan M. Krause, Chairman and Co-
Chief Executive Officer, and James H. Berick, President and Treasurer) of
Realty ReFund Trust ("RRF") resigned effective January 30, 1998. James F.
Wirth, Gregory D. Bruhn, Marc E. Berg, Mark J. Nasca, Lee J. Flory and Edward
G. Hill were appointed the new trustees of RRF effective January 30, 1998.
Mr. Wirth was also appointed Chairman, President and Chief Executive Officer
of RRF and Mr. Bruhn was also appointed Executive Vice President, Chief
Financial Officer, Treasurer and Secretary of RRF. The new trustees and
executive officers of RRF currently beneficially own 45.8% of the outstanding
shares of beneficial interest of RRF; all of those shares are beneficially
owned by Mr. Wirth and his wife, Gail J. Wirth. The Formation Agreement,
attached hereto as Exhibit 2.1 and incorporated herein by reference, more
fully describes the transactions which resulted in the change of control and
the consideration therefor. RRF is not presently aware of any arrangements
which may at a subsequent date result in a further change in control.
Item 2. Acquisition or Disposition of Assets.
On February 2, 1998, the "Formation Transactions" described generally
below were entered into by RRF in accordance with the terms of the Formation
Agreement. The Formation Transactions are more fully described in the Formation
Agreement, attached hereto as Exhibit 2.1 and incorporated herein by reference,
which Agreement was approved at the 1997 annual shareholders' meeting held on
January 28, 1998.
In general terms, the Formation Transactions resulted in the formation of a
limited partnership by RRF and Hospitality Corporation International ("HCI"), a
privately-held Arizona corporation. HCI and its principal, James F. Wirth,
through affiliated entities, controlled seven all-suite hotel properties,
comprising 1,036 hotel studio and two-room suites, in Tucson, Phoenix,
Scottsdale, Tempe, Flagstaff and Yuma, Arizona and in Ontario, California, five
of which were owned by partnerships and two of which were owned by corporations.
RRF is the 13% general partner, and the investors in the five partnerships and
one of the corporations are the 87% limited partners, in the newly-formed
limited partnership. This newly-formed limited partnership acquired substantial
interests in the five partnerships and the one corporation. The investors
(including Messrs. Wirth, Berg and Flory) received partnership interests in the
newly-formed limited partnership in exchange for their interests in the five
partnerships and the one corporation. The remaining corporation, which was owned
by Mr. Wirth and his wife, was acquired directly by a newly-formed subsidiary of
RRF in a stock-for-stock exchange. The partnership interests and RRF stock
issued in exchange for the seven hotel properties had an approximate aggregate
value of $35,608,000, which represents the appraised value (as determined by
independent appraisals) of the seven hotel properties less outstanding debt to
be assumed. That value was determined in arms-length negotiations between HCI
and RRF prior to the change in control described in Item 1, above. As
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described in Item 1, above, Mr. Wirth is now an officer and trustee of RRF and
Messrs. Berg and Flory are now trustees of RRF. RRF intends to utilize the
assets acquired by it in the Formation Transactions in accordance with their use
prior to the acquisition. The effect of the Formation Transactions is to
re-direct the investment focus of RRF from its prior investment strategy of
making wrap-around mortgage loans to the equity ownership of hotel properties,
initially located in the southwestern United States.
Item 7. Financial Statements and Exhibits
(a) - (b) Financial statements and pro forma financial information
will be filed, pursuant to the provisions of paragraph (a)(4)
of Item 7, in an amendment to this Current Report on Form 8-K
within 60 days after the date of this filing.
(c) Exhibits.
Formation Agreement, dated as of December 15, 1996, by and
among Realty ReFund Trust, Mid-America ReaFund Advisors, Inc.,
InnSuites Hotels, L.L.C., Hospitality Corporation
International, Alan M. Krause, James H. Berick, James F.
Wirth, and five hotel partnerships and two hotel corporations.
Exhibit
No. Document Description
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2.1 Formation Agreement, dated as of December 15, 1996,
by and among Realty ReFund Trust, Mid-America ReaFund
Advisors, Inc., InnSuites Hotels, L.L.C., Hospitality
Corporation International, Alan M. Krause, James H.
Berick, James F. Wirth, and five hotel partnerships
and two hotel corporations.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Realty ReFund Trust
(Registrant)
Dated:February 17, 1997 By: /s/ Gregory D. Bruhn
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Name: Gregory D. Bruhn
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Title: Executive Vice President, Chief
Financial Officer, Treasurer and
Secretary
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INDEX TO EXHIBITS
Exhibit
No. Document Description
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2.1 Formation Agreement, dated as of December 15, 1996,
by and among Realty ReFund Trust, Mid-America ReaFund
Advisors, Inc., InnSuites Hotels, L.L.C., Hospitality
Corporation International, Alan M. Krause, James H.
Berick, James F. Wirth, and five hotel partnerships
and two hotel corporations.
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Exhibit 2.1
FORMATION AGREEMENT
This Formation Agreement is made and entered into this 15th day of
December, 1996, by and among Realty ReFund Trust, an unincorporated Ohio real
estate investment trust having an address at 1385 Eaton Center, Cleveland, Ohio
44114 ("RRF"); Mid-America ReaFund Advisors, Inc., an Ohio corporation having an
address at 1385 Eaton Center, Cleveland, Ohio 44114 ("MARA"); InnSuites Hotels,
L.L.C., an Arizona limited liability company having an address at Suite 105,
1615 East Northern Avenue, Phoenix, Arizona 85020 ("ISH"); Hospitality
Corporation International, an Arizona corporation having an address at Suite
105, 1615 East Northern Avenue, Phoenix, Arizona 85020 ("HCI"); Alan M. Krause,
a shareholder of RRF and MARA having an address in care of RRF ("Krause"); James
H. Berick, a shareholder of MARA having an address in care of RRF ("Berick");
James Wirth, the President of the managing member of ISH and the President of
HCI having an address in care of HCI ("Wirth"); and the seven limited
partnerships or corporations, as the case may be, listed on Schedule I hereto
(each, a "Hotel Company" and, collectively, the "Hotel Companies"). All seven of
the Hotel Companies are controlled by HCI and/or Wirth or an affiliate, and each
has an address in care of HCI. RRF, MARA, Krause and Berick sometimes are
referred to herein collectively as the "RRF Parties"; Wirth, ISH, HCI and the
Hotel Companies sometimes are referred to herein collectively as the "ISH
Parties".
RECITALS:
A. RRF was organized in 1971 and has qualified as a "real estate investment
trust" ("REIT") for federal income tax purposes since its organization. RRF's
shares of beneficial interest, without par value ("RRF Shares"), currently are
listed for trading on the New York Stock Exchange ("NYSE") under the symbol
"RRF".
B. The Hotel Companies own and/or manage a total of seven all-suite hotel
properties, comprising 1,037 hotel studio and two-room suites, in Tucson,
Phoenix, Scottsdale, Tempe, Flagstaff and Yuma, Arizona and in Ontario,
California (the "Hotels").
C. HCI wishes to provide, among other things, for the terms of the transfer
of its and its affiliates' ownership interests in the Hotel Companies to RRF
Operating Limited Partnership, a to-be-formed Delaware limited partnership (the
"Operating Partnership"), in which certain of the equity owners of the Hotel
Companies will be the initial limited partners and RRF will be the general
partner.
D. Wirth wishes to provide for the terms of his acquisition of all of the
outstanding capital stock of MARA and the acquisition by him or an affiliate of
200,000 presently issued and outstanding RRF Shares, and for his designees to
assume majority control of RRF's Board of Trustees.
E. The parties hereto desire that the transactions contemplated herein
regarding the organization of the Operating Partnership and the restructuring of
the ownership and control of the Hotel Companies, RRF and MARA (such
transactions, collectively, the "Formation") be implemented through the timely
execution and closing of the transactions contemplated by this Agreement and of
the agreements contemplated hereby (this Agreement and all other agreements and
instruments contemplated hereby which are required to be executed at or prior to
the closing of the Formation pursuant to this Agreement (such date, the "Closing
Date") hereinafter are referred to collectively as the "Transaction
Agreements"). Accordingly, the parties hereto wish to enter into this Agreement.
NOW THEREFORE, in consideration of the premises and the mutual agreements
contained herein, and for other good, valuable and binding consideration, the
receipt and sufficiency of which hereby are acknowledged, and subject to the
terms hereof, the parties hereto, intending legally to be bound, hereby agree as
follows:
Section 1. Transaction Agreements.
Subject to the fulfillment or waiver of the conditions specified in Section
7, below, and pursuant to and in accordance with the Transaction Agreements, at
or prior to the Closing Date:
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(a) Operating Partnership Agreement. RRF, HCI and each equity owner
of each Hotel Company which is a limited partnership (each, a "Partnership
Hotel Company") who elects to participate in the Private Placement (as
hereinafter defined)(each, a "Participating Equity Owner") shall execute
and enter into an Agreement of Limited Partnership of the Operating
Partnership (the "Operating Partnership Agreement"). The Operating
Partnership Agreement will provide, inter alia, for the contribution by HCI
and each Participating Equity Owner of its respective ownership interests
in each Partnership Hotel Company to the Operating Partnership, and for HCI
to make certain representations and warranties to RRF including, without
limitation, as to the material accuracy of all information furnished to RRF
in respect of the Hotel Companies and the Hotels and as to customary real
estate matters. The Operating Partnership Agreement will specify that the
ownership interests of HCI and the Participating Equity Owners in the
Partnership Hotel Companies will be transferred to the Operating
Partnership; that the aggregate ownership interests of HCI and the
Participating Equity Owners in the Operating Partnership will equal the
"ISH Ownership Percentage" (as defined below); and that the aggregate
ownership interest of RRF in the Operating Partnership will equal the "RRF
Ownership Percentage" (as defined below). The Operating Partnership will
issue to RRF, as general partner, and to the Participating Equity Owners,
in the aggregate, as initial limited partners, such number of general or
limited partnership units, as the case may be, as shall equal the OP RRF
Contribution or the OP Hotel Contribution (each as defined below),
respectively, divided by five (5). Each Participating Equity Owner will
receive his ratable proportion of such aggregate number of limited
partnership units. The Operating Partnership Agreement further will provide
that the limited partnership units in the Operating Partnership shall be
convertible into RRF Shares, on a one-for-one basis. Notwithstanding the
foregoing, however, no such conversion will be permitted for a specific
limited partner if RRF determines that such conversion would be likely to
cause RRF no longer to qualify as a REIT. RRF will contribute to the
Operating Partnership, in exchange for its general partnership interest
therein, an amount of its cash and/or other property in such proportion to
its total assets as the Agreed Equity Value of the Hotels contributed to
the Operating Partnership bears to the ISH Portfolio Value (such
proportion, the "Partnership Hotel Percentage"). An example of the
foregoing calculation is set forth on Schedule III attached hereto.
For purposes of this Agreement, the term "ISH Ownership Percentage"
shall mean the fraction, expressed as a percentage, that is the product of
(i) the "ISH Portfolio Value", which for purposes of this Agreement shall
be the aggregate Agreed Equity Value (as hereinafter defined) of all seven
of the Hotels, divided by (ii) the sum of (x) the ISH Portfolio Value plus
(y) $5,102,930 [i.e., $5.00 per RRF Share multiplied by 1,020,586
outstanding RRF Shares](the "RRF Agreed Value").
For purposes of this Agreement, the term "RRF Ownership Percentage"
shall mean the fraction, expressed as a percentage, that is the product of
(i) the RRF Agreed Value, divided by (ii) the sum of (x) the ISH Portfolio
Value plus (y) the RRF Agreed Value.
For purposes of this Agreement, the term "Operating Partnership Value"
shall mean the sum of (x) the aggregate Agreed Equity Value of the Hotels
contributed to the Operating Partnership by the Partnership Hotel Companies
(the "OP Hotel Contribution"), plus (y) the product of the RRF Agreed Value
multiplied by the Partnership Hotel Percentage (the "OP RRF Contribution").
For purposes of this Agreement, the term "Agreed Equity Value" shall
mean the appraised value of the Hotels, less outstanding debt to be
assumed.
(b) Acquisition of Corporate Hotel Companies. Each of the two Hotel
Companies which is a corporation (a "Corporate Hotel Company") shall enter
into either an Agreement of Merger (a "Merger Agreement") and/or a Purchase
and Sale Agreement (a "Hotel Purchase Agreement") with RRF. It is
contemplated that the Corporate Hotel Company that owns the Flagstaff,
Arizona Hotel will receive RRF Shares as the consideration for transfer of
that Hotel to RRF, pursuant to either a Merger Agreement or a Hotel
Purchase Agreement, based upon the Agreed Equity Value of that Hotel and
that the Corporate Hotel Company that owns the Scottsdale, Arizona Hotel
will receive a combination of RRF Shares and cash, in the form of a
promissory note or notes of RRF in a principal amount of up to $4.4
million, bearing interest and otherwise payable in a manner similar to the
terms of the promissory note referenced in Section 1(f) of this
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Agreement, as the consideration for the transfer of that Hotel to RRF
pursuant to either a Merger Agreement or a Hotel Purchase Agreement. The
Corporate Hotel Company that owns the Flagstaff, Arizona Hotel will receive
such number of RRF Shares as shall equal the Agreed Equity Value of such
Hotel divided by five (5); the Corporate Hotel Company that owns the
Scottsdale, Arizona Hotel will receive such number of RRF Shares as shall
equal the Agreed Equity Value of such Hotel, minus the principal amount of
the promissory note referred to in the preceding sentence, divided by five
(5).
(c) Purchase of MARA Capital Stock. Wirth, or an affiliated nominee,
will enter into a Stock Purchase Agreement (the "MARA Purchase Agreement")
with Krause and Berick providing for the purchase by Wirth (or such
affiliated nominee) of all of the outstanding capital stock of MARA (the
"MARA Shares"), free and clear of all liens and encumbrances, for a
purchase price equal to $750,000, of which $300,000 will be payable in cash
on the Closing Date, with the balance payable in two equal annual
installments of $225,000 each, together with interest on the unpaid amount
at 7% per annum, compounded annually and computed on the basis of a 365-day
year. Interest shall be payable annually, together with the payment of
principal then due, on each of the first two anniversaries of the Closing
Date. The obligations of Wirth (or such affiliated nominee) to Krause and
Berick under the MARA Purchase Agreement will be secured by a pledge of the
MARA Shares, and the MARA Purchase Agreement will provide for the
acceleration of all unpaid amounts thereunder upon any sale, transfer,
assignment or pledge of all or substantially all of the capital stock
and/or assets of MARA to an unaffiliated third party prior to the payment
in full of all amounts owing thereunder to Krause and Berick.
(d) Purchase of Outstanding RRF Shares. ISH, or an affiliated
nominee, will enter into a Share Purchase Agreement (the "RRF Purchase
Agreement") with Krause providing for the purchase by ISH (or such
affiliated nominee) of 200,000 presently issued and outstanding RRF Shares
held as of the date hereof by Krause and/or certain other holders of RRF
Shares designated by Krause, free and clear of all liens and encumbrances,
for an aggregate purchase price equal to $1,000,000, which will be payable
in cash on the Closing Date.
(e) Issuance of RRF Shares. Concurrently with the Formation, RRF, at
Wirth's option, will issue to parties designated by Wirth, pursuant to an
Exchange Agreement between RRF and such parties (the "Exchange Agreement"),
200,000 presently authorized but unissued RRF Shares in exchange for
$1,000,000 of equity interests in the Hotel Companies which otherwise would
be transferred pursuant to the Operating Partnership Agreement, the Merger
Agreement or the Hotel Purchase Agreement.
(f) Wirth Option. At his option, Wirth may elect to receive, in lieu
of up to $4,400,000 of consideration otherwise to be received by him in
exchange for his equity interests in the Hotel Companies in the form of RRF
Shares or limited partnership interests in the Operating Partnership, a
payment from the Operating Partnership or RRF in the form of a promissory
note or notes in an aggregate principal amount not to exceed $4,400,000 of
the Operating Partnership or RRF, as the case may be, bearing interest on
the principal amount thereof at the rate of 7% per annum, compounded
annually and computed on the basis of a 365-day year, payable in thirty-six
(36) equal monthly installments of principal and interest.
(g) MARA and the Operating Partnership. Concurrently with the
Formation, RRF's Board of Trustees, acting pursuant to Section 3.4 of RRF's
First Amended and Restated Declaration of Trust, will request, and MARA
will so agree, that MARA enter into an advisory arrangement with the
Operating Partnership that will provide MARA with the same level of
advisory compensation in respect of assets of the Operating Partnership as
MARA currently receives in respect of assets of RRF pursuant to its
Advisory Agreement with RRF.
(h) Related ISH Entities. Upon the consummation of the Formation,
Wirth, ISH and/or HCI will make available to MARA such additional personnel
as shall be necessary to enable MARA to provide appropriate asset
management and advisory services to RRF and the Operating Partnership.
Wirth shall cause his affiliate, InnSuites Innternational Hotels, Inc.
("ISIH"), a to-be-formed Arizona or Nevada corporation, to enter into
substantially identical standard percentage leases of each Hotel from the
Operating Partnership (or RRF, in the case of the corporate-owned Hotels).
The terms of such leases (including, without limitation, rent, lease term,
and provisions for termination by the Operating Partnership or RRF, as
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the case may be,) will be reasonably satisfactory in form and substance to
RRF. In addition, Wirth will cause his affiliates to transfer rights and
resources to ISIH to enable it to provide property management services and
trademark and licensing services, subject to terms and conditions
reasonably satisfactory to RRF in form and substance.
(i) Termination of Krause and Berick Employment Agreements. At the
Closing Date, Krause and Berick each will execute such documents as
reasonably requested by Wirth in order to effect the termination of their
respective Employment Agreements with RRF, without any cost or liability to
RRF.
Section 2. Management of RRF. RRF, as of the Closing Date, shall secure
the resignations from its Board of Trustees of each of the current Trustees
other than Alan M. Krause, who will appoint James Wirth, Marc E. Berg, Mark J.
Nasca and Gregory D. Bruhn to fill the vacancies thus created, which parties
will expand the size of the Board by one and will appoint M. William Isbell to
the vacancy thus created. Alan M. Krause agrees to continue to serve on RRF's
Board of Trustees until the date of RRF's 1997 Annual Meeting of Shareholders
and agrees to resign at that time unless requested to remain a Trustee, which
request he may accept or decline at his sole option. Wirth, ISH and HCI agree
that they will, or will cause their designees to the Board of Trustees of RRF
and the Board of Directors of MARA, as the case may be, to, enter into
agreements with each of the trustees, officers and directors of RRF and MARA
serving as of the date hereof (each such person, an "Indemnified Person")
whereby RRF and MARA each agree to continue to indemnify each Indemnified Person
to the maximum extent permitted by applicable law from and against any
liability, cost or expense arising out of any act or omission on the part of
such Indemnified Person taken (or alleged to have been taken) at any time in his
or her capacity as a trustee, officer and/or director of RRF and/or MARA, as the
case may be.
Section 3. RRF Shareholder Approval. RRF shall prepare and, following
completion of the Private Placement (as hereinafter defined), submit to its
shareholders, as promptly as may be practicable, proxy materials soliciting the
approval of such shareholders for the transactions comprising the Formation. The
parties hereto acknowledge that RRF will be required to submit such proxy
materials to the Securities and Exchange Commission and the NYSE for their
respective comment and approval prior to the distribution of such materials to
its shareholders. Wirth, ISH, HCI, the Hotel Companies and their respective
affiliates, attorneys, accountants and other advisors each shall cooperate fully
in the preparation of said proxy materials and shall furnish such assistance as
RRF reasonably may request in connection therewith.
RRF shall use all reasonable efforts to obtain SEC and NYSE clearance of
the Proxy Statement and, to the extent required, approval of the transactions
comprising the Formation. Each of ISH and HCI shall furnish all information
concerning it and the Hotel Companies and the holders of equity interests
therein, and RRF shall furnish all information concerning it and the holders of
its shares, as may be required by the Securities Exchange Act of 1934, as
amended (the "Exchange Act") or the regulations promulgated thereunder, or as
the other may reasonably request in connection with such actions. As promptly as
practicable after clearance of the Proxy Statement, RRF shall mail the proxy
statement to its shareholders. The Proxy Statement shall include the
recommendation of RRF's Board of Trustees in favor of shareholder approval of
the transactions comprising the Formation.
RRF shall, promptly after the date of this Agreement, take all action
necessary to convene a meeting of RRF's shareholders to act on approval of the
transactions comprising the Formation, and shall consult with ISH and HCI in
connection therewith. RRF shall use its reasonable best efforts to solicit from
its shareholders proxies in favor of the approval of the transactions comprising
the Formation and to secure the vote or consent of shareholders required to
approve the transactions comprising the Formation. Such solicitation shall not
be commenced by RRF until such time as the Private Placement (as defined below)
shall have been completed, with the closing thereof being subject only to the
consummation of the other transactions contemplated by this Agreement.
RRF shall, promptly after the date of this Agreement, take all action
necessary to obtain the listing on NYSE of a number of additional shares of RRF
equal to or in excess of the maximum number of RRF shares issuable upon
conversion of partnership interests in the Operating Partnership as contemplated
by Section 1(a) above and in connection with the transactions contemplated by
Sections 1(b) and (e) above and shall consult with HCI and ISH in connection
therewith.
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Section 4. Approvals of the Hotel Companies. HCI shall, promptly after
the date of this Agreement, prepare and submit to each equity holder in the
Hotel Companies a private placement memorandum (the "PPM") pursuant to which
such equity holders will be offered the opportunity to exchange their equity
interests in the respective Hotel Companies for partnership interests in the
Operating Partnership which shall be convertible into RRF shares as contemplated
by Section 1(a) above and as provided in the Operating Partnership Agreement
(such offer, the "Private Placement"). The PPM shall also solicit the consent of
such equity holders to the transactions comprising the Formation to the extent
such consent may be required by the organizational documents of the respective
Hotel Companies. The terms of the Private Placement shall provide, among other
things, that the equity owners in the Hotel Companies shall have the right to
accept the Private Placement, accept cash in an amount determined as provided in
the PPM as an alternative to accepting the Private Placement, or decline to
accept the Private Placement or cash; provided, however, that the PPM will
provide that the Private Placement shall not be concluded unless HCI and ISH, in
consultation with counsel, determine to their satisfaction that the Private
Placement will be effected in compliance with the requirements of Rule 506 under
the Securities Act of 1933, as amended (the "Securities Act"), including,
without limitation, the limitation on the number of purchasers set forth in Rule
506(b)(2). The PPM shall include the recommendation of the general partners or
managing members of each Hotel Company in favor of the exchange and the Private
Placement shall be completed, subject only to the consummation of the other
transactions contemplated by this Agreement.
Each of ISH and HCI shall furnish all information concerning it and the
Hotel Companies and the holders of equity interests therein, and RRF shall
furnish all information concerning it and the holders of its shares for
inclusion in the PPM, as may be required to be included in the PPM by the
Securities Act or the regulations promulgated thereunder, or as the other may
reasonably request in connection with such actions. RRF, MARA and their
respective affiliates, attorneys, accountants and advisors each shall cooperate
fully in the preparation of said consent materials and furnish such assistance
as HCI reasonably may request in connection therewith.
Section 5. Representations and Warranties.
(a) Organization and Good Standing. RRF, MARA, HCI, ISH, and each Hotel
Company each represents and warrants to each of the other parties hereto that it
has been duly organized and is validly existing in good standing under the laws
of its respective jurisdiction of organization. RRF represents to each of the
ISH Parties that: to its best knowledge, it has maintained continuous
qualification as an REIT within the meaning of Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended; such qualification will not be
jeopardized by the consummation of the Formation; and there is not pending, nor
to its knowledge is there threatened, any action or proceeding to effect the
delisting of the RRF Shares from the NYSE.
(b) Authority. Each party hereto represents and warrants to each of the
other parties hereto that, subject only to the receipt of the approvals
described in Sections 3 and 4, above, as applicable, such party has the power
and authority to execute, deliver and perform this Agreement and the Transaction
Agreements to be executed by such party and to consummate the transactions
contemplated hereby and thereby; that this Agreement has been (or, upon the
receipt of such approvals, will be) duly and validly executed and delivered on
such party's behalf; that each of such Transaction Agreements to be executed by
such party, when executed and delivered, will be duly authorized, executed and
delivered on its behalf; and that this Agreement is, and when executed and
delivered by such party each of the Transaction Agreements will be, upon the due
execution and delivery thereof by each of the other parties thereto, the legal,
valid and binding obligation of such party, enforceable against such party in
accordance with the respective terms thereof, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement thereof or relating to creditors' rights
generally.
(c) Consents. Each party hereto represents and warrants to each of the
other parties hereto that, except as set forth in Sections 3 and 4, above, as
applicable, no consent, approval, permit or order of, nor filing with, any
individual, partnership, corporation, trust or other entity, government agency
or political subdivision, is required in connection with: (i) the execution,
delivery and performance of this Agreement or the Transaction Agreements by such
party or (ii) the consummation by such party of the transactions contemplated
hereby or thereby (including, without limitation, any required consent of the
spouse of any natural person who is a party hereto and is subject to the
community property laws of any jurisdiction), other than any such consent,
approval, permit or
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order obtained, or filing made, prior to the Closing Date in a form reasonably
satisfactory to the other parties hereto. RRF represents and warrants to each of
the ISH Parties that the transactions contemplated hereby will not result in the
triggering of any "poison pill" or similar shareholder rights plan in respect of
its securities. MARA and RRF represent and warrant to each of the ISH Parties
that MARA is not currently in default in its obligations to RRF under the
Advisory Agreement between MARA and RRF, as in effect on the date hereof, that
such Advisory Agreement is enforceable in accordance with its terms, and that
the sale of the MARA Shares pursuant to the MARA Purchase Agreement will
transfer to the purchaser(s) thereof all of the rights which currently inure to
the benefit of Krause and Berick, as the sole shareholders of MARA, in respect
of such Advisory Agreement.
(d) No Violation. Each party hereto represents and warrants to each of the
other parties hereto that, upon receipt of the approvals contemplated by
Sections 3 and 4, above, and the approvals from mortgage lenders (the "Lender
Approvals") which have a right to approve the transactions contemplated hereby,
as referred to in Section 6(g), below, none of the execution, delivery and
performance by such party of this Agreement or the execution, delivery or
performance by such party of the Transaction Agreements to be executed by such
party, nor the consummation by such party of the transactions contemplated
hereby or thereby, will violate any provision of the organizational documents of
such party or violate or be in conflict with, or constitute a default (or an
event or condition which, with notice or lapse of time or both, would constitute
a default) under, or result in the termination or acceleration of, or result in
the creation or imposition of any lien or encumbrance under, any agreement,
note, mortgage or other instrument to which such party is a party or by which
such party may be bound or subject, or violate any statutes, orders, rules and
regulations promulgated by any governmental body, or violate any court order or
decree binding upon such party.
(e) Brokers'/Finders' Fees. Each party hereto represents and warrants to
each of the other parties hereto that it has not employed a broker or finder in
connection with any transactions contemplated by the Formation other than, in
the case of RRF and MARA: Brown, Gibbons, Lang & Company, L.P.; and in the case
of Wirth, ISH, HCI and the Hotel Companies: JDI Realty, LLC and Berg Investment
Advisers. Each party ("First Party") agrees to indemnify and hold harmless any
other party hereto from and against any claim asserted against any such other
party for a brokerage, agent's, finder's or originator's commission or other
similar compensation in respect of the transaction contemplated by this
Agreement by any person purporting to act on behalf of First Party.
(f) Ownership of MARA Shares and RRF Shares. Each of Krause and Berick,
severally and not jointly, represents and warrants to each of the ISH Parties
that he is the lawful owner of fifty (50) MARA Shares, each such person's
shareholdings comprising 50% of the outstanding capital stock of MARA, and that
he has good and marketable title to such MARA Shares, free and clear of any
liens, encumbrances, equities, restrictions and claims of every kind and nature
whatsoever, and that he has full right, power and authority to transfer such
interests as contemplated by the MARA Purchase Agreement. Krause represents and
warrants to each of the ISH Parties that he is the lawful owner as of the date
hereof of approximately 164,000 of the 200,000 RRF shares to be sold to Wirth
pursuant to Section 1(d), above, and that he and each other seller of any of
such RRF Shares has good and marketable title to the RRF Shares to be sold by
such person pursuant to the RRF Purchase Agreement, in each case free and clear
of any liens, encumbrances, equities, restrictions and claims of every kind and
nature whatsoever, and that he and each other seller of any of such RRF Shares
has full right, power and authority to transfer such RRF Shares as contemplated
by the RRF Purchase Agreement.
(g) Ownership of the Hotel Companies. HCI represents and warrants to each
of the RRF Parties that the ownership of the Hotel Companies as of the date
hereof is as set forth on Schedule I hereto, and that, subject to the approvals
set forth in Section 4, above, and any required Lender Approvals, the persons or
entities indicated thereon have good and marketable title to such equity
interests, free and clear of any liens, encumbrances, equities, restrictions and
claims of every kind and nature whatsoever, and that such owners have full
right, power and authority to transfer such interests as contemplated by the
Operating Partnership Agreement, the Merger Agreement and/or the Exchange
Agreement, as the case may be.
(h) Investment Intent. Each of Wirth, ISH, and HCI, severally and not
jointly, represents and warrants to each of the RRF Parties and to RRF for the
benefit of the Operating Partnership, that it is acquiring its respective RRF
Shares, MARA Shares and/or limited partnership interests in the Operating
Partnership for its own account
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<PAGE> 7
for purposes of investment and not with a view to effecting a public
distribution thereof, subject to its respective rights under the Operating
Partnership Agreement to sell or otherwise transfer such limited partnership
interests pursuant to an exemption from registration under applicable securities
laws.
(i) Execution on Behalf of the Hotel Companies. Each Hotel Company
represents and warrants to each of the RRF Parties that the general partners (or
managing members or officers, as the case may be) of such Hotel Company
executing this Agreement will have full power and will have been duly
authorized, as of the Closing Date, in accordance with the organizational
documents of such Hotel Company, to execute on behalf of such Hotel Company the
Transaction Agreements and all other documents and instruments necessary to
effect the intention of the parties hereto to carry out the Formation.
(j) Ownership of Assets of RRF. RRF hereby represents and warrants to each
of the ISH Parties that it is the lawful owner of each and every asset to be
transferred to the Operating Partnership as contemplated by Section 1(a), above,
and has and will have good and marketable title to such assets, free and clear
of any liens, encumbrances, equities, restrictions and claims of every kind and
nature whatsoever, except as set forth on Schedule II hereto, and that it has
and will have full right, power and authority to transfer such interests as
contemplated by the Formation, subject to the receipt of the shareholder
approval specified in Section 3, above.
(k) Insurance. RRF hereby represents and warrants to each ISH Party, and
ISH, HCI and each Hotel Company jointly and severally represent to each RRF
Party, that the real property owned by them, respectively, as of the date hereof
is and as of the Closing Date will be fully insured against casualty loss and
that the entity owning the real property in question is the owner and primary
beneficiary of such policies of insurance.
(l) Financial Information. Each ISH Party, jointly and severally,
represents to each RRF Party that the financial information furnished or to be
furnished to any RRF Party by or on behalf of any ISH Party is true and correct
in all material respects as of the date thereof and that there has been no, and
as of the Closing Date there will not have been any, material adverse change in
the financial condition or results of operations of any ISH Party or any Hotel
since the dates of any of such financial information which previously has not
been disclosed to the RRF Parties.
(m) NYSE Listing. RRF represents to HCI and ISH that the RRF shares are
listed on NYSE and that RRF has received no notice from NYSE terminating or
proposing to terminate or otherwise limit the trading of RRF shares on NYSE and
has no notice that any such termination or limitation is pending or threatened.
The representations and warranties set forth in this Section 5 shall be
deemed to be repeated on and as of the Closing Date.
Section 6. Covenants and Other Agreements.
(a) Further Assurances; Additional Documentation. From time to time upon
request, and without the granting of further consideration, each of the parties
hereto agrees to execute, deliver and acknowledge any and all such further
instruments and do such further acts as any other party hereto reasonably may
require to evidence or effectuate more fully the transactions contemplated by
this Agreement, the Transaction Agreements and the Formation. The parties hereto
acknowledge and agree that this Agreement sets forth the documentary framework
and the principal terms of the understandings of the parties in respect of the
Formation, that it would be impracticable for this Agreement to set forth all of
the terms to be contained in the Transaction Agreements, and that each party
hereto will negotiate in good faith such terms of the Transaction Agreements as
are not expressly set forth herein.
(b) The Formation. The parties hereto agree that the sequence of events
constituting the Formation shall be effected as substantially concurrently as
possible on the earliest date as may be practicable following the receipt of the
approvals specified in Sections 3 and 4, above, but not prior to January 2,
1997.
(c) Notice of Sale. The parties hereto agree to cooperate to cause the
Operating Partnership to prepare a notice of sale of securities on Securities
and Exchange Commission Form D in respect of the distribution of limited
partnership interests in the Operating Partnership to the partners/members of
the Partnership Hotel Companies, and to file such notice as soon as possible
after the Closing Date, but in no event later than 15 days thereafter.
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<PAGE> 8
(d) Conduct of Business. Each party hereto covenants and agrees to each of
the other parties hereto that, between the date hereof and the Closing Date, its
respective business will continue to be operated in the regular and ordinary
course thereof commensurate with relevant industry standards, and in connection
therewith each such party shall not, without the prior consent of the other
parties hereto:
(i) Sell or transfer any assets other than in the regular and ordinary
course of business or encumber any assets, whether or not in the regular
and ordinary course of business; provided, however, it is expressly agreed
that RRF shall be entitled to (A) continue to declare and pay regular
dividends of not more than ten cents per share to its shareholders in
accordance with its past practice in the sole discretion of its Board of
Trustees, and that any such dividend declaration and payment shall have no
effect on the interest of RRF in the Operating Partnership set forth in
Section 1(a), above, and (B) consummate a sale of its Chicago office
property on such terms as it may agree to in its sole discretion but at a
gross cash purchase price of not less than $6.0 million, and that ISH may
(C) refinance the existing indebtedness encumbering the Phoenix Hotel with
a new first mortgage loan of not more than $4.9 million, bearing interest
at the rate of 8.5% and maturing in not more than fifteen (15) years and
encumber the Scottsdale Hotel with up to an additional $4.5 million of
mortgage debt and (D) admit InnSuites Innternational Inns & Resorts, Inc.,
an Arizona corporation, as a general partner of each Hotel Company of which
it is not currently a general partner.
(ii) Terminate or cause or permit the termination of, any contract,
lease or other agreement which in any case either individually or in the
aggregate has a materially adverse effect on the assets, operations or
prospects of such covenanting party.
(iii) Agree to do any of the things specified in (i) or (ii), above.
Each ISH Party represents and warrants to each RRF Party that the Hotels are
being operated in a manner commensurate with relevant industry standards and
there have not been any changes in basic operating procedures. Between the date
hereof and the Closing Date, each party hereto shall use its respective best
efforts to keep the services of its respective present employees and preserve
their respective present relations with suppliers and other vendors.
(e) RRF Information in Proxy Statement and PPM. None of the information to
be supplied by RRF or any of its accountants, counsel or other authorized
representatives for inclusion in the Proxy Statement or the PPM will, at the
time of the mailing of the Proxy Statement or the PPM, as the case may be, and
any amendments or supplements thereto, contain any untrue statement of a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading, or, at the time of the shareholders' meeting or the conclusion of
the Private Placement, as the case may be, omit to state any material fact
necessary to correct any statement that has become false or misleading, it being
understood and agreed that no representation or warranty is made by RRF with
respect to any information supplied by ISH or HCI or their accountants, counsel
or other authorized representatives. If at any time prior to the Closing Date
any event with respect to RRF shall occur which is or should be described in an
amendment of or supplement to the Proxy Statement or the PPM, such event shall
be so described and the presentation in such amendment or supplement will not
contain any statement which, at the time and in light of the circumstances under
which it is made, is false or misleading in any material respect or omits to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not false or misleading. The Proxy Statement will comply as to form in all
material respects with all applicable laws, including the provisions of the
Exchange Act and the rules and regulations promulgated thereunder.
(f) HCI/ISH Information in Proxy Statement and PPM. None of the
information to be supplied by HCI or ISH or any of their accountants, counsel or
other authorized representatives for inclusion in the Proxy Statement or the PPM
will, at the time of the mailing of the Proxy Statement or the PPM, as the case
may be, and any amendments or supplements thereto, contain any untrue statement
of a material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading, or, at the time of the shareholders' meeting or the conclusion
of the Private Placement, as the case may be, omit to state any material fact
necessary to correct any statement that has become false or misleading, it being
understood and agreed that no representation or warranty is made by HCI or ISH
with respect to any information supplied by RRF or its accountants, counsel or
other authorized representatives. If at any time prior
8
<PAGE> 9
to the Closing Date any event with respect to HCI, ISH, or the Hotel Companies
shall occur which is or should be described in an amendment of or supplement to
the Proxy Statement or the PPM, such event shall be so described and the
presentation in such amendment or supplement will not contain any statement
which, at the time and in light of the circumstances under which it is made, is
false or misleading in any material respect or omits to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not false or
misleading. The PPM will comply as to form in all material respects with all
applicable laws, including the provisions of the Securities Act and the rules
and regulations promulgated thereunder.
(g) Lender Approvals. The ISH Parties will use their best efforts to
obtain the Lender Approvals as promptly as practicable and, in any event, prior
to the mailing by RRF to its shareholders of the Proxy Statement.
Section 7. Conditions Precedent and Termination.
(a) Conditions Precedent. The obligations of each of the parties hereto to
consummate the transactions contemplated hereunder are subject to the
satisfaction or waiver of the following conditions at or prior to the Closing
Date:
(i) each of the Transaction Agreements shall be duly executed and
acknowledged by all of the parties thereto;
(ii) any further instruments and acts properly requested pursuant
hereto shall have been executed and delivered or done, as the case may be;
(iii) the approvals required by Sections 3 and 4, above, shall have
been obtained;
(iv) the representations and warranties contained in Section 5 hereof
shall be true and correct in all material respects on the date hereof and
on the Closing Date with the same effect as though such representations and
warranties had been made or given on the Closing Date;
(v) all of the parties to all of the Transaction Agreements shall have
performed all of their obligations under the Transaction Agreements to be
performed at or prior to the closing of the Formation;
(vi) the following legal opinions and memorandum shall have been
delivered by and to the parties specified below, and such legal opinions
and memorandum shall be reasonably satisfactory in form and substance to
the respective addressees thereof:
(A) counsel for RRF and MARA shall have delivered its opinion to
the ISH Parties in respect of the matters relating to RRF and MARA set
forth in Sections 5(a), (b), (c) and (d), above;
(B) counsel for the ISH Parties shall have delivered its opinion to
RRF and MARA in respect of the matters set forth in Sections 5(a), (b),
(c), (d) and (i), above, and to the effect that the Private Placement
constitutes a transaction exempt from the registration requirements of
(1) the Securities Act and (2) all applicable state securities laws; and
(C) counsel for the Hotel Companies shall have delivered to RRF and
the Operating Partnership a blue-sky memorandum indicating the basis for
compliance with or exemption from all applicable state securities laws
in respect of the distribution by the Partnership Hotel Companies of
their respective limited partnership interests in the Operating
Partnership to their partners/members;
(vii) the RRF Shares, including the additional RRF Shares contemplated
to be listed by Section 3, above, or otherwise in connection with the
transactions contemplated by this Agreement, shall be listed on the NYSE
and no proceedings shall be pending or, to RRF's knowledge, threatened, in
respect of any delisting or suspension of listing thereof;
(viii) there shall not be pending an injunction or order or decree of
a court of competent jurisdiction restraining or prohibiting the
consummation of the Formation; and
(ix) no more than thirty-five (35) Participating Equity Owners shall
be persons who do not constitute "accredited investors" as such term is
defined in Securities Act Rule 501.
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<PAGE> 10
(b) Termination.
(i) This Agreement shall automatically terminate on March 31, 1997 if
the Closing Date shall not have occurred on or before such date, unless
otherwise extended by mutual written agreement of each and every party
hereto. This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing Date by any party
by the delivery of written notice of termination to each other party
hereto, subject to the expense reimbursement provisions of Section 8(h),
below.
(ii) In the event of the termination of this Agreement, this Agreement
forthwith shall become void and of no further force and effect and there
shall be no liability hereunder or thereunder on the part of any party
hereto or any of its affiliates, directors, officers, partners or
shareholders, provided, however, that nothing herein shall relieve any
party from liability for any breach hereof or thereof or from such party's
obligations in respect of reimbursement of expenses set forth in Section
8(h), below.
Section 8. Miscellaneous.
(a) Waiver. Any failure of any of the parties hereto to comply with any
obligation, covenant, agreement or condition herein may be waived by the parties
entitled to the benefit thereof only by a written instrument signed by each such
party granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, representation, warranty, covenant, agreement
or condition shall not operate as a waiver of or estoppel in respect of any
subsequent or other failure.
(b) GOVERNING LAW. THIS FORMATION AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF OHIO REGARDLESS OF THE
LAWS THAT WOULD OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF
LAWS. The parties hereto consent to personal jurisdiction in the Court of Common
Pleas for Cuyahoga County, Ohio, or the United States District Court for the
Northern District of Ohio, in connection with any claim, allegation, cause of
action or legal proceeding relating in any way to this Agreement. The parties
hereto agree, to the fullest extent permitted by law, to venue in such court, to
waive any claim that such court is an inconvenient forum and to accept service
of process in any such claim, action or proceeding in the manner set forth in
Section 8(f) (in addition to any other means of service permitted by law).
(c) Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, and
delivered by means of facsimile transmission or otherwise, each of which when so
executed and delivered shall be deemed to be an original and all of which when
taken together shall constitute but one and the same agreement.
(d) Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of, and be enforceable by, the parties
hereto and their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations herein shall be
assigned or delegated by any party hereto without the prior written consent of
the other parties hereto.
(e) Amendment. This Agreement may not be amended except by an instrument
in writing signed by each of the parties hereto.
(f) Notices. All notices and other communications hereunder must be in
writing and will be deemed to have been duly given when personally delivered or
on the date of receipt or refusal indicated on the return receipt if mailed
(registered or certified mail, postage prepaid, return receipt requested) or
sent by express courier service to the addresses set forth in the preamble
hereto, with a copy, in the case of notices to any of the ISH Parties, to James
B. Aronoff, Esq., Thompson, Hine & Flory LLP, 3900 Key Tower, 127 Public Square,
Cleveland, Ohio 44114, and, in the case of notices to any of the RRF Parties, to
Daniel G. Berick, Esq., Berick, Pearlman & Mills Co., L.P.A., 1350 Eaton Center,
1111 Superior Avenue, Cleveland, Ohio 44114.
(g) Severability. If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable under any applicable law, then such
contravention or invalidity shall not invalidate the entire Agreement. Such
provision shall be deemed to be modified to the extent necessary to render it
legal, valid and enforceable, and if no such modification shall render it legal,
valid and enforceable, then this Agreement shall be construed as if not
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<PAGE> 11
containing the provision held to be invalid, and the rights and obligations of
the parties shall be construed and enforced accordingly.
(h) Expenses. RRF shall bear the costs and expenses incurred by the RRF
Parties (except as set forth in the following sentence) in connection with this
Agreement, the Transaction Agreements and the transactions contemplated hereby
and thereby, including but not limited to the reasonable fees and expenses of
their counsel. MARA and Krause shall bear the costs and expenses, including but
not limited to the reasonable fees and expenses of their counsel, incurred in
connection with the MARA Purchase Agreement and the RRF Purchase Agreement,
respectively. The ISH Parties shall bear their own costs and expenses incurred
in connection with this Agreement, the Transaction Agreements and the
transactions contemplated hereby and thereby, including but not limited to the
reasonable fees and expenses of their respective counsel. Notwithstanding the
foregoing, (i) if subsequent to the execution hereof, the Formation is not
consummated because of any determination not to proceed with the Formation or
other action or omission by or on behalf of any ISH Party, including a failure
of any representation or warranty made herein by or on behalf of any ISH Party
to be true and correct as of the date hereof or as of the Closing Date (any of
the foregoing, an "ISH Termination") by or on behalf of any ISH Party, then and
in such event ISH shall be obligated to reimburse the RRF Parties for respective
costs and expenses incurred in connection herewith, up to an aggregate maximum
of:
(A) $25,000, if such ISH Termination occurs subsequent to the date
which is thirty (30) days after the date this Agreement is executed by each
party hereto but prior to the occurrence of any of the events set forth in
subclauses (B) through (D) of this clause (i);
(B) $75,000, if such ISH Termination occurs subsequent to the initial
submission of the proxy materials referred to in Section 3, above, to a
financial printer but prior to the occurrence of any of the events set
forth in subclauses (C) or (D) of this clause (i);
(C) $100,000, if such ISH Termination occurs subsequent to the initial
distribution of the proxy materials referred to in Section 3, above, to
RRF's shareholders but prior to the occurrence of the event set forth in
subclause (D) of this clause (i); and
(D) $250,000, if such ISH Termination occurs subsequent to the receipt
by RRF of the approval required by Section 3, above;
or (ii) if subsequent to the execution hereof, the Formation is not consummated
because of any determination not to proceed with the Formation or other action
or omission by or on behalf of any RRF Party, including a failure of any
representation or warranty made herein by or on behalf of any RRF Party to be
true and correct as of the date hereof or as of the Closing Date (any of the
foregoing, an "RRF Termination") (other than the failure to obtain the
shareholder approval required by Section 3, above, which failure shall not
create the following obligations on the part of RRF), then and in such event RRF
shall be obligated to reimburse the ISH Parties for their respective costs and
expenses incurred in connection herewith, up to an aggregate maximum of:
(A) $25,000, if such RRF Termination occurs subsequent to the date
which is thirty (30) days after the date this Agreement is executed by each
party hereto but prior to the occurrence of any of the events set forth in
subclauses (B) through (D) of this clause (ii);
(B) $75,000, if such RRF Termination occurs subsequent to the initial
submission of the proxy materials referred to in Section 3, above, to a
financial printer but prior to the occurrence of any of the events set
forth in subclauses (C) or (D) of this clause (ii);
(C) $100,000, if such RRF Termination occurs subsequent to the initial
distribution of the proxy materials referred to in Section 3, above, to
RRF's shareholders but prior to the occurrence of the event set forth in
subclause (D) of this clause (ii);
(D) $250,000, if such RRF Termination occurs subsequent to the receipt
by RRF of the approval required by Section 3, above.
In addition to the foregoing, should the Formation not be consummated because
the RRF Parties have elected to enter into a transaction substantially similar
to the Formation or otherwise effectuate a sale or change in control
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<PAGE> 12
of RRF with any third party prior to March 31, 1997 (an "Outside Transaction"),
RRF shall pay to the ISH Parties an additional aggregate sum of $500,000. RRF
agrees that it will not so elect to enter into an Outside Transaction unless its
Board of Trustees determines, in the exercise of its independent business
judgment and discretion, that it has a fiduciary duty to the holders of the RRF
Shares to enter into such Outside Transaction rather than proceed with the
Formation.
Notwithstanding anything herein to the contrary, (x) the foregoing expense
reimbursement obligations of the ISH Parties shall not be applicable in the
event that the ISH Parties determine not to consummate the Formation as a result
of the failure of the RRF Parties to satisfy the conditions set forth in
Sections 7(a)(iii), (vi) or (viii) relating to RRF or in Section 7(a)(vii) if
the RRF Parties have satisfied the remaining conditions set forth in Section
7(a) to be satisfied by them; and (y) the foregoing expense reimbursement
obligations of the RRF Parties shall not be applicable in the event that the RRF
Parties determine not to consummate the Formation as a result of the failure of
the ISH Parties to satisfy the conditions set forth in Sections 7(a)(iii), (vi)
or (viii) relating to the ISH Parties if the ISH Parties have satisfied the
remaining conditions set forth in Section 7(a) to be satisfied by them.
(i) No Solicitation. Each of the RRF Parties agrees that it will not,
after the date hereof and prior to the date of termination of this Agreement,
seek, directly or through agents, representatives or affiliates, or permit any
of its officers or directors to seek (whether in their capacity as officers or
directors or in their individual capacities) or otherwise solicit or encourage
the initiation of inquiries or proposals from any person or persons (other than
the ISH Parties or any of them) to purchase all or a substantial portion of the
assets of any of the RRF Parties or all or a substantial portion of the capital
stock or other securities of any of the RRF Parties or any of their respective
affiliates, or for any of the RRF Parties or any of their respective affiliates
to purchase in one or more related transactions the capital stock or other
securities or assets of persons (other than the ISH Parties or any of them)
whereby any of the RRF Parties would issue (or commit to issue) shares of its
capital stock or other securities or to effect a consolidation or merger or
other business combination or recapitalization (other than the transactions
comprising the Formation)(an "Acquisition Proposal"). The RRF Parties shall
immediately cease and cause to be terminated all existing discussions and
negotiations, if any, with any parties conducted heretofore with respect to any
Acquisition Proposal (other than the ISH Parties or any of them). Nothing
contained in this Section 8(i) shall prevent the Board of Trustees of RRF from
considering, negotiating, approving and recommending to shareholders of RRF a
bona fide Acquisition Proposal not solicited, directly or indirectly, in
violation of this Agreement, provided the Board of Trustees determines in good
faith that it is required to do so in order to discharge properly its fiduciary
duties.
RRF shall immediately notify the ISH Parties after receipt of any
Acquisition Proposal (whether written or oral), or any modification of or
amendment to any Acquisition Proposal, or any request for any nonpublic
information relating to the RRF parties or any of them in connection with any
Acquisition Proposal or for access to the properties, books or records of the
RRF Parties or any of them by any person or entity that informs the Board of
Trustees or management of RRF or of any of the RRF Parties that it is
considering making or has made an Acquisition Proposal. Such notice to the ISH
Parties shall be made orally and in writing and shall indicate whether RRF is
providing or intends to provide the person making the Acquisition Proposal with
access to information concerning the RRF Parties or any of them, the identity of
the person making the Acquisition Proposal and the terms and conditions of the
transaction contemplated by the Acquisition Proposal. Notwithstanding the
foregoing, RRF shall not be obligated to inform the ISH Parties of any
unsolicited inquiry received by it in respect of an Acquisition Proposal if such
inquiry is preliminary in nature and RRF responds to such inquiry by advising
the inquiring party that RRF is in exclusive negotiations regarding the
transaction contemplated by this Agreement.
(j) Publicity. The RRF Parties, on the one hand, and the ISH Parties, on
the other hand, agree that neither will make any public statement or issue any
press release disclosing the existence of this Agreement or the terms hereof
without the prior consent of the other, which consent shall not be unreasonably
withheld or delayed.
(k) Trust Disclaimer; Personal Liability. As provided in the First Amended
and Restated Declaration of Trust establishing RRF, dated June 11, 1971, no
trustee, officer, shareholder, employee or agent of RRF shall be held to any
personal liability, jointly or severally, for any obligation of, or claim
against, RRF. All persons
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<PAGE> 13
dealing with RRF in any way shall look only to the assets of RRF for the payment
of any sum or the performance of any obligation. Wirth and any other officers of
any of the ISH Parties executing this Agreement shall not be held personally
liable solely for having so executed this Agreement in a representative capacity
and all persons dealing with the ISH Parties shall only look to the assets of
the ISH Parties for the payment of any sum or the performance of any obligation
by the ISH Parties. It is further agreed that the respective personal liability
of Wirth, Krause or Berick for any breach of any representation, warranty or
covenant made by such person in his individual capacity shall be limited to, and
recourse shall be had solely against, (x) in the case of Wirth, the assets of
HCI, and (y) in the case of either Krause or Berick, the assets of MARA; it
being understood that none of the aforesaid persons shall have any personal
liability in respect of any such breach made by an entity for which such person
has signed in a representative capacity.
IN WITNESS WHEREOF, the undersigned have executed this Agreement this 15th
day of December, 1996.
<TABLE>
<S> <C>
REALTY REFUND TRUST INNSUITES HOTELS L.L.C.
International Suites Corp., Managing Member
By: /s/ ALAN M. KRAUSE
----------------------------------------
Its: Chairman By: /s/ JAMES F. WIRTH
--------------------------------------------
Its: President
MID-AMERICA REAFUND ADVISORS, INC.
By: /s/ ALAN M. KRAUSE /s/ JAMES F. WIRTH
---------------------------------------- --------------------------------------------
Its: Chairman James F. Wirth
HOSPITALITY CORPORATION INTERNATIONAL
By: /s/ JAMES F. WIRTH
----------------------------------------
James F. Wirth, President
/s/ ALAN M. KRAUSE /s/ JAMES H. BERICK
- -------------------------------------------- --------------------------------------------
Alan M. Krause James H. Berick
TUCSON HOSPITALITY PROPERTIES, LTD., an YUMA HOSPITALITY PROPERTIES, LTD., an
Arizona limited partnership Arizona limited partnership
By: Hospitality Corporation International, By: Hospitality Corporation International,
its general partner its general partner
By: /s/ JAMES F. WIRTH By: /s/ JAMES F. WIRTH
---------------------------------------- ----------------------------------------
James F. Wirth, President James F. Wirth, President
BASELINE HOSPITALITY PROPERTIES, LTD., an NORTHERN PHOENIX INVESTMENT LIMITED
Arizona limited partnership PARTNERSHIP, an Arizona limited partnership
By: Hospitality Corporation International, By: Hospitality Corporation International,
its general partner its general partner
By: /s/ JAMES F. WIRTH By: /s/ JAMES F. WIRTH
---------------------------------------- ----------------------------------------
James F. Wirth, President James F. Wirth, President
(signatures continued on following page)
</TABLE>
13
<PAGE> 14
<TABLE>
<S> <C>
(signatures continued from previous page)
ONTARIO HOSPITALITY PROPERTIES, LIMITED HULSEY HOTELS CORPORATION
PARTNERSHIP, an Arizona limited partnership
By: InnSuites Innternational Inns & Resorts, By: /s/ JAMES F. WIRTH
Inc., its general partner ----------------------------------------
James F. Wirth, President
By: /s/ JAMES F. WIRTH
- ---------------------------------------- BUENAVENTURA PROPERTIES, INC.
James F. Wirth, President
By: /s/ JAMES F. WIRTH
----------------------------------------
James F. Wirth, President
</TABLE>
14
<PAGE> 15
SCHEDULE I
<TABLE>
<CAPTION>
JURISDICTION OF
NAME OF ENTITY TYPE OF ENTITY LOCATION OF HOTEL ORGANIZATION
- ------------------------------------------- -------------------- ----------------- ---------------
<S> <C> <C> <C>
Tucson Hospitality Properties, Ltd......... Limited Partnership Tucson, AZ Arizona
Yuma Hospitality Properties, Ltd........... Limited Partnership Yuma, AZ Arizona
Baseline Hospitality Properties, Ltd....... Limited Partnership Tempe, AZ Arizona
Northern Phoenix Investment Limited
Partnership.............................. Limited Partnership Phoenix, AZ Arizona
Ontario Hospitality Properties Limited
Partnership.............................. Limited Partnership Ontario, CA Arizona
Hulsey Hotels Corporation.................. Corporation Flagstaff, AZ Arizona
Buenaventura Properties, Inc............... Corporation Scottsdale, AZ Arizona
</TABLE>
15
<PAGE> 16
SCHEDULE II
1. Carbide and Carbon Building (Chicago):
a. Listing Agreement, dated September 27, 1996, between RRF and CB
Commercial. This agreement terminates on December 31, 1996, unless
renewed.
2. Riverview Tower (Toledo):
a. First Mortgage, dated May 1, 1967, securing a loan in the original
principal amount of $12,000,000, in favor of New York Life Insurance
Company. Such loan is in default.
b. Lucas County Common Pleas Court has appointed a receiver for the
building effective November 1, 1996.
16
<PAGE> 17
REALTY REFUND TRUST/INNSUITE HOTELS
SAMPLE SHARE OF OP UNIT CALCULATIONS
<TABLE>
<CAPTION>
WIRTH PARTNERS'
APPROXIMATE TOTAL RRF OPERATING OPERATING
APPRAISED MORTGAGE AGREED SHARES OR PARTNERSHIP PARTNERSHIP
VALUE BALANCE EQUITY VALUE OP UNITS % UNITS % UNITS %
----------- ----------- ------------ --------- --- ----------- --- ----------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tempe.............. $10,715,000 $2,800,000 $ 7,915,000 1,583,000 20% 712,350 45% 870,850 55%
Tucson............. 8,715,000 0 8,715,000 1,743,000 22% 610,050 35% 1,132,950 65%
Flagstaff.......... 3,325,000 990,000 2,335,000 467,000 6%
Yuma............... 9,000,000 4,000,000 5,000,000 1,000,000 13% 400,000 40% 600,000 60%
Phoenix............ 7,900,000 3,100,000 4,800,000 960,000 12% 921,600 96% 38,400 4%
Scottsdale......... 7,225,000 6,225,000 1,000,000 200,000 3%
Ontario............ 8,775,000 3,800,000 4,975,000 995,000 12% 666,650 67% 328,350 33%
----------- ----------- ----------- --------- --- --------- -- --------- --
Total ISH.......... $55,655,000 $20,915,000 34,740,000 6,948,000 87% 3,310,650 2,970,350
=========== ===========
Realty ReFund
Trust............ 5,102,930 1,020,586 13%
----------- --------- ---
$39,842,930 7,968,586 100%
=========== ========= ===
<CAPTION>
WIRTH RRF
SHARES %
--------- ---
<S> <C> <C>
Tempe..............
Tucson.............
Flagstaff.......... 467,000 100%
Yuma...............
Phoenix............
Scottsdale......... 200,000 100%
Ontario............
------- ---
Total ISH.......... 667,000
Realty ReFund
Trust............
</TABLE>
- ---------------
Note: The above calculations are based on the summary of appraised values and
approximate mortgage balances for the seven "Accountable Properties"
supplied by JDI Realty.
17
