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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended DECEMBER 31, 1996
OR
[_] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number: 033-20022
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
DELAWARE 52-1558094
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10400 FERNWOOD ROAD
BETHESDA, MARYLAND 20817
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 301-380-2070
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
-------------------------------------------
Title of Class
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 and (2) has been subject to such filing requirements for
the past 90 days. Yes ____ No ____ (Not Applicable. On August 25, 1992, the
Registrant filed an application for relief from the reporting requirements of
the Securities Exchange Act of 1934 pursuant to Section 12(h) thereof. Pursuant
to a grant of the relief requested in such application, the Registrant was not
required to, and did not make, any filings pursuant to the Securities Exchange
Act of 1934 from October 23, 1989 until the application was voluntarily
withdrawn on January 23, 1998.)
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. [ ] (Not Applicable)
DOCUMENTS INCORPORATED BY REFERENCE
None
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Marriott Residence Inn Limited Partnership
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
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PAGE NO.
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PART I
<S> <C> <C>
Item 1. Business....................................................... 1
Item 2. Properties..................................................... 5
Item 3. Legal Proceedings.............................................. 6
Item 4. Submission of Matters to a Vote of Security Holders............ 7
PART II
Item 5. Market For The Partnership's Limited Partnership Units
and Related Security Holder Matters............................ 7
Item 6. Selected Financial Data........................................ 8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 8
Item 8. Financial Statements and Supplementary Data.................... 15
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure....................................... 28
PART III
Item 10. Directors and Executive Officers.............................. 28
Item 11. Management Remuneration and Transactions...................... 29
Item 12. Security Ownership of Certain Beneficial Owners and Management 29
Item 13. Certain Relationships and Related Transactions................ 29
PART IV
Item 14. Exhibits, Supplemental Financial Statement Schedules
and Reports on Form 8-K....................................... 32
</TABLE>
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PART I
ITEM 1. BUSINESS
DESCRIPTION OF THE PARTNERSHIP
Marriott Residence Inn Limited Partnership, a Delaware limited partnership (the
"Partnership"), was formed on January 18, 1988 to acquire, own and operate 15
Marriott Residence Inn properties (the "Inns") and the land on which the Inns
are located. The Inns are located in seven states and contain a total of 2,129
suites as of December 31, 1996. The Partnership commenced operations on March
29, 1988.
On October 8, 1993, Marriott Corporation's operations were divided into two
separate companies: Host Marriott Corporation ("Host Marriott") and Marriott
International, Inc. ("MII"). The sole general partner of the Partnership is
RIBM One Corporation, a Delaware corporation (the "General Partner"), a wholly-
owned subsidiary of Host Marriott.
The Partnership is engaged solely in the business of owning and operating the
Inns and therefore is engaged in one industry segment. The principal offices of
the Partnership are located at 10400 Fernwood Road, Bethesda, Maryland 20817.
The Inns are operated as part of the Residence Inn by Marriott system, which
includes over 238 Inns worldwide in the extended-stay segment of the U.S.
lodging industry. The Inns are managed by Residence Inn by Marriott, Inc. (the
"Manager"), a wholly-owned subsidiary of MII, under a long-term management
agreement (the "Management Agreement"). The Management Agreement expires in
2007 with renewals at the option of the Manager for one or more of the Inns for
up to five successive terms of 10 years thereafter. See Item 13 "Certain
Relationships and Related Transactions."
The objective of the Residence Inn by Marriott system, including the Inns, is to
provide consistently superior lodging at a fair price with an appealing,
friendly and contemporary residential character. Residence Inn by Marriott Inns
have fewer guest rooms than traditional full-service hotels, containing
approximately 120 guest suites, as compared to full-service Marriott hotels
which typically contain 350 or more guest rooms.
The Inns are extended-stay, limited service hotels which cater primarily to
business and family travelers who stay more than five consecutive nights. The
Inns typically have 88 to 144 studio, one bedroom, two bedroom and two-story
penthouse suites. They are generally located in suburban settings throughout
the United States and feature a series of residential style buildings with
landscaped walkways, courtyards and recreational areas. See Item 2
"Properties." Residence Inns do not have restaurants, but offer a complimentary
continental breakfast. In addition, most of the Inns provide a complimentary
hospitality hour. Each suite contains a fully-equipped kitchen and many suites
have woodburning fireplaces.
The Partnership's financing needs have been funded through loan agreements with
independent financial institutions and through loans and advances made by Host
Marriott and its affiliates. See "Debt Financing."
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ORGANIZATION OF THE PARTNERSHIP
Between March 29, 1988 and April 22, 1988 (the "Closing Date"), 65,600 limited
partnership interests (the "Units") were sold in a public offering. The
offering price per Unit was $1,000. The General Partner contributed $662,627
for its 1% general partnership interest. On the Closing Date, the Partnership
acquired the Inns and the land on which the Inns are located from MII for $178.8
million. Of the total purchase price, $123 million was paid from the proceeds
of mortgage financing and the remainder from the sale of the Units.
DEBT FINANCING
As of December 31, 1994, the Partnership had outstanding bank mortgage
indebtedness of $123 million (the "Term Loan"). The Term Loan carried interest
at a fixed rate of 10.4% and required no principal amortization prior to
maturity. The Partnership also had $6 million outstanding under a $10 million
revolving loan facility (the "Revolving Loan") which carried interest at a
floating rate equal to .5% over the one, two, three or six month London
Interbank Offered Rate ("LIBOR") as elected by the Partnership and required no
principal amortization prior to maturity. An additional $1.4 million was
outstanding on a note payable to Host Marriott, the proceeds from which were
used for the expansion of the St. Louis Galleria Inn. The note payable to Host
Marriott carried interest at a fixed rate of 10.4% and required no principal
amortization prior to maturity.
The Term Loan, Revolving Loan and note payable to Host Marriott matured on April
24, 1995. The Term Loan and Revolving Loan went into default on the maturity
date as the Partnership was unable to secure replacement financing. Effective
April 25, 1995 through August 31, 1995, the lender granted a forbearance on the
Term Loan and the Revolving Loan in which both loans began to accrue interest at
10.4%. However, effective September 1, 1995, pursuant to the loan documents,
both the Term Loan and Revolving Loan began to accrue interest at the Default
Rate, as defined, of prime plus 2.5 percentage points through October 11, 1995.
Host Marriott granted the Partnership a six-month forbearance of the note
payable upon maturity on April 24, 1995 at the original interest rate.
Host Marriott Corporation had also provided the Partnership a $15 million debt
service guarantee (the "Limited Guarantee") to the extent necessary for payment
of (i) interest on the Term Loan, (ii) interest on the Revolving Loan, and (iii)
the principal amount of the Term Loan and the Revolving Loan. Host Marriott was
released from the Limited Guarantee on the date of the original debt maturity of
April 24, 1995.
REFINANCING
On October 12, 1995 the Partnership completed a refinancing of the Partnership's
debt through the proceeds of a $100 million senior mortgage (the "Senior
Mortgage") and a $30 million second mortgage (the "Second Mortgage"). The net
proceeds of the Senior and Second Mortgages and existing Partnership cash were
used as follows: (i) to repay the Term Loan of $123 million, (ii) to repay the
Revolving Loan of approximately $6 million, (iii) to repay the $1.4 million note
payable to Host Marriott and (iv) to pay certain costs of structuring the debt.
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The Senior Mortgage of $100 million bears interest at 8.6%, requires monthly
amortization of principal on a 20 year schedule and matures on September 30,
2002. The Second Mortgage of $30 million bears interest at 15.25%, requires
monthly amortization of principal on a 20 year schedule and matures on September
30, 2002.
In addition to the required monthly principal amortization, during each of the
four years from 1996 through 1999, the Partnership is required to pay, on a cash
available basis, an additional $2 million annually toward principal amortization
on the Senior Mortgage. Additionally, during the entire seven year term, the
Partnership has the option to pay up to an additional $1 million principal
payment annually on the Second Mortgage and up to another $1 million optional
principal payment which would be applied in a 2:1 ratio to the Senior and Second
Mortgage, respectively.
The terms of the Senior and Second Mortgages include requirements of the
Partnership to maintain certain defined ratios of operating cash available after
debt service to total debt service. In the event the Partnership fails to
maintain the required debt service ratios, all Inn operating cash flow, plus all
cash or other amounts to which the Partnership is entitled from any source, must
be paid directly to a cash collateral account until the ratios are restored to
their required levels.
Both the Senior and Second Mortgages are secured by the Inns, the land on which
they are located, a security interest in all personal property associated with
the Inns including furniture and equipment, inventory, contracts and other
general intangibles and an assignment of the Partnership's rights under the
Management Agreement, as defined below.
The weighted average interest rate on the Partnership's debt for the years ended
December 31, 1996 and 1995 was 10.13% and 10.14%, respectively. In 1994, the
weighted average interest rate on the Revolving Loan was 4.8%.
MATERIAL CONTRACTS
Management Agreement
The primary provisions of the Management Agreement are discussed in Item 13,
"Certain Relationships and Related Transactions."
COMPETITION
The United States lodging industry generally is comprised of two broad segments:
full service hotels and limited service hotels. Full service hotels generally
offer restaurant and lounge facilities and meeting spaces, as well as a wide
range of services, typically including bell service and room service. Limited
service hotels generally offer accommodations with limited or no services and
amenities. As extended-stay, the Inns compete effectively with both full
service and limited service hotels in their respective markets by providing
streamlined services and amenities exceeding those provided by typical limited
service hotels at prices that are significantly lower than those available at
full service hotels.
The lodging industry in general, and the extended-stay segment in particular, is
highly competitive, but the degree of competition varies from location to
location and over time. The
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Inns compete with several other major lodging brands. Competition in the
industry is based primarily on the level of service, quality of accommodations,
convenience of locations and room rates. The following are key participants in
the extended-stay segment of the lodging industry: Residence Inn, Homewood
Suites, Hawthorne Suites, Summerfield Suites and AmeriSuites.
CONFLICTS OF INTEREST
Because Host Marriott, the parent of the General Partner, MII and their
affiliates own and/or operate hotels other than the Partnership's Inns and MII
and its affiliates license others to operate hotels under the various brand
names owned by MII and its affiliates, potential conflicts of interest exist.
With respect to these potential conflicts of interest, Host Marriott, MII and
their affiliates retain a free right to compete with the Partnership's Inns,
including the right to develop, own, and operate competing hotels now and in the
future in markets in which the Inns are located, in addition to those existing
hotels which may currently compete directly or indirectly with the Inns.
Under Delaware law, the General Partner has unlimited liability for the
obligations of the Partnership, unless those obligations are, by contract,
without recourse to the partners of the Partnership. Since the General Partner
is entitled to manage and control the business and operations of the
Partnership, and because certain actions taken by the General Partner or the
Partnership could expose the General Partner or its parent, Host Marriott, to
liability that is not shared by the limited partners (for example, tort
liability and environmental liability), this control could lead to conflicts of
interest.
Policies with Respect to Conflicts of Interest
It is the policy of the General Partner that the Partnership's relationship with
the General Partner, any affiliate of the General Partner, or persons employed
by the General Partner or its affiliates be conducted on terms that are fair to
the Partnership and that are commercially reasonable. Agreements and
relationships involving the General Partner or its affiliates and the
Partnership are on terms consistent with the terms on which the General Partner
or its affiliates have dealt with unrelated parties.
The Amended and Restated Agreement of Limited Partnership (the "Partnership
Agreement") provides that any agreements, contracts or arrangements between the
Partnership and the General Partner or any of its affiliates, except for
rendering legal, tax, accounting, financial, engineering, and procurement
services to the Partnership by employees of the General Partner or its
affiliates, will be on commercially reasonable terms and will be subject to the
following additional conditions:
(i) the General Partner or any such affiliate must have the ability to render
such services or to sell or lease such goods;
(ii) such agreements, contracts or arrangements must be fair to the Partnership
and reflect commercially reasonable terms and must be embodied in a
written contract which precisely describes the subject matter thereof and
all compensation to be paid therefor;
(iii) no rebates or give-ups may be received by the General Partner or any such
affiliate, nor may the General Partner or any such affiliate participate
in any reciprocal business arrangements
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which would have the effect of circumventing any of the provisions of the
Partnership Agreement; and
(iv) no such agreement, contract or arrangement as to which the limited
partners had previously given approval may be amended in such a manner as
to increase the fees or other compensation payable by the Partnership to
the General Partner or any of its affiliates or to decrease the
responsibilities or duties of the General Partner or any such affiliate in
the absence of the consent of the holders of a majority in interest of the
limited partners.
EMPLOYEES
Neither the General Partner nor the Partnership has any employees. Host
Marriott provides the services of certain employees (including the General
Partner's executive officers) of Host Marriott to the Partnership and the
General Partner. The Partnership and the General Partner anticipate that each
of the executive officers of the General Partner will generally devote a
sufficient portion of his or her time to the business of the Partnership.
However, each of such executive officers also will devote a significant portion
of his or her time to the business of Host Marriott and its other affiliates.
No officer or director of the General Partner or employee of Host Marriott
devotes a significant percentage of time to Partnership matters. To the extent
that any officer, director or employee does devote time to the Partnership, the
General Partner or Host Marriott, as applicable, is entitled to reimbursement
for the cost of providing such services. See Item 11 "Management Remuneration
and Transactions" for information regarding payments made to Host Marriott or
its subsidiaries for the cost of providing administrative services to the
Partnership.
CONSOLIDATION
The General Partner has undertaken, on behalf of the Partnership, to pursue,
subject to further approval of the partners, a potential transaction (the
"Consolidation") in which (i) subsidiaries of CRF Lodging Company, L.P. (the
"Company"), a newly formed Delaware limited partnership, would merge with and
into the Partnership and up to five other limited partnerships, with the
Partnership and the other limited partnerships being the surviving entities
(each, a "Merger" and collectively, the "Mergers"), subject to the satisfaction
or waiver of certain conditions, (ii) CRF Lodging Trust ("CRFLT"), a Maryland
real estate investment trust, the sole general partner of the Company, would
offer its common shares of beneficial interest, par value $0.01 per share
("Common Shares") to investors in an underwritten public offering and would
invest the proceeds of such offering in the Company in exchange for units of
limited partnership interests in the Company ("Units") and (iii) the Partnership
would enter into a Lease for the operation of its Hotels pursuant to which a
Lessee would pay rent to the Partnership based upon the greater of a fixed
dollar amount of base rent or specified percentages of gross sales, as specified
in the Lease. If the partners approve the transaction and other conditions are
satisfied, the partners of the Partnership would receive Units in the Merger in
exchange for their interests in the Partnership.
A preliminary Prospectus/Consent Solicitation was filed as part of a
Registration Statement on Form S-4 with the Securities and Exchange Commission
and which describes the potential transaction in greater detail. Any offer of
Units in connection with the Consolidation will be made solely by a final
Prospectus/Consent Solicitation.
ITEM 2. PROPERTIES
INTRODUCTION
The properties consisted of 15 Residence Inn by Marriott hotels as of December
31, 1996. The Inns, which range in age between nine and 12 years, are
geographically diversified among seven states: four in Ohio, three in
California, three in Georgia, two in Missouri, and one in Illinois, Colorado and
Michigan.
The extended-stay segment of the lodging industry experienced increased
competition throughout 1996 as new extended-stay purpose-built competitors
entered the market. This trend is expected to continue in 1997. In response to
this increased competition, Residence Inn by Marriott's strategy is to
differentiate the brand on the basis of superior service offerings and delivery.
On a combined basis, competitive forces affecting the Inns are not, in the
opinion of the General Partner, more adverse than the overall competitive forces
affecting the lodging industry generally. See Item 1 "Business--Competition."
5
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NAME AND LOCATION OF PARTNERSHIP INNS
<TABLE>
<CAPTION>
INN NUMBER OF SUITES DATE OPENED
- -------------------------- ------------------- ------------
<S> <C> <C> <C>
California
Costa Mesa 144 1986
La Jolla 287 1986
Long Beach 216 1987
Colorado
Boulder 128 1986
Georgia
Atlanta Buckhead 136 1987
Atlanta Cumberland 130 1987
Atlanta Dunwoody 144 1984
Illinois
Chicago Lombard 144 1987
Michigan
Southfield 144 1986
Missouri
St. Louis Chesterfield 104 1986
St. Louis Galleria 152 1986
Ohio
Cincinnati North 144 1985
Columbus North 96 1985
Dayton North 64 1987
Dayton South 96 1985
----------
TOTAL 2,129
==========
</TABLE>
The following table shows selected combined operating and financial statistics
for the Inns (in thousands, except combined average occupancy, combined average
daily suite rate, REVPAR and number of suites):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1996 1995 1994
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<S> <C> <C> <C>
Combined average occupancy............... 83.5% 85.8% 86.8%
Combined average daily suite rate........ $ 88.02 $ 81.14 $ 75.53
REVPAR................................... $ 73.50 $ 69.62 $ 65.56
Number of suites......................... 2,129 2,129 2,129
Suite sales.............................. $58,019 $53,945 $50,805
Other Inn sales.......................... 2,805 2,780 2,635
------- ------- -------
Total Inn sales......................... 60,824 56,725 53,440
Direct Inn operating costs and expenses.. 28,740 26,656 26,135
------- ------- -------
Inn Revenues............................. $32,084 $30,069 $27,305
======= ======= =======
Operating profit before interest......... $16,151 $14,400 $11,663
Net income (loss)........................ $ 3,087 $ 1,517 $(1,588)
</TABLE>
Revenue per available room ("REVPAR") represents the combination of the combined
average daily room rate charged and the combined average occupancy achieved, and
is a commonly used indicator of hotel performance.
ITEM 3. LEGAL PROCEEDINGS
The Partnership and the Inns are involved in routine litigation and
administrative proceedings arising in the ordinary course of business, some of
which are expected to be covered by liability insurance and which collectively
are not expected to have a material adverse effect on the business, financial
condition or results of operations of the Partnership.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP UNITS AND RELATED
SECURITY HOLDER MATTERS
There is currently no established public trading market for the Units and it is
not anticipated that a public market for the Units will develop. Assignments of
Units are limited to the first date of each fiscal quarter and are subject to
approval by the General Partner. As of December 31, 1996, there were 4,225
holders of record of the 65,600 Units.
In accordance with Sections 4.06 and 4.09 of the Partnership Agreement, cash
available for distribution for any year will be distributed quarterly to the
Partners of record at the end of each accounting period during such year as
follows: (i) first, 99% to the limited partners and 1% to the General Partner,
until the partners have received, with respect to such year, an amount equal to
10% of their Invested Capital, defined as the excess of original capital
contributions over cumulative distributions of net refinancing and sales
proceeds ("Capital Receipts")--this amount is $6,626,263 at December 31, 1996;
(ii) second, remaining cash available for distribution will be distributed as
follows, depending on the amount of Capital Receipts previously distributed:
(a) 99% to the limited partners and 1% to the General Partner, if the partners
have received aggregate cumulative distributions of Capital Receipts of less
than 50% of their original capital contributions; or
(b) 85% to the limited partners and 15% to the General Partner, if the partners
have received aggregate cumulative distributions of Capital Receipts equal
to or greater than 50% but less than 100% of their original capital
contributions; or
(c) 70% to the limited partners and 30% to the General Partner, if the partners
have received aggregate cumulative distributions of Capital Receipts equal
to 100% or more of their original capital contributions.
Cash available for distribution means, with respect to any fiscal period, the
cash revenues of the Partnership from all sources during the fiscal period,
other than Capital Receipts less (i) all cash expenditures of the Partnership
during such fiscal period, including, without limitation, debt service,
repayment of advances made by the General Partner, fees for management services
and administrative expenses (excluding expenditures incurred by the Partnership
in connection with a transaction resulting in Capital Receipts), and (ii) such
reserves as may be determined by the General Partner in its reasonable
discretion to be necessary to provide for the foreseeable cash needs of the
Partnership or for the maintenance, repair, or restoration of the Inns.
As of December 31, 1996, the Partnership has distributed a total of $38,700,104
($584 per limited
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partner unit) since inception. In 1996, $4,969,697 ($75 per limited partner
unit) was distributed, of this amount, $1,656,566 was from 1996 operations ($25
per limited partner unit) and the remaining $3,313,131 was from 1995 operations
($50 per limited partner unit). An additional $1,656,566 ($25 per limited
partner unit) was distributed in February 1997 bringing the total distribution
from 1996 operations to $3,313,131 ($50 per limited partner unit). In 1995
$861,414 ($13 per limited partner unit) was distributed from 1994 operations. No
distributions of Capital Receipts have been made since inception.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data present historical operating information
for the Partnership for each of the five years in the period ended December 31,
1996 presented in accordance with generally accepted accounting principles.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- --------- --------- ---------
(in thousands, except per unit amounts)
<S> <C> <C> <C> <C> <C>
Revenues........................ $ 32,084 $ 30,069 $ 27,305 $ 25,193 $ 23,961
======== ======== ======== ======== ========
Net income (loss)............... $ 3,087 $ 1,517 $ (1,588) $ (2,891) $ (3,856)
======== ======== ======== ======== ========
Net income (loss) per limited
partner unit (65,600 Units)... $ 47 $ 23 $ (24) $ (44) $ (58)
======== ======== ======== ======== ========
Total assets.................... $151,658 $157,061 $155,640 $157,602 $160,870
======== ======== ======== ======== ========
Total liabilities............... $146,337 $149,858 $149,092 $146,153 $143,283
======== ======== ======== ======== ========
Cash distributions per limited
partner unit (65,600 Units)... $ 75 $ 13 $ 50 $ 49 $ 68
======== ======== ======== ======== ========
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain matters discussed herein are forward-looking statements within the
meaning of the Private Litigation Reform Act of 1995 and as such may involve
known and unknown risks, uncertainties, and other factors which may cause the
actual results, performance or achievements of the Partnership to be different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Although the Partnership believes the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions, it can give no assurance that its expectations will be
attained. These risks are detailed from time to time in the Partnership's
filings with the Securities and Exchange Commission. The Partnership undertakes
no obligation to publicly release the result of any revisions to these forward-
looking statements that may be made to reflect any future events or
circumstances.
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GENERAL
The following discussion and analysis addresses results of operations for the
fiscal years ended December 31, 1996, 1995 and 1994. During the period from
1994 through 1996, Partnership revenues (Inn sales less direct Inn operating
costs and expenses) grew from $27.3 million to $32.1 million, while the
Partnership's total Inn sales grew from $53.4 million to $60.8 million. Growth
in suite sales, and thus Inn sales, is primarily a function of combined average
occupancy and combined average suite rates. During the period from 1994 through
1996, the Inns' combined average suite rate increased by $12.49 from $75.53 to
$88.02, while the combined average occupancy decreased three percentage points
from approximately 87% to approximately 84%.
The Partnership's operating costs and expenses are, to a great extent, fixed.
Therefore, the Partnership derives substantial operating leverage from increases
in revenue. This operating leverage is offset in part by variable expenses,
including base management and Residence Inn system fees under the Management
Agreement, which are 2% of gross sales, and 4% of suite sales, respectively.
RESULTS OF OPERATIONS
1996 COMPARED TO 1995:
Revenues. Revenues increased by $2.0 million in 1996, to $32.1 million, a 7%
increase when compared to 1995. This increase in revenues was achieved
primarily through an increase in Inn revenue per available room ("REVPAR"),
which represents the combination of the combined average daily room rate charged
and the combined average occupancy achieved, and is a commonly used indicator of
hotel performance. REVPAR grew nearly 6% in 1996 as a result of an increase in
average suite rates, as discussed below.
Inn sales. Total 1996 Inn sales of $60.8 million represented a $4.1 million, or
7%, increase over 1995 results. This increase was achieved primarily through
increases in the combined average suite rate from $81.14 in 1995 to $88.02 in
1996. As a result, 1996 suite sales increased by $4.1 million, or 8%, to $58.0
million from $53.9 million in 1995, despite a two percentage point decrease in
occupancy to 83.5% during 1996. Eleven of the Partnership's 15 Inns posted
occupancy rates exceeding 80% for 1996.
Operating Costs and Expenses. Operating costs and expenses increased to $15.9
million in 1996 from $15.7 million in 1995. As a percentage of Inn revenues,
operating costs and expenses represented 50% of revenues for 1996 and 52% in
1995.
Operating Profit. As a result of the changes in revenues and operating costs
and expenses discussed above, operating profit increased $1.8 million to $16.2
million, or 50% of total revenues, in 1996 from $14.4 million, or 48% of
revenues in 1995.
Interest Expense. Interest expense remained unchanged at $13.4 million.
Net Income. Net income increased $1.6 million to $3.1 million, or 10% of
revenues, in 1996
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from $1.5 million, or 5% of total revenues, in 1995 due primarily to improved
lodging results.
1995 COMPARED TO 1994:
Revenues. Revenues (Inn sales less direct Inn operating costs and expenses)
increased $2.8 million in 1995 to $30.1 million, a 10% increase, when compared
to 1994. This increase in revenues was achieved primarily through a 6% increase
in REVPAR, that was primarily the result of an increase in the average suite
rate, as discussed below.
Inn sales. Total 1995 Inn sales of $56.7 million represented a $3.3 million, or
6%, increase over 1994 results. This increase was achieved primarily through
increases in the combined average suite rate from $75.53 in 1994 to $81.14 in
1995. As a result, 1995 suite sales increased by $3.1 million, or 6%, to $53.9
million from $50.8 million in 1994, despite a one percentage point decrease in
occupancy from approximately 87% to 86%, during these periods. All of the
Partnership's Inns posted occupancy rates exceeding 80% for 1995.
Operating Costs and Expenses. Operating costs and expenses increased to $15.7
million, or 52% of revenues, in 1995 from $15.6 million, or 57% of revenues, in
1994.
Operating Profit. Operating profit increased $2.7 million to $14.4 million, or
48% of revenues, in 1995 from $11.7 million, or 43% of revenues, in 1994 due to
the changes in revenues and operating costs discussed above.
Interest Expense. Interest expense decreased to $13.4 million for 1995 from
$13.5 million in 1994.
Net Income. Net income increased $3.1 million to $1.5 million, or 5% of
revenues, in 1995, from a net loss of $1.6 million in 1994 due to the items
discussed above.
CAPITAL RESOURCES AND LIQUIDITY
GENERAL
The General Partner believes that cash from Inn operations and Partnership
reserves will provide adequate funds in the short term and long term for the
operational and capital needs of the Partnership.
PRINCIPAL SOURCES AND USES OF CASH
The Partnership's principal source of cash is cash from operations. Its
principal uses of cash are to make debt service payments, fund the property
improvement fund, and to make distributions to the limited partners.
Cash provided from operations was $10.8 million, $9.4 million and $8.0 million
for the years ended December 31, 1996, 1995 and 1994, respectively. The $1.4
million increase in cash from operations in 1996 was primarily due to the $2.0
million increase in Inn revenues during this time period, partially offset by
the $244,000 increase in base management and Residence Inn system
10
<PAGE>
fees which increased as a result of improved sales. Cash from operations
increased $1.4 million in 1995 primarily because of the $2.8 million increase in
Inn revenues during this time period. This increase in revenues was offset by
the additional $1.2 million in interest payments made in 1995 compared to 1994.
Interest payments increased because of the 1995 refinancing of the Partnership's
debt, which required the Partnership to make monthly payments of principal and
interest on the new debt, as opposed to quarterly payments of interest on the
old debt. See "Refinancing" below. The Partnership paid $13.0 million, $14.4
million and $13.2 million in interest in 1996, 1995 and 1994, respectively.
Cash used in investing activities was $3.2 million, $3.0 million and $2.8
million, respectively, in 1996, 1995 and 1994. The Partnership's cash investing
activities consist primarily of contributions to the property improvement fund
and capital expenditures for improvements to existing Inns. Contributions to
the property improvement fund were $3.0 million, $2.8 million and $2.7 million
for the years ended December 31, 1996, 1995 and 1994, while capital expenditures
were $3.6 million, $3.1 million and $1.4 million, respectively, during these
same time periods.
Cash used in financing activities was $11.5 million, $4.5 million and $3.3
million, respectively, in 1996, 1995 and 1994. The Partnership's cash financing
activities consist primarily of repayments of debt, capital distributions to
partners, payment of debt financing costs and debt refinancing. In October
1995, the Partnership refinanced debt of $130.4 million with the proceeds from a
$100 million senior mortgage loan ("Senior Mortgage") and a $30 million second
mortgage loan ("Second Mortgage"). The partnership paid $207,000 and $3.1
million in 1996 and 1995, respectively, for refinancing costs associated with
this transaction. See "Refinancing" below. During 1996 and 1995, respectively,
the Partnership repaid $6.3 million and $177,000 of principal on the Senior and
Second Mortgages. No principal payments were made on the Partnership's debt in
1994. Capital distributions to the partners were $5.0 million, $861,000 and
$3.3 million, respectively, in 1996, 1995 and 1994. Of the $5.0 million
distributed in 1996, $1.7 million was from 1996 operations and $3.3 million was
from 1995 operations. The $861,000 distributed in 1995 was from 1994
operations. Of the $3.3 million distributed in 1994, $2.4 million was from 1994
operations and $861,000 was from 1993 operations.
REFINANCING
As of December 31, 1994, the Partnership's debt consisted of a $123 million
nonrecourse mortgage loan (the "Term Loan"), $6 million borrowed under a $10
million revolving credit facility (the "Revolving Loan") and a $1.4 million note
payable to Host Marriott for an expansion at the St. Louis Galleria Inn. Both
the Term Loan and the note payable to Host Marriott carried interest at a fixed
rate of 10.4% and required no principal amortization prior to maturity. The
Revolving Loan was available to provide interest payments on up to $19 million
of the principal amount of the Term Loan. Borrowings carried interest at a
floating rate equal to .5% over the one, two, three or six-month London
Interbank Offered Rate ("LIBOR") as elected by the Partnership and required no
principal amortization prior to maturity.
The Term Loan, Revolving Loan and note payable to Host Marriott matured on April
24, 1995. The Term Loan and Revolving Loan went into default on the maturity
date as the Partnership was unable to secure replacement financing. Effective
April 25, 1995 through August 31, 1995, the
11
<PAGE>
lender granted a forbearance on the Term loan and the Revolving Loan in which
both loans began to accrue interest at 10.4%. However, effective September 1,
1995, pursuant to the loan documents, both the Term Loan and Revolving Loan
began to accrue interest at the Default Rate, as defined, of prime plus 2.5
percentage points through October 11, 1995. Host Marriott granted the
Partnership a six-month forbearance of the note payable upon maturity on April
24, 1995 at the original interest rate.
The Partnership's debt was refinanced on October 12, 1995 at which time the Term
Loan, Revolving Loan and note payable to Host Marriott were fully repaid with
the proceeds from a $130 million nonrecourse mortgage loan (the "Mortgage
Debt"). The Mortgage Debt is comprised of a $100 million note (the "Senior
Mortgage") which bears interest at 8.6% and a $30 million note (the "Second
Mortgage") which bears interest at 15.25% for an initial blended interest rate
of 10.13%. Both the Senior Mortgage and Second Mortgage require monthly
amortization of principal and mature on September 30, 2002. In addition to the
required monthly amortization, during each of the four years from 1996 through
1999, the Partnership is required to pay, on a cash available basis, an
additional $2 million annually toward principal amortization on the Senior
Mortgage. Additionally, during the entire seven year term, the Partnership has
the option to pay up to an additional $1 million principal payment annually on
the Second Mortgage and up to another $1 million optional principal payment
which would be applied in a 2:1 ratio to the Senior and Second Mortgage,
respectively.
Host Marriott was released from its $15 million debt service guarantee
obligation on the date of the original debt maturity of April 24, 1995. No
amounts were advanced under this obligation.
Both the Senior Mortgage and the Second Mortgage are secured by the Inns, the
land on which they are located, a security interest in all personal property
associated with the Inns including furniture and equipment, inventory, contracts
and other general intangibles and an assignment of the Partnership's rights
under the management agreement.
Operating profit from the Inns in excess of debt service on the Senior and
Second Mortgages is distributed as follows, in order of priority: (i) to pay the
Partnership its annual 10% priority return of $6.6 million, (ii) to the Manager
in payment of deferred base management fees, (iii) 50% of the remaining
operating profit is paid to the Manager for incentive management fees and 50% is
retained by the Partnership until the amount retained by each party, separately,
equals 5% of the Partnership's invested capital, and (iv) once the Partnership
has retained the additional 5% return, 75% of any remaining operating profit is
paid to the Manager for incentive management fees and 25% is retained by the
Partnership.
PROPERTY IMPROVEMENT FUND
The Management Agreement requires annual contributions to a property improvement
fund to ensure that the physical condition and product quality of the Inns are
maintained. Contributions to this fund are based on a percentage of annual
total Inn sales, currently equal to 5%. Based upon current capital expenditure
forecasts for the Partnership's Inns, it is expected that there will be a
shortfall in the Partnership property improvement fund beginning in 1998 for the
years 1998 through 2002. This shortfall is primarily due to the need to
complete total suite refurbishments at the majority of the Partnership's Inns in
the next several years. The Partnership has not yet
12
<PAGE>
received final notification from the Manager defining the extent of the
shortfall, as the manager is still in the process of finalizing the 1998 capital
expenditure budgets. However, estimates range from $1.4 million to $3.5 million.
The Partnership will work with the Manager to develop a strategic plan to
provide for the future capital needs of the Inns by better utilization of the
property improvement fund and, potentially, funds provided from operating cash.
As a result of this expected future shortfall, the General Partner established a
reserve in 1996 for the future capital needs of the Partnership's Inns. It is
expected that 1997 distributions will be net of an additional reserve as well.
The balance in the fund totaled $2.8 million as of December 31, 1996. Total
capital expenditures for 1996, 1995 and 1994 were $3.6 million, $3.1 million and
$1.4 million, respectively.
DEFERRED MANAGEMENT FEES
The Manager earns a base management fee equal to 2% of the Inns' gross sales.
Through 1990, payment of the base management fee was subordinate to qualifying
debt service payments and retention by the Partnership of annual cash flow from
operations of $6,626,263. Deferred base management fees are payable from
operating cash flow, but only after the payment of (i) debt service, (ii) a
priority return to the Partnership and (iii) certain other priorities as defined
in the Management Agreement. Beginning in 1991 and thereafter, base management
fees are paid currently. Pursuant to the terms of the Management Agreement, the
Partnership paid deferred base management fees of $515,000 and $491,000 for
fiscal years ended December 31, 1996 and 1995, respectively. No deferred base
management fees were paid for the fiscal year ended December 31, 1994. Deferred
base management fees do not accrue interest.
As of December 31, 1996 and December 31, 1995, cumulative deferred base
management fees totaled $1.5 million and $2.0 million, respectively.
In addition, the Manager is entitled to an incentive management fee equal to 15%
of operating profit, as defined in the Management Agreement (20% in any year in
which operating profit is equal to or greater than $23.5 million). The
incentive management fee is payable out of 50% of cash flow from operations
remaining after payments of qualifying debt service, retention by the
Partnership of annual cash flow from operations of $6,626,263 and the deferred
base management fee. Of this amount, the Partnership retains an additional 50%
of the excess cash flow, up to 5% of its invested capital. Thereafter, the
incentive management fee is payable out of 75% of the remaining cash flow from
operations. Through 1989, the Manager was not entitled to accrue any unpaid
incentive management fees. Incentive management fees earned after 1989 are
payable in the future from operating cash flow, as defined. Unpaid incentive
management fees are paid from cash flow available for incentive management fees
following payment of the then current incentive management fees.
For the years ended December 31, 1995 and December 31, 1996, respectively, $3.1
million and $3.4 million in incentive management fees were earned. Through
December 31, 1996 no incentive management fees have been paid to the Manager and
none are expected to be paid during 1997. As of December 31, 1996, 1995 and
1994, respectively, deferred incentive management fees were $19.3 million, $16.0
million and $12.8 million.
There are two priority returns to the Partnership defined as 10% and 5% of
invested capital, or
13
<PAGE>
the "First" and "Second" Priority, respectively. Operating profit from the Inns
(which reflects the deduction of the base management and Residence Inn system
fees) will be used to pay the following, in order of priority: (i) debt service
on the Senior and Second Mortgages, (ii) the First Priority return to the
Partnership, (iii) the balance of deferred base management fees, (iv) 50% of the
excess is paid to the Partnership and 50% to the Manager for incentive
management fees, until each party, separately, has retained an amount equal to
the Second Priority, and (v) of any remaining operating profit, 75% is paid to
the Manager for incentive management fees and 25% is paid to the Partnership.
COMPETITION
The extended-stay lodging segment continues to be highly competitive. An
increase in supply growth began in 1996 with the introduction of a number of new
national brands. For 1997, the outlook continues to be positive. Residence
Inns continue to command a premium share of the market in which they are located
in spite of the growth of new chains. It is expected that Residence Inn will
continue outperforming both national and local competitors. The brand is
continuing to carefully monitor the introduction of new extended-stay brands and
growth of existing brands including Homewood Suites, Hawthorne Suites,
Summerfield Suites and AmeriSuites.
INFLATION
The rate of inflation has been relatively low in the past four years. The
Manager is generally able to pass through increased costs to customers through
higher room rates and prices. In 1996, the increase in average suite rates of
Residence Inns exceeded inflationary costs.
SEASONALITY
Demand, and thus room occupancy, is affected by normally recurring seasonal
patterns. For most of the Inns, demand is higher in the spring and summer
months (March through October) than during the remainder of the year.
14
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
INDEX Page
- ----- ----
<S> <C>
Marriott Residence Inn Limited Partnership Consolidated Financial Statements:
Report of Independent Public Accountants...................................... 16
Statement of Operations....................................................... 17
Balance Sheet................................................................. 18
Statement of Changes in Partners' Capital..................................... 19
Statement of Cash Flows....................................................... 20
Notes to Financial Statements................................................. 21
</TABLE>
15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE PARTNERS OF MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP:
We have audited the accompanying balance sheet of Marriott Residence Inn Limited
Partnership (a Delaware limited partnership) as of December 31, 1996 and 1995,
and the related statements of operations, changes in partners' capital and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements and schedule are the responsibility of the General
Partner's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Marriott Residence Inn Limited
Partnership as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index at Item
14(a)(2) is presented for the purpose of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.
March 21, 1997
16
<PAGE>
STATEMENT OF OPERATIONS
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
REVENUES (Note 3)..................................... $ 32,084 $ 30,069 $ 27,305
-------- -------- --------
OPERATING COSTS AND EXPENSES
Depreciation and amortization....................... 5,620 5,976 6,518
Incentive management fee............................ 3,366 3,130 2,838
Residence Inn system fee............................ 2,321 2,158 2,032
Property taxes...................................... 2,229 2,235 2,270
Base management fee................................. 1,216 1,135 1,069
Equipment rent and other............................ 1,181 1,035 915
-------- -------- --------
15,933 15,669 15,642
-------- -------- --------
OPERATING PROFIT...................................... 16,151 14,400 11,663
Interest expense.................................... (13,411) (13,405) (13,527)
Interest income..................................... 347 522 276
-------- -------- --------
NET INCOME (LOSS)..................................... $ 3,087 $ 1,517 $ (1,588)
======== ======== ========
ALLOCATION OF NET INCOME (LOSS)
General Partner..................................... $ 31 $ 15 $ (16)
Limited Partners.................................... 3,056 1,502 (1,572)
-------- -------- --------
$ 3,087 $ 1,517 $ (1,588)
======== ======== ========
NET INCOME (LOSS) PER LIMITED PARTNER UNIT
(65,600 Units)....................................... $ 47 $ 23 $ (24)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
BALANCE SHEET
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Property and equipment, net................................................. $ 140,272 $ 142,331
Due from Residence Inn by Marriott, Inc..................................... 2,462 1,329
Property improvement fund................................................... 2,767 3,136
Deferred financing and organization costs, net of accumulated amortization.. 2,728 2,994
Cash and cash equivalents................................................... 3,429 7,271
--------- ---------
$ 151,658 $ 157,061
========= =========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Mortgage debt.............................................................. $ 123,519 $ 129,823
Incentive management fee due to Residence Inn by Marriott, Inc............. 19,326 15,960
Base management fee due to Residence Inn by Marriott, Inc.................. 1,499 2,014
Accounts payable and accrued expenses...................................... 1,993 2,061
--------- ---------
Total Liabilities......................................................... 146,337 149,858
--------- ---------
PARTNERS' CAPITAL
General Partner
Capital contribution...................................................... 663 663
Capital distributions..................................................... (387) (337)
Cumulative net losses..................................................... (147) (178)
--------- ---------
129 148
--------- ---------
Limited Partners
Capital contribution, net of offering costs of $7,550..................... 58,050 58,050
Capital distributions..................................................... (38,313) (33,394)
Cumulative net losses..................................................... (14,545) (17,601)
--------- ---------
5,192 7,055
--------- ---------
Total Partners' Capital................................................... 5,321 7,203
--------- ---------
$ 151,658 $ 157,061
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
STATEMENT OF CHANGES IN PARTNERS'
CAPITAL
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- --------
<S> <C> <C> <C>
Balance, December 31, 1993............................ $ 190 $ 11,259 $ 11,449
Capital distributions................................ (33) (3,280) (3,313)
Net loss............................................. (16) (1,572) (1,588)
------- -------- --------
Balance, December 31, 1994............................ 141 6,407 6,548
Capital distributions................................ (8) (854) (862)
Net income........................................... 15 1,502 1,517
------- -------- --------
Balance, December 31, 1995............................ 148 7,055 7,203
Capital distributions................................ (50) (4,919) (4,969)
Net income........................................... 31 3,056 3,087
------- -------- --------
Balance, December 31, 1996............................ $ 129 $ 5,192 $ 5,321
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
STATEMENT OF CASH FLOWS
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
-------- --------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).............................................. $ 3,087 $ 1,517 $(1,588)
Noncash items:
Depreciation and amortization............................... 5,620 5,976 6,518
Deferred incentive management fee........................... 3,366 3,130 2,838
Amortization of deferred financing costs as interest........ 473 191 288
(Gain) loss on dispositions of property and equipment....... (10) (18) 119
Changes in operating accounts:
Due from Residence Inn by Marriott, Inc..................... (1,133) 417 (321)
Accounts payable and accrued expenses....................... (68) (1,334) 101
Base management fee due to Residence Inn by Marriott, Inc... (515) (491) --
-------- --------- -------
Cash provided by operations............................... 10,820 9,388 7,955
-------- --------- -------
INVESTING ACTIVITIES
Additions to property and equipment, net....................... (3,561) (3,095) (1,360)
Change in property improvement fund............................ 379 102 (1,407)
-------- --------- -------
Cash used in investing activities......................... (3,182) (2,993) (2,767)
-------- --------- -------
FINANCING ACTIVITIES
Proceeds from mortgage loan.................................... -- 130,000 --
Repayment of mortgage debt..................................... -- (128,967) --
Payment of note payable to Host Marriott Corporation........... -- (1,395) --
Principal payments on mortgage debt............................ (6,304) (177) --
Capital distributions to partners.............................. (4,969) (862) (3,313)
Refinancing costs.............................................. (207) (3,096) --
-------- --------- -------
Cash used in financing activities......................... (11,480) (4,497) (3,313)
-------- --------- -------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS................. (3,842) 1,898 1,875
CASH AND CASH EQUIVALENTS at beginning of year................... 7,271 5,373 3,498
-------- --------- -------
CASH AND CASH EQUIVALENTS at end of year......................... $ 3,429 $ 7,271 $ 5,373
======== ========= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for mortgage interest................................ $ 12,992 $ 14,547 $13,333
======== ========= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
Notes to Financial Statements
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
NOTE 1. THE PARTNERSHIP
Description of the Partnership
Marriott Residence Inn Limited Partnership (the "Partnership"), a Delaware
limited partnership, was formed March 29, 1988 to acquire, own and operate 15
Residence Inn by Marriott hotels (the "Inns") and the land on which the Inns are
located. The Inns are located in seven states in the United States: four in
Ohio, three in California, three in Georgia, two in Missouri and one in
Illinois, Colorado and Michigan, and as of December 31, 1996, have a total of
2,129 suites.
On December 29, 1995, Host Marriott Corporation's operations were divided into
two separate companies: Host Marriott Corporation ("Host Marriott") and Host
Marriott Services Corporation. The sole general partner of the Partnership,
with a 1% interest, is RIBM One Corporation (the "General Partner"), a Delaware
corporation and wholly-owned subsidiary of Host Marriott.
Between March 29, 1988 and April 22, 1988 (the "Closing Date"), 65,600 limited
partnership interests (the "Units") were sold in a public offering. The
offering price per Unit was $1,000. The General Partner contributed $662,627
for its 1% general partnership interest. The Inns are managed by Residence Inn
by Marriott, Inc. (the "Manager"), a wholly-owned subsidiary of Marriott
International, Inc. ("MII"), as part of the Residence Inn by Marriott hotel
system.
Partnership Allocations and Distributions
Net profits for Federal income tax purposes are generally allocated to the
partners in proportion to the distributions of cash available for distribution.
The Partnership generally distributes cash available for distribution as
follows: (i) first, 99% to the limited partners and 1% to the General Partner,
until the partners have received, with respect to such year, an amount equal to
10% of their Net Capital Investment, defined as the excess of original capital
contributions over cumulative distributions of net refinancing and sales
proceeds ("Capital Receipts"); (ii) second, remaining cash available for
distribution will be distributed as follows, depending on the amount of Capital
Receipts previously distributed:
(a) 99% to the limited partners and 1% to the General Partner, if the partners
have received aggregate cumulative distributions of Capital Receipts of less
than 50% of their original capital contributions; or
(b) 85% to the limited partners and 15% to the General Partner, if the partners
have received aggregate cumulative distributions of Capital Receipts equal
to or greater than 50% but less than 100% of their original capital
contributions; or
(c) 70% to the limited partners and 30% to the General Partner, if the partners
have received aggregate cumulative distributions of Capital Receipts equal
to 100% or more of their original capital contributions.
Losses and net losses are allocated 99% to the limited partners and 1% to the
General Partner.
21
<PAGE>
Capital Receipts not retained by the Partnership will generally be distributed
(i) first, 99% to the limited partners and 1% to the General Partner until the
partners have received cumulative distributions from all sources equal to a
cumulative simple return of 12% per annum on their Net Capital Investment and an
amount equal to their contributed capital, payable only from Capital Receipts;
(ii) next, if the Capital Receipts are from a sale, 100% to the General Partner
until it has received 2% of the gross proceeds from the sale and; (iii)
thereafter, 70% to the limited partners and 30% to the General Partner.
Gains will generally be allocated (i) first, to those partners whose capital
accounts have negative balances until such negative balances are brought to
zero; (ii) second, to all partners in amounts necessary to bring each of their
respective capital account balances equal to their invested capital, as defined,
plus a 12% return on such invested capital; (iii) next, to the General Partner
in an amount necessary to bring the General Partner's capital account balance to
an amount which is equal to 2% of the gross proceeds from the sale; and (iv)
thereafter, 70% to the limited partners and 30% to the General Partner.
Proceeds from the sale of substantially all of the assets of the Partnership
will be distributed to the partners in accordance with their capital account
balances as adjusted to take into account the gain or loss resulting from such
sale.
For financial reporting purposes, profits and losses are allocated among the
partners based upon their stated interests in cash available for distribution.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Partnership's records are maintained on the accrual basis of accounting and
its fiscal year coincides with the calendar year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenues and Expenses
Revenues represent house profit of the Inns because the Partnership has
delegated substantially all of the operating decisions related to the generation
of house profit of the Inns to the Manager. House profit reflects Inn operating
results which flow to the Partnership as property owner and represents gross Inn
sales less property-level expenses, excluding depreciation and amortization,
base, Residence Inn system and incentive management fees, property taxes,
equipment rent and other costs, which are disclosed separately in the statement
of operations.
22
<PAGE>
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets as follows:
Land improvements 40 years
Buildings and improvements 40 years
Furniture and equipment 3 to 10 years
All property and equipment is pledged as security for the mortgage debt
described in Note 6.
The Partnership assesses impairment of its real estate properties based on
whether estimated undiscounted future cash flows from such properties on an
individual hotel basis will be less than their net book value. If a property is
impaired, its basis is adjusted to fair market value.
Income Taxes
Provision for Federal and state income taxes has not been made in the financial
statements since the Partnership does not pay income taxes but rather allocates
its profits and losses to the partners. Significant differences exist between
the net income or loss for financial reporting purposes and the net income or
loss reported in the Partnership's tax return. These differences are due
primarily to the use, for income tax purposes, of accelerated depreciation
methods and shorter depreciable lives of the assets and differences in the
timing of the recognition of base and incentive management fee expenses. As a
result of these differences, the net excess between the Partnership's net assets
reported in the accompanying financial statements and the tax basis of such net
assets at December 31, 1996 and 1995 was $15,689,000 and $12,611,000,
respectively.
Deferred Financing Costs
Deferred financing costs represent the costs incurred in connection with
obtaining the debt financing and are amortized over the term thereof. The
original mortgage debt described in Note 6 matured on April 24, 1995. Deferred
financing costs associated with the original mortgage debt totaling $2,017,000
were fully amortized at maturity and removed from the Partnership's books.
Costs incurred in connection with the mortgage debt refinancing totaled
$3,303,000 and will be amortized using the straight-line method, which
approximates the effective interest method, over the seven year term of the
loan. At December 31, 1996 and 1995, accumulated amortization of deferred
financing costs totaled $575,000 and $102,000, respectively.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with a maturity of three
months or less at date of purchase to be cash equivalents.
New Statements of Financial Accounting Standards
In the first quarter of 1996, the Partnership adopted Statement of Financial
Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of." Adoption of SFAS No.
121 did not have an effect on its financial statements.
23
<PAGE>
Reclassifications
Certain reclassifications were made to prior year financial statements to
conform to the 1996 presentation.
NOTE 3. REVENUES
Partnership revenues consist of Inn operating results for the three years ended
December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
INN SALES
Suites......................... $58,019 $53,945 $50,805
Other operating departments.... 2,805 2,780 2,635
------- ------- -------
60,824 56,725 53,440
------- ------- -------
INN EXPENSES
Departmental direct costs
Suites....................... 11,756 10,839 10,060
Other operating departments.. 1,024 1,013 974
Other Inn operating expenses... 15,960 14,804 15,101
------- ------- -------
28,740 26,656 26,135
------- ------- -------
REVENUES........................ $32,084 $30,069 $27,305
======= ======= =======
</TABLE>
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Land and improvements.......... $ 46,441 $ 46,441
Buildings and improvements..... 112,592 111,840
Furniture and equipment........ 35,902 33,093
-------- --------
194,935 191,374
Less accumulated depreciation.. (54,663) (49,043)
-------- --------
$140,272 $142,331
======== ========
</TABLE>
24
<PAGE>
- --------------------------------------------------------------------------------
NOTE 5. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments are shown below. The fair
value of financial instruments not included in this table are estimated to be
equal to their carrying amounts.
<TABLE>
<CAPTION>
As of December 31, 1996 As of December 31, 1995
------------------------- -------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- -------------- --------- --------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Mortgage debt $123,519 $126,949 $129,823 $129,823
Incentive management fee due to Residence
Inn by Marriott, Inc. $ 19,326 $ 4,100 $ 15,960 $ 1,800
Base management fee due to Residence
Inn by Marriott, Inc. $ 1,499 $ 1,499 $ 2,014 $ 1,600
</TABLE>
The estimated fair value of debt obligations is based on the expected future
debt service payments discounted at risk adjusted rates. Base and incentive
management fees payable are valued based on the expected future payments from
operating cash flow discounted at risk adjusted rates.
NOTE 6. MORTGAGE DEBT
As of December 31, 1994, the Partnership's debt consisted of a $123,000,000
nonrecourse mortgage loan (the "Term Loan"), $5,967,000 borrowed under a $10
million revolving credit facility (the "Revolving Loan") and a $1,395,000 note
payable to Host Marriott for an expansion at the St. Louis Galleria Inn. Both
the Term Loan and the note payable to Host Marriott carried interest at a fixed
rate of 10.4% and required no principal amortization prior to maturity. The
Revolving Loan was available to provide interest payments on up to $19 million
of the principal amount of the Term Loan. Borrowings carried interest at a
floating rate equal to .5% over the one, two, three or six-month London
Interbank Offered Rate ("LIBOR") as elected by the Partnership and required no
principal amortization prior to maturity. The Partnership did not borrow under
the Revolving Loan in 1995.
The Term Loan, Revolving Loan and note payable matured on April 24, 1995. The
Term Loan and Revolving Loan went into default on the maturity date as the
Partnership was unable to secure replacement financing. Effective April 25,
1995 through August 31, 1995, the lender granted a forbearance on the Term loan
and the Revolving Loan in which both loans began to accrue interest at 10.4%.
However, effective September 1, 1995, pursuant to the loan documents, both the
Term Loan and Revolving Loan began to accrue interest at the Default Rate, as
defined, of prime plus 2.5 percentage points through October 11, 1995. Host
Marriott granted the Partnership a six-month forbearance of the note payable
upon maturity on April 24, 1995 at the original interest rate. During the
forbearance period, the Partnership was required to make monthly debt service
payments of interest only on the Term Loan and Revolving Loan and quarterly
payments of interest only on the note payable.
25
<PAGE>
- --------------------------------------------------------------------------------
The Partnership's debt was refinanced on October 12, 1995 at which time the Term
Loan, Revolving Loan and note payable to Host Marriott were fully repaid with
the proceeds from a $130 million nonrecourse mortgage loan (the "Mortgage
Debt"). The Mortgage Debt is comprised of a $100 million note (the "Senior
Mortgage") which bears interest at 8.6% and a $30 million note (the "Second
Mortgage") which bears interest at 15.25% for a blended interest rate of 10.13%.
Both the Senior Mortgage and Second Mortgage require monthly amortization of
principal and mature on September 30, 2002. In addition to the required monthly
amortization, during each of the four years from 1996 through 1999, the
Partnership is required to pay, on a cash available basis, an additional $2
million annually toward principal amortization on the Senior Mortgage.
Additionally, during the entire seven year term, the Partnership has the option
to pay up to an additional $1 million principal payment annually on the Second
Mortgage and up to another $1 million optional principal payment which would be
applied in a 2:1 ratio to the Senior and Second Mortgage, respectively. The
weighted-average interest rate for the years ended December 31, 1996 and 1995
was 10.13% and 10.14%, respectively. In 1994, the weighted-average interest
rate on the Revolving Loan was 4.8%. During 1996, the Partnership made payments
of $4,719,000 and $1,585,000 on the Senior Mortgage and Second Mortgage,
respectively. At December 31, 1996, the outstanding principal balance of the
Senior Mortgage and the Second Mortgage was $95,124,000 and $28,395,000,
respectively.
Host Marriott was released from its $15 million debt service guarantee
obligation on the date of the original debt maturity of April 24, 1995. No
amounts were advanced under this obligation.
Both the Senior Mortgage and the Second Mortgage are secured by the Inns, the
land on which they are located, a security interest in all personal property
associated with the Inns including furniture and equipment, inventory, contracts
and other general intangibles and an assignment of the Partnership's rights
under the management agreement.
Principal amortization of the Senior and Second Mortgages at December 31, 1996
is as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1997................... $ 4,943
1998................... 5,503
1999................... 6,319
2000................... 5,231
2001................... 6,252
Thereafter............. 95,271
--------
$123,519
========
</TABLE>
NOTE 7. MANAGEMENT AGREEMENT
The Manager operates the Inns pursuant to a long-term management agreement with
an initial term expiring December 28, 2007. The Manager has the option to
extend the agreement on one or more of the Inns for up to five 10-year terms.
The Manager earns a base management fee equal to 2% of gross sales. Through
1990, payment of the base management fee was subordinated to qualifying debt
service payments and retention by the Partnership of annual cash flow from
operations of $6,626,263. Deferred base management fees are payable from
operating cash flow, as defined. Beginning in 1991 and thereafter, base
management fees are paid currently. Pursuant to the terms of the management
agreement, the Partnership paid deferred base management fees of $515,000 and
$491,000 for the fiscal years ended December 31, 1996 and 1995, respectively.
26
<PAGE>
- --------------------------------------------------------------------------------
In addition, the Manager is entitled to an incentive management fee equal to 15%
of operating profit, as defined (20% in any year in which operating profit is
equal to or greater than $23.5 million). The incentive management fee is
payable out of 50% of cash flow from operations remaining after payments of
qualifying debt service, retention by the Partnership of annual cash flow from
operations of $6,626,263 and the deferred base management fee. After the
Partnership has retained an additional 5% return, the incentive management fee
is payable out of 75% of the remaining cash flow from operations. Through 1989,
the Manager was not entitled to accrue any unpaid incentive management fees.
Incentive management fees earned after 1989 are payable in the future from
operating cash flow, as defined. Unpaid incentive management fees are paid from
cash flow available for incentive management fees following payment of the then
current incentive management fees. Through December 31, 1996, no incentive
management fees have been paid to the Manager and none are expected to be paid
during 1997.
The management agreement also provides for a Residence Inn system fee equal to
4% of suite sales. In addition, the Manager is reimbursed for each Inn's pro
rata share of the actual costs and expenses incurred by the Manager in providing
certain services ("Chain Services") on a central or regional basis to all hotels
operated by the Manager. As franchisor of the Residence Inn by Marriott system,
the Manager maintains a marketing fund to pay the costs associated with certain
system-wide advertising, promotional, and public relations materials and
programs, and operating a toll-free reservation system. Each Inn contributes
2.5% of suite sales to the marketing fund. For the years ended December 31,
1996, 1995 and 1994, the Partnership paid a Residence Inn system fee of
$2,321,000, $2,158,000 and $2,032,000, reimbursed the Manager for $1,031,000,
$988,000 and $982,000 of Chain Services and contributed $1,450,000, $1,349,000
and $1,270,000 to the marketing fund, respectively. Chain Services and
contributions to the marketing fund are included in other Inn operating expenses
in Note 3.
The Partnership is required to provide the Manager with working capital to meet
the operating needs of the Inns. The Manager converts cash advanced by the
Partnership into other forms of working capital consisting primarily of
operating cash, inventories, and trade receivables and payables which are
maintained and controlled by the Manager. Upon termination of the management
agreement, the working capital will be returned to the Partnership. The
individual components of working capital controlled by the Manager are not
reflected in the Partnership's balance sheet. As of December 31, 1996 and 1995,
$775,000 has been advanced to the Manager for working capital.
The management agreement provides for the establishment of a property
improvement fund for the Inns which provides for the replacement of furniture,
fixtures and equipment. Contributions to the property improvement fund are
equal to 5% of gross revenues of each Inn. Contributions to the property
improvement fund as of December 31, 1996, 1995 and 1994 were $3,041,000,
$2,836,000 and $2,672,000, respectively.
27
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The Partnership has no directors or officers. The business and policy making
functions of the Partnership are carried out through the directors and executive
officers of RIBM One Corporation, the General Partner, who are listed below:
<TABLE>
<CAPTION>
AGE AT
NAME CURRENT POSITION DECEMBER 31, 1996
- -------------------------- ------------------------------------------- -----------------
<S> <C> <C>
Bruce F. Stemerman President and Director 41
Christopher G. Townsend Vice President and Director 49
Patricia K. Brady Vice President and Chief Accounting Officer 35
Anna Mary Coburn Secretary 41
Bruce Wardinski Treasurer 36
</TABLE>
BUSINESS EXPERIENCE
Bruce F. Stemerman joined Host Marriott in 1989 as Director--Partnership
Services. He became Vice President--Lodging Partnerships in 1994 and became
Senior Vice President--Asset Management in 1996. Prior to joining Host
Marriott, Mr. Stemerman spent ten years with Price Waterhouse. He also serves
as a director and an officer of numerous Host Marriott subsidiaries.
Christopher G. Townsend joined Host Marriott's Law Department in 1982 as a
Senior Attorney. In 1984 he was made Assistant Secretary of Host Marriott. In
1986 he was made an Assistant General Counsel. He was made Senior Vice
President, Corporate Secretary and Deputy General Counsel of Host Marriott in
1993. In January 1997, he was made General Counsel of Host Marriott. He also
serves as a director and an officer of numerous Host Marriott subsidiaries.
Patricia K. Brady was appointed to Vice President and Chief Accounting Officer
of the General Partner on October 10, 1996. Ms. Brady joined Host Marriott in
1989 as Assistant Manager--Partnership Services. She was promoted to Manager in
1990 and to Director--Asset Management in June 1996. Ms. Brady also serves as
an officer of numerous Host Marriott subsidiaries.
Anna Mary Coburn joined Host Marriott as an Attorney in 1988, became Assistant
General Counsel in 1993, and was elected Corporate Secretary and Associate
General Counsel in 1997. Prior to joining Host Marriott, Ms. Coburn was an
Attorney for the law firm of Shawe & Rosenthal and was a law clerk for the
United States Court of Appeals for the Fourth Circuit. Ms. Coburn resigned from
Host Marriott in January of 1998. Her responsibilities were assumed by
Christopher Townsend.
28
<PAGE>
Bruce Wardinski joined Host Marriott in 1987 as a Senior Financial Analyst of
Financial Planning & Analysis and was named Manager in June 1988. He was
appointed Director, Financial Planning & Analysis in 1989, Director of Project
Finance in January 1990, Senior Director of Project Finance in June 1993, Vice
President--Project Finance in June 1994, and Senior Vice President of
International Development in October 1995. In June 1996, Mr. Wardinski was
named Senior Vice President and Treasurer of Host Marriott. Prior to joining
Host Marriott, Mr. Wardinski was with the public accounting firm Price
Waterhouse.
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
As noted in Item 10 above, the Partnership has no directors or officers nor does
it have any employees. Under the Partnership Agreement, however, the General
Partner has the exclusive right to conduct the business and affairs of the
Partnership subject only to the management agreement described in Items 1 and
13. The General Partner is required to devote to the Partnership such time as
may be necessary for the proper performance of its duties, but the officers and
directors of the General Partner are not required to devote their full time to
the performance of such duties. No officer or director of the General Partner
devotes a significant percentage of time to Partnership matters. To the extent
that any officer or director does devote time to the Partnership, the General
Partner is entitled to reimbursement for the cost of providing such services.
For the fiscal years ending December 31, 1996, 1995 and 1994, the Partnership
reimbursed the General Partner in the amount of $218,000, $151,000 and $118,000,
respectively, for the cost of providing all administrative and other services as
General Partner. For information regarding all payments made by the Partnership
to Host Marriott and subsidiaries, see Item 13 "Certain Relationships and
Related Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
As of December 31, 1996, no person owned of record, or to the Partnership's
knowledge owned beneficially, more than 5% of the total number of limited
partnership Units. The General Partner does not own any limited partnership
interest in the Partnership.
The executive officers and directors of the General Partner, Host Marriott, MII
and their respective affiliates own 80 limited partnership units as of December
31, 1996.
The Partnership is not aware of any arrangements which may, at a subsequent
date, result in a change in control of the Partnership other than the
consolidation described in Item 1.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Agreement
Term
29
<PAGE>
The Management Agreement has an initial term expiring on December 28, 2007. The
Manager may renew the term, as to one or more of the Inns, at its option, for up
to five successive terms of 10 years each. The Partnership may terminate the
Management Agreement if, during any three consecutive years after 1992,
specified minimum operating results are not achieved. However, the Manager may
prevent termination by paying to the Partnership the amount by which the minimum
operating results were not achieved.
Management Fees
The Management Agreement provides for annual payments of (i) the base management
fee equal to 2% of gross sales from the Inns, (ii) the Residence Inn system fee
equal to 4% of gross suite sales from the Inns, and (iii) the incentive
management fee equal to 15% of operating profit, as defined (20% in any year in
which operating profit is equal to or greater than $23.5 million). During 1996,
1995 and 1994, respectively, the Partnership paid a Residence Inn system fee of
$2,321,000, $2,158,000 and $2,032,000. See "Deferral Provisions" for a
discussion of the payment of base and incentive management fees.
Deferral Provisions
Through 1990, payment of the base management fee was subordinated to qualifying
debt service payments and retention by the Partnership of annual cash flow from
operations of $6,626,263. Deferred base management fees are payable from
operating cash flow, as defined, but only after payment of debt service and the
Partnership's 10% priority return. Beginning in 1991 and thereafter, base
management fees are paid currently. For the years ended December 31, 1996, 1995
and 1994, respectively, the Partnership paid current base management fees of
$1,216,000, $1,135,000 and $1,069,000. During 1996 and 1995, $515,000 and
$491,000, respectively, of deferred base management fees were repaid. Deferred
base management fees as of December 31, 1996 and 1995 were $1.5 million and $2.0
million, respectively.
The incentive management fee is payable out of 50% of cash flow from operations
remaining after payments of qualifying debt service, retention by the
Partnership of annual cash flow from operations of $6,626,263 and the deferred
base management fee. After the cash flow retained by the Partnership reaches 5%
of invested capital plus any owner funded capital improvements, the incentive
management fee is payable out of 75% of the remaining cash flow from operations.
Through 1989, the Manager was not entitled to accrue any unpaid incentive
management fees. Incentive management fees earned after 1989 are payable in the
future from operating cash flow, as defined. Unpaid incentive management fees
are paid from cash flow available for incentive management fees following
payment of the then current incentive management fees. Through December 31,
1996, no incentive management fees have been paid to the Manager and none are
expected to be paid during 1997. During 1996 and 1995, $3.4 million and $3.1
million, respectively, of incentive management fees were deferred. Deferred
incentive management fees were approximately $19.3 million and $16.0 million as
of December 31, 1996 and 1995, respectively.
Chain Services and Marketing Fund
The Manager is reimbursed for each Inn's pro rata share of the actual costs and
expenses incurred by the Manager in providing certain services ("Chain
Services") on a central or regional basis to all hotels operated by the Manager.
As franchisor of the Residence Inn by Marriott system, the Manager maintains
30
<PAGE>
a marketing fund to pay the costs associated with certain system-wide
advertising, promotional, and public relations materials and programs, and
operating a toll-free reservation system. Each Inn contributes 2.5% of gross
suite sales to the marketing fund. For the years ended December 31, 1996, 1995
and 1994, the Partnership reimbursed the Manager for $1,031,000, $988,000 and
$982,000 of Chain Services and contributed $1,450,000, $1,349,000 and $1,270,000
to the marketing fund, respectively.
Working Capital
The Partnership is required to provide the Manager with working capital to meet
the operating needs of the Inns. The Manager converts cash advanced by the
Partnership into other forms of working capital consisting primarily of
inventories, trade receivables and payables which are maintained and controlled
by the Manager. Upon termination of the management agreement, the working
capital will be returned to the Partnership. The individual components of
working capital controlled by the Manager are not reflected in the Partnership's
balance sheet. As of December 31, 1996 and 1995, $775,000 has been advanced to
the Manager for working capital.
Property Improvement Funds
The Management Agreement provides for the establishment of a property
improvement fund for the Inns which provides for the replacement of furniture,
fixtures and equipment. Contributions to the property improvement fund are
equal to 5% of gross sales of each Inn. Contributions to the property
improvement fund as of December 31, 1996, 1995 and 1994 were $3,041,000,
$2,836,000 and $2,672,000, respectively.
Payments to MII and Subsidiaries
The following table sets forth the amounts paid to MII and affiliates under the
Management Agreement for the years ended December 31, 1996, 1995 and 1994 (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Residence Inn system fee............ $2,321 $2,158 $2,032
Marketing fund contribution......... 1,450 1,349 1,270
Base management fee................. 1,216 1,135 1,069
Chain services...................... 1,031 988 982
Deferred base management fees....... 515 491 --
------ ------ ------
$6,533 $6,121 $5,353
====== ====== ======
</TABLE>
PAYMENTS TO HOST MARRIOTT AND SUBSIDIARIES
The following sets forth amounts paid by the Partnership to Host Marriott and
its subsidiaries, including the General Partner, for the years ended December
31, 1996, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -----
<S> <C> <C> <C>
Principal and interest on Host Marriott loan.. $ -- $1,507 $ 145
Administrative expenses reimbursed............ 218 151 118
Cash distributions............................ 50 8 33
------ ------ -----
$268 $1,666 $ 296
====== ====== =====
</TABLE>
31
<PAGE>
PART IV
ITEM 14. EXHIBITS, SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) List of Documents Filed as Part of This Report
(1) Financial Statements
All financial statements of the registrant as set forth under
Item 8 of this Report on Form 10-K.
(2) Financial Statement Schedules
The following financial information is filed herewith on the
pages indicated.
Schedule III - Real Estate and Accumulated Depreciation
All other schedules are omitted because they are not applicable or the required
information is included in the financial statements or notes thereto.
(3) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------ ---------------------------------- -------------
<S> <C> <C>
* 3.1 Amended and Restated Agreement of Limited N/A
Partnership of Marriott Residence Inn Limited
Partnership by and among RIBM One Corporation
(General Partner), Christopher G. Townsend
(Organizational Limited Partner), and
Limited Partners dated March 29, 1988.
10.1 First Amendment to Loan Agreement by and N/A
between Marriott Residence Inn Limited Partnership
(Borrower) and German American Capital Corporation
(Lender), dated April 23, 1996.
10.2 Loan Agreement by and between Marriott Residence N/A
Inn Limited Partnership (Borrower) and German
American Capital Corporation (Lender), dated October
10, 1995.
10.3 Indemnity Agreement by Marriott Residence Inn N/A
Limited Partnership (Borrower) and RIBM One
Corporation (collectively, the Indemnitors) in
favor of German American Capital Corporation
(Lender), dated October 10, 1995.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------ ------------------------------------------------- ---------
<S> <C> <C>
10.4 Four Party Agreement by and among Marriott N/A
Residence Inn Limited Partnership (Borrower),
German American Capital Corporation (Senior
Lender), Starwood Mezzanine Investors, L.P.
(Subordinate Lender) and Residence Inn by
Marriott, Inc. (Manager), dated October 10, 1995.
10.5 Loan Agreement by and between Marriott Residence N/A
Inn Limited Partnership (Borrower) and Starwood
Mezzanine Investors, L.P. (Lender), dated
October 10, 1995.
* 10.6 Loan Agreement by and between Marriott Residence N/A
Inn Limited Partnership and The Sanwa Bank Limited,
dated as of April 20, 1988.
* 10.7 Revolving Credit Agreement by and between Marriott N/A
Residence Inn Limited Partnership and The Sanwa
Bank Limited, dated as of April 20, 1988.
10.8 Manager's Letter Agreement between Residence Inn N/A
by Marriott, Inc. and Marriott Residence Inn Limited
Partnership, dated October 10, 1995.
* 10.9 Management Agreement by Marriott Residence Inn N/A
Limited Partnership (Owner) and Residence Inn by
Marriott, Inc. (Manager), dated March 29, 1988.
---------- -----------------------
* Incorporated by reference to the Partnership's previously
filed documents.
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during 1996.
33
<PAGE>
SCHEDULE III
PAGE 1 OF 2
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Initial Costs Gross Amount at December 31, 1996
------------- ---------------------------------------------
Subsequent
Building and Costs Building and Accumulated
Description Debt Land Improvements Capitalized Land Improvements Total Depreciation
- --------------------------- -------- -------- ------------ ----------- ------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
La Jolla $ 21,739 $11,579 $ 14,462 $ 762 $11,579 $ 15,224 $ 26,803 $ 3,588
Long Beach 11,981 7,167 11,455 495 7,234 11,883 19,117 2,632
St. Louis Galleria 10,376 1,989 5,010 1,559 2,014 6,544 8,558 1,451
Boulder 9,634 1,451 6,686 320 1,451 7,006 8,457 1,563
Costa Mesa 9,140 3,678 6,955 244 3,678 7,199 10,877 1,642
Atlanta Buckhead 8,646 3,894 5,519 408 3,903 5,918 9,821 1,394
Atlanta Cumberland 7,905 4,099 4,627 309 4,099 4,936 9,035 1,147
Atlanta Dunwoody 7,905 2,116 7,387 283 2,116 7,670 9,786 1,715
Chicago Lombard 7,658 3,665 5,746 279 3,665 6,025 9,690 1,397
Southfield 7,535 2,031 8,195 465 2,031 8,660 10,691 1,994
Cincinnati North 5,435 1,183 9,587 496 1,183 10,083 11,266 2,264
St. Louis Chesterfield 5,188 1,539 5,372 303 1,543 5,671 7,214 1,306
Other properties, each
less than 5% of total 10,377 2,007 14,553 1,158 1,945 15,773 17,718 4,047
-------- ------- -------- ------ ------- -------- -------- -------
$123,519 $46,398 $105,554 $7,081 $46,441 $112,592 $159,033 $26,140
======== ======= ======== ====== ======= ======== ======== =======
<CAPTION>
Date of
Completion of Date Depreciation
Description Construction Acquired Life
- --------------------------- ------------- -------- ------------
<S> <C> <C> <C>
La Jolla N/A 1988 40 years
Long Beach N/A 1988 40 years
St. Louis Galleria N/A 1988 40 years
Boulder N/A 1988 40 years
Costa Mesa N/A 1988 40 years
Atlanta Buckhead N/A 1988 40 years
Atlanta Cumberland N/A 1988 40 years
Atlanta Dunwoody N/A 1988 40 years
Chicago Lombard N/A 1988 40 years
Southfield N/A 1988 40 years
Cincinnati North N/A 1988 40 years
St. Louis Chesterfield N/A 1988 40 years
Other properties, each
less than 5% of total N/A 1988 40 years
</TABLE>
34
<PAGE>
SCHEDULE III
PAGE 2 OF 2
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Notes:
- -----
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
(a) Reconciliation of Real Estate:
Balance at beginning of year........................ $ 109,807 $ 110,567 $ 111,840
Capital Expenditures................................ 760 1,273 752
Dispositions........................................ -- -- --
---------- ---------- ----------
Balance at end of year.............................. $ 110,567 $ 111,840 $ 112,592
========== ========== ==========
(b) Reconciliation of Accumulated Depreciation:
Balance at beginning of year........................ $ 16,029 $ 19,200 $ 22,544
Depreciation........................................ 3,171 3,344 3,596
---------- ---------- ----------
Balance at end of year.............................. $ 19,200 $ 22,544 $ 26,140
========== ========== ==========
</TABLE>
(c) The aggregate cost of land, buildings and
improvements for Federal income tax purposes
is approximately $157.7 million at December 31, 1996.
(d) The Debt balance is $123.5 million as of December 31, 1996
and includes $95.1 million of Senior Mortgage Debt and
$28.4 million of Second Mortgage Debt.
35
<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 Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 16th of January
1998.
MARRIOTT RESIDENCE INN
LIMITED PARTNERSHIP
By: RIBM ONE CORPORATION
General Partner
/s/ Bruce F. Stemerman
------------------------------------------
Bruce F. Stemerman
President and Director
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
the capacities and on the date indicated above.
Signature Title
- --------- -----
(RIBM ONE CORPORATION)
/s/Bruce F. Stemerman President and Director
- -------------------------------- (Principal Executive Officer)
Bruce F. Stemerman
/s/ Christopher G. Townsend Vice President, Secretary and Director
- --------------------------------
Christopher G. Townsend
/s/ Patricia K. Brady Vice President and Chief Accounting Officer
- --------------------------------
Patricia K. Brady
/s/ Bruce Wardinski Treasurer
- --------------------------------
Bruce Wardinski
36
<PAGE>
Exhibit 10.1
FIRST AMENDMENT TO LOAN AGREEMENT
---------------------------------
THIS FIRST AMENDMENT TO LOAN AGREEMENT ("Amendment"), dated as of
---------
April 23, 1996, is made and entered into by and between MARRIOTT RESIDENCE INN
LIMITED PARTNERSHIP, a Delaware limited partnership ("Borrower"), and GERMAN
--------
AMERICAN CAPITAL CORPORATION, a Maryland corporation, as agent or trustee for
itself and others, and its successors and assigns ("Lender").
------
RECITALS
--------
WHEREAS, Lender and Borrower entered into that certain Loan Agreement,
dated as of October 10, 1995 (the "Loan Agreement");
--------------
WHEREAS, Lender and Borrower desire to amend and modify the Loan
Agreement in certain respects.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, Lender and Borrower agree as follows:
1. Section 2.4(b) of the Loan Agreement is hereby amended by
deleting the phrase "during the period between September 1 and September 30 of
any" in the third and fourth lines thereof and replacing it with "on October 1
of each".
2. Section 2.5(a)(i) of the Loan Agreement is hereby amended as
follows:
(a) By deleting the phrase "between September 1 through October 1
("Prepayment Periods")" in the fourth and fifth lines thereof and replacing it
------------------
with "on October 1 (the "Prepayment Date")".
---------------
(b) By deleting the phrase "during the Prepayment Periods" in the
sixth line thereof and replacing it with "on October 1 of each year".
<PAGE>
(c) By deleting the phrase "during any such Prepayment Period" in
the ninth line thereof and replacing it with "on any such Prepayment Date".
3. Section 2.12(b) of the Loan Agreement is hereby amended as
follows:
(a) By deleting the phrase "in the current Prepayment Period and
in all subsequent Prepayment Periods" in the twelfth and thirteenth lines
thereof and replacing it with "on the current Prepayment Date and on all
subsequent Prepayment Dates."
(b) By deleting the words "Prepayment Period" in the seventeenth
line thereof and replacing them with "Prepayment Date."
(c) By deleting the phrase "during the period from September 1,
1995 through August 31, 1996" in the nineteenth and twentieth lines thereof and
replacing it with "on October 1, 1996."
(d) By deleting the phrase "the period between September 1, 1999
and October 1, 1999" in the last two lines thereof and replacing it with
"October 1, 1999."
4. The following new representations are hereby added to Section 6.1
of the Loan Agreement and such new representations shall be made effective as of
the date of this Amendment (the "Amendment Date"):
--------------
"(jj) The Mortgages and the Assignments of Rents and Revenues
establish a first priority security interest in favor of the Lender in
all the Borrower's material personal property used in, and reasonably
necessary to operate, the Mortgaged Property.
(kk) The Mortgaged Property is, in all material respects, in
compliance with, and is used and occupied in accordance with,
applicable law.
(ll) The Mortgaged Property is free of any material damage that
would materially and adversely affect the value of the Mortgaged
2
<PAGE>
Property as security for the Loans and is in good repair, and there is
no proceeding pending for the total or partial condemnation of the
Mortgaged Property.
(mm) The Borrower is in possession of all licenses, permits and
other authorizations required by all applicable laws and material for
the conduct of its business and all such licenses, permits and
authorizations are valid and in full force and effect.
(nn) All taxes and governmental assessments that became due and
owing with respect to the Mortgaged Property and which must be paid
prior to the Amendment Date in order to avoid delinquency have been
paid by the Borrower, or are being appealed.
(oo) The Mortgaged Property is insured in the manner required by
the Loan Documents; all premiums on such insurance policies required
to be paid as of the Amendment Date have been paid; such insurance
policies require prior notice to the insured of termination or
cancellation, and no such notice has been received; the Mortgages or
this Agreement authorizes the mortgagee to maintain such insurance at
the Borrower's cost and expense and to seek reimbursement therefor
from the Borrower.
(pp) There is no default, breach, violation or event of
acceleration existing under the Mortgages or Promissory Notes and, to
the Borrower's knowledge, 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 default,
breach, violation or event of acceleration.
(qq) The Borrower has not used, caused or permitted to exist and
will not use, cause or permit to exist on the Mortgaged Property any
Hazardous Substances in any manner which
3
<PAGE>
violates federal, state or local laws, ordinances, regulations,
orders, directives or policies governing the use, storage, treatment,
transportation, manufacture, refinement, handling, production or
disposal of Hazardous Substances and to the best of the Borrower's
knowledge, the Mortgaged Property is in material compliance with all
applicable federal, state and local laws pertaining to environmental
hazards, and no notice of violation of such laws has been issued by
any governmental agency or authority.
(rr) All of the Loan Documents to which Borrower is a party are the
legal, valid and binding obligation of Borrower, enforceable in
accordance with their terms, except as such enforcement may be limited
by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally, and by
general principles of equity (regardless of whether such enforcement
is considered in a proceeding in equity or at law), and there is no
offset, defense, counterclaim or right to rescission with respect to
such Loan Documents or any other agreements.
(ss) No limited partner of the Borrower (and, to the Borrower's
knowledge, no group of affiliated limited partners) owns in the
aggregate, directly or indirectly, fifty percent (50%) or more of the
limited partnership interest in the Borrower."
5. The following new sections are hereby added to Article VII of the
Loan Agreement:
"Section 7.20 Separateness Covenants of Borrower. Borrower shall at
----------------------------------
all times:
(a)(i) except to the extent that Borrower's or Manager's currently
existing cash management procedures or future cash management procedures
established by Manager as permitted by the Management Agreement require
otherwise, cause its assets and liabilities to be separately
4
<PAGE>
identifiable and not commingled with those of any other person or entity
and subject to segregation without requiring substantial time or expense to
effect and account for such segregated assets and liabilities; (ii)
maintain bank accounts, books and records and books of account separate and
apart from those of any other person or entity; (iii maintain financial
statements separate and apart from those of any other person or entity; and
(iv) pay from its assets and not from the assets of any other person or
entity, all obligations, liabilities and indebtedness of any kind incurred
or owed by it;
(b) conduct its business solely in its own name so as not to mislead others
as to the identity of the entity with which such others are concerned
(except that the hotels may be operated as "Residence Inns by Marriott" or
similar names);
(c) maintain adequate capitalization for the business in which it is
engaged or in which it may become engaged and in light of its business and
purpose;
(d) provide for payment of its own operating expenses and liabilities from
its own funds and not permit such expenses and liabilities to be paid by
the General Partner or any other person or entity; provided that this
subparagraph (d) shall not prohibit Borrower from borrowing funds from the
General Partner or third parties in accordance with this Agreement;
(e) not dissolve or liquidate;
(f) observe all requisite partnership formalities;
(g) maintain an arms-length relationship with all of its Affiliates;
(h) not guarantee or become obligated for the debts of any other person or
entity or hold out its credit as being available to satisfy the obligations
of others;
5
<PAGE>
(i) not acquire obligations or securities of its partners, members or
shareholders;
(j) allocate fairly and reasonably any overhead for shared office space;
(k) use separate stationery, invoices and checks;
(l) not pledge its assets for the benefit of any other person or entity or
make any loans or advances to any person or entity; and
(m) hold itself out as a separate entity and correct any known
misunderstandings regarding its separate identity.
"Section 7.21 Separateness Covenants of the General Partner. The General
---------------------------------------------
Partner shall at all times:
(a) (i) cause the General Partner's assets and liabilities to be
separately identifiable and not commingled with those of any other person
or entity and subject to segregation without requiring substantial time or
expense to effect and account for such segregated assets and liabilities;
(ii) maintain bank accounts, books and records and books of account
separate and apart from those of any other person or entity; (iii) maintain
financial statements separate and apart from those of any other person or
entity; and (iv) pay from its assets and not from the assets of any other
person or entity all obligations, liabilities and indebtedness of any kind
incurred or owed by the General Partner;
(b) conduct the General Partner's business solely in the General
Partner's own name so as not to mislead others as to the identity of the
entity with which such others are concerned;
(c) maintain adequate capitalization for the businesses in which the
General Partner is engaged or in which the General Partner may become
engaged and in light of the General Partner's business and purpose;
6
<PAGE>
(d) provide for payment of the General Partner's own operating expenses
and liabilities from the General Partner's own funds and not permit such
expenses and liabilities to be paid by the Borrower; provided that this
subparagraph (d) shall not prohibit the General Partner from borrowing
funds if not otherwise prohibited by this Agreement;
(e) not dissolve or liquidate;
(f) observe all requisite corporate formalities;
(g) maintain an arms-length relationship with all of the General
Partner's Affiliates;
(h) not guarantee or become obligated for the debts of any other person
or entity or hold out the General Partner's credit as being available to
satisfy the obligations of others;
(i) not acquire obligations or securities of the General Partner's
shareholder;
(j) allocate fairly and reasonably any overhead for shared office space;
(k) use separate stationery, invoices and checks;
(l) not pledge the General Partner's assets for the benefit of any other
person or entity or make any loans or advances to any person or entity
other than to the Borrower;
(m) hold itself out as a separate entity and correct any known
misunderstandings regarding the General Partner's separate identity; and
(n) own no material assets other than liquid assets and its interest in
Borrower and in the General Partner Note and incur no material
7
<PAGE>
liabilities other than liabilities arising as the General Partner of
Borrower.
6. Section 8.15(c) of the Loan Agreement is amended by adding the
following to the end of such subsection: "in excess of $10,000 per Inn during
any Fiscal Year (as defined in the Management Agreement)."
7. Section 11.13 of the Loan Agreement is amended by adding the
phrase "(except as provided in Section 11.23)" between the words "Lender" and
"agrees" on the fourth line thereof.
8. The following is added as a new Section 11.23:
"11.23 Disclosure. Borrower acknowledges that Lender may transfer
----------
and assign the Loans to a trust (the "Trust") to be created to issue
-----
commercial mortgage pass-through certificates (the "Certificates").
------------
In connection therewith, Lender, the trustee of such Trust ("Trustee")
-------
and/or the servicer engaged pursuant to such Trust ("Servicer") may
--------
disclose information regarding this Agreement or the Related Documents
and the operation of the Inns, and provide copies of this Agreement or
the Related Documents, and any financial statements or reports
delivered by Borrower pursuant to this Agreement or the Related
Documents to the Trustee and the Servicer, any holder or prospective
holder of the Certificates, and Fitch Investors Service, L.P. (or
other rating agency) and any counsel to or agents, officers,
employees, and representatives of any such Person, and may disclose
and describe the terms hereof and of the Related Documents in any
offering memorandum, prospectus, or registration statement or other
filing required under applicable law, provided, however, that any
-------- -------
disclosure of information in any offering memorandum, prospectus, or
registration statement or other filing required under applicable law
or to any prospective holder of the Certificates, and any counsel to
or agents, officers, employees, and representatives of any such
Person, concerning (i) revenues per available rooms, (ii) Gross
Revenues, (iii) Operating Profit, and (iv) occupancy and room rate
8
<PAGE>
statistics of individual Inns shall be made in a format (the "Coded
-----
Format") with no identification as to which information applies to
------
which specific Inn, but which may refer to the Inns on a property by
property basis under which each Inn is identified by a code and the
Inns are grouped into the following regions: West (4 Inns), South (3
Inns) and Mid-West (8 Inns). Periodic reports delivered to holders of
Certificates following transfer of the Loans through a Trust shall
state that the information contained therein is confidential and also
shall disclose items (i) through (iv) above solely in the Coded
Format, but a "key" may be provided in a separate document to any such
holder of Certificates to correlate the codes and the Inns, permitting
a holder of Certificates to identify the Inns to which such operating
information pertains."
9. This Amendment may be executed in any number of counterparts and
by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original and all of which taken
together shall constitute one and the same instrument. Any counterpart may be
executed by facsimile copy.
10. Capitalized terms used herein and not otherwise defined have the
meanings set forth in the Loan Agreement.
11. Except as expressly amended hereby, the Loan Agreement shall
continue in full force and effect and Borrower and Lender hereby ratify and
confirm same.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered as of the date first above written.
MARRIOTT RESIDENCE INN LIMITED
PARTNERSHIP, a Delaware limited
partnership
By: RIBM One Corporation, General
Partner
9
<PAGE>
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
RIBM ONE CORPORATION
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
GERMAN AMERICAN CAPITAL CORPORATION, a
Maryland corporation, as agent or
trustee for itself and others, and its
successors and assigns
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
10
<PAGE>
Exhibit 10.2
- --------------------------------------------------------------------------------
LOAN AGREEMENT
by and between
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
and
GERMAN AMERICAN CAPITAL CORPORATION,
as agent or trustee for itself and others,
and its successors and assigns
------------------------------
Dated as of October 10, 1995
------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Section Page
- ------- ----
SECTION 1 DEFINITIONS....................................................... 1
SECTION 2 THE LOANS......................................................... 17
Section 2.1 Agreement to Lend........................................ 17
Section 2.2 Purpose of the Loans..................................... 17
Section 2.3 Cross Collateralization.................................. 17
Section 2.4 Repayment of the Loans................................... 17
Section 2.5 Prepayments of the Loans................................. 19
Section 2.6 Required Payments to Lender.............................. 21
Section 2.7 Intentionally Deleted.................................... 22
Section 2.8 Interest................................................. 22
Section 2.9 Default Interest......................................... 22
Section 2.10 Intentionally Deleted.................................... 22
Section 2.11 Payments................................................. 22
Section 2.12 Release of Lien of a Mortgage............................ 22
Section 2.13 Allocation to Single Inn Notes........................... 26
Section 2.14 Four Party Agreement..................................... 26
SECTION 3 OTHER PAYMENTS.................................................... 26
Section 3.1 Other Payments............................................ 26
SECTION 4 CONDITIONS PRECEDENT TO ADVANCE THE LOANS......................... 29
Section 4.1 Documents Pertaining to the
Collateral and Security..................................... 29
Section 4.2 Authorization; Related Documents.......................... 32
Section 4.3 Certificate of the Borrower............................... 34
Section 4.4 Other Conditions Satisfied................................ 36
Section 4.5 Ratios.................................................... 36
Section 4.6 Capital Reserves.......................................... 36
Section 4.7 Intentionally Deleted..................................... 37
SECTION 5 OBLIGATIONS ABSOLUTE.............................................. 37
1
<PAGE>
Section 5.1 Obligations of the Borrower............................... 37
SECTION 6 REPRESENTATIONS AND WARRANTIES.................................... 37
Section 6.1 Representations and Warranties............................ 37
Section 6.2 Survival.................................................. 44
SECTION 7 AFFIRMATIVE COVENANTS............................................. 44
Section 7.1 Information.............................................. 45
Section 7.2 Discharge of Obligations................................. 47
Section 7.3 Maintenance of Existence................................. 47
Section 7.4 Maintenance of Records................................... 48
Section 7.5 Furnishing Notice........................................ 48
Section 7.6 Proceeds of the Loans.................................... 48
Section 7.7 Subordinate Loan......................................... 48
Section 7.8 Management Agreement..................................... 49
Section 7.9 Insurance................................................ 49
Section 7.10 Payment of Debt.......................................... 49
Section 7.11 Compliance With Law...................................... 49
Section 7.12 Intentionally Deleted.................................... 49
Section 7.13 Capital Reserves......................................... 49
Section 7.14 Access................................................... 50
Section 7.15 Material Agreements...................................... 51
Section 7.16 Additional Reserves...................................... 52
Section 7.17 Four Party Agreement..................................... 52
Section 7.18 Environmental Insurance.................................. 52
Section 7.19 General Partner Net Worth................................ 52
SECTION 8 NEGATIVE COVENANTS................................................ 52
Section 8.1 Consolidations, Mergers and Sales of
Assets..................................................... 52
Section 8.2 Place of Business........................................ 53
Section 8.3 Incurrence of Indebtedness............................... 53
Section 8.4 Purchase of Property..................................... 54
Section 8.5 Maintenance of Purpose................................... 54
Section 8.6 Distributions to Partners by the
Borrower................................................... 54
Section 8.7 Amendments to Agreements................................. 55
Section 8.8 Issuance of Rights....................................... 56
2
<PAGE>
<TABLE>
<S> <C>
Section 8.9 Payment of Distributions................................ 56
Section 8.10 Issuance of Securities.................................. 56
Section 8.11 Other Activities........................................ 56
Section 8.12 Creation of Liens....................................... 57
Section 8.13 Transfers by the General Partner........................ 57
Section 8.14 Hazardous Substances.................................... 57
Section 8.15 Restrictions on Action Under
Management Agreement.......................................... 58
SECTION 9 EVENTS OF DEFAULT................................................ 58
Section 9.1 Events of Default....................................... 58
SECTION 10 CONSEQUENCES OF DEFAULT.......................................... 62
Section 10.1 Remedies................................................ 62
Section 10.2 No Estoppel............................................. 63
SECTION 11 MISCELLANEOUS.................................................... 64
Section 11.1 Amendments.............................................. 64
Section 11.2 Notices................................................. 64
Section 11.3 No Waiver............................................... 65
Section 11.4 Continuing Obligation, Assignments
and Participation....................................... 65
Section 11.5 Indemnification......................................... 66
Section 11.6 Limitation of Liability................................. 67
Section 11.7 Application of Proceeds................................. 69
Section 11.8 Counterparts............................................ 69
Section 11.9 Entire Agreement........................................ 70
Section 11.10 Governing Law........................................... 70
Section 11.11 Submission to Jurisdiction.............................. 70
Section 11.12 Waiver of Immunity...................................... 71
Section 11.13 Confidentiality......................................... 72
Section 11.14 Headings and Interpretation............................. 72
Section 11.15 Severability............................................ 73
Section 11.16 Intentionally Deleted................................... 73
Section 11.17 No Agency, Partnership or Joint
Venture................................................. 73
Section 11.18 Damage Lawsuit.......................................... 73
Section 11.19 Waiver of Trial by Jury................................. 73
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Section 11.20 Late Charge............................................. 74
Section 11.21 Time.................................................... 74
Section 11.22 No Fraud................................................ 75
</TABLE>
EXHIBIT A Description Of The Inns
EXHIBIT B Schedule of Mortgages
EXHIBIT C Certificate of Representation and Warranties
EXHIBIT D Schedule of Insurance
EXHIBIT E Periodic Financial Statement
EXHIBIT F Form of Consolidated Profit and Loss Statement
EXHIBIT G-1 Debt Service Tracking Summary
EXHIBIT G-2 Report Certificate
EXHIBIT H List of Subordinate Loan Documents
EXHIBIT I Intentionally Deleted
EXHIBIT J Schedule of Appraised Values
EXHIBIT K Schedule of Single Inn Notes
EXHIBIT L Schedule of Note Payments
EXHIBIT M Schedule of Unpaid Taxes
4
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT dated as of October 10th, 1995, by and between
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP, a Delaware limited partnership (the
"Borrower"), and GERMAN AMERICAN CAPITAL CORPORATION, a Maryland corporation, as
--------
agent or trustee for itself and others, and its successors and assigns (the
"Lender"), sets forth the binding agreement of the parties.
------
* * *
The Borrower proposes to obtain 15 separate loans in the aggregate
principal amount of up to U.S. $100,000,000.00 pursuant to and in accordance
with the terms hereof.
On the terms and subject to the conditions set forth in this
Agreement, the Lender is willing to make such loans.
In consideration of the premises and the mutual obligations contained
in this Agreement, the Borrower and the Lender hereby agree as follows.
SECTION 1
DEFINITIONS
The following capitalized expressions, as used in this Agreement, have
the following meanings (such meanings to be equally applicable to both the
singular and the plural forms of such expressions):
"Accountants" means Arthur Andersen L.L.P, or another firm of
-----------
certified public accountants of reputable national standing, acting as
accountants for the Borrower, and reasonably acceptable to Lender.
"Accounting Period" means the accounting period currently used by the
-----------------
Borrower containing four or five 7-day weeks; provided, however, that each
period of 13 Accounting Periods shall contain not less than an aggregate of 364
days and not more than an aggregate of 371 days, and further provided that
<PAGE>
as used herein the "Annual Accounting Period" shall mean the period of 13
------------------------
Accounting Periods based on Manager's fiscal year currently in effect.
"Adjusted Promissory Notes Debt Service" means Promissory Notes Debt
--------------------------------------
Service calculated for the purposes of Section 2.12 and adjusted by the
reduction in the principal amount of the Loans that will result from the payment
of the Release Price.
"Affiliate" means, with respect to any Person, any other Person which,
---------
directly or indirectly, controls, is controlled by or is under common control
with any such Person.
"Agreement" means this Loan Agreement, as the same may from time to
---------
time be amended, supplemented or modified in accordance with the terms hereof.
"All Indebtedness Debt Service" means for any period, Promissory Notes
-----------------------------
Debt Service or Adjusted Promissory Notes Debt Service, as applicable, plus all
amounts paid or due and payable by the Borrower under the Subordinate Loan or
any indebtedness permitted by Section 8.3 of this Agreement (including, without
limitation, amounts payable with respect to Capital Leases), other than
prepayments of principal (and for such purpose "prepayments" shall not include
(x) regularly scheduled principal amortization payments, and (y) any payments
required pursuant to Section 2.4(b)).
"Annual Financial Statement" means the annual audited financial
--------------------------
statement of the Borrower prepared by the Accountants in accordance with GAAP
applied consistently throughout the term, except as approved by the Accountants
and disclosed therein.
"Annual Operating Projection" has the meaning set forth in Section
---------------------------
8.03 of the Management Agreement.
"Annual Rolling Average Ratios" has the meaning set forth in the Four
-----------------------------
Party Agreement.
2
<PAGE>
"Applicable Percentage" for each Inn means the amount set forth for
---------------------
each Inn on Exhibit A.
---------
"Applicable Ratio" for any Inn means the Applicable Percentage of such
----------------
Inn divided by the sum of the Applicable Percentages of all Inns then subject to
the Mortgages.
"Assignment of Management Agreement" means the Assignment of
----------------------------------
Management Agreement by the Borrower to the Lender and Manager's Consent dated
as of the Closing Date.
"Assignments of Rents and Revenues" means the collective reference to
---------------------------------
the 15 separate Assignments of Rents and Revenues dated as of the Closing Date
from the Borrower to the Lender collectively assigning to Lender Borrower's
rights with respect to all Rents, Revenues and Other Collateral.
"Average Remaining Life" means a time period equal to the weighted
----------------------
arithmetic mean of the periods of time that each dollar of the Loans would be
outstanding prior to the Maturity Date assuming no payments or amortization of
the Loans other than as required by Section 2.4(a) of this Agreement.
"Borrower" means Marriott Residence Inn Limited Partnership, a
--------
Delaware limited partnership.
"Borrower's Certificate" means the certificate executed by Borrower
----------------------
for the benefit of Lender contemporaneously herewith.
"Business Day" means each day other than a Saturday, Sunday or any day
------------
on which banks in New York, New York are authorized or required to close.
"Capital Lease" means, with respect to any Person, a lease of any
-------------
property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, either would be required to be classified and accounted
for as a Capital Lease on a balance sheet of such Person or otherwise be
disclosed as such in a note to such balance sheet.
3
<PAGE>
"Closing Date" means the date on which Lender disburses the proceeds
------------
of the Loans to Borrower.
"Collateral and Security" means the Mortgaged Property, Proceeds and
-----------------------
all other collateral and security for the Loans.
"Combined DSCR" means the ratio of Net Income Available for Debt
-------------
Service to All Indebtedness Debt Service for the period in question.
"Combined LTV" means the ratio of the sum of (i) the outstanding
------------
principal balance of the Loans, plus (ii) the outstanding principal balance of
the Subordinate Loan, plus (iii) the amount of all other outstanding
indebtedness of Borrower permitted pursuant to Section 8.3 (including without
limitation, the capitalized amount of any indebtedness for Capital Leases in
accordance with GAAP), divided by the values of the Inns as set forth in
Exhibit J.
- ------- -
"Combined Outstanding Principal Balances" shall mean for each Inn the
---------------------------------------
sum of (i) the Outstanding Principal Balance for such Inn at such time, plus
(ii) the Subordinate Loan Outstanding Principal Balance for such Inn at such
time as determined and defined by the Subordinate Loan Documents, plus (iii) the
amount of all other outstanding indebtedness of Borrower permitted pursuant to
Section 8.3 (including, without limitation, the capitalized amount of any
indebtedness for Capital Leases in accordance with GAAP) allocable to such Inn
based on the Applicable Ratios.
"Commitment" means $100,000,000.00.
----------
"Control", "controlled by" or "under common control with" mean, for a
------- ------------- -------------------------
corporation, ownership, directly or indirectly, of outstanding voting stock
entitling the holder thereof to elect a majority of the board of directors
(irrespective of whether or not at the time stock of any other class or classes
of such corporation shall or might have voting power by reason of the happening
of any contingency); for a Person other than a corporation with ownership
interests entitling the holder thereof to elect the equivalent of a board of
directors, the ownership,
4
<PAGE>
directly or indirectly, of interests sufficient to elect the equivalent of a
majority thereof; or, for any other Person, control by any other means.
"Controlled Group" means all members of a controlled group of
----------------
corporations and all trades or businesses (whether or not incorporated) which,
together with any Person, are under common control or treated as a single
employer under Section 414(b), (c), (m) or (o) of the IRC.
"Debt" means the aggregate of: (i) any amounts advanced to the
----
Borrower pursuant to the terms hereof or pursuant to the other Related
Documents; (ii) any and all other amounts required by the terms hereof or by the
terms of any of the other Related Documents to be paid by the Borrower to the
Lender, including, without limitation, interest; (iii) to the extent permitted
by law or by the Mortgages, any and all additional advances made by the Lender
to protect or preserve the Sites or any improvements located on any Site or the
security interests created by the Loan Documents, or for taxes, assessments or
insurance premiums, as provided in the Related Documents, or for the performance
of any of the Borrower's obligations under the Related Documents or for any
other purposes provided in the Related Documents; (iv) any and all reasonable
attorneys' fees, costs, expenses, judgments, settlements and compromises
incurred by the Lender in any suit, action, legal proceeding or dispute of any
kind in which the Lender is a party or appears as party plaintiff or defendant,
arising from or related to the Loans other than suits, actions or proceedings
(x) solely among parties holding an interest in Lender's rights with respect to
the Loans, or (y) solely between Lender and Subordinate Creditor and not arising
from or based upon the actions or failure to act of Borrower, and (v) any and
all other reasonable expenses incurred by the Lender, or sums advanced by the
Lender on behalf of the Borrower, in accordance with the terms of this Agreement
or any of the other Related Documents.
"Default" means any event or failure of any event or condition to
-------
occur which constitutes or would constitute, after the giving of notice or lapse
of time or both, an Event of Default.
5
<PAGE>
"Default Rate" means the Interest Rate plus two percent (2%).
------------
"Distribution Conditions" has the meaning set forth in Section 8.9.
-----------------------
"Dollars" and the sign "$" mean such coin or currency of the United
-------
States of America as is, at the relevant time, legal tender for the payment of
public and private debts.
"DSCR" means the ratio of Net Income Available for Debt Service to
----
Adjusted Promissory Notes Debt Service or Promissory Notes Debt Service, as
applicable, with respect to the period in question.
"Environmental Indemnity" means that certain Indemnity Agreement made
-----------------------
by Borrower and General Partner in favor of Lender contemporaneously herewith.
"Environmental Insurance Policy" has the meaning set forth in the
------------------------------
Indemnity Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended, as now or hereafter in effect or any successor legislation.
"Event of Default" has the meaning specified in Section 9.1 hereof.
----------------
"Excluded Taxes" has the meaning set forth in Section 3.1(c) hereof.
--------------
"Extraordinary Revenues" means, for any period, the proceeds received
----------------------
by or on behalf of the Borrower in such period, as permitted in this Agreement
and the Mortgages, otherwise than from ordinary operations, including without
limitation: (i) sales or dispositions of assets of the Borrower other than in
the ordinary course of operating the Inns (and for this purpose the disposition
of up to $1,000,000 of Personal Property pursuant to the proviso at the end of
Section 8.1 as well as any other dispositions of Personal Property shall be
deemed to be outside
6
<PAGE>
the ordinary course of business); (ii) damage recoveries and casualty insurance
proceeds; (iii) other insurance proceeds, except proceeds of business
interruption insurance; (iv) securities and other property acquired and held for
investment; (v) condemnation awards or proceeds of sales in lieu of and under
the threat of condemnation; (vi) capital contributions of partners of the
Borrower or from loans made to the Borrower; (vii) any borrowings or similar
financings or any refinancings permitted under the Loan Documents; and (viii)
proceeds of any litigation in connection with the Inns, whether by settlement or
otherwise.
"Financing Statements" has the meaning specified in Section 4.1(n)
--------------------
hereof.
"Four Party Agreement" means that certain Four Party Agreement among
--------------------
Borrower, Lender, Subordinate Creditor and Manager entered into
contemporaneously herewith.
"GAAP" means generally accepted accounting principles in the United
----
States of America in effect from time to time, consistently applied.
"General Partner" means RIBM One Corporation, a Delaware corporation,
---------------
or any other Subsidiary of Host that succeeds to the obligations of the General
Partner under and as permitted by this Agreement, in its capacity as the general
partner of the Borrower.
"General Partner Note" means the collective reference to (i) that
--------------------
certain demand note in the original principal amount of $6,600,000.00 executed
by HMC GP Holdings, Inc. and payable to the order of the General Partner, and
(ii) that certain Guaranty of Host whereby Host guaranteed the payment of such
note.
"General Partner Note Certificate" means that certain Certificate of
--------------------------------
the General Partner certifying the authenticity of the General Partner Note.
"Governmental Authority" means any nation, government, state or
----------------------
political subdivision of any thereof, including, without
7
<PAGE>
limitation, any monetary authority, central bank or its equivalent, any court or
any other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Gross Revenues" has the meaning set forth in the Management
--------------
Agreement.
"Hazardous Substances" has the meaning specified in Section 4.1(l)
--------------------
hereof.
"Host" means Host Marriott Corporation, a Delaware corporation.
----
"Indebtedness" means, as to any Person, the sum of the following
------------
(without duplication): (i) all obligations of such Person for borrowed money,
all obligations evidenced by bonds, debentures, notes or other similar
instruments and all securities issued by such Person providing for mandatory
payments of money, whether or not contingent; (ii) all obligations of such
Person pursuant to revolving credit agreements or similar arrangements (which
obligations shall be deemed to equal the maximum commitment of the lenders
thereunder, whether currently outstanding or undrawn and available); (iii) all
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business that are not more than 90 days past due; (iv) all obligations of such
Person as lessee under Capital Leases; (v) all obligations of such Person to
purchase securities (or other property) which arise out of or in connection with
the sale of the same or substantially similar securities or property; (vi) all
obligations, whether contingent or not, of such Person to reimburse any Person
in respect of amounts paid under a letter of credit or similar instrument; (vii)
the maximum amount that would be payable by any Person as of any date in
question pursuant to any interest rate exchange agreements, currency swap
agreements or similar agreements obligating such Person to make payments,
determined as if the contingency or contingencies that would cause an
acceleration of such payments occurred on such date; (viii) all Indebtedness of
others secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed
8
<PAGE>
by such Person, provided that if the obligation of such Person is limited to
recourse to the asset in question, the amount of Indebtedness pursuant to this
clause (viii) shall be limited to the fair market value of the asset as
determined by Lender, in Lender's sole discretion; and (ix) all liabilities
(whether or not contingent) of such Person and its Controlled Group arising
under Title IV of ERISA or Section 412 of the IRC with respect to all Pension
Plans; (x) all guarantees by such Person of or with respect to the Indebtedness
of another Person ; and (xi) any accrued but unpaid fees or other amounts owing
pursuant to the Management Agreement.
"Independent Accountants" means any "Big Six" accounting firm selected
-----------------------
by Lender, in Lender's sole and absolute discretion.
"Inn Income" means, for any period, all Gross Revenues, determined in
----------
accordance with GAAP, received by or on behalf of the Borrower in such period
but excluding (to the extent any of the following are included in Gross
Revenues): (i) all refundable deposits, refunds, rebates, discounts and credits
of a similar nature given, paid or returned by or on behalf of the Borrower;
(ii) applicable sales, use, excise, cabaret or occupancy taxes or similar taxes
collected directly from patrons, guests or other Persons, or as part of the
sales price of any goods or services or admission fees; (iii) gratuities or
income in lieu of gratuities which Borrower or Manager pays over to employees of
the Inns; (iv) Extraordinary Revenues; (v) proceeds from business interruption
insurance; and (vi) interest earned on any of the reserves established pursuant
to the Management Agreement; (vii) credits or refunds made to guests; (viii)
telephone or other charges collected to offset a direct expense incurred by or
for guests; (ix) the value of complimentary rooms, food and beverage or
services, and (x) any payments to Lender made on Borrower's behalf by any Person
other than Borrower.
"Inn Operating Expenses" means, for any period, all Deductions (as
----------------------
defined in the Management Agreement) as determined in accordance with GAAP;
plus, to the extent not included in Deductions, (i) all amounts paid to the
General Partner pursuant to the Related Documents; plus (ii) payments required
to be made
9
<PAGE>
to any reserves or escrows established pursuant to the Management Agreement or
required by this Agreement or the Loan Documents (other than those required by
the Four Party Agreement) or actually maintained; plus (iii) Base Management
Fees (as defined in the Management Agreement) whether paid, accrued or incurred,
(iv) any management fees other than Base Management Fees (including without
limitation, any Incentive Management Fees, as defined in the Management
Agreement), to the extent paid in such period, regardless of whether such
Management Fees are incurred or accrued in such period or in a prior period, and
(v) the other costs and expenses incurred by the Manager that are payable by the
Borrower pursuant to the Management Agreement during such period, whether paid,
incurred or accrued, including, without limitation, the Residence Inn System Fee
(as defined in the Management Agreement) and reimbursement for Chain Services
(as defined in the Management Agreement) expenses; and (vi) all other items
properly classified as expenses of Borrower or the Inns pursuant to GAAP (other
than interest on the Loans and the Subordinate Loan). Notwithstanding the
foregoing, depreciation and amortization of the Inns and capitalized
expenditures, all calculated in accordance with GAAP, shall not be deemed to be
Inn Operating Expenses for purposes of this Agreement.
"Inns" means the Inns listed in the schedule attached hereto as
----
Exhibit A, but excluding any Inns previously released from the liens of the
- ---------
Mortgages in accordance with this Agreement.
"Intercreditor Agreement" means that certain Intercreditor Agreement
-----------------------
among Lender, Borrower and Subordinate Creditor entered into contemporaneously
herewith.
"Interest Payment Date" means the first day of each calendar month
---------------------
until the Repayment Date.
"Interest Rate" means the interest rate set forth in Section 2.8 of
-------------
this Agreement.
"IRC" means the Internal Revenue Code of 1986, as amended and in
---
effect from time to time, or any successor legislation.
10
<PAGE>
"Lien" means, with respect to any asset of any Person, any mortgage,
----
deed of trust, lien, pledge, charge, security interest or encumbrance of any
kind in respect of such asset, including, without limitation, any right or
arrangement with any creditor to have its claim satisfied out of such asset, or
the proceeds therefrom, prior to the general creditors of the owner thereof.
For the purposes of this Agreement and the other Related Documents, such Person
shall be deemed to own subject to a Lien any asset that it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, Capital Lease or other title retention agreement relating to such
asset.
"Loans" means the aggregate principal amount advanced by the Lender to
-----
the Borrower pursuant to the Promissory Notes or, where the context so requires,
the amount thereof then outstanding.
"Loan Documents" means this Agreement, the Security Documents, the
--------------
Manager's Agreement, the Intercreditor Agreement, the Promissory Notes, the
Environmental Indemnity, the Four Party Agreement, Borrower's Certificate,
Manager's Certificate, Manager Estoppel Certificate, General Partner Note
Certificate and the SNDA Agreements.
"LTV" means the ratio of the outstanding principal balance of the
---
Loans divided by the values of the Inns as set forth in Exhibit J.
---------
"Management Agreement" means the Management Agreement dated as of
--------------------
March 29, 1988 between the Borrower and the Manager, as the same may from time
to time be amended, supplemented or modified with the written consent of Lender
in accordance with the terms of the Loan Documents.
"Manager" means Residence Inn by Marriott, Inc., a Delaware
-------
corporation.
"Manager's Agreement" means the Manager's Agreement dated as of the
-------------------
Closing Date among the Borrower, the Manager and
11
<PAGE>
the Lender concerning the Management Agreement and certain of the Manager's
rights and obligations thereunder.
"Manager's Certificate" means the certificate described in Section
---------------------
4.1(e).
"Material Adverse Effect" shall mean a material adverse effect on (i)
-----------------------
the assets, operations, or financial condition of Borrower taken as a whole,
(ii) Borrower's ability to pay either the Loans or the Subordinate Loan in
accordance with this Agreement, (iii) any Inn individually or the value thereof,
(iv) the Loans or the Subordinate Loan or Lender's or Subordinate Creditor's
interest therein, or (v) Lender's Liens or Subordinate Creditor's Liens
(individually or collectively) on the Collateral and Security or the priority of
any such Lien or lien.
"Material Agreement" shall mean any material written or oral
------------------
agreement, contract, commitment or understanding requiring payments, pledges, or
performance executed or assumed by Borrower in connection with the Inns which
provides for payments by Borrower over the term of any such agreement, contract,
commitment or understanding in excess of One Hundred Thousand and No/100 Dollars
($100,000.00) and which is not cancelable by the Borrower upon sixty (60) days'
or less notice without liability for further payment other than a penalty less
than $10,000.
"Maturity Date" means September 30, 2002.
-------------
"Monthly Payment" has the meaning set forth in Section 2.4
---------------
"Mortgaged Property" means, collectively, the "Mortgaged Property" as
------------------
defined in each and all of the Mortgages.
"Mortgages" means the security instruments dated as of the Closing
---------
Date from the Borrower to the Lender granting a first security interest in the
fee simple interest in the Sites and the buildings, improvements and fixtures
located thereon and a first security interest in the Rents, Revenues and Other
Collateral generated by the Inns and the furniture, fixtures, equipment and
other personalty in the Inns, a schedule of which security
12
<PAGE>
instruments is attached hereto as Exhibit B, properly executed in form for
---------
recording and delivered, as the same may from time to time be amended,
supplemented or modified in accordance with the terms thereof. Each of the
Mortgages shall be substantially in a form approved by Lender, with such changes
as may be reasonably necessary or appropriate in the opinion of counsel to the
Lender to comply with the requirements of the state in which each Inn is
located.
"Net After Debt Service Cash Flow" means for any period (i) Net Cash
--------------------------------
Flow less (ii) (a) Promissory Notes Debt Service, plus (b) regularly scheduled
payments of principal and interest required to be paid to the Subordinate
Creditor pursuant to the Subordinate Loan Documents.
"Net Cash Flow" means all (i) Operating Profit (as defined in the
-------------
Management Agreement) and/or other amounts required or permitted to be paid to
Borrower pursuant to the Management Agreement, plus (ii) all cash or other
amounts to which Borrower is entitled from any source or which Borrower
otherwise receives.
"Net Income Available for Debt Service" means, for any period, the
-------------------------------------
amount by which Inn Income exceeds Inn Operating Expenses.
"Other Collateral" means, collectively, the "Other Collateral" as
----------------
defined in each and all of the Mortgages.
"Outstanding Principal Balances" shall mean for each Inn the
------------------------------
outstanding principal balance of the Single Inn Note with respect to such Inn.
"Partnership Agreement" means the Amended and Restated Agreement of
---------------------
Limited Partnership of the Borrower, dated as of March 29, 1988, as the same may
from time to time be amended in accordance with the terms thereof, but only to
the extent permitted by this Agreement.
"Pension Plan" means at any time and as to any Person an employee
------------
pension benefit plan which is covered by Title IV of
13
<PAGE>
ERISA or subject to the minimum funding standards under Part 3 of Title I of
ERISA or Section 412 of the IRC and is maintained by such Person or any member
of its Controlled Group or contributed to within the past 6 years by such Person
or any member of its Controlled Group.
"Periodic Reports" means the statements substantially in the form of
----------------
Exhibits E, F and G required to be furnished by the Borrower to the Lender
- -------------------
pursuant to Section 7.1(c) hereof.
"Person" means an individual, estate, unincorporated association, a
------
corporation, company, partnership, trust, joint stock company, voluntary
association, joint venture, limited liability partnership, limited liability
company, Governmental Authority, juridical entity or any other entity of
whatever nature.
"Personal Property" means, collectively, fixtures, machinery,
-----------------
equipment, and personal property.
"Proceeds" has the meaning set forth for such term in the U.C.C.
--------
"Promissory Notes" means the collective reference to all of the Single
----------------
Inn Notes.
"Promissory Notes Debt Service" means for any period, all amounts paid
-----------------------------
or payable by the Borrower under the Promissory Notes, this Agreement, and the
Mortgages other than prepayments of principal (and for such purpose,
"prepayments" shall not include the required monthly principal payments pursuant
to Section 2.4(a) hereof).
"Proposed Release Date" has the meaning set forth in Section 2.12
---------------------
hereof.
"Regulation D" means Regulation D of the Board of Governors of the
------------
Federal Reserve System, as the same may be amended or supplemented from time to
time, or any successor regulation thereto.
14
<PAGE>
"Regulatory Change" means a change after the date of this Agreement in
-----------------
any laws, rules or regulations applicable to the Lender (including, without
limitation, Regulation D), or the adoption or making after such date of any
interpretation, directive, requirement or request applying to the Lender under
any applicable laws, rules or regulations (whether or not having the force of
law) by any Governmental Authority charged with the interpretation or
administration thereof, other than any change in any laws, rules or regulations
or any interpretation, directive, requirement or request pertaining to the
assessment or imposition of any tax.
"Related Documents" means the Loan Documents, the Management Agreement
-----------------
and the Partnership Agreement.
"Release" has the meaning set forth in Section 2.12 hereof.
-------
"Release Price" has the meaning set forth in Section 2.12 hereof.
-------------
"Remaining Inns" has the meaning set forth in Section 2.12 hereof.
--------------
"Rents" means, collectively, the "Rents" as defined in each and all of
-----
the Mortgages.
"Repayment Date" means the earlier of the Maturity Date or such
--------------
earlier date on which the Loans may become due and payable in full as a result
of acceleration in accordance with this Agreement or the Related Documents.
"Required Ratios" means that the DSCR and Combined DSCR for the
---------------
Remaining Inns after the Release in question shall be equal to the greater of
(x) 1.8:1 and 1:25:1, respectively, and (y) the DSCR and the Combined DSCR for
all of the Remaining Inns and the Inns being released immediately prior to the
Release in question.
"Requirements of Law" means, as to any Person, the certificate of
-------------------
incorporation and by-laws or other organizational
15
<PAGE>
or governing documents of such Person, and any law, treaty, rule or regulation,
or determination of any arbitrator or court or other Governmental Authority, in
each case 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" means the collective reference to (i) "Reserve" as defined
-------
in the Management Agreement, together with (ii) any reserves required by Lender
in accordance with Sections 7.13 and 7.16 of this Agreement, and together with
(iii) any other reserves required to be maintained pursuant to the Loan
Documents.
"Restricted Group of Inns" means the Inns listed as such on Exhibit A.
------------------------ ---------
"Revenues" means, collectively, the "Revenues" as defined in each and
--------
all of the Mortgages.
"SEC" means the Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as amended, as now
--------------
or hereafter in effect, or any successor legislation.
"Security" has the meaning attributed to such term in the Securities
--------
Act.
"Security Documents" means the collective reference to the Mortgages,
------------------
Assignment of Management Agreement, Financing Statements and Assignments of
Rents and Revenues.
"Security Interests" means the security interests granted to the
------------------
Lender by any of the Loan Documents.
"Servicing and Participation Agreement" shall mean any servicing
-------------------------------------
agreement, participation agreement, trust agreement or any similar agreement
entered into by Lender or its successors and assigns in connection with the
Loans, whether entered into before, on or after the Closing Date.
16
<PAGE>
"Shares" has the meaning set forth in Section 6.1(r) hereof.
------
"Single Inn Notes" means each and all of the fifteen separate notes
----------------
issued by the Borrower dated as of the Closing Date in the principal amounts set
forth in Exhibit K attached hereto each substantially in a form approved by
---------
Lender, and each of which are secured by the Security Documents, properly
executed and delivered, as the same may from time to time be amended,
supplemented or modified in accordance with the terms thereof.
"Sites" means the land described on Exhibit A to each of the
-----
Mortgages.
"Six Period Rolling Average Ratios" has the meaning set forth in the
---------------------------------
Four Party Agreement.
"SNDA Agreements" mean the Subordination, Nondisturbance and
---------------
Attornment Agreements between the Lender and the Manager with respect to each of
the Sites, each of which is dated as of the Closing Date.
"Subordinate Creditor" means Starwood Mezzanine Investors, L.P., its
--------------------
successors and assigns.
"Subordinate Loan" means the loan in the original principal amount of
----------------
$30,000,000 made by Subordinate Creditor to Borrower contemporaneously herewith.
"Subordinate Loan Documents" means all documents or instruments
--------------------------
evidencing or pertaining to the Subordinate Loan, including without limitation,
those listed in Exhibit H attached hereto.
---------
"Subordinate Loan Outstanding Principal Balance" has the meaning set
----------------------------------------------
forth in the Subordinate Loan Documents.
"Subordinate Mortgages" means the 15 separate security instruments in
---------------------
favor of Subordinate Creditor executed by the Borrower and granting a second
lien to Subordinate Creditor with respect to the Sites.
17
<PAGE>
"Subsidiary" means, as to any Person, any corporation of which at
----------
least a majority of the outstanding voting stock having by the terms thereof
ordinary voting power to elect a majority of the board of directors of such
corporation (irrespective of whether or not at the time stock of any other class
or classes of such corporation shall or might have voting power by reason of the
happening of any contingency) is at the time owned or controlled directly or
indirectly by such Person or one or more of its Subsidiaries.
"Tax" or "Taxes" has the meaning set forth in Section 3.1(c) hereof.
--- -----
"Three Period Rolling Average Ratios" has the meaning set forth in the
-----------------------------------
Four Party Agreement.
"Title Insurance Policies" has the meaning specified in Section 4.1(b)
------------------------
hereof.
"Total Loss" has the meaning specified in the Mortgages.
----------
"Treasury Rate" means the yield rate of a U.S. Treasury Note having a
-------------
remaining term equal to the Average Remaining Life, provided that if no U.S.
Treasury Note has a remaining term equal to the Average Remaining Life, a yield
rate determined by interpolating the rates of those U.S. Treasury Notes then
having a remaining term closest to but shorter than and closest to but longer
than the Average Remaining Life, as reported in The Wall Street Journal or
similar publication on the fifth (5th) Business Day preceding the date of
prepayment.
"U.C.C." means the Uniform Commercial Code as in effect from time to
------
time in the state in which the Inn in question is located or if no particular
Inn is in question, the Uniform Commercial Code as in effect from time to time
in the State of New York.
"U.S. Governmental Authority" means any Governmental Authority located
---------------------------
within the United States of America or any political subdivision thereof.
18
<PAGE>
"Yield Maintenance Payment" means the greater of (a) one percent of
-------------------------
the outstanding principal balance of the amount of the Loans being prepaid, or
(b) the present value of the excess, if positive, of the aggregate amount of
interest which would be earned, on the outstanding principal balance of the
Loans from time to time assuming no prepayments of the Loans, at the Interest
Rate, over the aggregate amount of the interest which would be earned at the
Treasury Rate, determined as follows:
(1) the difference between the Interest Rate and the Treasury Rate
shall be multiplied by the relevant prepaid principal amount;
(2) the product thus obtained will be divided by twelve to determine
the monthly differential of earned interest ("Monthly Earned Interest
-----------------------
Differential") at the Interest Rate over earned interest at the Treasury Rate;
- ------------
and
(3) the Monthly Earned Interest Differential will be multiplied by an
amount equal to the present value of a series of one dollar ($1.00) payments per
period, such present value factors being based on an interest rate per month
equal to one-twelfth (1/12) of the Treasury Rate and the number of payments or
periods equal to the Average Remaining Life.
Any accounting term used in this Agreement shall have, unless
otherwise specifically provided herein, the meaning customarily given such term
in accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
consistently applied. That certain terms or computations are explicitly
modified by the phrase "in accordance with GAAP" shall in no way be construed to
limit the foregoing.
SECTION 2
THE LOANS
Section 2.1 Agreement to Lend.
-----------------
19
<PAGE>
Subject to the terms and conditions of this Agreement, the Lender
hereby agrees to make 15 separate loans to the Borrower in the aggregate amount
of the Commitment, each individually in the amounts set forth in Exhibit K.
---------
Section 2.2 Purpose of the Loans.
--------------------
The Borrower agrees that the Loans shall be used solely for the
purpose of (i) refinancing existing indebtedness of Borrower to The Sanwa Bank
Limited which is secured by a first lien against the Inns, (ii) refinancing
existing indebtedness to Host in the amount of $1,400,000, and (iii) for the
purpose of paying costs associated with this transaction.
Section 2.3 Cross Collateralization. Each and all of the Single Inn
-----------------------
Notes and each and all of the Mortgages are and shall be cross-collateralized,
and pursuant to Section 9.1 hereof are also cross-defaulted.
Section 2.4 Repayment of the Loans.
----------------------
The Borrower shall repay the Loans to the Lender as follows:
(a) On the Closing Date, Borrower shall pay to Lender all interest to
accrue on each of the Promissory Notes through the last day of the calendar
month in which the Closing Date occurs, unless the Closing Date is the first day
of a calendar month. On the first day of the second calendar month following
the Closing Date (unless the Closing Date is the first day of a calendar month,
in which event, on the first day of the calendar month immediately following the
Closing Date) and on the first day of each calendar month thereafter until the
first day of the calendar month in which the Repayment Date occurs (unless the
Repayment Date is the first day of a calendar month, in which case until the
first day of the calendar month immediately preceding the Repayment Date),
Borrower shall pay to Lender the aggregate sum of $874,162.75 (the "Monthly
-------
Payment"), subject to adjustment as provided below, which amount shall be
- -------
allocated to the Single Inn Notes in accordance with the Applicable Ratios;
provided, however, that in the event any Inn is released from the
20
<PAGE>
lien of the Mortgage covering such Inn, the Monthly Payment shall be adjusted to
an amount equal to the product of (a) the amount of the Monthly Payment as set
forth above, multiplied by (b) the sum of the Applicable Percentages for all
Inns then subject to the Mortgages after giving effect to the Release in
question. The amount paid with respect to each Single Inn Note shall be applied
first to accrued but unpaid interest on such Single Inn Note and the balance
shall be applied to reduce the principal balance of such Single Inn Note and any
remaining amount shall be applied pursuant to Section 2.5 of this Agreement.
(b) Borrower shall pay to Lender, as a reduction of the principal
balance of the Loan, without any Yield Maintenance Payment or other premium or
penalty, during the period between September 1 and September 30 of any year, all
Net After Debt Service Cash Flow for the period from the previous September 1
until August 31 of the current year, until the total amount paid to Lender
pursuant to this Section 2.4(b) equals $8,000,000.00; provided, however, that if
the total amount paid to Lender pursuant to this Section 2.4(b) on or before
each of the following dates equals the amount set forth beside each such date in
the following table, Borrower shall have no further obligation to pay Net After
Debt Service Cash Flow to Lender until after such date (and after such date
Borrower shall again be obligated to pay all Net After Debt Service Cash Flow to
Lender in accordance with this Section 2.4(b)).
<TABLE>
<CAPTION>
Date Cumulative Payments
---- -------------------
<S> <C>
October 1, 1996 $2,000,000
October 1, 1997 $4,000,000
October 1, 1998 $6,000,000
October 1, 1999 $8,000,000
</TABLE>
Any principal payments so made shall be applied to the Single Inn Notes in
accordance with the Applicable Ratios in inverse order of maturity and if any
applicable Single Inn Note is paid in full any remainder shall be applied to
reduce the Outstanding Principal Balances of the remaining Single Inn Notes in
proportion to the Applicable Ratios in inverse order of maturity. Any amounts
paid or required to be paid pursuant to Section 2.12
21
<PAGE>
shall not reduce or affect Borrower's obligations under this Section 2.4(b).
(c) The remaining principal balance of the Loans together with all
accrued but unpaid interest and other amounts owing pursuant to this Agreement
shall be fully due and payable on the Repayment Date.
Section 2.5 Prepayments of the Loans.
------------------------
(a) The Borrower may at its option prepay the Loans, in part or in
full, together with accrued interest on the amount prepaid to the date of
prepayment, subject to the following conditions:
(i) In addition to the mandatory payments required by Section
2.4(b), and subject to the provisions of subsection (iv) below, Borrower may
prepay (a) up to an additional $700,000 of the principal balance of the Loans
between September 1 through October 1 ("Prepayment Periods") of each year
------------------
through and including 1999 and (b) during the Prepayment Periods after the year
1999 an amount, if any, such that the total principal amount paid pursuant to
Section 2.4(b) and this Section 2.5 during any such Prepayment Period is less
than or equal to $2,700,000, without paying the Yield Maintenance Payment or any
other premium or penalty (and which right shall not accumulate if not used),
provided that Borrower has contemporaneously or previously prepaid an amount
equal to (x) one-half of the sum of principal amounts prepaid to Lender pursuant
to Section 2.4(b), and (y) three-sevenths (3/7) of the amount prepaid pursuant
to clauses (a) and (b) of this subparagraph (i) to the Subordinate Creditor for
application against the Subordinate Loan. Any principal payments so made shall
be applied to the Single Inn Notes in accordance with the Applicable Ratios in
inverse order of maturity and if any applicable Single Inn Note is paid in full
any remainder shall be applied to reduce the Outstanding Principal Balances of
the remaining Single Inn Notes in proportion to the Applicable Ratios in inverse
order of maturity.
(ii) Subject to the provisions of subsection (iv) below, Borrower
may prepay the Loans at any time in accordance
22
<PAGE>
with Sections 2.5(b) and 2.12 of this Agreement without premium (other than the
Yield Maintenance Payment) or penalty, provided that Borrower pays to Lender the
Yield Maintenance Payment, together with all accrued but unpaid interest and all
other amounts then due pursuant to this Agreement contemporaneously with such
prepayment. Any principal payments so made shall be applied to the applicable
Single Inn Note in inverse order of maturity and if the applicable Single Inn
Note is paid in full any remainder shall be applied to reduce the Outstanding
Principal Balances of the remaining Single Inn Notes in proportion to the
Applicable Ratios in inverse order of maturity.
(iii) Subject to the provisions of subsection (iv) below, Borrower may
prepay all of the Loans in whole, but not in part and not less than all of the
Loans, without premium (other than the Yield Maintenance Payment, which shall be
paid to Lender) or penalty at any time on or after September 1, 1998, provided
that Borrower pays to Lender the Yield Maintenance Payment, all accrued but
unpaid interest thereon and all other amounts then due pursuant to this
Agreement contemporaneously with such prepayment. Prior to September 1, 1998,
Borrower may only prepay the Loans in accordance with Sections 2.4(b), 2.5(a)(i)
and (ii), 2.5(b) and 2.12.
(iv) (v) Each partial prepayment of the Loans in accordance with
subparagraphs (i) and (ii) above shall be in integral multiples of $25,000; (w)
Borrower shall give the Lender not less than twenty (20) Business Days' prior
written notice of the proposed prepayment; (x) each prepayment shall be made on
an Interest Payment Date; (y) notice of prepayment, once received by the Lender,
shall be irrevocable and binding on the Borrower; and (z) amounts prepaid may
not be reborrowed hereunder.
(b) (i) Upon the payment to the Borrower or to the Lender, as loss payee,
of any insurance proceeds payable upon the occurrence of a Total Loss with
respect to any of the Inns, the Borrower shall either (x) prepay the Loans with
respect to such Inns, in full, together with accrued interest on the amount
prepaid to the date of prepayment and together with the Yield Maintenance
Payment (provided, however, that if the casualty occurs after October 1, 2001,
no Yield Maintenance Payment shall
23
<PAGE>
be required), or (y) rebuild and restore such Inn(s) in accordance with the
Mortgages, and (ii) upon the payment to the Borrower or the Lender of any
condemnation awards in respect of a Total Loss with respect to any of the Inns,
the Borrower shall prepay the Loans with respect to such Inns in full, together
with accrued interest on the amount prepaid to the date of prepayment but
without the Yield Maintenance Payment or other premium or penalty, except that
Borrower shall pay to Lender any actual costs or expenses incurred as the result
of such prepayment (such as the cost of terminating or breaking any swap
contracts). Any prepayment pursuant to this subsection (b) shall be subject to
the following conditions: (i) The Borrower shall give the Lender not less than
twenty (20) Business Days' prior written notice of such prepayment; and (ii)
amounts prepaid may not be reborrowed hereunder. Any payments pursuant to this
Section 2.5(b) shall be applied first to pay all accrued interest and the Yield
Maintenance Payment on any principal prepaid and to the extent the insurance
proceeds or condemnation award are not sufficient to pay in full the Single Inn
Note for the Inn as to which the Total Loss occurred, including all accrued but
unpaid interest thereon and the Yield Maintenance Payment with respect to the
principal so repaid, Borrower shall pay such amounts to Lender within thirty
(30) days after the receipt of such payments, but in any event within ninety
(90) days after the occurrence of the Total Loss. Any portion of any insurance
proceeds or condemnation award remaining after the payments described in the
preceding sentence shall be applied to the Outstanding Principal Balances of the
remaining Single Inn Notes in proportion to the Applicable Ratios in inverse
order of maturity.
(c) Except as specifically permitted by this Agreement, Borrower may
not prepay the Loans, in full or in part. Upon an Event of Default and
following the acceleration of maturity of the Loans, a tender of payment of the
amount necessary to satisfy the Indebtedness evidenced by the Single Inn Notes
made at any time prior to a foreclosure sale, or any judgement of foreclosure or
sum due at foreclosure (including sale under power of sale under a Mortgage), or
during any redemption period after foreclosure, or otherwise, by Borrower or its
Affiliates or anyone acting directly or indirectly on behalf
24
<PAGE>
of Borrower or its Affiliates shall constitute an evasion of the prepayment
prohibition and shall be deemed to be a voluntary prepayment of the Single Inn
Notes, and the prepayment, to the extent permitted by law, must include the
required Yield Maintenance Payment.
Section 2.6 Required Payments to Lender. In the event (i) that the
---------------------------
Application Trigger Date, as determined in accordance with the Four Party
Agreement, shall have occurred, and a Restoration Date has not thereafter
occurred, or (ii) that an Event of Default described in Section 9.1(a) of this
Agreement has occurred and has not been cured prior to acceleration of the Loans
by Lender, or (iii) that an intentional, material Event of Default other than
pursuant to Section 9.1(a) of this Agreement has occurred and has not been cured
prior to acceleration of the Loans by Lender, Borrower shall thereafter pay or
cause to be paid all Net Cash Flow to Lender and, subject to the Four Party
Agreement, such amount shall, at the sole option of Lender, be applied to
payment of the Loans in such order and manner as Lender may desire, including
payment of principal, interest and Yield Maintenance Payments, or delivered to
Manager to be applied in accordance with the Four Party Agreement; provided,
however, that the provisions of this Section 2.6 shall in no way lessen, affect
or alter the other rights and remedies of Lender after the occurrence and during
the continuation of an Event of Default pursuant to other provisions of this
Agreement, the Mortgages or the other Loan Documents.
Section 2.7 Intentionally Deleted.
---------------------
Section 2.8 Interest.
--------
The Borrower shall pay to the Lender in arrears interest accrued on
the Loans on each Interest Payment Date at a rate equal to Eight and Six Tenths
percent (8.60%) per annum (calculated on the basis of a 360-day year of twelve
30-day months).
25
<PAGE>
Section 2.9 Default Interest.
----------------
If the Borrower shall fail to make payment when and as due of any
amounts due hereunder (whether at the stated date for payment, at maturity or by
acceleration), the Borrower shall pay, to the extent permitted by applicable
law, interest to the Lender on such past due amounts at the Default Rate.
Section 2.10 Intentionally Deleted.
---------------------
Section 2.11 Payments.
--------
All payments due hereunder from the Borrower to the Lender, other
than amounts payable by the Borrower under Section 3.1(d) hereof, shall be made
to the Lender in Dollars in immediately available Federal funds by wire transfer
to BK of NYC, ABA #021000018, IOC569, GSCS, DBC, Attention: Liz Stone or to such
other account in the United States or in such manner as Lender may from time to
time reasonably direct. Whenever any payment under this Agreement shall be due
on a day which is not a Business Day, the date for payment thereof shall be
extended to the next succeeding Business Day. Payment of amounts payable
pursuant to Section 3.1(d) hereof may be made by check or other customary means
of payment.
Section 2.12 Release of Lien of a Mortgage.
-----------------------------
(a) (i) Provided that the requirements of subparagraphs (b), (c)
and (d) below shall have been satisfied, the Lender shall execute and deliver to
the Borrower an instrument (a "Release") releasing the Lender's lien and
-------
security interest in an Inn that, simultaneously with the delivery of a Release,
is being sold by the Borrower. Any Release so delivered by the Lender shall be
in recordable form and otherwise in form and substance reasonably satisfactory
to the Lender and the Borrower. Borrower shall have no right to the Release of
any Inn except (a) contemporaneously with the sale of an Inn to a third party
(which may be an Affiliate of Borrower subject to subparagraph (b) below) and
then only upon compliance with this Section 2.12, and (b) as described in the
following paragraph (ii); and
26
<PAGE>
(ii) In the event that any Single Inn Note is paid in full
pursuant to Section 2.5(b), and subject to the limitations of subparagraphs (c)
and (d) below, Lender shall execute and deliver to Borrower a Release releasing
Lender's lien and security interest with respect to such Inn as to which the
event or events described in Section 2.5(b) shall have occurred and as to which
the corresponding Single Inn Note has been paid in full. Any Release so
delivered by the Lender shall be in recordable form and otherwise in form and
substance reasonably satisfactory to Lender and Borrower.
(b)(i) The aggregate number of Inns that may be released during the
term of this Agreement may not exceed four; (ii) the sum of the Applicable
Percentages for all of the Inns released may not exceed 26.67%; (iii) no more
than one of the Inns released may be from the Restricted Group of Inns, (iv) no
more than two (2) Inns may be sold or transferred to Affiliates of Borrower or
Manager or their respective Affiliates, (v) no Inn may be released if a Trigger
Date has occurred, unless a Restoration Date has subsequently occurred, and (vi)
the total principal amount of the Loans prepaid pursuant to this Section 2.12
shall reduce the allowable prepayments that may be made pursuant to Section
2.5(a)(i) of this Agreement, in the current Prepayment Period and in all
subsequent Prepayment Periods, until the total amount of the Loans prepaid
pursuant to Section 2.5(a)(i) and this Section 2.12 is equal to the amount
allowable pursuant to Section 2.5(a)(i) on a cumulative basis from the Closing
Date until the Prepayment Period in question. As an example of clause (vi) of
the preceding sentence, if the total amount prepaid on the Loans pursuant to
this Section 2.12 during the period from September 1, 1995 through August 31,
1996 is $8,100,000, no prepayments may be made pursuant to Section 2.5(a)(i)
until the period between September 1, 1999 and October 1, 1999.
(c) The Lender's obligation to deliver a Release with respect to
any Inn shall be subject to the satisfaction of the Lender that the following
conditions have been complied with:
(i) The Borrower shall have requested such Release not less
than twenty (20) Business Days prior to the date as of which such Release is
requested (the "Proposed Release Date"),
---------------------
27
<PAGE>
which request shall be accompanied by a certificate of the Borrower to the
effect that (A) no Event of Default or Default has occurred and is continuing,
and (B)(i) such Release will not violate the requirements of this Section 2.12,
or (ii) is required by Section 2.5. Such certificate shall (x) incorporate all
calculations necessary to demonstrate compliance with clause (B)(i) above, and
(y) show all information necessary to calculate the Release Price (as
hereinafter defined) in the manner required by this Section 2.12 and the
calculation of the Release Price.
(ii) (a) The DSCR and Combined DSCR with respect to the Inns (the
"Remaining Inns") that will continue to be subject to the lien of any Mortgage
- ---------------
after the Proposed Release Date shall have exceeded the Required Ratios for the
most recent 13 Accounting Periods, and (b) Borrower shall have no knowledge that
the DSCR or Combined DSCR for the next ensuing 13 Accounting Periods will be
less than the Required Ratios and Borrower shall deliver a certification to
Lender to such effect. For purposes of the preceding sentence, the allocation
of Promissory Notes Debt Service for each Inn shall be determined on the basis
of the Outstanding Principal Balance of the Single Inn Note for such Inn.
Within fifteen (15) Business Days after receipt by the Lender of the Borrower's
request for a Release, the Lender shall notify the Borrower whether the Lender
disputes the Borrower's calculation that the Required Ratios with respect to the
Remaining Inns were exceeded for the relevant periods. If the Lender so
notifies the Borrower, then during the immediately succeeding five Business Days
the Lender and the Borrower shall confer in good faith in an effort to resolve
the dispute. If the Lender and the Borrower determine that the Required Ratios
with respect to the Remaining Inns were exceeded for each of such periods, the
requirements of this subparagraph (ii) shall be deemed to have been satisfied.
If the Lender and the Borrower are unable to resolve their dispute within such
period of five Business Days, the Lender may engage at the Borrower's expense
the Independent Accountants, who shall determine whether the Required Ratios
with respect to the Remaining Inns were so equaled or exceeded. If the
Independent Accountants determine that the Required Ratios with respect to the
Remaining Inns were so equaled or exceeded and provide an unqualified written
opinion to such effect and furnish to the Lender a description in reasonable
detail of the basis for such
28
<PAGE>
determination, the requirements of this subparagraph (ii)(a) shall be deemed to
have been satisfied. If the Independent Accountants do not determine that the
Required Ratios with respect to the Remaining Inns were so exceeded, then the
requirements of this subparagraph (ii)(a) shall not be deemed satisfied and the
Lender shall not be required to deliver a Release.
(iii) Borrower shall have paid to Lender all costs and expenses
reasonably incurred by Lender in connection with the requested Release and shall
have delivered to Lender all documentation that Lender may reasonably request in
order to evidence the continued enforceability of the Loan Documents with
respect to all unreleased collateral and Borrower's continued obligation with
respect to the Loan Documents, including without limitation, an estoppel
certificate in form and substance reasonably satisfactory to Lender confirming
that Borrower has no offsets, counterclaims or defenses with respect to the
Loans relating to the Remaining Inns.
(d) Provided that the requirements of subparagraph (c) above have been
satisfied and further provided that on the date of the delivery of the Release
no Event of Default or Default shall have occurred and be continuing, and
subject to the limitations of subparagraphs (b) and (c) above, the Borrower
shall pay or cause to be paid to the Lender the aggregate of (A) the "Release
Price" with respect to the Inn being released from the lien of one of the
Mortgages, which Release Price shall be applied first to prepay the Single Inn
Note with respect to such Inn in full and any remainder shall be applied to the
Outstanding Principal Balances of the remaining Single Inn Notes in proportion
to the Applicable Ratios and in inverse order of maturity, (B) all accrued
interest with respect to the Release Price, and (C) the Yield Maintenance
Payment with respect to the Release Price. The "Release Price" shall be the
-------------
lesser of (a) the outstanding principal balance of all of the Loans plus all
accrued but unpaid interest and other amounts owing pursuant to this Agreement,
or (b) the greater of (i) the reduction of the outstanding principal balance of
the Loans necessary to satisfy the requirements of Sections 2.12(c) above, or
(ii) one hundred twenty-five percent (125%) of the Outstanding Principal
Balances of the Single Inn Notes with respect to the Inn(s) being released;
provided, however, that the
29
<PAGE>
Release Price shall be rounded up to the next higher integral multiple of
$10,000. Additionally, contemporaneously with payment of the Release Price to
Lender, Borrower must pay the Release Price (as defined in the Subordinate Loan
Documents) to Subordinate Creditor.
(e) All determinations made by the Independent Accountants under this
Section shall be final and binding upon the Lender and the Borrower. If the
Lender notifies the Borrower that it disputes the Borrower's calculations under
this Section, the Borrower shall provide or make available to the Lender all
documents and materials reasonably requested by the Lender to assist it to make
the determinations required pursuant to this Section.
(f) Borrower shall not be entitled to any releases or credit toward
any Release Price as a result of any principal payments made or required to be
made pursuant to Section 2.4(b) hereof.
Section 2.13 Allocation to Single Inn Notes. All principal payments
------------------------------
made by Borrower other than in accordance with Sections 2.5(b), 2.5(a)(ii) or
2.12 shall be allocated to the Outstanding Principal Balances of the Single Inn
Notes based on the Applicable Ratios.
Section 2.14 Four Party Agreement. Lender's rights and Borrower's
--------------------
obligations pursuant to this Agreement and the Four Party Agreement are
cumulative and (i) Borrower shall not be entitled to any credit against amounts
owing pursuant to Sections 2.5 or 2.12 of this Agreement as a result of any
payments made to Lender pursuant to the Four Party Agreement, and (ii) Borrower
shall be entitled to credit against amounts owing pursuant to Section 2.4(b)
hereof for payments made pursuant to the Four Party Agreement only to the extent
of any amounts actually paid to Lender pursuant to the Four Party Agreement and
which are applied to the principal balance of the Loans pursuant to the Four
Party Agreement.
30
<PAGE>
SECTION 3
OTHER PAYMENTS
Section 3.1 Other Payments.
--------------
(a) Intentionally Deleted.
---------------------
(b) If any Regulatory Change, shall either (i) impose, modify or deem
applicable any reserve, special deposit, deposit insurance or similar
requirement against or for the account of the Lender or (ii) impose on the
Lender any other condition, including, without limitation, change any applicable
capital adequacy requirements, and the result of any event referred to in clause
(i) or (ii) above shall be to increase the cost to the Lender of making or
maintaining the Loans (by participation or otherwise), then the Borrower shall
pay to the Lender all additional amounts specified by the Lender required to
compensate the Lender for such increased costs.
(c) All sums payable by the Borrower under this Agreement shall be
paid in full, net of all taxes, deductions, withholdings or other charges of any
kind that may be assessed, levied or imposed by any U.S. Governmental Authority
whatsoever, together with any interest, penalties or other charges thereon
(hereinafter, "Taxes"), excluding the following ("Excluded Taxes"): (i) Taxes
----- -------- -----
imposed on or measured by net income or alternative minimum taxable income or
taxable assets in lieu of income by the jurisdiction of incorporation of the
Lender, each taxing jurisdiction therein and the United States, New York State
or New York City, (ii) Taxes imposed on the Lender pursuant to Section 884 of
the IRC, (iii) Taxes imposed on the Lender to the extent the Tax would have been
imposed if the Lender had not engaged in the transaction contemplated by this
Agreement, except to the extent that the Taxes referred to in the preceding
clauses (i) and (ii) are imposed on amounts payable by the Borrower pursuant to
this Section 3.1(c), and (iv) Taxes in existence on the date hereof, to the
extent of the amount of such Taxes as of the date hereof. If the Borrower is
prohibited by law from making one or more payments under this Agreement free of
Taxes (other than Excluded Taxes), or if any U.S. Governmental Authority shall
at any time assert that the Lender is required to pay any Taxes
31
<PAGE>
(other than Excluded Taxes), with respect to payments made by the Borrower under
this Agreement, then the Borrower shall pay such additional amount to the Lender
as may be necessary in order that the actual amount received by the Lender after
taking into account all such Taxes other than Excluded Taxes (and after payment
of any additional Taxes (including Excluded Taxes) that may be payable by the
Lender as a consequence of the payment of such additional amount) shall equal
the amount that would have been received by the Lender if such Taxes were not
required to be paid. In any event, if the Borrower is required to pay any Taxes
with respect to any sums payable under this Agreement, it shall deliver to the
Lender official receipts or certified copies thereof or other documentation
sufficient to evidence the Borrower's payment thereof.
(d) The Borrower shall reimburse the Lender for all costs and
expenses, including, without limitation, the disbursements, other charges and
reasonable fees of counsel and all out-of-pocket costs reasonably incurred by
the Lender, whether before, on or after the Closing Date, in connection with (i)
the preparation, negotiation and issuance of the Loan Documents and any
Servicing and Participation Agreements related to the Loans, including all
research and advice in connection therewith, (ii) the preparation, negotiation,
execution and delivery of all certificates, agreements, instruments and opinions
delivered in connection herewith and therewith, (iii) any amendment,
modification or supplement to any of the Loan Documents or any Servicing and
Participation Agreements related to the Loans or any agreement or instrument
delivered in connection herewith or therewith requested by Borrower, (iv) any
waiver of any provision of this Agreement, any of the Loan Documents, any
Servicing and Participation Agreements related to the Loans or any agreement or
instrument delivered in connection herewith or therewith, (v) any restructuring
of the terms of any of the Loan Documents, any Servicing and Participation
Agreements related to the Loans or any agreement or instrument delivered in
connection herewith or therewith, (vi) the enforcement of the Loan Documents or
any agreement or instrument delivered in connection herewith or therewith from
and after the occurrence and during the continuation of a Default or an Event of
Default, (vii) all due diligence costs and expenses incurred by Lender in
connection with
32
<PAGE>
making the Loans to Borrower, and (viii) all costs and expenses incurred by
Lender, but not in excess of $50,000, in preparing a private placement
memorandum or obtaining additional opinions. All of the foregoing expenses shall
be reimbursed by the Borrower whether or not the Lender gives notice to the
Borrower of such Default or Event of Default under this Agreement or takes any
other action to enforce the provisions of any of the Loan Documents or any
agreement or instrument delivered in connection herewith and therewith. The
Borrower shall pay any and all title insurance costs, recording costs and taxes,
stamp and other taxes and fees payable or determined to be payable in connection
with the execution, delivery, filing, recording and enforcement of any of the
Loan Documents or any agreement or instrument delivered in connection herewith
or therewith and shall save the Lender harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such taxes and fees.
(e) All amounts payable pursuant to Sections 3.1(b), (c), (d) and (f)
and 11.5 hereof shall be due and payable not later than fifteen (15) Business
Days following written demand by the Lender, and the obligation to pay such
amounts shall survive the repayment of the Loans and shall continue in full
force and effect so long as the possibility of any such liability, claims or
losses pursuant to such sections exists. Upon request by Borrower, Lender shall
provide Borrower with reasonable supporting documentation with respect to any
amounts payable pursuant to this Section 3.1.
(f) To the extent that the Borrower or any Affiliate of the Borrower
has had any dealings with any broker in connection with the application for or
negotiation of the Loans, any brokerage commissions or similar compensation due
in connection therewith shall be paid in full by the Borrower when due. The
Borrower agrees to and does hereby indemnify the Lender from and against any an
all liability, claims or losses (including reasonable attorneys' fees) incurred
by the Lender arising or allegedly arising by reason of or in connection with
any dealings between any such broker and the Borrower or the Lender.
33
<PAGE>
SECTION 4
CONDITIONS PRECEDENT TO ADVANCE THE LOANS
The obligation of the Lender to advance the Loans is subject to the
fulfillment on the Closing Date, as determined in the sole discretion of the
Lender, of the conditions precedent set forth in this Section 4.
Section 4.1 Documents Pertaining to the Collateral and Security. The
---------------------------------------------------
Borrower shall deliver (or cause to be delivered) to the Lender the following
documents, instruments and agreements, to the extent applicable to each item of
the Collateral and Security or the Management Agreement as determined by the
Lender, each of which shall be in form and substance satisfactory to the Lender:
(a) All Loan Documents, fully executed;
(b) Paid title insurance policies (the "Title Insurance Policies") in
------------------------
form and content acceptable to the Lender (acting with or without the advice of
its counsel), with respect to each of the Mortgages in the amount of at least
the principal amount of the applicable Single Inn Note insuring (i) to the
extent available in each jurisdiction, that each Mortgage is in all respects
legal, valid and binding upon the Borrower in accordance with its terms, and
(ii) that as of the Closing Date, each Mortgage constitutes a valid first lien
and/or first security interest in the premises encumbered by such Mortgage, free
and clear of all defects and encumbrances except as set forth in Exhibit B to
---------
each Mortgage and the exclusions from coverage, and containing (A) full coverage
(by affirmative insurance) against liens of mechanics, materialmen, laborers,
and any other Persons who might claim statutory or other common law liens; (B)
no survey exceptions other than those set forth in Exhibit B to each Mortgage;
---------
(C) such other endorsements as the Lender may deem necessary to insure that any
off-site easements benefitting any of the Inns are valid and enforceable in
accordance with their terms; (D) a "tie-in" endorsement to the Title Insurance
Policy for each of the other Inns; and (E) such other endorsements as the Lender
(acting with or without the advice of its counsel) may reasonably require. Such
Title Insurance Policies shall be issued by Chicago
34
<PAGE>
Title Insurance Company ("Chicago"), or another title insurance company
-------
reasonably satisfactory to the Lender (acting with or without the advice of its
counsel). Direct access reinsurance agreements, or at Lender's option, co-
insurance agreements reasonably acceptable to Lender, shall be provided as
required by the Lender;
(c) (i) Evidence satisfactory to the Lender that the requirements set
forth in Exhibit D have been complied with and that all policies of insurance
---------
required by Exhibit D are in full force and effect and contain a provision that
---------
they will not be cancelled or materially amended or the amount of insurance
reduced without 30 days' prior notice to the Lender, and (ii) copies of all of
the relevant policies and the original endorsements or insurance certificates
evidencing the coverages required by Exhibit D;
---------
(d) Evidence satisfactory to the Lender that funds necessary to pay
all taxes in respect of the Mortgages and all recording and filing fees and
other expenses necessary in connection with the recordation of the Mortgages and
the perfection of the Security Interests have been paid to the issuer of the
Title Insurance Policies or to other Persons reasonably satisfactory to the
Lender;
(e) A certificate, dated the Closing Date, of the Borrower, and a
certificate, dated the Closing Date, of the Manager, each of which shall be in
form satisfactory to Lender.
(f) An as-built survey with respect to each Inn, certified to the
Lender and the title insurer within 90 days immediately preceding the Closing
Date by a surveyor registered in the state in which the Inn shown on such survey
is located, each of which surveys shall show (A) the boundaries of the Site, (B)
the location and dimension of all improvements located on the Site, (C) the
location and identity of all visible or recorded easements and rights-of-way
across or serving the Site, (D) that the improvements comply with all setback
requirements and zoning restrictions, (E) that, except as shown on the survey,
the improvements do not encroach on adjoining property or on any easement or
right of way, (F) that there are no encroachments on
35
<PAGE>
the Site, except to a de minimis extent, (G) that the Site is not located within
any flood plain area (unless flood insurance satisfactory to the Lender is
provided), and (H) any other matters that the Lender may reasonably require;
(g) A letter from the title insurer or certifications from attorneys
acceptable to the Lender stating that a search of the public records in the
central filing authority and county of the principal place of business of
Borrower and each state and county in which an Inn is located disclosed no
conditional sales contracts, chattel mortgages, leases of personalty (other than
as disclosed to Lender in writing and approved by Lender), financing statements
or title retention agreements that affect any Inn or Site or any other
collateral or security assigned or pledged to the Lender pursuant to this
Agreement or any of the Related Documents, except such matters as the Lender may
have approved in writing, except for the Financing Statements;
(h) A copy of the certificate of occupancy for all improvements
located on each Site or evidence satisfactory to the Lender that no certificate
of occupancy is required by any applicable Requirement of Law;
(i) A copy of all licenses and permits required for or used in
connection with the legal operation of each Inn and all other improvements
located on each Site and evidence satisfactory to the Lender that no other
licenses or permits are required by any applicable Requirement of Law;
(j) Financial statements for the Borrower and the General Partner,
which shall be the most recent statements available on the Closing Date and
which shall include certificates by an appropriate officer of the General
Partner or Host that the information contained therein is true and complete;
(k) A current inspection report with respect to each Inn, prepared by
Merritt & Harris or other engineers satisfactory to the Lender, which reports
shall not describe any material defect in the condition of any improvements
located on any Site;
36
<PAGE>
(l) A current report prepared by Dames & Moore, substantially to the
effect that each Site contains no pollutants, contaminants, hazardous or toxic
wastes or other substances (including, without limitation, asbestos), the
removal of which is required or the use, maintenance or handling of which is
restricted, prohibited or penalized by any Requirement of Law (collectively,
"Hazardous Substances"), except for materials (i) that are in quantities
--------------------
permitted by all Requirements of Law and (ii) that are stored, used and disposed
of in accordance with all Requirements of Law;
(m) An appraisal satisfactory to the Lender prepared with respect to
each Inn by Cushman & Wakefield (the "Appraisals");
----------
(n) Acknowledgement copies of proper Financing Statements (Forms UCC-1
and UCC-3) duly filed under the Uniform Commercial Code of each jurisdiction as
may be necessary or, in the reasonable opinion of Lender, desirable to perfect
the security interests created by the Loan Documents (the "Financing
---------
Statements");
- ----------
(o) Certified copies of Requests for Information or copies (Form UCC-
11), or equivalent reports, listing the financing statements referred to in
paragraph (n) above and all other effective financing statements which name the
Borrower as debtor and which are filed in the jurisdictions referred to in said
paragraph (n), together with copies of such other financing statements;
(p) Evidence that all other actions necessary or, in the opinion of
Lender, desirable to perfect and protect the security interests created by this
Agreement, have been taken;
(q) payment of all fees and expenses of (i) Lender's outside counsel,
Weil, Gotshal & Manges, (ii) all special local counsel retained in connection
with any of the Loan Documents and the transactions contemplated thereby and
(iii) all third party costs and expenses incurred by Lender in connection with
the transaction contemplated by this Agreement, including, without
37
<PAGE>
limitation, costs of environmental appraisals, structural reports, due diligence
and travel expenses; and
(r) A letter, executed by Borrower, addressed to the Accountants
instructing them to comply with the provisions of Section 7.14 hereof.
Section 4.2 Authorization; Related Documents. The Lender shall have
--------------------------------
received:
(a) Evidence satisfactory to the Lender to verify the authority of the
individual or individuals executing the Related Documents to which the Borrower
is a party legally to bind the Borrower, and the authority of each individual,
other than representatives of the Lender, who will sign the other statements,
reports, certificates and documents called for by the terms of the Related
Documents to which the Borrower is a party and who will otherwise act under the
Related Documents for and on behalf of the Borrower;
(b) The specimen signature of each individual named pursuant to
Section 4.2(a) hereof certified by an appropriate officer to be a true specimen
thereof;
(c) Executed counterparts of each of the Related Documents, in form
and substance satisfactory to the Lender, and all statements, reports,
certificates and documents required to be provided to the Lender on the Closing
Date pursuant to the terms of the Loan Documents, in the form required hereby
and thereby;
(d) (i) A favorable written opinion addressed to the Lender, dated
as of the Closing Date, of both Hogan & Hartson, counsel to the Borrower, the
General Partner and Host, and an opinion of the General Counsel or Deputy
General Counsel of Host, as to such matters as the Lender may reasonably
request, such opinions to be in form and substance satisfactory to the Lender;
provided, however that Borrower shall provide evidence satisfactory to Lender
that the opinion of the General Counsel or Deputy General Counsel of Host shall
(i) represent an unconditional obligation of Host, and (ii) be covered by the
directors and officers' insurance maintained by Host; and
38
<PAGE>
(ii) A favorable written opinion addressed to the Lender, dated as
of the Closing Date, of the General Counsel or Deputy General Counsel of
Marriott International, Inc., as counsel to the Manager, as to such matters as
the Lender may reasonably request, such opinion to be in form and substance
satisfactory to the Lender; provided, however that Borrower shall provide
evidence satisfactory to Lender that the opinion of the General Counsel or
Deputy General Counsel of Marriott International, Inc. shall (i) represent an
unconditional obligation of Marriott International, Inc., and (ii) be covered by
the directors and officers' insurance maintained by Marriott International,
Inc.; and
(e) The Borrower's Certificate;
(f) Evidence satisfactory to the Lender that the execution, delivery
and performance of the Related Documents to which the Borrower is a party has
been authorized by the General Partner and the Partnership Agreement;
(g) Certificates, dated as of the Closing Date, of the secretary or an
assistant secretary of each of the General Partner, the Manager and Host
(together with copies of the documents referred to below), certifying:
(i) That attached thereto is a true and complete copy of the
Certificate of Incorporation of the entity on whose behalf such
certificate is given, together with all amendments thereto and that
such Certificate of Incorporation has not been amended since the date
of the last amendment attached to the certificate;
(ii) That attached thereto is a true and complete copy of the
by-laws of the entity on whose behalf such certificate is given,
together with all amendments, as entered into or in effect on the date
of such certificate;
(iii) That attached thereto is a true and complete copy of
resolutions duly adopted by the Board of Directors of the entity on
whose behalf such certificate is given, authorizing the execution,
delivery and
39
<PAGE>
performance of the Related Documents to which such entity is a party
and that such resolutions have not been revoked, annulled or modified
in any manner and are in full force and effect;
(h) Recently dated good standing certificates, and if applicable,
certificates of existence for each of the Borrower, the General Partner, the
Manager and Host;
(i) A favorable written opinion addressed to the Lender, dated as of
the Closing Date, of counsel to the Lender in each state in which one or more of
the Sites is located, as to such matters relating to the subject matter of the
Loan Documents as the Lender may reasonably request, such opinion to be in form
and substance reasonably satisfactory to the Lender;
(j) Evidence satisfactory to Lender that Borrower, Manager and to the
extent necessary, the General Partner are qualified to do business in all
jurisdictions in which Sites are located; and
(k) Such other documents, instruments, approvals (and, if requested by
the Lender, certified duplicates of executed copies thereof) and opinions as the
Lender may reasonably request.
Section 4.3 Certificate of the Borrower.
---------------------------
The following statements shall be true and correct on the Closing
Date, and the Lender shall have received a certificate of the Borrower signed by
a duly authorized officer of the Borrower, dated the Closing Date, stating that:
(i) The representations and warranties of the Borrower and the
General Partner contained in each of the Related Documents to which
the Borrower is a party and in all certificates, documents and
instruments delivered by the Borrower or the General Partner pursuant
to such Related Document, including, without limitation, those set
forth in Exhibit C attached hereto, are true and correct in all
material respects on
40
<PAGE>
and as of the Closing Date as though made on and as of the Closing
Date;
(ii) No Default (and no Event of Default as defined in the
Mortgages) has occurred and is continuing or would result from the
execution, delivery or performance of the Related Documents to which
the Borrower is a party or from the advance of the Loans;
(iii) There has been no material adverse change in the financial
condition or results of operations of the Borrower since the date of
the most recent Annual Financial Statement delivered to Lender.
(iv) Each of the Inns and all other improvements located on each
Site are undamaged except for any damage that will be repaired during
the course of ordinary maintenance programs with respect to the Inns
and such other improvements; provided, however, that if any more
extensive such damage exists as of the Closing Date then (i) the cost
of restoration, as certified by the Borrower does not exceed
$1,000,000 in the aggregate, (ii) such damage does not affect more
than one Inn, (iii) the Lender has been provided with evidence
reasonably satisfactory to the Lender that such damaged Inn or other
improvement can be restored to substantially the same condition as
existed prior to the occurrence of such damage, the certificate of the
Borrower shall so indicate and the Borrower and the Lender shall enter
into such agreement with respect to the repair, restoration or
replacement of such damage as the Lender may reasonably require, and
(iv) any insurance proceeds are being held by Lender; further
provided, that if the cost of restoration of any such damage exceeds
$1,000,000, as estimated by the Lender, such certificate shall so
indicate, and the Lender shall be provided with substitute collateral
reasonably satisfactory to the Lender;
41
<PAGE>
(v) All required approvals and permits (including temporary or
permanent certificates of occupancy) have been obtained;
(vi) Each of the Inns and all other improvements located on each
Site may legally be occupied, free of any violation (or claimed
violation) of building, environmental and zoning laws (including any
law requiring any environmental assessment or impact statement) or
other applicable legal or insurance underwriters requirements and
recorded covenants, conditions and restrictions; and
(vii) All improvements on each Site have been finally completed
prior to the Closing Date and paid for, in accordance with all
Requirements of Law, and permanent certificates of occupancy for all
portions of each Inn and all other improvements located on the
Premises have been obtained.
(viii) Such other matters as may be reasonably required by Lender.
Section 4.4 Other Conditions Satisfied.
--------------------------
Each of the other conditions precedent required to be satisfied and
documents to be delivered on the Closing Date by the Borrower under the Loan
Documents or under the Related Documents shall have been properly satisfied and
delivered in accordance with the relevant provisions thereof.
Section 4.5 Ratios.
------
(a) The DSCR, as determined by Lender, in its sole discretion, shall
be greater than or equal to 1.80.
(b) The Combined DSCR, as determined by Lender, in its sole
discretion, shall be equal to or greater than 1.25.
(c) The LTV, as determined by Lender, in its sole discretion, shall be
equal to or less than .60.
42
<PAGE>
(d) The Combined LTV, as determined by Lender, in its sole discretion,
shall be equal to or less than .75.
Section 4.6 Capital Reserves. Lender shall determine that adequate
----------------
capital reserves are being or will be maintained with respect to the Inns.
Section 4.7 Intentionally Deleted.
---------------------
SECTION 5
OBLIGATIONS ABSOLUTE
Section 5.1 Obligations of the Borrower. The obligations of the
---------------------------
Borrower under this Agreement shall be absolute, unconditional and irrevocable,
and shall be paid and performed strictly in accordance with the terms of this
Agreement, under all circumstances whatsoever, including, without limitation,
the following circumstances:
(a) Any lack of validity or enforceability of this Agreement or all or
any of the other Related Documents;
(b) Any amendment or waiver of, or any consent to departure from, this
Agreement or all or any of the other Related Documents except to the extent so
waived or consented to in writing by the Lender; or
(c) The existence of any claim, set-off, defense or other rights which
the Borrower or Host may have at any time against the Lender or any other
Person, whether in connection with the Related Documents or any unrelated
transactions.
SECTION 6
REPRESENTATIONS AND WARRANTIES
Section 6.1 Representations and Warranties. Each of the Borrower and
------------------------------
the General Partner represents and warrants as follows:
(a) The Borrower is a limited partnership duly organized, validly
existing and in good standing under the laws of
43
<PAGE>
the State of Delaware. The Borrower has the requisite power to own its property
and to conduct the business in which it engages and is duly qualified to do
business as a foreign limited partnership in each jurisdiction in which Sites
are located.
(b) Each of the Borrower and the General Partner on behalf of the
Borrower has all requisite legal right, power and authority to execute, deliver
and perform this Agreement and to consummate the transactions to be consummated
by the Borrower as contemplated hereby. The execution, delivery and performance
by the Borrower of this Agreement and the consummation by the Borrower of the
transactions as contemplated hereby have been duly authorized by all necessary
action on the part of the Borrower. The execution, delivery and performance by
the General Partner on behalf of the Borrower of this Agreement and the
consummation by the General Partner of the transactions as contemplated hereby
have been duly authorized by all necessary action on behalf of the General
Partner. All consents of any other Person (including partners or creditors of
the Borrower but excluding the Lender), and all consents or authorizations of,
or other acts by or filings with any Governmental Authority, required to be
obtained or made by the Borrower or its Affiliates in connection with the
execution, delivery and performance of, and the validity, binding effect and
enforceability of the Borrower's obligations under this Agreement have been
obtained or made and are in full force and effect.
(c) This Agreement has been duly executed and delivered by the
Borrower, and assuming due authorization, execution and delivery by the Lender,
constitutes the legal, valid and binding obligation of the Borrower, enforceable
against it in accordance with the terms hereof, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law). The Borrower has performed all of its material
obligations that are currently due to be performed under this Agreement.
(d) The execution, delivery and performance by the Borrower of any
Related Document to which the Borrower is or will
44
<PAGE>
be a party and the consummation of the transactions contemplated hereby and
thereby (i) are within the Borrower's and its partners' partnership and/or
corporate power; and (ii) have been duly authorized by all necessary or proper
partnership and/or corporate action. The execution, delivery and performance by
the Borrower of any Related Document to which the Borrower is or will be a party
and the consummation of the transactions contemplated hereby and thereby will
not (i) in any material respect conflict with or constitute on the part of the
Borrower a breach of or default under any agreement, indenture, lease or other
instrument to which the Borrower is a party or by or to which it or its
revenues, properties, assets or operations are bound or subject, or violate any
Requirements of Law; (ii) result in the creation or imposition of any Lien upon
any of the Borrower's revenues, properties or assets, other than as specifically
contemplated hereby or by the Related Documents or as created by the Subordinate
Loan Documents; (iii) result in the acceleration of any Indebtedness of the
Borrower; or (iv) result in any material adverse change in any agreement
material to the operation of any of the Inns.
(e) No litigation, investigation or other proceeding is pending or, to
the knowledge of the Borrower, threatened, before or by any arbitrator or
Governmental Authority in any way restraining or enjoining, or threatening or
seeking to restrain or enjoin, or in any way questioning or affecting the
validity, binding effect or enforceability of, any provisions of any Related
Document to which the Borrower is or will be a party, as against the Borrower or
the legal existence of the Borrower or any of its Partners, the status of its
partners as partners, or the Borrower's right to conduct its operations as
proposed to be conducted, to perform its obligations under the Related Documents
to which it is or will be a party, or to consummate any of the transactions to
which it is or will be a party as contemplated hereby and thereby.
(f) No litigation, investigation or other proceeding is pending or, to
the knowledge of the General Partner, threatened, before or by any arbitrator or
Governmental Authority in any way restraining or enjoining, or threatening or
seeking to restrain or enjoin, or in any way questioning or affecting the
validity, binding effect or enforceability of, any provisions of any Related
45
<PAGE>
Document to which the Borrower is or will be a party, as against the General
Partner or the legal existence of the General Partner, the entitlement of the
directors or officers of the General Partner to their respective positions and
offices, or its right to conduct its operations as conducted, to perform its
obligations under any Related Document to which the Borrower is or will be a
party, or to consummate any of the transactions to which it is or will be a
party as contemplated hereby and thereby.
(g) There is no action, suit, investigation or other proceeding
pending or, to the knowledge of the Borrower, threatened before or by any
arbitrator or Governmental Authority, nor any other event or circumstances,
which would have a material adverse effect on the power or ability of the
Borrower to perform its obligations under any Related Document to which it is or
will be a party or the transactions as contemplated hereby and thereby.
(h) There is no action, suit, investigation or other proceeding
pending or, to the knowledge of the General Partner, threatened before or by any
arbitrator or Governmental Authority, nor any other event or circumstances,
which would have a material adverse effect on the power or ability of the
General Partner to act as the general partner of the Borrower with respect to
performance by the Borrower of its obligations under any Related Document to
which the Borrower is or will be a party or to consummate the transactions as
contemplated hereby and thereby.
(i) The Borrower is not in default under or with respect to any
contractual obligation in any respect which could materially and adversely
affect its ability to perform its obligations under any Related Document to
which it is or will be a party, nor is the Borrower in default under any
existing judgment, order, award or decree of any arbitrator or Governmental
Authority binding upon or affecting it which could materially and adversely
affect its ability to perform its obligations under any Related Document to
which it is or will be a party.
(j) The General Partner is not in default under or with respect to any
contractual obligation in any respect which would materially and adversely
affect its ability in its capacity as general partner to perform the obligations
of the Borrower under
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<PAGE>
any Related Document to which the Borrower is or will be a party, nor is the
General Partner in default under any existing judgment, order, award or decree
of any arbitrator or Governmental Authority binding upon or affecting the
General Partner which could materially and adversely affect its ability in its
capacity as general partner to perform the obligations of the Borrower under any
Related Document to which the Borrower is or will be a party.
(k) No Default has occurred and is continuing and the Borrower is not
in default under any of the Related Documents to which it is or will be a party
(other than defaults existing under financing provided by The Sanwa Bank Limited
which is being repaid on the Closing Date and which repayment shall cure any
existing default).
(l) All Taxes, assessments, fees and other governmental charges
against the Borrower and the General Partner and upon any of their respective
properties which are due have been paid and no claims are being asserted with
respect to any of the foregoing, except such matters as have been disclosed in
writing to the Lender (provided that if any such matter shall give rise to a
Lien against any Collateral and Security, then such Lien shall be bonded over or
other security reasonably satisfactory to the Lender shall have been provided to
secure the discharge of such Lien).
(m) The Borrower does not have outstanding any contractual undertaking
or obligation other than those contemplated by the Related Documents and such
other undertakings and obligations as may be now or in the future undertaken in
the ordinary course of operating the Inns, but no such undertakings or
obligations involve the incurrence of any Indebtedness by the Borrower other
than the Indebtedness permitted hereunder and other than ordinary course of
business trade payables not in excess of an amount acceptable to Lender.
(n) The Borrower has furnished the Lender with a copy of its balance
sheet as of June 16, 1995 and income statements of the Borrower and for each of
the Inns for the most recent Annual Accounting Period and for all Accounting
Periods since the end of the most recent Annual Accounting Period which ended 30
days or
47
<PAGE>
more prior to the Closing Date. Such balance sheet and income statements fairly
present the financial condition of the Borrower and each Inn as of their
respective dates. Since the date of such balance sheet there has been no
material adverse change in the financial condition or results of operations of
the Borrower.
(o) The principal place of business of the Borrower and the General
Partner is in Montgomery County, Maryland.
(p) Neither the Borrower nor the General Partner knows of any reason
why the representations and warranties of the Borrower and the General Partner
contained in the Related Documents to which the Borrower or the General Partner
is or will be a party will not be true and correct in all material respects on
the Closing Date.
(q) Neither the Borrower nor the General Partner is an "investment
company" or a company "affiliated" with or "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended,
and neither the Borrower nor the General Partner will become such by reason of
its execution and delivery of, or performance of its obligations under, any of
the Related Documents to which the Borrower is or will be a party.
(r) All of the outstanding shares of capital stock (the "Shares") of
------
the General Partner have been duly authorized, validly issued and are fully paid
and nonassessable and all of the Shares of the General Partner are owned of
record by Host, directly or indirectly. All of the Shares of Host have been
duly authorized, validly issued and are fully paid and nonassessable. There are
no outstanding options, contracts, calls, commitments or demands of any kind
relating to any of the Shares of the General Partner. None of the Shares of the
General Partner is subject to any Lien. There are no outstanding Securities of
the General Partner or Host other than the Shares. The General Partner has no
Subsidiaries.
(s) Neither the Borrower nor any member of a Controlled Group of which
the Borrower is a member maintains or contributes to or has an obligation to
contribute to any Pension Plan.
48
<PAGE>
Neither the Borrower nor such member is obligated to make contributions on
behalf of employees of the Borrower in such capacity in respect of any Pension
Plan.
(t) The Borrower owes no Indebtedness to any Person, except for
Indebtedness created or to be created in accordance with the Loan Documents and
except for ordinary course of business trade payables not in excess of $115,000.
(u) The Borrower has delivered or caused to be delivered to the Lender
copies of the Partnership Agreement and the Management Agreement which are (i)
true and complete, including all amendments thereto, (ii) in full force and
effect, with no notice of default, acceleration or termination outstanding or in
effect and (iii) to the Borrower's best knowledge, are not subject to any
material default or any event or condition which with notice or lapse of time or
both would constitute a material default. No mortgages (other than mortgages
that will be satisfied on the Closing Date) affecting any Inn are outstanding or
in effect with respect to any Inn. There are no leases or occupancy agreements
with respect to any Site or any improvements located on any Site (i) providing
for rental payments during the current fiscal year of more than 1% of the gross
revenues budgeted to be derived from such Site and all improvements located on
such Site, or (ii) demising any portion of any Site or any improvements located
thereon for use as an eating facility, or (iii) demising more than 5% of the
usable floor area contained in the improvements located on any Site, or (iv)
except as otherwise disclosed in writing to Lender, providing for a term of more
than one year.
(v) The insurance listed in Exhibit D constitutes all of the insurance
policies in effect with respect to the Inns. Each of such policies, including,
without limitation, each policy to be delivered pursuant to Section 4.1(c)
hereof, is in full force and effect, with no outstanding notice of default or of
material unperformed work, and such policies substantially fulfill the insurance
requirements of the Mortgages and do not violate any requirements thereof in any
material respect, except that the Lender has not heretofore been named as an
additional insured or as a loss payable party. To the extent that any of the
provisions
49
<PAGE>
regarding insurance contained in Section 2.4 of any of the Mortgages is
inconsistent with any of the insurance provisions contained in Exhibit D
attached hereto, the provisions contained in Exhibit D hereto shall govern.
(w) Borrower owns no material assets other than the Inns and the
rights and assets associated therewith and has no material liabilities other
than those associated with the Inns. The General Partner is a single purpose
entity that is wholly owned, directly or indirectly, by Host. The General
Partner is the sole general partner of the Borrower.
(x) The Borrower or an Affiliate of the Borrower owns and possesses
plans and specifications for all improvements located on any Site.
(y) Borrower has all material licenses, permits, inspections,
authorizations, certifications, consents or approvals from or by, and has made
all material filings with, and has given all material notices to, all
Governmental Authorities having jurisdiction, to the extent required for
Borrower's ownership, operation and conduct of its business and all of same are
in full force and effect and Borrower is in compliance with its partnership
agreement and is in compliance in all material respects with all applicable
provisions of law.
(z) Borrower has not received any notice, and has no knowledge, of any
pending, threatened or contemplated condemnation proceeding or environmental
proceeding or investigation affecting any Inn, or any proposed termination or
impairment of any parking at any Site.
(bb) Each Site has access to and from public streets and roads
adequate for its intended use, and all such streets and roads have been
completed.
(cc) All federal, state, local and foreign tax returns, reports and
statements required to be filed by Borrower have been filed with the appropriate
Governmental Authority and all charges, payments and other impositions shown
thereon to be due and payable have been paid prior to the date on which any
fine, penalty,
50
<PAGE>
interest or late charge may be added thereto for nonpayment thereof, or any such
fine, penalty, interest, late charge or loss has been paid, except as set forth
in Exhibit M attached hereto.
---------
(dd) No information contained in this Agreement, the other Loan
Documents, or any written statement furnished by or on behalf of the Borrower
pursuant to the terms of this Agreement contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
contained herein or therein not materially misleading in light of the
circumstances under which made.
(ee) All approvals from Governmental Authorities necessary or
appropriate for the execution, delivery and performance (x) by the Borrower of
the Related Documents to which it is a party, and (y) by the General Partner on
behalf of the Borrower of the Related Documents to which it is a party
(including, without limitation, evidence of authority to transact business in
every jurisdiction in which such authority is necessary to comply with
Requirements of Law), have been obtained and none of such approvals have been
revoked, annulled or modified in any manner and are in full force and effect.
(ff) There are no material items of deferred maintenance with respect
to any of the Inns.
(gg) All of the Loan Documents to which Borrower is a party are the
legal, valid and binding obligation of Borrower, enforceable in accordance with
their terms, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement of
creditors' rights generally, and by general principles of equity (regardless of
whether such enforcement is considered in a proceeding in equity or at law), and
there is no offset, defense, counterclaim or right to rescission with respect to
such Loan Documents or any other agreements.
(hh) Pursuant to the Management Agreement, after giving effect to the
transactions occurring contemporaneously herewith, the Capital Contributions as
of the date hereof are $66,262,626; the Adjusted Capital Contributions are
$67,656,651; and Owner's
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<PAGE>
Capital Return is $85,164,079 (with each of such terms having the meaning given
in the Management Agreement).
(ii) There are no leases or occupancy agreements affecting any of the
Inns.
Section 6.2 Survival. The representations and warranties of the
--------
Borrower in this Agreement shall survive the execution, delivery and acceptance
hereof by the parties hereto and the closing of the transactions described
herein or related hereto.
SECTION 7
AFFIRMATIVE COVENANTS
Each of the Borrower and the General Partner covenants and agrees with
the Lender that, so long as any amount is owing to the Lender under any of the
Related Documents:
Section 7.1 Information.
-----------
(a) The Borrower will furnish to the Lender, within 15 Business Days
after it is required to be filed with the SEC, a copy of the 10-K of the
Borrower, which shall include the Borrower's annual report. Each Annual
Financial Statement included in such annual report shall be certified by the
Accountants as fairly presenting the financial condition and results of
operations of the Borrower as at and for the fiscal year covered by such report.
All Annual Financial Statements provided by the Borrower to the Lender hereunder
shall be complete and correct in all material respects.
(b) The Borrower will furnish to the Lender, within 15 Business Days
after it is required to be filed with the SEC, a copy of (i) the 10-Q of the
Borrower and (ii) any 8-K of the Borrower.
(c) Borrower shall furnish to Lender the following reports:
52
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(i) As soon as available, but in all events within 27 days
after the end of each Accounting Period: (a) unaudited financial statements
substantially in the form of Exhibit E attached hereto, covering such Accounting
---------
Period and the Annual Accounting Period for the period to date showing (x) in
detail for each Inn separately, among other things, a breakdown of sales
revenues and operating expenses, and the calculation of house profit, average
suite and average occupancy rates, each of the foregoing with a comparison to
budget and prior year, and (y) total sales, average suite and average occupancy
rates and house profit on a consolidated basis for all Inns, for the period year
to date and compared to budget, and (b) an unaudited consolidated profit and
loss statement and escrow analysis and unaudited periodic and year-to-date
reports detailing for each property the calculation of Operating Profit
substantially in the form of Exhibit F attached hereto, and (c) the calculation
---------
of the Annual Rolling Average Ratios, Six Period Rolling Average Ratios and
Three Period Rolling Average Ratios for such Accounting Period (each in the form
of Exhibit G-1) together with a certification by the General Partner that no
-----------
Trigger Date or Application Trigger Date has occurred as of the end of such
Accounting Period or specifying in reasonable detail the reasons such a Trigger
Date or Application Trigger Date occurred.
(ii) Within 60 days after the end of the Accounting Period
occurring closest to the end of each calendar quarter, quarterly and year-to-
date unaudited financial statements for the Borrower (including, without
limitation, balance sheets, income statements, statements of cash flows and the
Limited Partner Quarterly Update report).
(iii) Within 120 days after the end of each Annual Accounting
Period, audited financial statements (including balance sheet, income statement
and statement of cash flows of the Borrower), such financial statements to be
audited by the Accountants who shall provide an unqualified opinion with respect
to such statements.
(iv) At least thirty (30) days before the beginning of each
Annual Accounting Period operating budgets and capital
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<PAGE>
budgets, together with all supporting detail and assumptions, to the extent
available to Borrower.
(v) All material reports or other material documentation with
respect to each Inn available to Borrower, together with any supporting
materials or assumptions available to Borrower, including, but not limited to,
all rent letters, together with any other information in the possession of or
available to Borrower that is requested by Lender, including without limitation,
a copy of the K-1 partnership tax return for Borrower.
Each statement delivered pursuant to (i)-(iii) above shall be
accompanied by a certificate of the General Partner of the Borrower stating (i)
Borrower is not aware of any inaccuracy in any material respect in any such
reports, and (ii) that there then exists no Default or Event of Default except
as may be set forth in such certificate substantially in the form of
Exhibit G-2.
- -----------
(d) The Borrower will furnish to the Lender, promptly after request
therefor, such additional financial and other information as the Lender may from
time to time reasonably request, including the Annual Residence Inn Marketing
Plan when completed.
(e) The Borrower will furnish one copy of the final Annual Operating
Projection for each Inn promptly after receipt thereof from the Manager in
accordance with the Management Agreement. Such Annual Operating Projection
shall also include individual property and consolidated occupancy and suite rate
projections, together with any supporting materials or assumptions available to
Borrower.
Section 7.2 Discharge of Obligations.
------------------------
Each of the Borrower and the General Partner will pay, discharge, or
otherwise satisfy, or cause to be paid, discharged or otherwise satisfied, at or
before maturity or before they become delinquent or in default, as the case may
be, all of their respective obligations, liabilities and Indebtedness in
accordance
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with the terms thereof, except (i) where any such obligation or liability is
being contested in good faith by appropriate proceedings and reserves in
conformity with GAAP with respect thereto have been provided on the books of the
Borrower or the General Partner, as the case may be, and (ii) each account
payable shall be paid not later than 90 days after the date on which such
account became due other than accounts payable being contested in good faith,
which shall not be required to be paid within 90 days if reserves in conformity
with GAAP are maintained. Each of the Borrower and the General Partner will keep
each Inn, all other improvements located on any Site and all Personal Property
used in the operation and maintenance of any Inn or other such improvements free
and clear of all Liens other than Liens permitted under the Loan Documents. Each
of the Borrower and the General Partner will apply funds derived from the Inns
in accordance with the terms and priorities established in this Agreement and
the other Related Documents.
Section 7.3 Maintenance of Existence.
------------------------
(a) The Borrower will (i) keep in full force and effect its
partnership existence, except for automatic dissolutions resulting from the
admissions or withdrawal of partners as permitted by this Agreement, provided
that in each such instance the partnership existence of the Borrower shall be
reconstituted contemporaneously with such automatic dissolution, and (ii) comply
with all Requirements of Law material to the conduct of its business (including,
without limitation, continuing to be qualified to engage in business in each
jurisdiction where such qualification is required) and the performance of its
obligations under this Agreement and the other Related Documents to which it is
a party.
(b) The General Partner will (i) maintain its corporate existence in
good standing and (ii) comply with all Requirements of Law material to the
conduct of its business (including, without limitation, continuing to be
qualified to engage in business in each such jurisdiction where such
qualification is required) and the performance of the obligations of the
Borrower under the Loan Documents to which the Borrower is a party.
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Section 7.4 Maintenance of Records.
----------------------
The Borrower will keep proper books of record and account in which
full, true and correct entries in conformity with the Partnership Agreement,
GAAP and all Requirements of Law shall be made of all dealings and transactions
in relation to its activities.
Section 7.5 Furnishing Notice. The Borrower will, as soon as
-----------------
possible but no later than two Business Days after an officer of the General
Partner obtains knowledge thereof, give notice to the Lender of:
(i) The occurrence of any Default or Event of Default;
(ii) Any litigation, investigation or proceeding that may exist
at any time with respect to the Borrower other than (A) matters covered by
workers' compensation insurance and other insurance listed in Section 1 of
Exhibit D hereto and (B) matters in which the amount claimed is less than
$100,000 per incident and $500,000 in the aggregate; and
(iii) A material adverse change in the business, operations,
property or financial or other condition of the Borrower or the General
Partner.
Each notice pursuant to this Section 7.5 shall be signed by a duly
authorized officer of the General Partner on behalf of the Borrower and shall
set forth details of the occurrence referred to therein and state what action
the Borrower has taken, and proposes to take, with respect thereto.
Section 7.6 Proceeds of the Loans.
---------------------
The Borrower will apply the proceeds of the Loans solely for the
purposes set forth in Section 2.2 hereof.
Section 7.7 Subordinate Loan. Borrower agrees to comply with and
----------------
perform all of the terms and conditions of the
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Subordinate Loan Documents on its part to be complied with. Borrower agrees not
to modify or amend the terms and provisions of the Subordinate Loan Documents in
any respect without first having obtained the written consent of Lender, which
consent may be given or withheld by Lender, in its sole and absolute discretion,
except as expressly permitted in Section 13(a) of the Intercreditor Agreement.
Borrower agrees to promptly give Lender written notice of the occurrence of any
Default under the Subordinate Loan Documents upon Borrower's receipt of a
written notice of default from the Subordinate Creditor, which notification to
Lender shall include a copy of the written notice sent by the Senior Creditor.
Borrower further covenants and agrees to give Lender written notice of the
occurrence of any Default under the Subordinate Loan Documents immediately upon
Borrower's obtaining knowledge of such Default, whether or not Borrower has
received written notice of Default from Subordinate Creditor.
Section 7.8 Management Agreement.
--------------------
The Borrower will duly perform in all material respects the
obligations contemplated to be performed by it under the Management Agreement
and will, with due diligence and in a reasonable and prudent manner, enforce its
rights under the Management Agreement and will not waive any of Borrower's
rights or Manager's obligations under the Management Agreement without the prior
written consent of Lender, which may be withheld in Lender's sole discretion.
Section 7.9 Insurance.
---------
The Borrower will maintain in full force and effect the insurance
described in Exhibit D hereto and deliver to the Lender not less than 15 days
prior to the expiration of each policy listed in Exhibit D evidence reasonably
satisfactory to the Lender that such policy has been renewed or that a
comparable policy reasonably satisfactory to the Lender has been obtained and
that the premium with respect thereto has been paid.
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Section 7.10 Payment of Debt.
---------------
The Borrower will pay the Debt in accordance with this Agreement and
the other Related Documents.
Section 7.11 Compliance With Law. The Borrower shall cause all of
-------------------
the Inns to comply in all material respects with all requirements of
Governmental Authorities (including, without limitation, all requirements with
respect to environmental matters).
Section 7.12 Intentionally Deleted.
---------------------
Section 7.13 Capital Reserves. Until the Loans are repaid in full,
----------------
Borrower shall on or before the date that is thirty (30) days after the end of
each Accounting Period occurring closest to the end of each calendar quarter
deposit an amount equal to at least five percent of Gross Revenues for such
Accounting Period and any prior Accounting Periods during the preceding calendar
quarter as to which such deposit has not been made, into the Reserve, and the
disposition of such amount shall be governed by the Management Agreement.
Additionally, Borrower shall not increase or decrease, or agree to any increase
or decrease in, the amount of the Reserve (as defined in the Management
Agreement) or any other reserves maintained pursuant to the Management Agreement
without the prior written consent of the Lender.
Section 7.14 Access.
------
(a) Borrower shall grant Lender access to all of the Inns and to
representatives of the Manager from time to time as may be reasonably requested
by Lender. Such access shall be provided on at least a semi-annual basis and on
a quarterly basis if the Trigger Date (as defined in the Four Party Agreement)
has occurred. Additionally, Lender and any of its officers, employees and/or
agents shall have the right, exercisable as frequently as Lender (or any
representative of Lender) reasonably determines to be appropriate, during normal
business hours (or at such other times as may reasonably be requested by Lender
or any representative of Lender) to inspect any Inn (consistent with
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Borrower's rights under the Loan Documents). Prior to an Event of Default, any
such access and right to inspect shall be at Lender's cost during normal
business hours and upon reasonable advance notice and Lender shall use good
faith efforts to minimize any interference with Borrower's operations. Lender
and any of its officers, employees and/or agents shall have the right,
exercisable as frequently as Lender (or any representative of Lender) reasonably
determines to be appropriate, but not more often than twice in any Annual
Accounting Period prior to an Event of Default, during normal business hours (or
at such other times as may reasonably be requested by Lender or any
representative of Lender), to inspect, audit and make extracts from all of the
Borrower's records, files and books of account at Lender's cost except as
provided below. The Borrower shall deliver any document or instrument reasonably
necessary for Lender (or any representative of Lender), as any of them may
reasonably request, to obtain records from any service bureau maintaining
records for the Borrower, and shall maintain duplicate records or supporting
documentation on media, including, without limitation, computer tapes and discs
owned by the Borrower. The Borrower shall cooperate with Lender to instruct its
banking and other financial institutions and Manager to make available to Lender
such information and records as Lender (or any representative of Lender) may
reasonably request. Borrower shall pay to Lender the travel expenses and
reasonable out-of-pocket costs incurred by Lender in performing any single audit
in any calendar year if any audit performed by, or on behalf of, the Lender
discloses that Borrower's statement of Gross Revenues, Net Cash Flow, Inn
Income, Inn Operating Expenses or Net Income Available for Debt Service is
misstated or otherwise incorrect by greater than 5% of Borrower's reported
amount. Notwithstanding the foregoing, during any period that an Event of
Default has occurred and is continuing, Borrower shall be responsible for the
full cost and expense of any investigation or audit conducted by Lender,
provided that Lender shall conduct no more than one such audit per year.
(b) The Borrower authorizes Lender to communicate directly with the
Accountants and irrevocably authorizes those accountants, at any time prior to
repayment of the Loans in full, to disclose to Lender any and all financial
statements and other supporting financial documents and schedules including
copies of
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any management letter with respect to the business, financial condition and
other affairs of the Borrower. Lender agrees not to exercise the rights set
forth in this subsection (b) until the earlier to occur of (i) an Event of
Default or (ii) a Trigger Date (as defined in the Four Party Agreement). Lender
further agrees to use reasonable efforts not to create an undue burden on the
Accountants as a result of the exercise of Lender's rights pursuant to this
subsection (b) and to cause all parties with an interest in the Loans to act as
a group to the extent practicable (but without waiving Lender's rights with
respect to the information described in this subsection (b)).
(c) If construction, renovation or repair having an estimated cost in
excess of $500,000 is contemplated or is recommended by any engineers or
architects retained by Borrower or Manager for any Inn, Lender shall have the
right to have an architect or engineer reasonably acceptable to Lender, at
Borrower's cost, make periodic inspections of the Inn in question.
Section 7.15 Material Agreements. Borrower shall notify Lender of
-------------------
any Material Agreements entered into after the date hereof. Borrower shall
perform, within all required time periods (after giving effect to any applicable
notice or grace periods), all of its obligations and enforce all of its rights
under each Material Agreement to which it is a party if the failure to perform
such obligations or enforce such rights would have a material adverse effect on
Borrower.
Section 7.16 Additional Reserves.
-------------------
In the event that Lender at any time determines that the Reserves then
being maintained pursuant to the Management Agreement are inadequate, Lender may
require, in Lender's sole but good faith discretion, that Borrower establish or
increase the amount of any reserves that Lender determines to be necessary or
appropriate, provided that Lender shall provide Borrower with a reasonably
detailed explanation of Lender's determination. All Reserves shall be
maintained in cash (and not merely through accounting entries) and shall be held
by Lender or by Manager pursuant to the Management Agreement. Lender shall have
the right to approve in advance any use of the Reserves, in Lender's sole,
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but good faith discretion, except to the extent that Borrower does not have the
right to approve the use of the Reserves pursuant to the Management Agreement.
Section 7.17 Four Party Agreement.
--------------------
Borrower shall pay, or cause to be paid, all Net Cash Flow, in
accordance with and as required by the Four Party Agreement.
Section 7.18 Environmental Insurance.
-----------------------
Borrower shall maintain the Environmental Insurance Policy in full
force and effect in accordance with, and subject to the same terms and
conditions set forth in, the Indemnity Agreement.
Section 7.19 General Partner Net Worth.
-------------------------
Borrower shall cause the General Partner to at all times maintain (i)
a net worth determined in accordance with GAAP of at least $6,600,000 (exclusive
of General Partner's interest in Borrower), and (ii) either cash in the amount
of at least $6,600,000 or the General Partner Note that is in full force and
effect in such amount.
SECTION 8
NEGATIVE COVENANTS
Each of the Borrower and the General Partner hereby covenants and
agrees with the Lender that, so long as any amount is owing to the Lender under
any of the Loan Documents:
Section 8.1 Consolidations, Mergers and Sales of Assets.
-------------------------------------------
The Borrower will not, without the prior written consent of the
Lender, (a) consolidate with or merge into any other Person or (b) sell, assign,
encumber, lease or otherwise transfer any of the Inns or any interest therein or
any assets directly related thereto to any other Person (provided that Lender
will not
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unreasonably withhold Lender's consent to the granting of easements or similar
rights reasonably necessary in connection with the ownership and operation of
the Mortgaged Property and which do not adversely affect Lender's rights), other
than (i) as permitted by the Loan Documents, including, without limitation,
Section 2.12 hereof or (ii) Personal Property used in connection with the
operation or maintenance of the Inns or any of them that is replaced with
Personal Property of a similar nature and quality equal to or better than the
Personal Property disposed of (except that obsolete Personal Property need not
be replaced), provided that Borrower may over the term of the Loans sell or
dispose of Personal Property with a value of not more than $1,000,000 in the
aggregate.
Section 8.2 Place of Business.
-----------------
Neither the Borrower nor the General Partner will change its principal
place of business outside Montgomery County, Maryland, without the prior written
consent of Lender, which consent shall not be unreasonably withheld provided
that Borrower executes, delivers, files and records such documents and
instruments as Lender may reasonably require to continue Lender's rights with
respect to all of the Collateral and Security for the Loans and the perfection
of Lender's rights with respect thereto.
Section 8.3 Incurrence of Indebtedness.
--------------------------
(a) The Borrower will not create, incur, assume or suffer to exist any
Indebtedness of or relating to the Borrower of any kind or nature, except for
Indebtedness that is both (a) an Additional Inn Investment (as defined in the
Management Agreement) and (b) (i) expressly contemplated or permitted by this
Agreement, (ii) non-capital equipment leases entered into in the ordinary course
of business not to exceed required annual payments of $1,100,000 in the
aggregate during any Annual Accounting Period, of which payments of no more than
$600,000 in the aggregate during any Annual Accounting Period may come from
sources other than the Reserve (as defined in the Management Agreement) (capital
leases being subject to the following clause (iii)), or (iii) unsecured
Indebtedness incurred in the ordinary course of business not exceeding
$5,000,000, in the aggregate, provided that (a) such
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Indebtedness is either (x) loaned to Borrower by Host or General Partner, or (y)
a capital lease, and (b) any such indebtedness is unsecured, fully subordinated,
does not subject any assets of Borrower to foreclosure or the imposition of any
Lien and is otherwise not enforceable to the detriment of Lender.
(b) The General Partner will not create, incur, assume or suffer to
exist any Indebtedness of the General Partner of any kind or nature, except for
(i) costs and expenses arising from the execution and delivery of the Related
Documents to which the Borrower is a party, and (ii) Indebtedness created or to
be created as specifically permitted under this Agreement.
Section 8.4 Purchase of Property.
--------------------
Neither the Borrower nor the General Partner will purchase any
property (other than Personal Property to be used in connection with the Inns in
the ordinary course of business), whether real or personal, tangible or
intangible, whether for investment or resale or for any other purpose
whatsoever, except with the prior written approval of the Lender, which consent
shall not be unreasonably withheld, conditioned or delayed and as specifically
provided for in the Loan Documents.
Section 8.5 Maintenance of Purpose.
----------------------
The Borrower will not engage in any business or operate for any
purpose other than that set forth in Section 2.03 of the Partnership Agreement
nor will Borrower materially change in any manner Borrower's business or acquire
any assets not related to the Inns, without Lender's prior written consent in
each instance.
Section 8.6 Distributions to Partners by the Borrower.
-----------------------------------------
The Borrower will not (i) make any distributions to its partners
(inclusive of repayments of loans made by any partner of the Borrower to the
Borrower) from the proceeds of borrowings, (ii) make any distributions to its
partners (inclusive of repayments of such partner loans) more frequently than
quarterly, (iii) make any distributions to its partners (inclusive of repayments
of such partner loans) except in accordance with the
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provisions of the Partnership Agreement and the other Related Documents, (iv)
make any distributions to its partners (inclusive of repayments of such partner
loans), unless the ratio of Net Income Available for Debt Service to All
Indebtedness Debt Service calculated on a cumulative basis for the preceding
thirteen (13) Accounting Periods is at least 1.10, (v) make any distributions to
its partners (inclusive of repayments of such partner loans) if the Trigger
Date, as determined in accordance with the Four Party Agreement, shall have
occurred and no corresponding Restoration Date shall have occurred, or (vi) make
any distributions to its partners (inclusive of repayments of such partner
loans) unless the Distribution Conditions are then satisfied.
Section 8.7 Amendments to Agreements.
------------------------
(a) Borrower shall not terminate or enter into or consent to any
amendment, modification, waiver or supplement of any provision of the Management
Agreement without the prior written consent of the Lender, which consent may be
withheld in Lender's sole discretion.
(b) The General Partner shall not, either as a general partner or a
limited partner, terminate or enter into or consent to any amendment,
modification, waiver or supplement of any provision of the Partnership Agreement
without the prior written consent of the Lender, which shall not be unreasonably
withheld, conditioned or delayed, except that the General Partner may, without
Lender's consent, enter into administrative or ministerial amendments that do
not impair the rights and remedies of the Lender under this Agreement and the
other Related Documents or the position and interests of the Lender as a secured
party entitled to the security interests and to receive payments as contemplated
by this Agreement and the other Related Documents.
(c) The General Partner will not, without the prior written consent of
the Lender, which consent shall not be unreasonably withheld, conditioned or
delayed, enter into or consent to any termination, amendment, waiver or
supplement of any of the provisions of the General Partner's Certificate of
Incorporation and By-Laws, except that such consent of the Lender shall not be
required for any waiver, amendment or modification of
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such Certificate of Incorporation or By-Laws that does not in any way (i) affect
the obligations of the Borrower owed to the Lender under this Agreement and the
other Related Documents, or (ii) impair the rights and remedies of the Lender
under this Agreement and the other Related Documents or the position and
interests of the Lender as a secured party entitled to the security interests
and to receive payments as contemplated by this Agreement and the other Related
Documents, or (iii) impair the value of the Borrower's interests in the Inns or
the Management Agreement. In the event of any waiver, amendment or modification
of the General Partner's Certificate of Incorporation or By-Laws with respect to
which the General Partner believes that the consent of the Lender is not
required, the Borrower shall furnish to the Lender (i) at least ten days prior
to execution thereof, a copy of the proposed amendment or modification, and (ii)
within 30 days following the execution and delivery thereof a copy thereof,
certified to be true and complete by the General Partner.
Section 8.8 Issuance of Rights.
------------------
The General Partner will not issue any stock options, warrants,
rights, calls or commitments of any character calling for or permitting the
issuance, transfer, sale or delivery of the Shares of the General Partner or any
other Security.
Section 8.9 Payment of Distributions.
------------------------
The General Partner will not pay or declare any dividend or
distribution on account of, or redeem or otherwise purchase any of, the Shares
or Securities or other instruments convertible into or exchangeable for the
Shares or Securities, unless (i) the net worth of the General Partner (exclusive
of the General Partner's interest in Borrower) determined in accordance with
GAAP is at least $6,600,000, (ii) the General Partner then has either cash of at
least $6,600,000 or the General Partner Note is in full force and effect in at
least such amount, (iii) the Environmental Insurance Policy is then in full
force and effect and complies with Section 4(g) of the Environmental Indemnity,
and (iv) Borrower does not then anticipate, or have reason to believe, that
Borrower will be required to pay or provide for any capital improvements to any
Inns that cannot be paid for from Net After
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Debt Service Cash Flow or from the Reserves, at the time payment is required
(collectively, the "Distribution Conditions").
-----------------------
Section 8.10 Issuance of Securities.
----------------------
The General Partner will not issue, transfer, sell or deliver any
Shares of the General Partner or other instruments convertible into or
exchangeable for the Shares of the General Partner.
Section 8.11 Other Activities.
----------------
Neither the Borrower nor the General Partner will enter into any
transaction (including, without limitation, the establishment of or the
undertaking of any obligations to make contributions to any Pension Plan) with
any Person pursuant to which it will undertake any material obligations or
liabilities, other than in the ordinary course of business in connection with
the ownership of the Inns, except as contemplated by the Related Documents or as
approved in writing by the Lender.
Section 8.12 Creation of Liens.
-----------------
Neither the Borrower nor the General Partner will create, incur,
assume or suffer to exist any Lien upon any of their respective properties,
assets or revenues, whether now owned or hereafter acquired, except (i) Liens
for taxes not yet due and payable, (ii) Liens that are being contested in good
faith by appropriate proceedings, provided that adequate reserves with respect
thereto are maintained on their respective books in accordance with GAAP and
further provided that within 30 days after notice from the Lender, the Borrower
will furnish or cause to be furnished to the Lender cash, surety company bond or
other security reasonably satisfactory to the Lender, sufficient to cover the
amount being contested, securing the payment of such contested amount and all
items of interest, penalties and costs in connection therewith when finally
determined, (iii) other Liens created pursuant to or permitted by the terms of
the Loan Documents, and (iv) mechanics' and other statutory Liens, provided that
all such Liens shall be discharged of record or bonded over within 30 days after
the Borrower receives notice thereof.
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Section 8.13 Transfers by the General Partner.
--------------------------------
The General Partner will not (a) consolidate with or merge into any
other Person or (b) sell, assign, lease or otherwise transfer (whether in one
transaction or in a series of transactions) any of its assets (whether now owned
or hereafter acquired and including, without limitation, its interests in the
Borrower) to any Person, other than (i) as permitted by the Loan Documents
unless the Lender gives its prior written consent thereto, or (ii) in
transactions involving only a Person that is wholly owned, directly or
indirectly, by Host and that is and will remain a Subsidiary of Host.
Section 8.14 Hazardous Substances.
--------------------
The Borrower will not bring any Hazardous Substances onto any of the
Sites, or permit any other Person to do so, except for materials (i) that are in
quantities permitted by all Requirements of Law and (ii) that are stored, used
and disposed of in accordance with all Requirements of Law.
Section 8.15 Restrictions on Action Under Management Agreement.
-------------------------------------------------
Without the prior written consent of Lender, which may be withheld in
Lender's sole and absolute discretion, Borrower shall not agree to any of the
following pursuant to the Management Agreement:
(a) An increase in the contributions to the Repairs and Equipment
Reserve (as defined in the Management Agreement) in excess of the amount set
forth in Section 7.02(B) of the Management Agreement or the expenditure of any
amounts pursuant to Section 7.02(E) of the Management Agreement.
(b) The expenditure of any amounts in excess of the Repairs and
Equipment Reserve pursuant to Section 7.02(C) of the Management Agreement.
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(c) Allowing any amount to be provided for in the Building Estimate
(as defined in the Management Agreement) or allowing any expenditures for the
Building Estimate.
(d) The expenditure of any amounts pursuant to the Management
Agreement, other than as set forth in subparagraphs 8.15(a)-(c) above, in excess
of the amounts that Manager is permitted to spend without the consent of
Borrower pursuant to the Management Agreement.
SECTION 9
EVENTS OF DEFAULT
Section 9.1 Events of Default.
-----------------
The occurrence of any of the following events shall be an "Event of
Default" hereunder unless waived by the Lender pursuant to Section 11.1 hereof:
(a) The Borrower fails to pay (i) any principal or interest
(including, without limitation, default interest) due hereunder in respect of
the Loans within one Business Day following the due date of such amount, or (ii)
any other amount due pursuant to this Agreement or any of the other Loan
Documents within five days after the due date; or
(b) Any representation or warranty made by the Borrower pursuant to
this Agreement, any representation or warranty made or deemed made in connection
with information provided by the Borrower pursuant to Section 7.1 hereof, or any
other representation or warranty made or deemed made by the Borrower in any of
the Loan Documents or in any certificate, document, financial or other written
statement furnished to the Lender at any time under or pursuant to the terms of
any Loan Document, shall prove to have been false or incorrect in any material
respect when made or deemed made, and in any of the foregoing circumstances the
breach of such representation or warranty has a Material Adverse Effect; or
(c)(i) An Event of Default (as defined in the relevant agreement)
shall occur and be continuing under any of the Loan
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Documents, or if no cure period is specified for any of the Borrower's
obligations under any of the Loan Documents (but exclusive of any obligations
for which no notice or cure is available), a breach or default by Borrower shall
occur as to such obligation under any of such Loan Documents which remains
uncured for thirty (30) days after written notice thereof from Lender to
Borrower, provided that if same cannot be cured within thirty (30) days despite
diligent and continuous efforts to cure, such thirty (30) day period shall be
extended to a total period of ninety (90) days, provided that Borrower
diligently and continuously prosecutes such cure to completion; or (ii) the
Borrower or the General Partner shall fail to perform or observe any term,
covenant or agreement contained in Sections 7.3, 7.5, 7.6, 7.18, 7.19 or Section
8 of this Agreement; or (iii) the Borrower or the General Partner shall fail to
perform or observe any term, covenant or agreement contained in Sections 7.1,
7.2, 7.4, 7.7, 7.8, 7.11, 7.13, 7.14 or 7.15 of this Agreement or any other
provision of this Agreement within thirty (30) days after obtaining knowledge
thereof; (iv) the insurance required to be maintained pursuant to Section 7.9 of
this Agreement shall not be maintained; (v) the Manager shall cease to be
manager of the Inns unless Lender has otherwise agreed to such change in
writing; or (vi) the Borrower or the General Partner shall fail to perform or
observe the provisions of Section 7.17 hereof and such failure shall continue
for five (5) days after written notice from Lender, provided that Lender shall
be required to give only one such notice during any 12 month period, and
thereafter, such failure shall constitute an Event of Default without notice; or
(d) Any provision affecting the obligation to make payments under this
Agreement shall at any time for any reason cease to be valid and binding on the
Borrower or shall be declared to be null and void without the necessity of
election by the Borrower, or the validity or enforceability of any material
provision of any of the Loan Documents shall be contested by the Borrower or any
Governmental Authority or the Borrower shall deny that it has any further
liability or obligation under any of the Loan Documents; or
(e) Any monetary default shall occur with respect to any Indebtedness
for borrowed money of the Borrower, which shall
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not have been cured within the period of grace, if any, provided in the
instrument or agreement under which such Indebtedness was created, or if any
non-monetary default shall occur with respect to any such Indebtedness and the
maturity of such Indebtedness shall be accelerated by reason of such non-
monetary default, unless the Borrower shall have satisfied, or caused to be
satisfied, all of its obligations with respect thereto; or
(f) If at any time there shall be rendered by courts or Governmental
Authorities any judgment against the Borrower that has been entered and is
immediately enforceable (all rights to appeal having been exhausted or having
expired) involving an amount in excess of $100,000, and that has not been (i)
satisfied within thirty (30) days after the judgment in question is immediately
enforceable, if the judgment is for $1,000,000 or less (or fifteen (15) days if
the amount is in excess of $1,000,000), or (ii) covered in full by insurance
satisfactory to Lender (except that such insurance may exclude from coverage
reasonable deductibles which Borrower pays in full within fifteen (15) days
after the judgment in question is immediately enforceable);
(g) The Borrower or the General Partner shall:
(i) Make a general assignment for the benefit of creditors; or
(ii) File a petition in bankruptcy, petition or apply to any
tribunal or applicable Governmental Authority for the appointment of a
custodian, receiver, conservator, trustee or other official with similar
powers for it or a substantial part of its property or assets, or commence
any case or proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution or liquidation or similar law or statute
of any jurisdiction, whether now or hereafter in effect; or
(iii) Indicate its consent to, approval of or acquiescence in
any such petition or application filed against it, any case or proceeding
commenced against it or any order for relief or the appointment of a
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custodian, receiver, conservator, trustee or other official with similar
powers or regulatory authority for it or any substantial part of any of its
properties or assets; or suffer to exist any such case or proceeding in
which an order for relief is entered; or suffer to exist any such case or
proceeding, or any such custodianship, receivership, conservatorship,
trusteeship or jurisdiction of such other official or regulatory authority,
undischarged for a period of 60 days or more; or
(iv) Generally fail to pay or be unable to pay its debts as such
debts become due; or
(v) Have concealed, removed, or permitted to be concealed or
removed, any part of its property, with intent to hinder, delay or defraud
its creditors or any of then, or have made or suffered a transfer of any of
its property which is fraudulent under any bankruptcy, fraudulent
conveyance or similar law, or have suffered or permitted, while insolvent,
any creditor to obtain a Lien upon any of its property through legal
proceedings or distraint which is not vacated within 30 days from the date
such Lien is created; or
(vi) Take any appropriate corporate or partnership action to
authorize any of the foregoing; or
(h) Any authorization or approval of any Governmental Authority or
otherwise, or any consent or waiver under any resolution, indenture or loan or
credit agreement or any other agreement or instrument to which the Borrower is a
party or by which the Borrower or any of its properties may be bound or affected
which authorization, approval, consent or waiver is necessary to enable the
Borrower to comply with its obligations to pay any amounts due or perform any
other material obligations under any of the Loan Documents, is revoked,
rescinded, withdrawn, withheld or otherwise ceases to be in full force and
effect; or
(i) The General Partner shall at any time or for any reason
whatsoever fail to perform any of its material obligations
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under the Partnership Agreement or shall take an action which would cause it to
be in breach of any material provision thereof which has or will have a material
adverse effect on the Lender's interests as a secured party entitled to the
security interests and to receive payments as contemplated by the Related
Documents; or
(j) The General Partner shall terminate, dissolve, or enter into a
consent to any amendment, modification, waiver or supplement of any provision of
the Partnership Agreement, other than in accordance with Section 8.7(b), without
the prior written consent of the Lender, which consent shall not be unreasonably
withheld, conditioned or delayed; or
(k) The Management Agreement is terminated, amended or modified, or
the provisions of it are waived, in any respect without the prior written
consent of the Lender, which consent may be withheld in the Lender's sole
discretion;
(l) Any Event of Default under and as defined in the Subordinate Loan
Documents shall occur and be continuing; or
(m) Any sale, transfer or conveyance of any of the Inns or any
interest therein or part thereof other than in accordance with Sections 2.12 or
8.1.
(n) Any of the statements contained in the Borrower's Certificate or
the Manager's Certificate shall not be true, correct and complete in all
material respects when made and same has a Material Adverse Effect.
(o) If the General Partner shall cease to be wholly owned (directly or
indirectly) by Host.
SECTION 10
CONSEQUENCES OF DEFAULT
Section 10.1 Remedies.
--------
(a) If an Event of Default shall occur and be continuing the Lender
shall have the right, at its sole option, by
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written notice to the Borrower to declare all amounts owing under this Agreement
and each of the Loan Documents to which the Lender is a party to be immediately
due and payable and such amounts shall thereupon become due and payable without
presentment, demand, protest or notice of any kind, other than the notice
specifically required by this Section 10.1(a), all of which are hereby expressly
waived by the Borrower. Notwithstanding any provision to the contrary in any of
the Loan Documents, upon the occurrence of an Event of Default and an
acceleration of the Loans as described in the preceding sentence, Borrower shall
have no right to cure any Event of Default and no right to otherwise reinstate
the Loans.
(b) If an Event of Default shall occur and be continuing, in addition
to the rights of the Lender pursuant to Section 10.1(a) hereof, the Lender may,
subject to the provisions of Section 11.6 hereof, pursue such rights and
remedies against the Borrower or otherwise as are provided under and pursuant to
this Agreement and the Related Documents and as may be available to the Lender
at law or in equity. No waiver of any Event of Default shall constitute a
waiver of any other or any succeeding Event of Default except to the extent
provided in such waiver.
(c) If the Borrower defaults in the payment of any tax, assessment,
encumbrance or other imposition or in its obligation to furnish insurance
hereunder or in the performance or observance of any other covenant, condition
or term in this Agreement, the Lender may, at its option, without waiving or
affecting any of its rights hereunder, after three (3) days prior notice to
Borrower, except in the case of an emergency, in which case no notice shall be
required, perform or observe the same, and all payments made or costs or
expenses incurred by the Lender in connection therewith shall be repaid by the
Borrower to the Lender upon demand therefor, with interest thereon at the rate
of interest provided for in Section 2.9 hereof in the case of a default.
Nothing contained herein shall be construed as requiring the Mortgagee to
advance or expend monies for any purposes mentioned in this subparagraph. The
Lender is hereby empowered to enter and to authorize others to enter upon any
Site and all improvements located on any Site for the purpose of performing or
observing any such defaulted covenant, condition or term, without thereby
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becoming liable to the Borrower or any Person in possession holding under the
Borrower.
(d) If an Event of Default occurs and the Lender accelerates the Loans
as a result of any such Event of Default, the Lender shall be entitled to
collect all amounts that the Borrower would be required to pay to the Lender in
the case of a prepayment under Section 2.5 of this Agreement.
Section 10.2 No Estoppel.
-----------
Notwithstanding that the Lender is familiar with the terms of the
Management Agreement and has agreed to make the Loans after having reviewed the
Management Agreement, no provision thereof shall in any manner estop or
otherwise preclude the Lender from the full exercise of its rights and remedies
hereunder upon the happening of a Default or an Event of Default hereunder,
including, without limitation, a Default or an Event of Default that is
occasioned by the Borrower taking action or failing to act as required or
permitted by the Management Agreement.
SECTION 11
MISCELLANEOUS
Section 11.1 Amendments.
----------
No amendment or waiver of any provision of this Agreement and no
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
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
Section 11.2 Notices.
-------
Any notice and other communication required or permitted hereunder
shall be in writing and shall be personally delivered, sent by a nationally
recognized overnight delivery service, sent by facsimile transmission or sent by
certified, registered mail, postage prepaid to the addresses set forth below:
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If to the Borrower, to:
Marriott Residence Inn Limited Partnership
c/o RIBM One Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Telecopy No. (301) 530-2855
Attention: Law Department 72-924.11
If to the Lender, to:
German American Capital Corporation
c/o Deutsche Morgan Grenfell
31 West 52nd Street
3rd Floor
New York, New York 10019
Telecopy No. (212) 469-6933
Attention: Joseph G. Kiely, Director
with a copy to:
Weil, Gotshal & Manges
1615 L Street, N.W.
Suite 700
Washington, D.C. 20036
Telecopy No. (202) 857-0939
Attention: W. Michael Bond, Esq.
All notices and other communications shall be deemed to have been duly given, on
(i) the date of delivery if delivered personally, (ii) the date of receipt if
sent by facsimile transmission, or (iii) the date of receipt if sent by mail or
by a nationally recognized overnight delivery service, whichever shall first
occur. Any Person may by notice given in accordance with this Section 11.2 to
each of the other Persons listed above designate another address for receipt of
notices and other communications hereunder.
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Section 11.3 No Waiver.
---------
No failure on the part of the Lender to exercise, and no delay in
exercising, any right hereunder or single or partial exercise thereof or the
exercise by the Lender of any other rights, shall operate as a waiver of any
right hereunder. The remedies herein provided are cumulative and not exclusive
of any remedies provided by law.
Section 11.4 Continuing Obligation, Assignments and Participation.
----------------------------------------------------
This Agreement is a continuing obligation and shall (i) be binding
upon the Borrower, the General Partner, the Lender and their respective
successors and transferees and permitted assigns and (ii) inure to the benefit
of and be enforceable by the Borrower, the General Partner, the Lender and their
respective successors and transferees and assigns; provided, however, that the
Borrower and the General Partner may not (by operation of law or otherwise)
sell, transfer or assign any of their rights or delegate or transfer any of
their obligations under this Agreement without the prior written consent of the
Lender. The Lender may (i) sell, transfer or assign the Loans or any of
Lender's rights with respect to the Loans without notice to or the requirement
of any consent by Borrower or any other party, or (ii) grant participations in
Lender's rights and obligations under this Agreement and the Loan Documents
without the consent of the Borrower; provided, however, that the Borrower shall
have no obligation to pay any indemnity pursuant to Section 3.1(b) or 3.1(c)
hereof for the account of a holder of a participation in excess of the lesser of
(x) the amount actually incurred by the participant or (y) the comparable
indemnity (if any) that the Borrower would have had to pay to the Lender in
respect of the participated amount had the Lender not sold such participation
and shall not incur liability under the indemnity in an aggregate amount greater
than the liability that would have been incurred had Lender not sold
participations in the Loans. Lender will endeavor to provide Borrower with
notice of any sale of all of Lender's interest in the Loans (but Lender shall
have no obligation to provide Borrower with notice of the sale of any
participation, undivided interest or other interest in the Loans),
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but in any event Borrower shall be protected in dealing with Lender until
Borrower receives notice of any sale of all of Lender's interest in the Loans.
The Borrower hereby consents to Lender's sale, participation, assignment,
transfer or other disposition, at any time or times, of the Loans, this
Agreement, any of the Loan Documents or of any portion thereof or interest
therein, including, without limitation, Lender's rights, title, interests,
remedies, powers or duties hereunder or thereunder. Borrower acknowledges and
agrees that Lender may sell participations or undivided interests in the Loans
or may transfer the Loans to one or more trusts and sell participations or
undivided interests in the trust(s). Borrower shall cooperate with Lender in all
reasonable respects in Lender's marketing efforts including, without limitation,
making the Sites and Inns available for inspection, making Manager available,
issuing estoppel certificates as reasonably requested, assisting in the
preparation of appropriate disclosure documents or placement memoranda, and
amending the Loan Documents as reasonably required by any direct or indirect
transferee of the Loans, provided that such amendments impose no undue
incremental obligations or limitations on Borrower.
Section 11.5 Indemnification.
---------------
The Borrower shall indemnify the Lender for and hold the Lender
harmless from and against any and all claims, damages, losses, liabilities,
reasonable costs and expenses of any kind whatsoever which the Lender may incur
(or which may be claimed against the Lender by any Person whatsoever) by reason
of, or in connection with the execution and delivery of this Agreement or the
performance of the Lender's obligations under the Loan Documents; provided,
however, the Borrower shall have no obligation to indemnify the Lender for any
such claims, damages, losses, liabilities, costs or expenses arising by reason
of the gross negligence or willful misconduct of the Lender or arising pursuant
to any agreements (including the organizational documents of Lender) to which
Lender is a party that are unrelated to the Loans or the Inns.
Section 11.6 Limitation of Liability.
-----------------------
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Notwithstanding any contrary provision in any of the Loan Documents,
it is hereby expressly agreed that, except as otherwise provided in this Section
or any section of any of the other Loan Documents entitled "Limitation of
Liability," neither the Borrower nor the General Partner shall have any personal
liability for (i) the payment of any amount due to the Lender by the Borrower
under this Agreement or any of the other Loan Documents, including, but not
limited to, the repayment of the Debt, or (ii) the performance or discharge of
any covenant or undertaking hereunder or under the other Loan Documents, and in
the event of any Event of Default hereunder or thereunder, the Lender shall
proceed solely against the Collateral and Security, and the Lender shall not
seek or claim recourse against the Borrower and the General Partner for any
deficiency or any personal judgment after a foreclosure of the lien of any of
the Security Documents or other Loan Documents or for the performance or
discharge of any covenants or undertakings of the Borrower hereunder or under
any other Loan Documents. Notwithstanding the foregoing, nothing contained in
this Section shall relieve the Borrower or the General Partner of any personal
liability for any loss, cost, expense, damage or liability arising or resulting
from (A) any breach of any representation or warranty made in this Agreement
that was materially incorrect when made and such fact was known to Borrower on
the Closing Date, (B) any amount paid or distributed to the Manager or Host or
any Affiliate of either of them or to any partner of the Borrower in violation
of the provisions of the Related Documents, (C) any breach of Sections 3.1(b),
(c) and (f) or 11.5 hereof if the basis of such loss, cost, expense, damage or
liability is asserted after the repayment of the Loans and the release by the
Lender of the security interests granted to the Lender in connection with the
Loans and Lender did not have actual knowledge of the basis of such loss, cost,
expense, damage or liability at the time of repayment of the Loans, (D) fraud or
breach of trust, including but not limited to misapplication of loan proceeds or
any insurance proceeds or condemnation awards or other sums that are part of the
Collateral and Security that may come into the possession or control of the
Borrower or the General Partner or any Affiliate of either of them, (E) the
failure by the Borrower or the General Partner to apply the Rents, Revenues and
Other Collateral derived from the Collateral and Security in accordance with the
terms of the Loan
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Documents, (F) the collection of Rents, Revenues and Other Collateral by the
Borrower or the General Partner after an Event of Default in violation of the
Loan Documents, (G) any mechanic's, materialmen's or other liens against the
Collateral and Security, unless bonded over in a manner acceptable to Lender,
(H) the failure of the Borrower or the General Partner to pay any taxes and
assessments on the Collateral and Security when due, (I) the failure of the
Borrower or the General Partner to maintain insurance on the Collateral and
Security and pay insurance premiums when due as required by the Mortgages, (J)
any payments made by the Borrower or the General Partner to Manager or
Borrower's Affiliates after an Event of Default (other than amounts required to
be paid pursuant to the Management Agreement), (K) Borrower's relocating its
principal place of business outside of Montgomery County, Maryland without
having complied with Section 8.2 hereof, (L) any tort claims that Lender may
have against Borrower or General Partner, (M) any Event of Default under Section
9.1(m) of this Agreement, (N) waste or failure to maintain the Collateral and
Security in accordance with the Loan Documents, (O) misappropriation of tenant
or other deposits, (P) violation of Sections 3.1(g), 8.6 or 8.7(a) or (b) of
this Agreement, (Q) violation of Sections 2.27 or 2.28 of any of the Mortgages,
(R) any breach of Borrower's or General Partner's obligations under the
Environmental Indemnity, or (S) any reduction of the principal balance of the
Promissory Notes as a result of the confirmation of a plan of reorganization or
sale of any of the Collateral and Security pursuant to Section 363 of the U.S.
Bankruptcy Code in any bankruptcy proceeding with respect to Borrower. Nothing
contained in this Section shall (i) prevent the Lender from exercising any
rights or remedies against the Collateral and Security or any property
encumbered by any of the Loan Documents or from joining the Borrower or General
Partner in any action whereby Lender seeks to pursue Lender's rights with
respect to the Collateral and Security or other collateral for the Promissory
Notes, provided that no personal liability or deficiency judgment is sought as
to Borrower or General Partner, or (ii) be deemed to be a release or impairment
of the Debt evidenced by the Promissory Notes or any security interest in favor
of the Lender encumbering any of the Collateral and Security, or any property
encumbered by any of the Related Mortgages. It is hereby expressly agreed that
neither any limited
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partner of the Borrower nor any director, officer, shareholder, partner or
employee of the Borrower nor the legal or personal representative, successor or
assign of any of the foregoing, nor any other principal of the Borrower or any
partner of the Borrower, whether disclosed or undisclosed, shall have any
personal liability under this Agreement or any of the other Loan Documents,
except as personal liability may be specifically imposed upon the General
Partner in accordance with this Section and similar sections in the other Loan
Documents. It is the intention of the parties hereto that this Section shall
govern every other provision of the Loan Documents and that the absence of
explicit reference to this Section in any provision of the Loan Documents shall
not be construed to deny the application of this Section to such provision,
notwithstanding the presence of explicit reference to this Section in other
provisions of the Loan Documents.
Section 11.7 Application of Proceeds.
-----------------------
(a) Unless an Event of Default shall occur and be continuing, all
payments received by the Lender under this Agreement (other than payments
pursuant to Sections 2.5 and 2.12 which shall be applied in accordance with such
sections), the Promissory Notes or the Related Documents shall be applied by the
Lender to the obligations of the Borrower under this Agreement in the following
order of priority:
(i) First to interest at the Default Rate due on amounts payable
under this Agreement, if any;
(ii) Then to amounts payable pursuant to Section 3.1(d) hereof
and any other reasonable expenses of counsel or other professional advisors
of Lender and out-of-pocket expenses of Lender and costs payable pursuant
to the terms of this Agreement;
(iii) Then to the payment or reimbursement of amounts payable
pursuant to Sections 3.1(b), (c), (f) and (g) hereof;
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(iv) Then to the payment of accrued but unpaid interest on the
Loans;
(v) Then to the payment of principal due on the Loans, in
inverse order of maturity;
(b) Upon the occurrence and during the continuation of an Event of
Default, all payments received by the Lender under this Agreement or the Related
Documents shall be applied by the Lender to the obligations of the Borrower
under this Agreement in the following order of priority (references are to the
clauses contained in Section 11.7(a) hereof): first under clause (ii), then
under clause (i), then under clause (iii), then under clause (iv), and then
under clause (v).
Section 11.8 Counterparts.
------------
This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed shall constitute an original but
all such counterparts, when taken together, shall constitute one and the same
instrument.
Section 11.9 Entire Agreement.
----------------
This Agreement and the other Related Documents and the other
agreements and instruments delivered in connection herewith and therewith
contain the entire agreement between the parties concerning the subject matter
hereof and thereof and supersede all prior agreements, arrangements and
understandings relating to the subject matter hereof and thereof.
Section 11.10 Governing Law.
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to agreements made and to be
performed entirely within such State.
Section 11.11 Submission to Jurisdiction.
--------------------------
(a) Except as set forth in the last sentence of this subparagraph, the
Borrower and the Lender each hereby irrevocably
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consent that any suit, legal action or proceeding against it or any of its
property with respect to any of the rights or obligations arising directly or
indirectly under or relating to the Related Documents to which it is a party,
subject to the limitations contained in Section 11.6 hereof, may be brought in
any New York State or United States Federal court located in the Borough of
Manhattan, City and State of New York, as the Lender may elect, and by execution
and delivery of the Related Documents to which it is a party the Borrower and
the Lender each hereby irrevocably submits to and accepts with regard to any
such suit, legal action or proceeding, for itself and in respect of its
property, generally and unconditionally, the jurisdiction of the aforesaid
courts. The Borrower hereby irrevocably designates, appoints and empowers
Prentice Hall Corporation System, Inc. as its agent to receive for and on its
behalf service of process in New York in any suit, legal action or proceeding
with respect to the Related Documents to which it is a party. A copy of any such
process served on such agent shall be promptly forwarded by airmail by the
Person commencing such suit, legal action or proceeding to the Borrower at its
address set forth in Section 11.2 hereof, but the failure of the agent to send,
or of the Borrower to receive, such copy shall not affect in any way the
validity or sufficiency of the service of process by service upon such agent.
The Borrower and the Lender each further irrevocably consents to the service of
process in any such suit, legal action or proceeding by the mailing of copies
thereof by registered or certified airmail, postage prepaid, return receipt
requested, to the Borrower and the Lender at their respective addresses set
forth in Section 11.2 hereof (as changed by notice from time to time as provided
therein). The foregoing shall not limit the right of the Lender or the Borrower
to serve process in any other manner permitted by law or, subject to the
limitations contained in Section 11.6 hereof, to bring any suit, legal action or
proceeding or to obtain execution of judgment in any other jurisdiction,
including, without limitation, Delaware and the other jurisdictions in which the
Sites are located, it being the intention of the parties that any action or
proceeding to foreclose any of the Mortgages may be brought in the jurisdiction
in which the Site encumbered by such Mortgage is located.
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(b) The Borrower and Lender each hereby irrevocably waives any
objection which they may now or hereafter have to the laying of venue of any
suit, legal action or proceeding arising directly or indirectly under or
relating to the Related Documents to which it is a party, subject to the
limitations contained in Section 11.6 hereof, in any court located in the
Borough of Manhattan, City and State of New York and hereby further irrevocably
waives any claim that a court located in the Borough of Manhattan, City and
State of New York is not a convenient forum for any such suit, legal action or
proceeding.
(c) The Borrower hereby irrevocably waives any right it may have under
the laws of any jurisdiction to commence by publication any suit, legal action
or proceeding with respect to the Related Documents to which it is a party.
(d) The Borrower hereby irrevocably agrees that any suit, legal action
or proceeding commenced by it with respect to any rights or obligations arising
directly or indirectly under or relating to the Related Documents to which it is
a party shall be brought exclusively in any New York State or United States
Federal court located in the Borough of Manhattan, City and State of New York
unless no such court has jurisdiction over the action which Borrower seeks to
bring.
Section 11.12 Waiver of Immunity.
------------------
To the extent that the Lender may have or may hereafter become
entitled to or have attributed to it any right of sovereign immunity from any
legal action, suit or proceeding or from execution of judgment, or other legal
process or proceeding for the giving of any relief or for the enforcement of any
judgment, in the forum specified in Section 11.11(b), with respect to its
obligations, liabilities or any other matter under or arising out of or in
connection with this Agreement, to the extent it may lawfully do so, the Lender
hereby irrevocably and unconditionally waives, and agrees not to plead or claim,
any such sovereign immunity.
Section 11.13 Confidentiality.
---------------
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Except as otherwise set forth in this section, Borrower and the
General Partner will supply the information required pursuant to Section 7.1
hereof solely for the use of the Lender and the Lender agrees to keep the
information received pursuant to Section 7.1 hereof confidential and shall not
supply such information or any part thereof to any person not employed or
affiliated with the Lender or the Lender's attorneys, accountants or other
agents; provided, however, that the Lender may supply the information provided
pursuant to Section 7.1 hereof to any Person which has purchased or is
considering purchasing the Loans, any of Lender's rights with respect to the
Loans or a participation in the Loans. Notwithstanding anything to the contrary
set forth herein, the confidentiality obligations referred to in this Section
11.13 shall not apply to (i) information publicly known through no wrongful act
of the Lender or (ii) information required to be disclosed by applicable law,
regulation or judicial or regulatory process. Notwithstanding the foregoing,
Lender may disclose any information as determined by Lender in connection with
the marketing or sale of the Loans or any interest therein, including without
limitation, as described in Section 11.4, provided that Lender shall inform the
recipient of such information that this Agreement contains a confidentiality
provision and that the information provided is intended to be confidential.
Section 11.14 Headings and Interpretation.
---------------------------
Section headings in this Agreement are included herein for convenience
of reference only and shall not constitute a part of this Agreement for any
other purpose. In this Agreement, unless the context otherwise requires, the
terms "hereby," "hereof," "hereto," "herein," "hereunder," and any similar terms
refer to this Agreement as an entirety and not solely to the particular portion
in which such word is used.
Section 11.15 Severability.
------------
If any provision hereof is invalid and unenforceable in any
jurisdiction, then, to the fullest extent permitted by law, (i) the other
provisions hereof shall remain in full force and effect in such jurisdiction and
shall be construed in order to
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carry out the intentions of the parties hereto, including, without limitation,
Section 11.6 hereof to the fullest extent permitted by law; and (ii) the
invalidity or unenforceability of any provision hereof in any jurisdiction shall
not affect the validity or enforceability of such provision in any other
jurisdiction.
Section 11.16 Intentionally Deleted.
---------------------
Section 11.17 No Agency, Partnership or Joint Venture.
---------------------------------------
(a) The Lender is not the agent or representative of the Borrower,
and the Borrower is not the agent or representative of the Lender.
(b) The Borrower and the Lender intend and agree that the
relationship between them shall be solely that of creditor and debtor. Nothing
herein nor the acts of the parties hereto shall be construed to create a
partnership or joint venture between the Borrower and the Lender.
Section 11.18 Damage Lawsuit. The sole and exclusive remedy of the
--------------
Borrower for any and all adverse claims against Lender is an action seeking
monetary damages. Any such action, regardless of the procedural form in which
it is alleged, will be severed from any enforcement by Lender of its legal,
equitable and contractual rights, and no suit can be asserted by Borrower as a
defense, set-off, recoupment, or grounds for delay, stay, subordination or
injunction against any enforcement by Lender of its legal, equitable and
contractual rights under the Loans, the Loan Documents or otherwise.
Section 11.19 Waiver of Trial by Jury. Borrower and Lender hereby
-----------------------
knowingly, voluntarily, and intentionally waive the right to a trial by jury in
respect of any litigation based hereon, arising out or, under or in connection
with this Agreement or any other Related Documents contemplated to be executed
in conjunction herewith, or any course of conduct, course of dealings,
statements (whether verbal or written) or actions of either party or any
exercise by any party of their respective rights under the Related Documents or
in any way relating to the Loans (including, without limitation, any action to
rescind or
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cancel this Agreement, and any claims or defenses asserting that this
Agreement was fraudulently induced or is otherwise void or voidable); this
waiver being a material inducement for Lender to accept this Agreement.
Section 11.20 Late Charge. In the event that Borrower fails to make
-----------
any payment of money due to Lender under this Agreement within five (5) days
after receipt of written notice from Lender that such amount is past due after
any notice or cure period, if any, Lender shall be entitled to collect a late
charge as liquidated damages, which late charge shall be due in addition to any
interest, whether or not calculated at the Default Rate, in connection with each
such delinquency in payment. Because the actual damages suffered by Lender
would be impracticable or extremely difficult or impossible to determine, in
compensation for such delinquent payment, Borrower agrees that three percent
(3%) of the amount of the delinquent payment due and owing shall be the amount
of damages to which Lender is entitled upon the first such breach during any
twelve (12) month period and that five percent (5%) of the amount of the
delinquent payment due and owing shall be the amount of damages to which Lender
is entitled for the second and any subsequent such breach during any twelve (12)
month period. Borrower shall, in any such event, pay to Lender the late charge
in such amount for each such installment for which payment is not received by
Lender on or before the date any such payment is due, Lender and Borrower
agreeing that the amount of such liquidated damages is reasonable. The
provisions of this paragraph are intended to govern only the determination of
the above-described damages in the event of a failure in the performance of the
obligation of Borrower to make timely payments hereunder or under any of the
other Loan Documents. Nothing in this Agreement shall be construed as an
express or implied agreement by Lender to forbear in the collection of any
delinquent payment after the occurrence of an Event of Default or shall be
construed as in any way giving Borrower the right, express or implied, to fail
to make timely payments hereunder, whether upon payment of such damages or
otherwise. Notwithstanding anything to the contrary contained herein, the right
of Lender to receive payments of such liquidated damages is without prejudice to
the right of Lender to collect any delinquent payments and any other amounts
required to be paid hereunder or under any of the other
86
<PAGE>
Loan Documents or to declare a default and to exercise any rights and remedies
hereunder or under any of the other Loan Documents, or otherwise provided by law
or in equity.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
87
<PAGE>
Section 11.21 Time. Time is of the essence with respect to all
----
obligations under this Agreement.
Section 11.22 No Fraud. Lender agrees that Lender will not assert
--------
that breach of any of the representations and warranties set forth in Section 6
hereof constitutes fraud unless Borrower had knowledge of the falsehood of such
representation or warranty on the Closing Date and Lender will not assert
liability for breach of any representation or warranty against any individual
officer, director or employee of Borrower in the absence of actual fraud by such
officer, director or employee.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
MARRIOTT RESIDENCE INN LIMITED
PARTNERSHIP, a Delaware limited partnership
By: RIBM One Corporation, General
Partner
By:
----------------------------------
Bruce D. Wardinski
Vice President
GERMAN AMERICAN CAPITAL CORPORATION, a Maryland
corporation, as agent or trustee for itself and others,
and its successors and assigns
By:
---------------------------------------
Joseph G. Kiely
Vice President
88
<PAGE>
By:
---------------------------------------
Charlene S. Chai
Authorized Signatory
89
<PAGE>
The General Partner is signing below to join in the representations and
warranties set forth in Section 6.1 and Exhibit C.
By: RIBM One Corporation, General
Partner
By:
---------------------------------
Bruce D. Wardinski
Vice President
90
<PAGE>
EXHIBIT A
Locations of the Inns
---------------------
<TABLE>
<CAPTION>
Original Applicable
-------- ----------
Principal Percentage
--------- ----------
Balance
-------
<S> <C> <C> <C>
A. Restricted Group of Inns
1. Costa Mesa, California $ 7,400,000 7.4%
----------------------
881 Baker Street
Costa Mesa, California 92626
2. La Jolla, California $17,600,000 17.6%
--------------------
8901 Gilman Drive
La Jolla, California 92037
3. Boulder, Colorado $ 7,800,000 7.8%
-----------------
3030 Center Green Drive
Boulder, Colorado 80301
4. Atlanta (Buckhead), Georgia $ 7,000,000 7.0%
---------------------------
2960 Piedmont Road, Northeast
Atlanta, Georgia 30305
5. Atlanta (Dunwoody), Georgia $ 6,400,000 6.4%
---------------------------
1901 Savoy Drive
Chamblee, Georgia 30341
6. Atlanta (Cumberland), Georgia $ 6,400,000 6.4%
-----------------------------
2771 Hargrove Road
Smyrna, Georgia 30080
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
B. Other Inns
1. Long Beach, California $ 9,700,000 9.7%
----------------------
4111 E. Willow Street
Long Beach, California 90815
2. Chicago (Lombard), Illinois $ 6,200,000 6.2%
---------------------------
2001 S. Highland Avenue
Lombard, Illinois 60148
3. Southfield, Michigan $ 6,100,000 6.1%
--------------------
26700 Central Park Boulevard
Southfield, Michigan 48076
4. St. Louis (Chesterfield), Missouri $ 4,200,000 4.2%
----------------------------------
15431 Conway
Chesterfield, Missouri 63017
5. St. Louis (Galleria), Missouri $ 8,400,000 8.4%
------------------------------
1100 McMorrow Avenue
St. Louis, Missouri 63117
6. Cincinnati, (North), Ohio $ 4,400,000 4.4%
-------------------------
11689 Chester Road
Cincinnati, Ohio 45246
7. Columbus (North), Ohio $ 3,000,000 3.0%
----------------------
6191 West Zumstein Drive
Columbus, Ohio 43229
8. Dayton (North), Ohio $ 2,300,000 2.3%
--------------------
7070 Poe Avenue
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C> <C>
Dayton, Ohio 45414
9. Dayton (South), Ohio $ 3,100,000 3.1%
--------------------
155 Prestige Place
Miamisburg, Ohio 45342
--------------- ----
$100,000,000.00 100%
</TABLE>
3
<PAGE>
EXHIBIT B
Schedule of Mortgages
---------------------
1. Deed of Trust and Security Agreement from the Borrower to Chicago Title
Insurance Company as trustee for the benefit of the Lender with respect to
the Inn located at 881 Baker Street, Costa Mesa, California.
2. Deed of Trust and Security Agreement from the Borrower to Chicago Title
Insurance Company as trustee for the benefit of the Lender with respect to
the Inn located at 8901 Gilman Drive, La Jolla, California.
3. Deed of Trust and Security Agreement from the Borrower to Chicago Title
Insurance Company as trustee for the benefit of the Lender with respect to
the Inn located at 4111 E. Willow Street, Long Beach, California.
4. Deed of Trust, Assignment of Rents, Security Agreement, Financing Statement
and Fixture Filing from the Borrower to the Public Trustee for the County
of Boulder for the benefit of the Lender with respect to the Inn located at
3030 Center Green Drive, Boulder, Colorado.
5. Deed to Secure Debt and Security Agreement from the Borrower to the Lender
with respect to the Inn located at 2960 Piedmont Road, Northeast, Atlanta,
Georgia.
6. Deed to Secure Debt and Security Agreement from the Borrower to the Lender
with respect to the Inn located at 1901 Savoy Drive, Chamblee, Georgia.
7. Deed to Secure Debt and Security Agreement from the Borrower to the Lender
with respect to the Inn located at 2771 Hargrove Road, Smyrna, Georgia.
8. Mortgage and Security Agreement from the Borrower to the Lender with
respect to the Inn located at 2001 S. Highland Avenue, Lombard, Illinois.
<PAGE>
9. Mortgage and Security Agreement from the Borrower to the Lender with
respect to the Inn located at 26700 Central Park Boulevard, Southfield,
Michigan.
10. Future Advance Deed of Trust from the Borrower to Michael R. Turley, solely
as trustee for the benefit of Lender with respect to the Inn located at
15431 Conway, Chesterfield, Missouri.
11. Future Advance Deed of Trust and Security Agreement from the Borrower to
Michael R. Turley, solely as trustee for the benefit of Lender with respect
to the Inn located at 1100 McMorrow Avenue, St. Louis, Missouri.
12. Open End Mortgage, Security Agreement and Fixture Financing Statement from
the Borrower to the Lender with respect to the Inn located at 11689 Chester
Road, Cincinnati, Ohio.
13. Open End Mortgage, Security Agreement and Fixture Financing Statement from
the Borrower to the Lender with respect to the Inn located at 6191 West
Zumstein Drive, Columbus, Ohio.
14. Open End Mortgage, Security Agreement and Fixture Financing Statement from
the Borrower to the Lender with respect to the Inn located at 7070 Poe
Avenue, Dayton, Ohio.
15. Open End Mortgage, Security Agreement and Fixture Financing Statement from
the Borrower to the Lender with respect to the Inn located at 155 Prestige
Place, Miamisburg, Ohio.
2
<PAGE>
EXHIBIT C
Representations And Warranties
------------------------------
Each of the Borrower and the General Partner represents and warrants
as follows:
1. The Borrower owns fee simple title to each of the Inns.
2. Each of the Borrower and the General Partner on behalf of the Borrower has
all requisite legal right, power and authority to execute, deliver and
perform the Related Documents to which the Borrower is a party and to
consummate the transactions to be consummated by the Borrower as
contemplated hereby and thereby. The execution, delivery and performance
by the Borrower of the Related Documents to which it is a party and the
consummation by the Borrower of the transactions as contemplated hereby and
thereby have been duly authorized by all necessary action on the part of
the Borrower. The execution, delivery and performance by the General
Partner on behalf of the Borrower of the Related Documents to which the
Borrower is a party and the consummation by the General Partner of the
transactions as contemplated hereby and thereby have been duly authorized
by all necessary action on behalf of the General Partner. All consents of
any other Person (including partners or creditors of the Borrower but
excluding the Lender), and all consents or authorizations of, or other acts
by or filings with any Governmental Authority, required to be obtained or
made by the Borrower or its Affiliates in connection with the execution,
delivery and performance of, and the validity, binding effect and
enforceability of the Borrower's obligations under, any of the Related
Documents to which it is a party have been obtained or made and are in full
force and effect. Upon recordation of the Mortgages and the Financing
Statements, the Lender will have a valid security interest in the Mortgaged
Property, as to the creation of which no consent is required from any party
<PAGE>
other than those which have been obtained and are in full force and effect.
3. The Related Documents to which the Borrower is a party have been duly
executed and delivered by the Borrower, and assuming due authorization,
execution and delivery by the other parties hereto and thereto, constitute
the legal, valid and binding obligation of the Borrower, enforceable
against it in accordance with the terms hereof and thereof, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (regardless
of whether enforcement is sought in a proceeding in equity or at law). The
Borrower has performed all of its material obligations that are currently
due to be performed under each of the Related Documents to which it is a
party.
4. The execution, delivery and performance by the Borrower of any Related
Document to which the Borrower is a party and the consummation of the
transactions contemplated hereby and thereby will not (i) in any material
respect conflict with or constitute on the part of the Borrower a breach of
or default under any agreement, indenture, lease or other instrument to
which the Borrower is a party or by or to which it or its revenues,
properties, assets or operations are bound or subject, or violate any
Requirements of Law; (ii) result in the creation or imposition of any Lien
upon any of the Borrower's revenues, properties or assets, other than as
specifically contemplated by the Related Documents; (iii) result in the
acceleration of any Indebtedness of the Borrower; or (iv) result in any
material adverse change in any agreement material to the operation of any
of the Inns.
5. The representations and warranties of the Borrower and the General Partner
contained in the Related Documents to which the Borrower or the General
Partner is a party are true and correct.
6. After consummation of the Loans, no mortgages affecting any Inn will be
outstanding or in effect with respect to any
2
<PAGE>
Inn, except for the Mortgages and the mortgages securing the Subordinate
Loan.
7. The proceeds of the Loans will be applied by the Borrower in accordance
with Section 2.2 hereof. No part of the proceeds of the sale of the Loans
will be used by the Borrower in violation of any Requirements of Law,
including, without limitation, Regulations G, T, U and X of the Board of
Governors of the Federal Reserve System.
8. After consummation of the Loans, no Financing Statement, except for liens
permitted by the Loan Documents or Subordinate Loan Documents, and except
those contemplated by the Loan Documents, will have been executed with
respect to any Personal Property owned by the Borrower in connection with
the operation and maintenance of each Inn, other than any of same
effectively released of record.
9. The Borrower owns free of all Liens all Personal Property necessary to
operate each Inn, except for the Liens imposed by the Financing Statements
and except for liens permitted by the Loan Documents.
10. The insurance listed in Exhibit D constitutes all of the insurance policies
in effect with respect to the Inns. Each of such policies, including
without limitation each policy delivered pursuant to Section 4.1(c) of the
Loan Agreement, is in full force and effect, with no outstanding notice of
default or of material unperformed work, and such policies substantially
fulfill the insurance requirements of the Mortgages and do not violate any
requirements thereof in any material respect.
11. Except for the Management Agreement, there is no management agreement
binding upon or affecting any of the Inns or the Borrower in respect of any
of the Inns.
3
<PAGE>
EXHIBIT D
---------
Section A - Third Party Insurance
---------------------------------
1. The Borrower shall carry insurance against claims for bodily
injury, death or property damage occurring on, in or about any of the Sites or
any improvements located on any of the Sites and the adjoining streets,
sidewalks, curbs and ways, including claims for property of guests (subject to
the Innkeepers' liability statute of the applicable state) under broad form
policies of commercial general liability insurance, with a combined single limit
in respect of bodily injury, death and property damage caused by any single
occurrence, of not less than $25,000,000, with a per occurrence deductible of
not more than $500,000. The Lender and its successors and assigns shall be
named as an additional insured under such policies. All primary insurance shall
be maintained with insurance companies having a Best's rating of A-8 or higher;
all excess liability insurance up to $5,000,000 shall be maintained with
insurance companies having a Best rating of A- (financial-size category
intentionally deleted); excess liability insurance in excess of $5,000,000 shall
be maintained with insurance companies having a Best rating of at least B+
(financial-size category intentionally deleted); and the coverage limits shall
be ten percent (10%) or less of each insurance company's regulatory surplus or,
if such coverage limits exceed ten percent (10%) of such insurance company's
regulatory surplus, shall be re-insured in a manner satisfactory to Lender.
2. The current policies in effect with respect to the insurance
described in Paragraph 1 of this Section A are:
<TABLE>
======================================================================
<S> <C> <C>
(a) Insurer: Fidelity & Casualty Company of New York
Policy Number: SRL 334 5432
Policy Period: October 1, 1995 to October 1, 1996
Limit: $1,900,000
Inn Deductible: $25,000 each occurrence
- ----------------------------------------------------------------------
</TABLE>
4
<PAGE>
<TABLE>
- ----------------------------------------------------------------------
<S> <C> <C>
(b) Insurer: Fidelity & Casualty Company of New York
Policy Number: SRU 334 5433
Policy Period: October 1, 1995 to October 1, 1996
Limit: $3,000,000 excess $2,000,000
- ----------------------------------------------------------------------
(c) Insurer: Royal Indemnity Company
Policy Number: RHA 201408
Policy Period: October 1, 1995 to October 1, 1996
Limit: $5,000,000 excess $5,000,000
- ----------------------------------------------------------------------
(d) Insurer: Westchester Fire Insurance Company
Policy Number: XLA 2606250
Policy Period: October 1, 1995 to October 1, 1996
Limit: $10,000 excess $10,000,000
- ----------------------------------------------------------------------
(e) Insurer: Agricultural Insurance Company
Policy Number: EXC 8727700
Policy Period: October 1, 1995 to October 1, 1996
Limit: $5,000,000 excess $20,000,000
======================================================================
</TABLE>
Section B
---------
1. The Borrower shall carry insurance concerning all of the Sites
and all improvements located on any Site, including, without limitation, all
Personal Property necessary to operate each Inn as required by the Loan
Documents, against loss or damage by fire and such other hazards as may be
included in the standard form of "all risk" building insurance from time to
time available, in amounts sufficient to prevent the Borrower and the Lender
from becoming co-insurers within the terms of the applicable policies, and, in
any event, in an amount not less than 100% of the then full insurable value of
such improvements (exclusive of the costs of foundations or excavations) and
all Personal Property, without deduction for depreciation, which policies shall
contain replacement cost and "agreed amounts" endorsements reasonably
satisfactory to the Lender. The insurance maintained under this Paragraph 1
shall name the Lender as mortgagee, shall bear a standard noncontributory first
mortgagee endorsement in favor of the Lender, substantially equivalent to the
New York standard mortgagee endorsement, and shall provide that all property
losses insured against shall be
5
<PAGE>
adjusted by the Borrower, subject, in the case of losses of $250,000 or more, to
the Lender's approval, and shall provide that all proceeds of such insurance for
claims of $500,000 or more shall be paid directly to the Lender (subject to
Borrower's rights to rebuild or restore as set forth in the Loan Documents). All
insurance shall be maintained with insurance companies having a Best's rating of
A-8 or higher and the coverage limits shall be ten percent (10%) or less of such
insurance company's regulatory surplus or if such coverage limits exceed ten
percent (10%) of such insurance company's regulatory surplus, shall be re-
insured in a manner satisfactory to Lender.
2. The Borrower shall carry insurance under a business interruption
insurance policy against loss of income arising out of damage or destruction by
fire and such other hazards as may be included in the "all risk" building
insurance carried under Paragraph 1 of this Section B in an amount equivalent to
not less than one year's interest payments on the Loan and the Subordinate Loan,
taxes and other Inn Operating Expenses that will not be reduced by reason of any
such damage or destruction. The insurance maintained under this Paragraph 2
shall name the Lender as an additional insured and shall provide that any
insurance proceeds thereof shall be paid directly to the Borrower.
3. If any Site is designated as flood prone or a flood risk area or
if flood insurance is required pursuant to the United States Flood Disaster
Protection Act of 1973, as amended or supplemented or under any subsequent law
then in effect, flood insurance with respect to such Site shall be maintained in
an amount not less than the maximum amount available under the Federal Flood
Insurance Program. Such insurance shall name the Lender as an additional
insured.
4. The current policy in effect with respect to the insurance
described in Paragraph 1 of this Section B is:
6
<PAGE>
<TABLE>
======================================================================
<S> <C>
Insurer: Allendale Mutual Insurance Company
Policy Number: LP077
Policy Period: January 1, 1995 - April 1, 1996
Limit: Full repair or replacement basis
Deductible: $25,000 each occurrence (California locations
have no earthquake coverage)
======================================================================
</TABLE>
Section C - General Provisions
------------------------------
1. The Borrower may effect the coverage required by this Exhibit D
under blanket insurance policies, provided that (x) the Borrower shall furnish
the Lender with certificates of insurance from the insurer under each such
policy specifying the amounts of the total insurance afforded by the blanket
policy allocated to the improvements and Personal Property located on any of the
Sites; (y) to the extent that at any time there are any sublimits in effect in
any blanket policy applicable individually to any specific Site, Borrower shall
provide to Lender, on request, evidence of such sublimits; and (z) any such
policy of blanket insurance shall comply in all respects with the other
provisions this Exhibit D.
2. All insurance maintained by the Borrower shall provide that:
(i) no cancellation, material change or reduction thereof shall
be effective until at least 30 days after receipt by the Lender
of written notice thereof; and
(ii) all losses shall be payable as provided in Section B-1
hereof notwithstanding any act or negligence of the Borrower or
its agents or employees that might, absent such agreement, result
in a forfeiture of all or part of such insurance payment and
notwithstanding (x) the occupation or use of any of the Sites or
any improvements located on any Site for purposes more hazardous
than permitted by the terms of such policy, (y) any foreclosure
or other action or
7
<PAGE>
proceeding taken pursuant to the provision of any mortgage or
collateral assignment of beneficial interest or (z) any change in
title or ownership of any of insured property.
3. Borrower will make available to Lender, and will cause Marriott
International, Inc. ("MII") to make available to Lender, at MII's corporate
---
offices, copies of all insurance policies required by this Agreement. In
addition, Borrower will furnish Lender copies of endorsements and other evidence
of coverage requested by Lender from time to time required under this Agreement
with respect to casualty insurance and business interruption insurance which
pertains to the Sites.
Section D - Self Insurance
--------------------------
Borrower may self insure (i) against losses of money or securities
caused by burglary or robbery, (ii) against physical damage to owned or leased
motor vehicles of Borrower (i.e., comprehensive and collision coverage), (iii)
----
the deductible referred to in Paragraph 1 of Section A above, and (iv) against
the losses and risks described in Section B above, provided (w) MII's long term
debt rating by Moodys Investors Services and Standard & Poor's is investment
grade or better, (x) the maximum level of such self-insurance shall not exceed
$500,000 per occurrence, (y) the maximum self-insured liability that may be
allocated to the Borrower or any Inn for such losses or damage may not exceed
$50,000 per occurrence or such other deductible amount as Lender reasonably
determines is necessary in order to obtain coverage at commercially reasonable
rates, and (z) Borrower shall cause MII to confirm to Lender, in a manner
reasonably satisfactory to Lender, that the difference between (A) the amount
that is actually allocated to the Borrower or any Inn, as described in clause
(y) and (B) the limit of self insurance described in clause (x) shall be paid by
MII pursuant to the self-insurance program maintained by MII for hotels managed
by MII or its affiliates. Costs of such self-insurance program for liability
insurance shall be allocated to each Inn based upon the proportion that the
Gross Revenues of such Inn bears to the Gross Revenues of all Inns covered by
the Residence Inn self-insurance program and costs of such self-insurance
8
<PAGE>
program for hazard insurance shall be allocated to each Inn based on the
underwriting classifications of Borrower's or Manager's insurers. The foregoing
description will not cause MII to be obligated to pay to Borrower any amounts
beyond those required pursuant to its Residence Inn self-insurance program.
Borrower will promptly notify Lender of any change in MII's Residence Inn self-
insurance program.
Section E - Additional Insurance
--------------------------------
In addition to the insurance required by this Exhibit D or any of the
---------
Loan Documents, Lender may also require Borrower to maintain such additional
insurance and in such amounts as may be (i) required by any Governmental
Authority, or (ii) reasonably necessary in the opinion of Lender to avoid a
Material Adverse Effect.
9
<PAGE>
EXHIBIT E
Periodic Financial Statement
----------------------------
<TABLE>
<CAPTION>
==================================================================================================================================
UNIT XX XXX FORMAT 90
- ----------------------------------------------------------------------------------------------------------------------------------
RI XXXX DIVISION 57 DISTRICT 213
- ----------------------------------------------------------------------------------------------------------------------------------
PD XX YR XX -----------------PERIOD----------------- -----------------Y E A R T O D A T E-------------------
- ----------------------------------------------------------------------------------------------------------------------------------
CENT CENT CENT CENT CENT CENT
SALES ACTUAL% BUDGET% LAST YEAR% ACTUAL% BUDGET% LAST YEAR%
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ROOMS
- ----------------------------------------------------------------------------------------------------------------------------------
TELEPHONE
- ----------------------------------------------------------------------------------------------------------------------------------
GUEST ANCILLARY
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL SALES
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
ROOMS
- ----------------------------------------------------------------------------------------------------------------------------------
TELEPHONE
- ----------------------------------------------------------------------------------------------------------------------------------
GUEST ANCILLARY
- ----------------------------------------------------------------------------------------------------------------------------------
TOT DEPT PROFIT
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
GENERAL ADMIN
- ----------------------------------------------------------------------------------------------------------------------------------
UTILITIES
- ----------------------------------------------------------------------------------------------------------------------------------
REPAIRS & MAINTEN
- ----------------------------------------------------------------------------------------------------------------------------------
ACCIDENTS
- ----------------------------------------------------------------------------------------------------------------------------------
SALES & PROMOTION
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL DEDUCT
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
HOUSE PROFIT
- ----------------------------------------------------------------------------------------------------------------------------------
FIXED EXPENSE
- ----------------------------------------------------------------------------------------------------------------------------------
PROFIT CONTRB
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
OVERHEAD
- ----------------------------------------------------------------------------------------------------------------------------------
PROFIT BFR TAX
- ----------------------------------------------------------------------------------------------------------------------------------
PROFIT AFT TAX
- ----------------------------------------------------------------------------------------------------------------------------------
NET AVAIL OCCPNCY
- ----------------------------------------------------------------------------------------------------------------------------------
NET RM RATE&% CHG
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
MAN HRS &% CHANGE
- ----------------------------------------------------------------------------------------------------------------------------------
SLS/M-H &% CHANGE
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
OCCUPIED ROOMS
- ----------------------------------------------------------------------------------------------------------------------------------
AVAILABLE ROOMS
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
ROOM REVPAR
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL REV PAR
- ----------------------------------------------------------------------------------------------------------------------------------
HOUSE PROFIT PAR
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
ST EXT STAY %
- ----------------------------------------------------------------------------------------------------------------------------------
PH EXT STAY %
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL EXT STAY %
- ----------------------------------------------------------------------------------------------------------------------------------
FROM PD 12-XX-94 TO XX-XX-XX UNIT XX XXX
TO YTD 12-XX-94 TO XX-XX-XX RI XXXXXX
PD XX
==================================================================================================================================
</TABLE>
EXHIBIT F
<PAGE>
Form of Consolidated Loss Statement
-----------------------------------
Date: Within 20 days of Period End
Marriott Residence Inn
Limited Partnership
10400 Fernwood Road
Bethesda, Maryland 20817
Dear Sirs:
Enclosed please find the interim accounting of operations and application of
available cash flow for the fiscal period ended __________.
<TABLE>
<CAPTION>
====================================================================
Fiscal
Current Period Year-to-Date
--------------- ---------------
--/--/-- --/--/--
--/--/-- --/--/-
- --------------------------------------------------------------------
<S> <C> <C>
Gross Revenues $ - $ -
- --------------------------------------------------------------------
House Profit - -
Less: Residence Inn System Fee - -
Base Management Fee - -
Chain Services - -
Insurance - -
Property Tax - -
Repairs and Equipment Reserve - -
Leases and Other
--------- --------
- --------------------------------------------------------------------
Operating Profit Before Incentive
Fee
Incentive Management Fee
Contingent Management Fee
Net Operating Profit
- --------------------------------------------------------------------
DISTRIBUTION TO OWNER
- ---------------------
- --------------------------------------------------------------------
Operating Profit Available to - -
Owner Before Incentive Fee - -
Less: Base Management Fee Paid - -
Current Incentive MGT Fees Paid - -
Contingent Incentive MGT
Fees Paid
--------- --------
- --------------------------------------------------------------------
Plus: Repairs and Equipment Reserve - -
--------- --------
- --------------------------------------------------------------------
TOTAL DISTRIBUTION TO OWNER $ - $ -
--------- --------
- --------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
- --------------------------------------------------------------------
<S> <C>
Amount Paid to Date $ -
---------
- --------------------------------------------------------------------
Amount Due and Payable $ -
---------
====================================================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================
MANAGEMENT FEE PAYMENTS Fiscal
- ----------------------- Current Period Year-to-Date
--------------- ---------------
--/--/-- --/--/--
--/--/-- --/--/--
- --------------------------------------------------------------------
<S> <C> <C>
Operating Profit $ - $ -
Less: Qualifying Debt Service - -
First Priority Return
Commitment Fee not amortized?
(see example next page)
Amount Available To Pay Fees - -
Less: Contingent Base - -
Management Fees
Current Incentive Management
-------- -------
Fees - -
Contingent Incentive
Management
Fees - -
- -
- -
-------- -------
- --------------------------------------------------------------------
Total Deferred Fees $ 0 $ 0
======== =======
====================================================================
</TABLE>
The amount deferred to-date for contingent Base Management Fees (BMF is
$__________. The amount deferred to-date for Contingent Management Fees (IMF)
is $__________.
RECONCILIATION OF FF & E ESCROW FUND
- ------------------------------------
<TABLE>
<S> <C>
Bank Balance 12/3_/__: $ _______
Plus: Contributions _______
Interest Income _______
Proceeds from Dispositions _______
Less: Expenditures (-)
-------
Bank Balance xx/xx/xx $
=======
</TABLE>
3
<PAGE>
Very truly yours,
Residence Inn by Marriott, Inc.
4
<PAGE>
RESIDENCE INN BY MARRIOTT
SYNDICATION 1 RENT LETTER DETAIL
PERIOD XX, WEEK X, 19XX
<TABLE>
<CAPTION>
========================================================================================================================
BASE
SUITE TOTAL HOUSE FF&E MGMT SYSTEM PROPERTY CHAIN OPERATING INCENT
UNIT REVENUE REVENUE PROFIT RESERVE FEE FEE INSUR TAX LEASES OTHER SERVICE PROFIT MGMT FEE
- ------ ------- ------- ------ ------- ---- ------ ----- -------- ------ ----- ------- --------- --------
- ------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
57102 XX XX XX XX XX XX XX XX XX XX XX XX
- ------------------------------------------------------------------------------------------------------------------------
57109 XX XX XX XX XX XX XX XX XX XX XX XX XX
- ------------------------------------------------------------------------------------------------------------------------
57110 XX XX XX XX XX XX XX XX XX XX XX XX XX
- ------------------------------------------------------------------------------------------------------------------------
57112 XX XX XX XX XX XX XX XX XX XX XX XX
- ------------------------------------------------------------------------------------------------------------------------
57201 XX XX XX XX XX XX XX XX XX XX XX XX XX
- ------------------------------------------------------------------------------------------------------------------------
57202 XX XX XX XX XX XX XX XX XX XX XX XX
- ------------------------------------------------------------------------------------------------------------------------
57204 XX XX XX XX XX XX XX XX XX XX XX XX
- ------------------------------------------------------------------------------------------------------------------------
57205 XX XX XX XX XX XX XX XX XX XX XX XX XX
- ------------------------------------------------------------------------------------------------------------------------
57207 XX XX XX XX XX XX XX XX XX XX XX XX
- ------------------------------------------------------------------------------------------------------------------------
57208 XX XX XX XX XX XX XX XX XX XX XX XX
- ------------------------------------------------------------------------------------------------------------------------
57213 XX XX XX XX XX XX XX XX XX XX XX XX
- ------------------------------------------------------------------------------------------------------------------------
57301 XX XX XX XX XX XX XX XX XX XX XX XX XX
- ------------------------------------------------------------------------------------------------------------------------
57401 XX XX XX XX XX XX XX XX XX XX XX XX XX
- ------------------------------------------------------------------------------------------------------------------------
57403 XX XX XX XX XX XX XX XX XX XX XX XX XX
- ------------------------------------------------------------------------------------------------------------------------
57404 XX XX XX XX XX XX XX XX XX XX XX XX
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
TOTAL
- ------------------------------------------------------------------------------------------------------------------------
XX XX XX XX XX XX XX
- ------------------------------------------------------------------------------------------------------------------------
XX XX XX XX XX XX
========================================================================================================================
</TABLE>
5
<PAGE>
RESIDENCE INN BY MARRIOTT
SYNDICATION 1 RENT LETTER DETAIL
YEAR-TO-DATE
PERIOD XX, WEEK X, 19XX
<TABLE>
<CAPTION>
=======================================================================================================================
BASE
SUITE TOTAL HOUSE FF&E MGMT SYSTEM PROPERTY CHAIN OPERATING INCENT
UNIT REVENUE REVENUE PROFIT RESERVE FEE FEE INSUR TAX LEASES OTHER SERVICE PROFIT MGMT FEE
- ------ ------- ------- ------ ------- ---- ------ ----- -------- ------ ----- ------- --------- --------
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
57102 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -----------------------------------------------------------------------------------------------------------------------
57109 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -----------------------------------------------------------------------------------------------------------------------
57110 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -----------------------------------------------------------------------------------------------------------------------
57112 XX XX XX XX XX XX XX XX XX XX XX XX
- -----------------------------------------------------------------------------------------------------------------------
57201 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -----------------------------------------------------------------------------------------------------------------------
57202 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -----------------------------------------------------------------------------------------------------------------------
57204 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -----------------------------------------------------------------------------------------------------------------------
57205 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -----------------------------------------------------------------------------------------------------------------------
57207 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -----------------------------------------------------------------------------------------------------------------------
57208 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -----------------------------------------------------------------------------------------------------------------------
57213 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -----------------------------------------------------------------------------------------------------------------------
57301 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -----------------------------------------------------------------------------------------------------------------------
57401 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -----------------------------------------------------------------------------------------------------------------------
57403 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -----------------------------------------------------------------------------------------------------------------------
57404 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
TOTAL
- -----------------------------------------------------------------------------------------------------------------------
XX XX XX XX XX XX XX
- -----------------------------------------------------------------------------------------------------------------------
XX XX XX XX XX XX
=======================================================================================================================
</TABLE>
6
<PAGE>
EXHIBIT G-1
Debt Service Tracking Summary
7
<PAGE>
EXHIBIT G-2
Report Certificate
------------------
[DATE]
RIBM One Corporation, on behalf of Marriott Residence Inn Limited
Partnership, hereby certifies to German American Capital Corporation, a Maryland
corporation, as agent or trustee for itself and others, and its successors and
assigns
(a) All reports are provided in accordance with Section 7.1(c) of the
Loan Agreement dated as of October 10, 1995 between German
American Capital Corporation, as Maryland corporation, as agent or
trustee for itself and others, and its successors and assigns, and
Marriott Residence Inn Limited Partnership, and we are not aware
of any inaccuracy in any such report.
(b) There exists no "Default" or "Event Of Default" (as such quoted
terms are defined in the Loan Agreement) as of the date hereof
except as set forth in detail herein.
Marriott Residence Inn Limited Partnership
By: RIBM One Corporation, General Partner
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE>
EXHIBIT H
List of Subordinate Loan Documents
----------------------------------
1. Loan Agreement between Subordinate Creditor and Borrower
2. Promissory Note in the original principal amount of $30,000,000 made by
Borrower and payable to the order of Subordinate Creditor
3. Fifteen (15) Junior Mortgages
4. Fifteen (15) Junior Assignments of Rents and Revenues
5. Manager's Agreement between Borrower, Manager and Subordinate Creditor
6. Four Party Agreement among Borrower, Lender, Subordinate Creditor and
Manager
7. Intercreditor Agreement among Lender, Borrower and Subordinate Creditor
8. Indemnity Agreement made by Borrower in favor of Subordinate Creditor
9. Borrower's Certificate executed by Borrower for the benefit of Subordinate
Creditor
10. Manager's Certificate executed by Manager in favor of Subordinate Creditor
11. General Partner Note Certificate
12. Fifteen (15) Subordination, Nondisturbance and Attornment Agreements
between Subordinate Creditor and Manager
<PAGE>
EXHIBIT I
Intentionally Deleted
---------------------
<PAGE>
EXHIBIT J
Schedule of Appraised Values
----------------------------
<TABLE>
<C> <S> <C>
1. Atlanta/Buckhead $12,000,000
2. Atlanta/Cumberland $11,000,000
3. Atlanta/Perimeter East $11,000,000
4. Boulder, CO $15,000,000
5. Chicago, Lombard $11,500,000
6. Cincinnati/North $ 9,500,000
7. Columbus/North $ 6,500,000
8. Costa Mesa $14,000,000
9. Dayton North $ 4,200,000
10. Dayton South $ 6,500,000
11. La Jolla $31,000,000
12. Long Beach $20,000,000
13. Southfield $11,000,000
14. St. Louis/Chesterfield $ 9,500,000
15. St. Louis/Galleria $16,500,000
</TABLE>
<PAGE>
EXHIBIT K
Schedule of Single Inn Notes
----------------------------
<TABLE>
<C> <S> <C>
1. Atlanta/Buckhead $7,000,000
2. Atlanta/Cumberland $6,400,000
3. Atlanta/Perimeter East $6,400,000
4. Boulder, CO $7,800,000
5. Chicago/Lombard $6,200,000
6. Cincinnati/North $4,400,000
7. Columbus/North $3,000,000
8. Costa Mesa $7,400,000
9. Dayton North $2,300,000
10. Dayton South $3,100,000
11. La Jolla $17,600,000
12. Long Beach $9,700,000
13. Southfield $6,100,000
14. St. Louis/Chesterfield $4,200,000
15. St. Louis/Galleria $8,400,000
</TABLE>
<PAGE>
EXHIBIT L
Schedule of Note Payments
-------------------------
<TABLE>
<S> <C> <C>
1. Atlanta/Buckhead $ 61,191.39
2. Atlanta/Cumberland $ 55,946.42
3. Atlanta/Perimeter East $ 55,946.42
4. Boulder, CO $ 68,184.69
5. Chicago/Lombard $ 54,198.09
6. Cincinnati/North $ 38,463.16
7. Columbus/North $ 26,224.88
8. Costa Mesa $ 64,688.04
9. Dayton North $ 20,105.74
10. Dayton South $ 27,099.05
11. La Jolla $153,852.64
12. Long Beach $ 84,793.79
13. Southfield $ 53,323.93
14. St. Louis/Chesterfield $ 36,714.84
15. St. Louis/Galleria $ 73,429.67b:
-----------
$874,162.75
===========
</TABLE>
<PAGE>
EXHIBIT M
Schedule of Unpaid Taxes
------------------------
None
<PAGE>
Exhibit 10.3
INDEMNITY AGREEMENT
-------------------
This INDEMNITY AGREEMENT (the "Agreement") is made and entered into on
---------
this 10th day of October, 1995, by MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP, a
Delaware limited partnership ("Borrower"), and RIBM One Corporation, a Delaware
--------
corporation (Borrower and RIBM One Corporation being referred to herein
collectively, jointly and severally as "Indemnitors" and individually as an
-----------
"Indemnitor"), in favor of GERMAN AMERICAN CAPITAL CORPORATION, a Maryland
- -----------
corporation, as agent or trustee for itself and others, and its successors and
assigns ("Lender"). Capitalized terms used herein and not otherwise defined
------
herein shall have the meaning given to such terms in the Loan Agreement
(hereinafter defined).
WHEREAS, Lender has made fifteen separate loans (collectively, the
"Loans") to Borrower which are governed by that certain Loan Agreement of even
- ------
date herewith between Borrower and Lender (the "Loan Agreement"); and
--------------
WHEREAS, the Loans are evidenced by fifteen separate Promissory Notes
of even date herewith, in the aggregate original principal amount of
$100,000,000.00 made payable by Borrower to Lender (the "Promissory Notes"); and
----------------
WHEREAS, the Promissory Notes are secured by, among other things, (i)
fifteen separate security instruments from Borrower to Lender of even date
herewith (collectively, the "Mortgages"), granting to Lender a lien on, among
---------
other things, the Inns and Sites described in Exhibit A attached hereto
---------
(collectively, the "Mortgaged Property"), and (ii) fifteen separate Assignments
------------------
of Rents and Revenues from Borrower to Lender of even date herewith; and
WHEREAS, as a condition to making the Loans, Lender has required
Indemnitors to indemnify and hold harmless Lender from any Environmental Claim,
any Requirements of Environmental Laws, or the violation of any
<PAGE>
Environmental Permit (as these terms are defined below), attributable to
Hazardous Substances (as defined below) and related to the Mortgaged Property,
or any portion thereof. Lender would not make the Loans without this Agreement
and Indemnitors acknowledge and understand that this Agreement is a material
inducement for Lender's agreement to make the Loans. This Agreement is not
intended to be, nor shall it be, secured by the Mortgages or any other Loan
Documents and it is not intended to secure payment of the Promissory Notes.
NOW THEREFORE, in order to induce Lender to make the Loans and for
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Indemnitors hereby covenant and agree with Lender as follows:
1. Definitions. For purposes of this Agreement, the following terms
-----------
shall have the following meanings:
(a) "Environment" means any surface water, ground water or drinking
-----------
water, any land, including land surface or subsurface strata, air, fish,
wildlife, biota and all other natural resources.
(b) "Environmental Claim" shall include, but not be limited to, any
-------------------
claim, demand, action, suit, loss, cost, damage, fine, penalty, expense,
liability, judgment, proceeding, or injury, whether threatened, sought, brought,
or imposed, that seeks to impose costs, expenses, obligations or liabilities for
any of the following, to the extent arising out of, or relating to the Borrower
or the Mortgaged Property: (i) pollution or contamination of the Environment;
(ii) handling, treatment, storage, disposal, or transportation of Hazardous
Substances; (iii) exposure to Hazardous Substances; (iv) the manufacture,
processing, distribution in commerce, use, or storage of Hazardous Substances;
(v) injury to or death of any person or persons directly or indirectly connected
with Hazardous Substances on, under, over, or transported or released to or from
the Mortgaged Property or any portion thereof; (vi)
2
<PAGE>
contamination of any property caused by Hazardous Substances on, under, over, or
transported or released to or from the Mortgaged Property or any portion
thereof; (vii) any and all penalties directly or indirectly connected with
Hazardous Substances and directly or indirectly related to the Mortgaged
Property or any portion thereof; or (viii) any asserted or actual breach or
violation by Borrower or the Mortgaged Property of any Requirements of
Environmental Law, or any event, occurrence, or condition affecting the
Mortgaged Property or respecting any Hazardous Substance on, under, over, or
transported or released to or from the Mortgaged Property, as a consequence of
which, pursuant to any Requirements of Environmental Law, (a) Borrower, Lender,
or any owner, occupant, or person having any interest in the Mortgaged Property
or any portion thereof, shall be liable or suffer any disability, or (b) the
Mortgaged Property, or any portion thereof, shall be subject to any restriction
on use, ownership or transferability, or (c) any remedial work shall be
required. The term "Environmental Claim" also includes (i) the costs of removal
of any and all Hazardous Substances from all or any portion of the Mortgaged
Property, (ii) costs required to take necessary precautions to protect against
the release of Hazardous Substances on, in, under, or affecting the Mortgaged
Property, or any portion thereof, into the Environment, and (iii) costs incurred
to comply, in connection with all or any portion of the Mortgaged Property or
any surrounding areas affected by Hazardous Substances on, under, over, or
transported or released to or from the Mortgaged Property, with all applicable
Environmental Laws, including any such laws applicable to the work referred to
in this Section 1(b).
(c) "Environmental Laws" means any foreign, federal, state or local
------------------
statutes, regulations, ordinances, or rules of common law in any way relating to
the protection of human health and safety or the Environment or otherwise
relating to the manufacture, processing, distribution, use, generation,
treatment, storage, disposal, transportation, or handling of Hazardous
Substances directly or indirectly related to the Mortgaged Property, or any
portion thereof, including, without limitation, the Comprehensive
3
<PAGE>
Environmental Response, Compensation and Liability Act ("CERCLA") (42 U.S.C. (S)
------
9601 et seq.), the Hazardous Materials Transportation Act ("HMTA") (49 U.S.C.
-- --- ----
App. (S) 1801 et seq.), the Resource Conservation and Recovery Act ("RCRA") (42
-- --- ----
U.S.C. (S) 6901 et seq.), the Clean Water Act (33 U.S.C. (S) 1251 et seq.), the
-- --- -- ---
Clean Air Act (42 U.S.C. (S) 7401 et seq.), the Toxic Substance Control Act (15
-- ---
U.S.C. (S) 2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide
-- ---
Act (7 U.S.C. (S) 136 et seq.), and the Occupational Safety and Health Act (29
-- ---
U.S.C. (S) 651 et seq.), and the regulations promulgated pursuant thereto.
-- ---
(d) "Environmental Permit" means any permit, license, approval, or
--------------------
other authorization with respect to any activities, operations, or businesses
conducted on or in relation to the Mortgaged Property, or any portion thereof,
under any applicable Environmental Laws.
(e) "Hazardous Substances" shall mean:
--------------------
(i) Those substances included within the definitions of
"hazardous substances", "hazardous materials", or "solid waste" in CERCLA, RCRA,
and HMTA, and in the regulations promulgated pursuant to said laws;
(ii) Those substances defined as "hazardous wastes," "hazardous
substances," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic pollutants," "contaminants" or "pollutants," or words
of similar import under any applicable Environmental Law, and in the regulations
promulgated pursuant to said laws;
(iii) With respect to any Mortgaged Property located in
California, those chemicals known to cause cancer or reproductive toxicity, as
published pursuant to the Safe Drinking Water and Toxic Enforcement Act of 1986,
or, with respect to all other Mortgaged Property, or pursuant to any applicable
Environmental Law;
4
<PAGE>
(iv) Those substances listed in the United States Department of
Transportation Table (49 CFR 172.101 and amendments thereto) or by the
Environmental Protection Agency (or any successor agency) as hazardous
substances (40 CFR Part 302 and amendments thereto);
(v) Any material, waste or substance which is (A) petroleum, (B)
asbestos, (C) polychlorinated biphenyls, (D) designated as a "hazardous
substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. Section
1251 et seq. (33 U.S.C. Section 1321) or listed pursuant to Section 307 of the
-- ---
Clean Water Act (33 U.S.C. Section 1317); (E) flammable explosives; or (F)
radioactive materials; and
(vi) Such other substances, materials and wastes which are or
become regulated as hazardous or toxic under applicable local, state or federal
law, or which are classified as hazardous or toxic under federal, state, or
local laws or regulations.
(f) "Indemnitee" has the meaning set forth in Section 2 of this
----------
Agreement.
(g) "Permitted Hazardous Substances" means prepackaged office
------------------------------
supplies, cleaning materials, personal grooming items and other items sold for
consumer use or typically used in the operation, maintenance and repair of
hotel properties and other commercial operations in the vicinity of the
Mortgaged Property and heating oil for the Mortgaged Property and fuel for
shuttle vans used in the operation of the Mortgaged Property, which are stored,
handled, transported and disposed of in compliance with the Requirements of
Environmental Laws.
(h) "Release" has the same meaning as given to that term in the
-------
Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended 142 U.S.C. Section 9601, et. seq.) and the regulations promulgated
-- ---
thereunder.
5
<PAGE>
(i) "Requirements of Environmental Law" means all requirements of
---------------------------------
Environmental Laws or any other environmental or ecological laws or regulations
related to the Mortgaged Property, or any portion thereof, including all
requirements imposed by any law, rule, order, or regulation of any federal,
state, or local executive, legislative, judicial, regulatory, or administrative
agency, board, or authority, which relate to (i) pollution or protection of the
air, surface water, ground water, or land; (ii) generation, treatment, storage,
disposal, or transportation of Hazardous Substances; (iii) exposure to Hazardous
Substances; or (iv) regulation of the manufacture, processing, distribution in
commerce, use, or storage of Hazardous Substances.
2. Indemnification.
---------------
(a) Indemnitors shall, jointly and severally, protect, defend,
indemnify, and hold harmless Lender, its assigns and their respective officers,
directors, shareholders, and employees and their respective heirs, legal
representatives, successors, and assigns in their capacity as such (Lender and
all such other persons and entities being referred to herein individually as an
"Indemnitee" and collectively as "Indemnitees") from and against all
---------- -----------
liabilities, losses, costs, damages, expenses or claims, including, but not
limited to, remedial, removal, response, abatement, cleanup, legal,
investigative, and monitoring costs and other related costs, expenses, losses,
damages, penalties, fines, liabilities, obligations, defenses, judgments, suits,
proceedings, and disbursements (including, without limitation, reasonable
attorneys' and experts' fees and disbursements) of any kind or of any nature
whatsoever, which may at any time be imposed upon any Indemnitee, incurred by
any Indemnitee, or arise (directly or indirectly): (i) from violation or breach
by Indemnitors or any of the Mortgaged Property of, or obligations imposed on
Indemnitors or any of the Mortgaged Property under, any Requirements of
Environmental Law; (ii) with respect to Environmental Claims related to the
Mortgaged Property, or any portion thereof; (iii) from the failure of Borrower,
or
6
<PAGE>
any other party directly or indirectly connected with the Mortgaged Property, or
any portion thereof, to obtain, maintain, or comply with any Environmental
Permit; (iv) otherwise from the presence or existence of Hazardous Substances
on, under, over, or released or transported from the Mortgaged Property, or any
portion thereof, including without limitation, all consequential damages
recovered against Indemnitees, but not including consequential damages sustained
by Indemnitees; and/or (v) with respect to any environmental representation and
warranty in this Agreement or any other Loan Document made to the best knowledge
of Borrower, from the failure of such representation and warranty to be true as
of the date of this Agreement and the other Loan Documents, had such
representation and warranty not been limited to the best knowledge of Borrower;
provided, however, that Indemnitors shall not be required to indemnify
Indemnitees from any liability for damages arising out of bodily injury to
persons or damage to property caused by or resulting from the sole negligence of
Indemnitees.
(b) In the event that any investigation, site monitoring, containment,
cleanup, removal, restoration or other remedial work of any kind or nature (the
"Remedial Work") is (x) required under any applicable Environmental Law, any
-------------
judicial order, or by any governmental or nongovernmental entity or person
enforcing any Environmental Law, or (y) reasonably necessary in order to prevent
a Material Adverse Effect, in either case because of, or in connection with, the
current or future presence, suspected presence, Release or suspected Release of
a Hazardous Substance in or into the Environment on, about, under or within the
Mortgaged Property (or any portion thereof), Indemnitors shall, jointly and
severally, within thirty (30) days after written demand for performance thereof
by Indemnitees (or such shorter period of time as may be required under any
applicable law, regulation, order or agreement, or such longer period as may be
approved by Lender, in Lender's good faith discretion), commence to perform (or
cause performance to be commenced), and thereafter diligently complete, all such
Remedial Work. All Remedial Work shall be performed by one or more qualified
7
<PAGE>
contractors, approved in advance in writing by Indemnitees, which approval shall
not be unreasonably withheld, conditioned or delayed, unless obtaining such
approval shall be impracticable due to the need for prompt action, and under the
supervision of a consulting engineer approved in advance in writing by
Indemnitees. All costs and expenses of such Remedial Work shall be paid by
Indemnitors including, without limitation, the charges of such contractor(s)
and/or the consulting engineer, and the reasonable attorneys' fees and costs
incurred by Indemnitees in connection with monitoring or review of such Remedial
Work. In the event Indemnitors shall fail to timely commence, or cause to be
commenced, or fail to diligently prosecute to completion, such Remedial Work,
Lender may, but shall not be required to, cause such Remedial Work to be
performed and all costs and expenses thereof, or incurred in connection
therewith, shall become an Environmental Claim hereunder.
(c) This Agreement is solely intended to protect Lender from the
matters set forth in this Agreement and is not intended to secure payment of the
Promissory Notes or amounts due to Lender under the Mortgages or other Loan
Documents. This Agreement is not intended to be, nor shall it be, secured by
the Mortgages or any of the other Loan Documents.
(d) This Agreement, and all rights and obligations hereunder, shall
survive performance and repayment of the obligations evidenced by and arising
under the Loan Documents, surrender of the Promissory Notes, reconveyance or
release of the Mortgages, or foreclosure under the Mortgages and/or any of the
other Loan Documents (whether by deed or other assignment in lieu of
foreclosure, or otherwise), acquisition of the Mortgaged Property, or any
portion thereof, by Lender, and transfer of all of Lender's rights in the Loans,
the Loan Documents, and the Mortgaged Property, or any portion thereof.
(e) Nothing contained in this Agreement shall prevent or in any way
diminish or interfere with any
8
<PAGE>
rights and remedies, including, without limitation, the right to contribution,
which Lender may have against Indemnitors or any other party under CERCLA, as it
may be amended from time to time, or any other applicable Federal or state laws.
(f) Anything herein to the contrary notwithstanding, Lender's rights
under this Agreement shall be in addition to all rights of Lender under the Loan
Documents, and any payments by Borrower under this Agreement shall not reduce
Borrower's obligations and liabilities under any of the Loan Documents.
3. Additional Indemnity; Representations and Warranties of Borrower.
----------------------------------------------------------------
(a) Indemnitors shall be solely responsible for, and shall,
jointly and severally, protect, defend, indemnify and hold harmless Indemnitees
from and against any failure of any of the following statements to be true and
correct as of the date hereof:
(i) Neither the Mortgaged Property nor any property adjacent
to or within the immediate vicinity of the Mortgaged Property is being or has
been used for the storage, treatment, generation, transportation, processing,
handling, production or disposal of any Hazardous Substances, other than
Permitted Hazardous Substances, or as a landfill or other waste disposal site or
for military, manufacturing or industrial purposes or for the storage of
petroleum or petroleum based products;
(ii) No underground storage tanks, asbestos-containing
materials, or equipment containing polychlorinated biphenyls are or will be
located in or on the Mortgaged Property, or to the best of Borrower's knowledge,
have any such tanks or materials ever been located in or on the Mortgaged
Property;
9
<PAGE>
(iii) The soil, subsoil, bedrock, surface water and groundwater
of the Mortgaged Property are free of any Hazardous Substances;
(iv) There has been no Release of any Hazardous Substances on,
at or from the Mortgaged Property or any property adjacent to or within the
immediate vicinity of the Mortgaged Property, nor is there the threat of a
Release of any Hazardous Substances on, at or from the Mortgaged Property or any
property adjacent to or within the immediate vicinity of the Mortgaged Property
which through soil, subsoil bedrock, surface water or groundwater migration
could come to be located on the Mortgaged Property, and Borrower has not
received any form of notice or inquiry from any federal, state or local
governmental agency or authority, any operator, tenant, subtenant, licensee or
occupant of the Mortgaged Property or any property adjacent to or within the
immediate vicinity of the Mortgaged Property or any other person, with regard to
a Release or the threat of a Release of any Hazardous Substances on, at or from
the Mortgaged Property or any property adjacent to or within the immediate
vicinity of the Mortgaged Property;
(v) All required Environmental Permits have been obtained
and are in full force and effect;
(vi) No event has occurred with respect to the Mortgaged
Property which constitutes or, with the passage of time or the giving of notice,
or both, would constitute a violation of any applicable Environmental Law or
non-compliance with any Environmental Permit;
(vii) There are no agreements, consent orders, decrees,
judgments, license or permit conditions or other orders or directives of any
federal, state or local court, governmental agency or authority relating to the
past, present or future ownership, use, operation, sale, transfer or conveyance
of the Mortgaged Property which require any change in the present condition of
the Mortgaged Property or any work, repairs, construction, containment,
10
<PAGE>
clean up, investigations, studies, removal or other remedial action or capital
expenditures with respect to the Mortgaged Property; and
(viii) There are no actions, suits, claims or proceedings,
pending or, threatened, against Borrower or affecting the Mortgaged Property
which could cause the incurrence of expenses or costs of any name or description
or which seek money damages, injunctive relief, remedial action or any other
remedy that arise out of, relate to or result from (i) a violation or alleged
violation of any applicable Environmental Law or non-compliance or alleged non-
compliance with any Environmental Permit, (ii) the presence of any Hazardous
Substances or a Release or the threat of a Release of any Hazardous Substances
on, at or from the Mortgaged Property or any property adjacent to or within the
immediate vicinity of the Mortgaged Property, or (iii) human exposure to any
Hazardous Substances or nuisances of whatever kind to the extent the same arise
from the condition of the Mortgaged Property or the ownership, use, operation,
sale, transfer or conveyance thereof.
(b) Borrower represents and warrants to Lender that as of the date
hereof, except as set forth in Exhibit B attached hereto, to the best of
---------
Borrower's knowledge, all of the statements contained in Section 3(a) hereof are
true and correct as of the date hereof.
4. Covenants of Borrower. Borrower covenants and agrees with Lender
---------------------
as follows:
(a) Borrower will keep, and will require all operators, tenants,
subtenants, licensees and occupants of the Mortgaged Property to keep, the
Mortgaged Property free of all Hazardous Substances, except for Permitted
Hazardous Substances, and shall not cause or permit the Mortgaged Property, or
any portion thereof, to be used for the storage, treatment, generation,
transportation, processing, handling, production or disposal of any Hazardous
Substances (other than the storage and handling of Permitted Hazardous
11
<PAGE>
Substances in compliance with all requirements of Environmental Laws).
(b) Borrower will comply with, and shall require all operators,
tenants, subtenants, licensees and occupants of the Mortgaged Property to comply
with, all applicable Environmental Laws and shall obtain and comply with, and
shall require all operators, tenants, subtenants, licensees and occupants of the
Mortgaged Property to obtain and comply with, all Environmental Permits.
(c) Borrower will not cause or permit any change to be made in the
present or intended use of the Mortgaged Property which would (i) involve the
storage, treatment, generation, transportation, processing, handling, production
or disposal of any Hazardous Substances other than Permitted Hazardous
Substances or the use of the Mortgaged Property as a landfill or other waste
disposal site or for military, manufacturing or industrial purposes or for the
storage of petroleum or petroleum based products (other than Permitted Hazardous
Substances in compliance with requirements of Environmental Law), (ii) violate
any applicable Environmental Law, (iii) constitute non-compliance with any
Environmental Permit, or (iv) increase the risk of a Release of any Hazardous
Substances.
(d) To the extent required by Environmental Laws, Borrower will
undertake and complete all investigations, studies, sampling and testing and all
removal and other remedial actions necessary to contain, remove and clean up all
Hazardous Substances that are determined to be present at the Mortgaged Property
in accordance with all applicable Environmental Laws and all Environmental
Permits.
(e) Borrower will at all times allow Lender and its officers,
employees, agents, representatives, contractors and subcontractors reasonable
access to the Mortgaged Property for the purposes of ascertaining site
conditions, including, but not limited to, subsurface conditions. Lender shall
give Borrower reasonable notice of
12
<PAGE>
its desire for access to the Mortgaged Property, unless the need for prompt
action makes such notice impracticable and will cooperate with Borrower in good
faith so as to minimize the disruptive effect of such access.
(f) If Lender obtains reliable evidence or information that a material
environmental problem exists or may exist on, at or under the Mortgaged
Property, Lender may, after consultation with Borrower, require that a full or
supplemental environmental inspection and audit report with respect to the
Mortgaged Property, of a scope and level of detail reasonably satisfactory to
Lender, be prepared by an environmental engineer or other qualified person
selected by Lender, at the sole cost and expense of Borrower. If the inspection
and audit report discloses that no material environmental problem exists or may
exist on, at or under the Mortgaged Property, Lender shall reimburse Borrower
for the cost of the inspection and audit. If Lender requires, such inspection
will include a records search and, if said environmental engineer or other
person recommends the same as a matter which a prudent owner of property under
the circumstances should perform, subsurface testing for the presence of
Hazardous Substances in the soil, subsoil, bedrock, surface water and/or ground
water under the Mortgaged Property. Any so-called "intrusive activities" (i.e.,
activities which require physical change to the Mortgaged Property) shall be
performed by contractors selected by Borrower and reasonably acceptable to
Lender. If said report indicates that a Release of any Hazardous Substances has
occurred and/or is occurring on, at or from the Mortgaged Property, other than
as permitted by any applicable Environmental Law or any Environmental Permit,
Borrower will promptly undertake and diligently complete all investigative,
containment, removal, clean up and other remedial actions, which are either (x)
required by law, rule, regulation or court order, or (y) reasonably necessary in
order to prevent a Material Adverse Effect, in either
case using methods recommended by or acceptable to the engineer or other person
who prepared said audit report and acceptable to the appropriate federal, state
and local
13
<PAGE>
agencies or authorities having jurisdiction over the Mortgaged Property, or any
portion thereof.
(g) Indemnitors shall at all times maintain in full force and effect,
at their sole cost and expense, for the benefit of Indemnitees the Environmental
Insurance Policy (the "Environmental Insurance Policy") described in Exhibit C
------------------------------ ---------
attached hereto, provided the Environmental Insurance Policy can be maintained
at commercially reasonable rates, and if the Environmental Insurance Policy
cannot be maintained at commercially reasonable rates, the most comparable
insurance policy that can be obtained at commercially reasonable rates.
Additionally, Indemnitors shall at all times ensure that the remaining primary
term for coverage under such Environmental Insurance Policy is at least five
years (provided that in no event will Indemnitors be required to keep the
Environmental Insurance Policy in effect beyond the date that is two years after
the date the Loans are repaid in full.
(h) With respect to any environmental representation and warranty in
this Agreement or any other Loan Documents, if the facts so represented or
warranted prove to be false at the time that the Loans were made, or if any of
the statements contained in Section 3(a) hereof are not true and correct as of
the date hereof, but Borrower had no knowledge that such representation,
warranty or statement was false when made, such false representation, warranty
or statement shall not constitute an Event of Default pursuant to Section 9.1 of
the Loan Agreement, provided that Borrower, within thirty (30) days from the
date that Borrower is aware that such representation, warranty or statement is
or was false, completely cures and corrects the condition making the
representation, warranty or statement false or takes such actions as are
necessary to eliminate any Material Adverse Effect; provided, however, that if
any of the foregoing cannot be cured within thirty (30) days despite diligent
efforts to cure, such time period shall be extended up to 180 days so long as
Indemnitors are diligently and continuously pursuing such cure. The provisions
of this Paragraph 4(h) shall not in any way
14
<PAGE>
lessen or affect Indemnitors' obligations under this Agreement.
5. Notice of Actions.
-----------------
(a) Borrower shall give immediate written notice to Lender of: (i)
any proceeding, inquiry, notice, or other communication by or from any
governmental authority, including, without limitation, the Environmental
Protection Agency and any applicable state or local agencies, regarding the
presence or existence of any Hazardous Substances on, under, or about the
Mortgaged Property or any migration thereof from or to the Mortgaged Property or
any actual or alleged violation of Environmental Law; (ii) all Environmental
Claims and any other claims made or threatened against Borrower or the Mortgaged
Property relating to any loss or injury resulting from or pertaining to any
Hazardous Substances or any alleged breach or violation of any Requirements of
Environmental Law; (iii) Borrower's discovery of any occurrence or condition on
any real property adjoining or in the vicinity of the Mortgaged Property that
reasonably may cause the Mortgaged Property, or any portion thereof, to be
subject to any restrictions on ownership, occupancy, transferability, or use, or
subject the owner or any person having any interest in the Mortgaged Property,
or any portion thereof, to any liability, penalty, or disability under any
Environmental Law; and (iv) Borrower's receipt of any notice or discovery of any
information regarding any actual, alleged, or potential use, production,
storage, spillage, seepage, release, discharge, disposal or any other presence
or existence of any Hazardous Substances on, under, or about the Mortgaged
Property, other than Permitted Hazardous Substances, or any alleged breach or
violation of any Requirements of Environmental Law pertaining to Borrower or the
Mortgaged Property, or any portion thereof.
(b) Immediately upon receipt of the same, Borrower shall deliver to
Lender copies of any and all Environmental Claims, and any and all orders,
notices, permits, applications, reports, and other communications
15
<PAGE>
(other than privileged communications with legal counsel), documents, and
instruments pertaining to the actual, alleged, or potential presence or
existence of any Hazardous Substances on, under, or about the Mortgaged
Property.
(c) Lender shall have the right to join and participate in, as a party
if it so elects, any legal proceedings or actions in connection with the
Mortgaged Property involving any Environmental Claim, any Hazardous Substances
or any Requirements of Environmental Law, and Borrower shall reimburse Lender
upon demand for all of Lender's costs and expenses in connection therewith,
including reasonable attorneys' fees.
(d) Promptly upon Lender's reasonable request, Indemnitors will
execute and deliver such instruments as Lender may deem useful or necessary to
permit Lender to take any action referred to in Section 5(c) above.
6. Procedures Relating to Indemnification.
--------------------------------------
(a) Indemnitors shall at their own cost, expense, and risk: (i)
defend all suits, actions, or other legal or administrative proceedings that may
be brought or instituted against an Indemnitee or Indemnitees, as the case may
be, on account of any matter or matters arising under or within Section 2 above;
(ii) pay in or satisfy any judgment or decree that may be recorded against an
Indemnitee or Indemnitees, as the case may be, in any such suit, action, or
other legal or administrative proceedings; (iii) reimburse Indemnitee or
Indemnitees, as the case may be, for the cost of, or any payment made by any of
them for, any reasonable expenses incurred in connection with Hazardous
Substances undertaken as a result of any demands, causes of actions, lawsuits,
proceedings, or any other claims threatened, made, or brought against any
Indemnitee or Indemnitees, as the case may be, arising out of the obligations of
Indemnitors under this Agreement; and (iv) reimburse Indemnitee or Indemnitees,
as the case may be, for any and all expenses, including, but not limited to, all
reasonable legal expenses arising out of or attributable to,
16
<PAGE>
the above acts or in connection with enforcing the rights of Indemnitees under
this Agreement or in monitoring and participating in any action, proceeding, or
litigation, subject to the provisions of Section 6(b) below; provided, however,
that Indemnitors shall not be required to indemnify Indemnitees from their own
gross negligence or willful misconduct.
(b) Counsel selected by Indemnitors pursuant to Section 6(a) above
shall be subject to the approval of the Indemnitee or Indemnitees, as the case
may be, asserting a claim hereunder; provided, however, that Indemnitee or
Indemnitees, in good faith, as the case may be, may elect to defend any such
claim, lawsuit, action, legal or administrative proceeding at the cost and
expense of Indemnitors, if, in the judgment of the Indemnitee or Indemnitees, as
the case may be, (i) the defense is not proceeding or being conducted in a
satisfactory manner, or (ii) there is a conflict of interest between any of the
parties to such lawsuit, action, legal, or administrative proceeding.
Notwithstanding anything in this subsection, Lender may, at any time and at its
own expense, employ its own legal counsel and consultants to prosecute,
negotiate, or defend any such claim, action, or cause of action, and Lender
shall have the right to settle or compromise any action, suit, proceeding, or
claim as Lender may determine.
7. Binding Effect. This Agreement shall be binding upon and inure
--------------
to the benefit of Indemnitors and Indemnitees and their respective heirs,
personal representatives, successors and assigns, including as to Lender,
without limitation, any holder of the Promissory Notes and any affiliate of
Lender which acquires all or part of the Mortgaged Property by any sale,
assignment or foreclosure under the Mortgages, by deed or other assignment in
lieu of foreclosure, or otherwise.
8. Limitation of Liability of Indemnitees. Notwithstanding any
--------------------------------------
ownership by any Indemnitee at any time of all or any portion of the Mortgaged
Property, in no event shall any Indemnitee (including any successor or assign as
17
<PAGE>
holder of the Promissory Notes) be bound by any obligations or liabilities of
any of the Indemnitors.
9. Liability of Indemnitors. The liability of Indemnitors under
------------------------
this Agreement shall in no way be limited or impaired by, any amendment or
modification of the provisions of the Loan Documents to or with Lender by
Borrower or any person who succeeds Borrower as owner of the Mortgaged Property,
or any portion thereof. In addition, the liability of Indemnitors under this
Agreement shall in no way be limited or impaired by (i) any extensions of time
for performance required by any of the Loan Documents; (ii) any sale,
assignment, or foreclosure of the Promissory Notes or the Mortgages or any sale
or transfer of all or part of the Mortgaged Property; (iii) any exculpatory
provision in any of the Loan Documents limiting Lender's recourse to property
encumbered by the Mortgages or to any other security, or limiting Lender's
rights to a deficiency judgment against Borrower or any other party, including
without limitation, any provision of the Loan Documents entitled "Limitations on
Liability;" (iv) the accuracy or inaccuracy of the representations and
warranties made by Borrower under any of the Loan Documents; (v) the release of
Borrower or any other person or entity from performance orobservance of any of
the agreements, covenants, terms, or conditions contained in any of the Loan
Documents by operation of law, Lender's voluntary act, or otherwise; (vi) the
release or substitution in whole or in part of any security for the Promissory
Notes; or (vii) Lender's failure to perfect, protect, secure, or insure any
security interest or lien given as security for the Promissory Notes; and, in
any such case, whether with or without notice to Borrower and with or without
consideration.
10. Waiver. Indemnitors waive any right or claim of right to cause a
------
marshalling of the assets of Indemnitors or to cause Lender to proceed against
any of the security for the Loans before proceeding under this Agreement against
Indemnitors or to proceed against Indemnitors in any particular order;
Indemnitors agree that any payments required to be made hereunder shall become
due ten (10)
18
<PAGE>
Business Days after demand. Indemnitors expressly waive and relinquish all
rights and remedies accorded by applicable law to Indemnitors, except any rights
of subrogation that Indemnitors may have, provided that the indemnity provided
for hereunder shall neither be contingent upon the existence of any such rights
of subrogation nor subject to any claims or defenses whatsoever that may be
asserted in connection with the enforcement or attempted enforcement of such
subrogation rights, including, without limitation, any claim that such
subrogation rights were abrogated by any acts of Lender. Indemnitors hereby
agree to postpone the exercise of any and all rights of subrogation to the
rights of Lender against Indemnitors hereunder and any rights of subrogation to
any collateral securing the Loans until the Loans have been paid in full.
11. Joint and Several Liability. The obligations of each of the
---------------------------
respective Indemnitors under this Agreement shall be the joint and several
obligations of each of them.
12. Delay. No delay on Lender's part in exercising any right, power,
-----
or privilege under any of the Loan Documents shall operate as a waiver of any
such privilege, power, or right.
13. Execution. This Agreement may be executed in one or more
---------
counterparts, each of which shall be deemed an original.
14. Notices. Any notice and other communication required or
-------
permitted hereunder shall be in writing and shall be personally delivered, sent
by facsimile transmission or sent by certified, registered mail, postage prepaid
to the addresses set forth below:
19
<PAGE>
If to Indemnitors:
-----------------
Marriott Residence Inn Limited Partnership
c/o RIBM One Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Telecopy No. (301) 530-2855
Attention: Law Department 72-924.11
If to Lender:
------------
German American Capital Corporation
c/o Deutsche Morgan Grenfell
31 West 52nd Street, 3rd Floor
New York, New York 10019
Telecopy No. (212) 469-6933
Attention: Joseph G. Kiely, Director
and
Weil, Gotshal & Manges
1615 L Street, N.W.
Suite 700
Washington, D.C. 20036
Telecopy No. (202) 857-0939
Attention: W. Michael Bond, Esq.
All notices and other communications shall be deemed to have been duly given, on
(i) the date of delivery if delivered personally, (ii) the date of receipt if
sent by facsimile transmission, or (iii) the date of receipt if sent by mail or
by a nationally recognized overnight delivery service, whichever shall first
occur. Any Person may by notice given in accordance with this Section 14 to
each of the other Persons listed above designate another address for receipt of
notices and other communications hereunder.
15. Attorneys' Fees. In the event that any Indemnitor or any
---------------
Indemnitee brings any suit or other proceeding with respect to the subject
matter or enforcement of this Agreement, the prevailing party (as determined by
20
<PAGE>
the court, agency or other authority before which such suit or proceeding is
commenced) shall, in addition to such other relief as may be awarded, be
entitled to recover reasonable attorneys' fees and expenses (at all trial,
appellate or other levels) and costs of investigation, costs incurred in
establishing the right to indemnification, or in any action or participation in,
or in connection with, any case or proceeding under Chapter 7, 11 or 13 of the
Bankruptcy Code, 11 United States Code Sections 101 et seq., or any successor
statutes. -- ---
16. Successive Actions. A separate right of action hereunder shall
------------------
arise each time Lender acquires knowledge of any matter described in Sections 2
or 5 hereof. Separate and successive actions may be brought hereunder to
enforce any of the provisions hereof at any time and from time to time. No
action hereunder shall preclude any subsequent action, and Borrower hereby
waives and covenants not to assert any defense in the nature of splitting of
causes of action or merger of judgments.
17. Partial Invalidity. If any provision of this Agreement shall be
------------------
determined to be unenforceable in any circumstances by any court of competent
jurisdiction, then the balance of this Agreement nevertheless shall be
enforceable, and the subject provision shall be enforceable in all other
circumstances.
18. Interest on Unpaid Amounts. All amounts required to be paid or
--------------------------
reimbursed to any Indemnitee hereunder shall bear interest from the date of
expenditure by such Indemnitee or the date of written demand to any Indemnitor
hereunder, whichever is earlier, until paid to Indemnitee(s) at the Default Rate
(as defined in the Loan Agreement).
19. Governing Law. This Agreement and the rights and obligations of
-------------
the parties hereunder shall in all respects be governed by, and construed and
enforced in accordance with, the laws of the State of New York.
21
<PAGE>
20. Waiver of Trial By Jury. Indemnitors and Lender hereby
-----------------------
knowingly, voluntarily, and intentionally waives the right to a trial by jury in
respect of any litigation based hereon, arising out or, under or in connection
with this Agreement or any other Loan Documents contemplated to be executed in
conjunction herewith, or any course of conduct, course of dealings, statements
(whether verbal or written) or actions of any party or any exercise by any party
of their respective rights under the Loan Documents or in any way relating to
the Loans (including,without limitation, any action to rescind or cancel this
Agreement, and any claims or defenses asserting that this Agreement was
fraudulently induced or is otherwise void or voidable); this waiver being a
material inducement for Lender to accept this Agreement.
21. Consent to Jurisdiction. By execution and delivery of this
-----------------------
Agreement, Indemnitors accept, generally and unconditionally, the jurisdiction
of any state or federal court in the State of New York and irrevocably agree to
be bound by any final judgment rendered thereby in connection with this
Agreement or any transaction contemplated hereby from which no appeal has been
taken or is available.
IN WITNESS WHEREOF, Indemnitors have executed this Agreement under
seal as of the date first set forth above.
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP, a
Delaware limited partnership
By: RIBM One Corporation, General Partner
By:
-----------------------------------
Bruce D. Wardinski
Vice President
22
<PAGE>
(Corporate Seal)
RIBM One Corporation, a Delaware
corporation
By:
-------------------------------
Bruce D. Wardinski
Vice President
23
<PAGE>
ACCEPTED TO AND AGREED:
GERMAN AMERICAN CAPITAL CORPORATION,
a Maryland corporation, as agent or trustee
for itself and others, and its successors
and assigns
By: __________________________
Joseph G. Kiely
Vice President
By: __________________________
Charlene S. Chai
Authorized Signatory
24
<PAGE>
EXHIBIT A
---------
To Contain Legal Description of All 15 Inns
25
<PAGE>
EXHIBIT B
---------
Description of Environmental Conditions
NONE
26
<PAGE>
EXHIBIT C
---------
Description of Environmental Insurance Policy
27
<PAGE>
Exhibit 10.4
FOUR PARTY AGREEMENT
THIS FOUR PARTY AGREEMENT is made as of this 10th day of October, 1995, by
and among Marriott Residence Inn Limited Partnership, a Delaware limited
partnership ("Borrower"), German American Capital Corporation, a Maryland
--------
corporation, as agent or trustee for itself and others, and its successors and
assigns ("Senior Lender"), Starwood Mezzanine Investors, L.P., a Delaware
-------------
limited partnership ("Subordinate Lender") (Senior Lender and Subordinate Lender
------------------
are collectively referred to herein as "Lenders" and individually as "Lender")
------- ------
and Residence Inn by Marriott, Inc., a Delaware corporation ("Manager").
-------
R E C I T A L S:
This Agreement is based upon the following recitals:
WHEREAS, Senior Lender has made fifteen separate loans (collectively, the
"Loan") to Borrower which are governed by that certain Loan Agreement of even
----
date herewith between Borrower and Senior Lender (the "Loan Agreement"); and
--------------
WHEREAS, the Loan is evidenced by fifteen separate Promissory Notes of even
date herewith, in the original aggregate principal amount of $100,000,000.00
made by Borrower and payable to the order of Senior Lender (collectively, the
"Promissory Notes"); and
----------------
WHEREAS, the Promissory Notes are secured by, among other things, (i) 15
separate security instruments from Borrower to Senior Lender of even date
herewith (collectively, the "Senior Mortgages"), granting to Senior Lender a
----------------
lien on, among other things, the Inns described on Exhibit "A" attached hereto
-----------
and the Sites, and (ii) 15 separate Assignments of Rents and Revenues from
Borrower to Senior Lender of even date herewith (collectively, the "Senior
------
Assignments of Rents and Revenues") (the Loan Agreement, the Promissory Notes,
- ---------------------------------
the Senior Mortgages, the Senior Assignments of Rents and Revenues and all other
documents evidencing, securing or pertaining to the Loan are referred to herein
as the "Senior Loan Documents"); and
---------------------
<PAGE>
WHEREAS, Subordinate Lender has made a loan (the Subordinate Loan") to
----------------
Borrower in the amount of $30,000,000 which is governed by that certain Loan
Agreement of even date herewith between Borrower and Subordinate Lender (the
"Subordinate Loan Agreement"); and
--------------------------
WHEREAS, the Subordinate Loan is secured by, among other things, 15
separate security instruments from Borrower to Subordinate Lender of even date
herewith (collectively, the "Subordinate Mortgages") and 15 separate Assignments
---------------------
of Rents and Revenues from Borrower to Subordinate Lender of even date herewith
(collectively, the "Subordinate Assignments") (the Subordinate Loan Agreement,
-----------------------
the Subordinate Mortgages, the Subordinate Assignments and all other documents
evidencing, securing or pertaining to the Subordinate Loan are referred to
herein as the "Subordinate Loan Documents"); and
--------------------------
WHEREAS, Borrower, Senior Lender, Subordinate Lender and Manager have
agreed to enter into this Four Party Agreement setting forth a mechanism by
which the Net Cash Flow, at times more particularly described herein, will be
paid directly into the Cash Collateral Account or the Senior Account, both
hereinafter defined. The parties hereto desire to enter into this Four Party
Agreement and to be bound by the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the above recitals and for other good
and valuable consideration, the receipt and adequacy of which are hereby
mutually acknowledged, the parties hereto do hereby agree as follows:
1. Affirmation of Recitals. The recitals set forth above are true and
-----------------------
correct and are incorporated herein by this reference.
2. Definitions.
-----------
(a) As used herein, the following terms have the following meanings:
"Account" shall mean the Cash Collateral Account, unless an
-------
Application Trigger Date has occurred and an Application Restoration Date has
not thereafter occurred, in which case the Account shall mean the Senior
Account.
2
<PAGE>
"Annual Rolling Average Ratios" means the Annual Combined DSCR Rolling
-----------------------------
Average Ratio and the Annual DSCR Rolling Average Ratio.
"Annual Combined DSCR Rolling Average Ratio" means for any Accounting
------------------------------------------
Period the Combined DSCR computed for such Accounting Period and the immediately
preceding 12 Accounting Periods on a cumulative basis.
"Annual DSCR Rolling Average Ratio" means for any Accounting Period
---------------------------------
the DSCR computed for such Accounting Period and the immediately preceding 12
Accounting Periods on a cumulative basis.
"Application Restoration Date" means the date after the occurrence of
----------------------------
an Application Trigger Date on which (A) none of the conditions described in
subparagraphs (i) through (xi) of the definition of Application Trigger Date
then exists, (B) no Event of Default (other than an Event of Default arising
solely under Section 9.1(l) of the Loan Agreement) has occurred and is
continuing, and (C) the following apply to the extent applicable:
(i) If an Application Trigger Date occurred solely or in part because
of a failure to maintain the Annual Rolling Average Ratios required pursuant to
subparagraphs (i) through (iv) of the definition of Application Trigger Date,
(a) the Annual Combined DSCR Rolling Average Ratio for each of the three most
recent Accounting Periods equals or exceeds 1.15, or (b) if the No Second Lien
Condition exists, the Annual DSCR Rolling Average Ratio for each of the three
most recent Accounting Periods equals or exceeds 1.25;
(ii) If an Application Trigger Date occurred solely or in part because
of a failure to maintain the Six Period Rolling Average Ratios required pursuant
to subparagraphs (v) through (viii) of the definition of Application Trigger
Date, (a) the Six Period Combined DSCR Rolling Average Ratio for each of the
three most recent Accounting Periods equals or exceeds 1.0, or (b) if the No
Second Lien Condition exists, the Six Period DSCR Rolling Average Ratio for each
of the three most recent Accounting Periods equals or exceeds 1.10;
3
<PAGE>
(iii) If an Application Trigger Date occurred solely or in part
because of a failure to maintain the Rolling Average Ratios required pursuant to
subparagraphs (ix) or (x) of the definition of Application Trigger Date, (a)(1)
the Three Period Combined DSCR Rolling Average Ratio for each of the three most
recent Accounting Periods equals or exceeds the Required Amount for each of such
Accounting Periods, or (2) if the No Second Lien Condition exists, the Three
Period DSCR Rolling Average Ratio for each of the three most recent Accounting
Periods equals or exceeds the sum of the Required Amount plus 0.10 for each of
such Accounting Periods, and (b) (1) the Annual Combined DSCR Rolling Average
Ratio for the most recent Accounting Period equals or exceeds 1.15 and the Six
Period Combined DSCR Rolling Average Ratio for the most recent Accounting Period
equals or exceeds 1.0, or (2) if the No Second Lien Condition exists, the Annual
DSCR Rolling Average Ratio for the most recent Accounting Period equals or
exceeds 1.25 and the Six Period DSCR Rolling Average Ratio for the most recent
Accounting Period equals or exceeds 1.10; and
(iv) If an Application Trigger Date occurred solely or in part
because of the occurrence of an Event of Default as described in subparagraph
(xi) of the definition of Application Trigger Date, then an Application
Restoration Date shall thereafter occur only if Senior Lender specifically and
irrevocably waives in writing the occurrence of such Event of Default or such
Event of Default is cured prior to acceleration of the Loans by Senior Lender.
"Application Trigger Date" shall mean the earliest to occur of the
------------------------
following:
(i) unless the No Second Lien Condition exists, the date on which the
Annual Combined DSCR Rolling Average Ratio for each of six consecutive
Accounting Periods is less than 1.15;
(ii) in the event that the No Second Lien Condition exists, the date
on which the Annual DSCR Rolling Average Ratio for each of six consecutive
Accounting Periods is less than 1.25;
4
<PAGE>
(iii) unless the No Second Lien Condition exists, the date on which
the Annual Combined DSCR Rolling Average Ratio for any Accounting Period is less
than 1.10;
(iv) in the event that the No Second Lien Condition exists, the
date on which the Annual DSCR Rolling Average Ratio for any Accounting Period is
less than 1.20;
(v) unless the No Second Lien Condition exists, the date on which
the Six Period Combined DSCR Rolling Average Ratio for each of three consecutive
Accounting Periods is less than 1.0;
(vi) in the event that the No Second Lien Condition exists, the
date on which the Six Period DSCR Rolling Average Ratio for each of three
consecutive Accounting Periods is less than 1.10;
(vii) unless the No Second Lien Condition exists, the date on which
the Six Period Combined DSCR Rolling Average Ratio for any Accounting Period is
less than .95;
(viii) in the event that the No Second Lien Condition exists, the
date on which the Six Period DSCR Rolling Average Ratio for any Accounting
Period is less than 1.05;
(ix) unless the No Second Lien Condition exists, the date on which
(A) the Three Period Combined DSCR Rolling Average Ratio for each of three
consecutive Accounting Periods is less than the Required Amount for each of such
Accounting Periods, and (B) either (1) the Annual Combined DSCR Rolling Average
Ratio for the previous Accounting Period is less than 1.15, or (2) the Six
Period Combined DSCR Rolling Average Ratio for the previous Accounting Period is
less than 1.0;
(x) in the event that the No Second Lien Condition exists, the
date on which (A) the Three Period DSCR Rolling Average Ratio for each of three
consecutive Accounting Periods is less than the sum of (x) the Required Amount,
plus (y) 0.10, for each of such Accounting Periods, and (B) either (1) the
Annual DSCR Rolling Average Ratio for the previous Accounting Period is less
than 1.25, or (2) the Six
5
<PAGE>
Period DSCR Rolling Average Ratio for the previous Accounting Period is less
than 1.10; or
(xi) the date on which an Event of Default (other than an Event of
Default under Section 9.1(l) of the Loan Agreement) shall occur and be
continuing.
"Cash Collateral" means all Net Cash Flow and all funds, deposits,
---------------
rights or other assets or amounts at any time deposited into, or required by
this Agreement to be deposited into, the Cash Collateral Account and all
proceeds of the foregoing.
"Cash Collateral Account" shall mean an account or accounts
-----------------------
established by the Escrow Agent with notice to Borrower, Manager and Lenders for
the use and benefit of Senior Lender and Subordinate Lender, which account shall
be of a type and maintained with a financial institution selected by Senior
Lender, subject to the reasonable approval of Borrower and Subordinate Lender,
or if no such approval is obtained within five (5) days after written request by
Senior Lender, any commercial bank (an "Approved Institution") with offices in
--------------------
the United States with deposits in excess of $100,000,000 selected by Senior
Lender, in Senior Lender's sole and absolute discretion.
"Escrow Agent" shall mean an escrow agent selected by Senior Lender
------------
with the reasonable approval of Subordinate Lender or if no such approval is
obtained within five (5) days after written request by Senior Lender, any
commercial bank with offices in the United States with deposits in excess of
$100,000,000 or any "Big Six" accounting firm, in either case as selected by
Senior Lender in Senior Lender's sole and absolute discretion, provided that
Senior Lender shall give notice to Borrower and Subordinate Lender of the
designation of the Escrow Agent. The Escrow Agent may be Senior Lender or any
party holding a direct or indirect interest in the Loan so long as such Person
satisfies the requirements set forth in the preceding sentence.
"Intercreditor Account" means an account or accounts of the type and
---------------------
established by and in the name of Senior Lender with a financial institution
with deposits of at least $100,000,000.00 selected by Senior Lender, in its sole
and absolute discretion.
6
<PAGE>
"Intercreditor Payment Date" means the earliest to occur of the
--------------------------
following:
(i) May 15th of any calendar year;
(ii) the date on which an Event of Default occurs (other than an
Event of Default arising solely pursuant to Section 9.1(l);
(iii) the date on which the Annual Combined DSCR Rolling Average
Ratio for any Accounting Period is less than 1.0; and
(iv) the date on which the No Second Lien Condition exists.
"Lenders" means the collective reference to Senior Lender and
-------
Subordinate Lender.
"Maximum Intercreditor Account Amount" means an amount equal to (i)
------------------------------------
4.5%, multiplied by (ii) the sum of (a) Promissory Note Debt Service for the
most recent thirteen (13) Accounting Periods, plus (b) all amounts paid or due
and payable by the Borrower under the Subordinate Loan for the preceding
thirteen (13) Accounting Periods.
"Net Cash Flow" has the meaning set forth in Paragraph 3 hereof.
-------------
"No Second Lien Condition" means that all of the Subordinate Mortgages
------------------------
have been foreclosed or otherwise have ceased to encumber the Mortgaged
Property.
"Required Amount" for each Accounting Period means the following:
---------------
<TABLE>
<S> <C>
First Accounting Period beginning in
any calendar year - .80
Second Accounting Period during
any calendar year - .80
Third Accounting Period during
any calendar year - 1.00
Fourth Accounting Period during
any calendar year - 1.10
Fifth Accounting Period during
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
any calendar year - 1.15
Sixth Accounting Period during
any calendar year - 1.20
Seventh Accounting Period during
any calendar year - 1.25
Eighth Accounting Period during
any calendar year - 1.40
Ninth Accounting Period during
any calendar year - 1.40
Tenth Accounting Period during
any calendar year - 1.40
Eleventh Accounting Period during
any calendar year - 1.25
Twelfth Accounting Period during
any calendar year - 1.20
Thirteenth Accounting Period during
any calendar year (and
continuing into the following
calendar year, if applicable) - 1.00
</TABLE>
"Restoration Date" means the date on which each of the following
----------------
exists:
(i) the Annual Combined DSCR Rolling Average Ratio for each of
the previous three Accounting Periods is greater than or equal to
1.15, or if the No Second Lien Condition exists, the Annual DSCR
Rolling Average Ratio for each of the previous three Accounting
Periods is greater than or equal to 1.25; and
(ii) the Six Period Combined DSCR Rolling Average Ratio for each
of the previous three Accounting Periods is greater than or equal to
1.0, or if the No Second Lien Condition exists, the Six Period DSCR
Rolling Average Ratio for each of the previous three Accounting
Periods is greater than or equal to 1.10; and
(iii) the Three Period Combined DSCR Rolling Average Ratio for
each of the previous three Accounting Periods is greater than or equal
to the Required Amount for each of such Accounting Periods, or in the
event that the No Second Lien Condition exists, the Three Period DSCR
Rolling
8
<PAGE>
Average Ratio for each of the previous three Accounting Periods is
equal to or greater than the sum of (x) 0.10, plus (y) the Required
Amount, for each of such Accounting Periods; and
(iv) no Event of Default (other than an Event of Default under
section 9.1(l) of the Loan Agreement) shall have occurred and be
continuing.
"Rolling Average Ratios" means the collective reference to the Annual
----------------------
Rolling Average Ratios, the Six Period Rolling Average Ratios and the Three
Period Rolling Average Ratios.
"Senior Account" shall mean an account or accounts of a type and
--------------
established by and in the name of Senior Lender, with notice to Borrower,
Manager and Subordinate Lender, with a financial institution with deposits of at
least $100,000,000 selected by Senior Lender, in its sole and absolute
discretion.
"Six Period Combined DSCR Rolling Average Ratio" means for any
----------------------------------------------
Accounting Period the Combined DSCR computed for such Accounting Period and the
immediately preceding 5 Accounting Periods on a cumulative basis.
"Six Period DSCR Rolling Average Ratio" means for any Accounting
-------------------------------------
Period the DSCR computed for such Accounting Period and the immediately
preceding 5 Accounting Periods on a cumulative basis.
"Six Period Rolling Average Ratios" means the Six Period Combined DSCR
---------------------------------
Rolling Average Ratio and the Six Period DSCR Rolling Average Ratio.
"Three Period Combined DSCR Rolling Average Ratio" means for any
------------------------------------------------
Accounting Period the Combined DSCR computed for such Accounting Period and the
immediately preceding 2 Accounting Periods on a cumulative basis.
"Three Period DSCR Rolling Average Ratio" means for any Accounting
---------------------------------------
Period the DSCR computed for such Accounting Period and the immediately
preceding 2 Accounting Periods on a cumulative basis.
9
<PAGE>
"Three Period Rolling Average Ratios" means the Three Period Combined
-----------------------------------
DSCR Rolling Average Ratio and the Three Period DSCR Rolling Average Ratio.
"Trigger Date" means the earliest to occur of the following:
------------
(i) the date on which the Annual Combined DSCR Rolling Average
Ratio for any Accounting Period is less than 1.15;
(ii) in the event that the No Second Lien Condition exists, the
date on which the Annual DSCR Rolling Average Ratio for any Accounting
Period is less than 1.25;
(iii) the date on which the Six Period Combined DSCR Rolling
Average Ratio for any Accounting Period is less than 1.0;
(iv) in the event that the No Second Lien Condition exists, the
date on which the Six Period DSCR Rolling Average Ratio for any
Accounting Period is less than 1.10;
(v) the date on which the Three Period Combined DSCR Rolling
Average Ratio for any Accounting Period is less than the Required
Amount for such Accounting Period;
(vi) in the event that the No Second Lien Condition exists, the
date on which the Three Period DSCR Rolling Average Ratio for any
Accounting Period is less than the sum of (x) 0.10, plus (y) the
Required Amount, for such Accounting Period; or
(vi) an Event of Default has occurred and is continuing.
(b) Capitalized terms used herein but not otherwise defined herein
have the meaning set forth in the Loan Agreement.
10
<PAGE>
(c) Prior to the first anniversary of this Agreement, all computations
pursuant to this Agreement shall be made on a pro forma basis as if the Loan and
the Subordinate Loan had been in place throughout the relevant thirteen
Accounting Periods, six Accounting Periods or three Accounting Periods.
3. Disposition of Net Cash Flow.
----------------------------
(a) Borrower and Manager hereby acknowledge and agree that all Inn
Income has been pledged and assigned to Senior Lender (first priority) and
Subordinate Lender (second priority). Pursuant to the Management Agreement, all
Gross Revenues (as defined in the Management Agreement) are collected by
Manager. Pursuant to the Management Agreement, Manager may use the Gross
Revenues for the payment of Deductions (as defined in the Management Agreement)
and the establishment and maintenance of the Reserve (as defined in and in
accordance with the Management Agreement) and must remit a portion of the
Operating Profit (as defined in the Management Agreement) to Borrower in the
priorities set forth in, and otherwise in accordance with, the Management
Agreement. After the occurrence of a Trigger Date, and until a Restoration Date
thereafter occurs, the parties hereto hereby agree that all (i) Operating Profit
and/or other amounts required or permitted to be paid to Borrower pursuant to
the Management Agreement, plus (ii) all cash or other amounts to which Borrower
is entitled from any source or which Borrower otherwise receives (collectively,
the "Net Cash Flow") shall be paid directly to the Cash Collateral Account (or,
-------------
if Senior Lender notifies Manager, Borrower and Subordinate Lender in writing
that the Application Trigger Date has occurred, to the Senior Account), rather
than to Borrower, whenever Net Cash Flow is payable to Borrower pursuant to the
Management Agreement or whenever Net Cash Flow is otherwise received by
Borrower. Borrower hereby assigns, conveys, mortgages, pledges, hypothecates and
transfers and delivers to Senior Lender (first priority) and Subordinate Lender
(second priority) all of Borrower's right, title and interest in and to the Cash
Collateral and the Cash Collateral Account as collateral for the payment of the
Indebtedness owed to such Lender, and hereby grants to Senior Lender (first
priority) and Subordinate Lender (second priority) a continuing lien on and
security interest therein. Additionally, Borrower
11
<PAGE>
absolutely assigns to Senior Lender (first priority) and Subordinate Lender
(second priority) the outright ownership of (and not a security interest in) the
Senior Account and Intercreditor Account and the funds therein (subject to
Borrower's right to receive credit against the indebtedness owed for any funds
actually paid to and applied by the respective Lenders). Manager hereby agrees
to deliver all Net Cash Flow to the applicable Account in accordance with the
provisions of this Agreement; provided, however, that (i) prior to the date on
which either Senior Lender or Subordinate Lender or their agent notifies
Borrower and Manager in writing that a Trigger Date or an Application Trigger
Date has occurred or Manager is otherwise informed by Borrower that a Trigger
Date or an Application Trigger Date has occurred, and (ii) after Senior Lender
notifies Manager that a Restoration Date has occurred (which Senior Lender
agrees to do promptly after a Restoration Date occurs), in either case Manager
may pay all Net Cash Flow directly to Borrower and Borrower may dispose of such
Net Cash Flow in accordance with and subject to the terms and conditions of the
Senior Loan Documents and Subordinate Loan Documents. Notwithstanding anything
contained herein to the contrary, prior to the date on which Manager receives
written notice from Senior Lender or Subordinate Lender that a Trigger Date or
an Application Trigger Date has occurred, Manager shall not be obligated to
deliver Net Cash Flow to the Cash Collateral Account or Senior Cash Collateral
Account. In the event Manager receives conflicting instructions from Senior
Lender, Subordinate Lender and/or Borrower, Manager shall rely exclusively on
the instructions from Senior Lender and shall be fully protected in such
reliance. So long as Manager complies with Lender's written instructions,
Borrower shall and does hereby release Manager from any claims with respect
thereto and Borrower shall and does hereby indemnify, defend and hold harmless
Manager from and against any such claims. Borrower's right to receive and use,
and the right of Manager to pay, the Net Cash Flow in accordance with the
preceding sentence shall terminate automatically and without notice or further
action upon the date on which Senior Lender or Subordinate Lender notifies
Borrower and Manager in writing that a Trigger Date or an Application Trigger
Date has occurred or Manager is otherwise informed by Borrower that a Trigger
Date or an Application Trigger Date has occurred. Notwithstanding anything to
the contrary in this Agreement, Senior Lender's
12
<PAGE>
rights pursuant to this Agreement are in addition to, and not in derogation of,
any rights contained in the Senior Loan Documents, and nothing contained herein
shall alter, affect or impair the absolute assignment contained in the
Assignments of Rents and Revenues. Notwithstanding anything to the contrary in
this Agreement, Subordinate Lender's rights pursuant to this Agreement are in
addition to, and not in derogation of, any rights contained in the Subordinate
Loan Documents, and nothing contained herein shall alter, affect or impair the
absolute assignment contained in the Subordinate Assignments of Rents and
Revenues.
(b) If after the occurrence of a Trigger Date a Restoration Date shall
occur, then the previous occurrence of the Trigger Date shall thereafter be of
no force or effect, and if no Event of Default or Default has occurred and is
continuing any funds then held in the Cash Collateral Account shall be (i)
first, used to pay any unpaid costs or expenses described in Paragraphs 5 or 7
hereof, (ii) second, used to pay all reasonable amounts incurred by or on behalf
of Subordinate Lender for attorneys' fees in connection with this Agreement, and
(iii) third, released to Borrower, provided that any amounts previously paid or
released from the Cash Collateral Account in accordance with this Agreement
shall not be repaid to Borrower, and Borrower waives any rights with respect to
any such payments. If after the occurrence of an Application Trigger Date an
Application Restoration Date and/or a Restoration Date shall occur, then
notwithstanding the occurrence of such Application Restoration Date and/or such
Restoration Date, (i) any amounts previously paid or released from the Senior
Account or the Intercreditor Account in accordance with this Agreement shall not
be repaid to Borrower, and Borrower waives any rights with respect to any such
payments or amounts, and (ii) no amounts then held in the Senior Account or the
Intercreditor Account shall ever be returned or released to Borrower under any
circumstances whatsoever, and Borrower waives any rights with respect thereto.
Additionally, notwithstanding anything in subparagraph 3(f) to the contrary,
upon the occurrence of an Application Restoration Date, any amounts held in the
Intercreditor Account shall continue to be held in the Intercreditor Account in
accordance with this Agreement until an
13
<PAGE>
Intercreditor Payment Date occurs and then shall be disposed of as set forth in
Paragraph 3(f)(iv) below.
(c) Subordinate Lender hereby acknowledges the priority of Senior
Lender's security interest with respect to the Cash Collateral and the priority
of Senior Lender's rights with respect to any funds in the Senior Account or the
Intercreditor Account and acknowledges that Senior Lender shall have sole
dominion and control over the Account and any funds in the Intercreditor Account
in accordance with this Agreement, and that Senior Lender may dispose of any
Cash Collateral and any funds in the Senior Account and/or the Intercreditor
Account in accordance with the terms of this Agreement free and clear of any
claims by Subordinate Lender so long as any amounts remain unpaid pursuant to
the Loan Agreement. Borrower acknowledges and agrees that Borrower has no right
to withdraw any funds or amounts held in the Cash Collateral Account, Senior
Account or the Intercreditor Account.
(d) Any funds held in the Cash Collateral Account, after the
occurrence of a Trigger Date but prior to the occurrence of a Restoration Date,
shall be applied by the Escrow Agent on the first business day of each month as
follows:
(i) First, to pay all amounts then due and payable to the
Senior Lender pursuant to the Senior Loan Documents;
(ii) Second, at the sole option of Senior Lender, to pay the
reasonable costs and expenses of Escrow Agent and any third party accountant
retained by Senior Lender or Escrow Agent as set forth in Paragraphs 5(a), 5(b)
and 7, provided that this provision shall not affect or lessen Borrower's
obligation to pay such costs and expenses as required by Paragraphs 5(a), 5(b)
and 7;
(iii) Third, to the extent available, to pay regularly scheduled
payments of principal and interest then due and payable to Subordinate Lender in
accordance with the Subordinate Loan Documents and the Intercreditor Agreement;
and
14
<PAGE>
(iv) Any remaining amounts shall be retained in the Cash Collateral
Account until an Application Trigger Date or a Restoration Date occurs, and then
shall be (i) released to Borrower in accordance with Section 3(b) hereof, if a
Restoration Date has occurred, or (ii) delivered to Senior Lender for deposit
into the Senior Account in accordance with Section 3(i) hereof, if an
Application Trigger Date has occurred.
(e) Any amounts held in the Senior Account shall be applied on the
first business day of each month as follows:
(i) First, to pay all amounts then due and payable to the Senior
Lender pursuant to the Senior Loan Documents;
(ii) Second, at the sole option of Senior Lender, to pay the
reasonable costs and expenses of Escrow Agent and any third party accountant or
Approved Institution retained by Senior Lender or Escrow Agent as set forth in
Paragraphs 5(a), 5(b) and 7, provided that this provision shall not affect or
lessen Borrower's obligation to pay such costs and expenses as required by
Paragraphs 5(a), 5(b) and 7;
(iii) Third, to the extent available, to pay the current month's
regularly scheduled payments of principal and interest then due and payable to
Subordinate Lender in accordance with the Subordinate Loan Documents and the
Intercreditor Agreement;
(iv) Fourth, any remaining amounts shall be paid to the
Intercreditor Account until the balance in the Intercreditor Account is equal to
the Maximum Intercreditor Account Amount; and
(v) Fifth, any remaining funds in the Senior Account may be paid,
at the sole option and election of Senior Lender, to reduce the outstanding
balance of the Loan, by applying such amounts (x) first to amounts owing
pursuant to the Senior Loan Documents other than principal and interest, then
(y) to accrued but unpaid interest, and then (z) to reduce the principal balance
of the Loan.
15
<PAGE>
(f) Any amounts held in the Intercreditor Account shall be applied
on the first business day of each month as follows:
(i) First, to pay all amounts then due and payable to the
Senior Lender pursuant to the Senior Loan Documents, to the extent not paid from
the Senior Account pursuant to the preceding subparagraph 3(e) hereof;
(ii) Second, at the sole option of Senior Lender, to pay the
reasonable costs and expenses of Escrow Agent and any third party accountant or
Approved Institution retained by Senior Lender or Escrow Agent as set forth in
Paragraphs 5(a), 5(b) and 7, to the extent not paid from the Senior Account
pursuant to the preceding subparagraph 3(e) hereof; provided that this provision
shall not affect or lessen Borrower's obligation to pay such costs and expenses
as required by Paragraphs 5(a), 5(b) and 7;
(iii) Third, to the extent available, to pay the current
month's regularly scheduled payments of principal and interest then due and
payable to Subordinate Lender in accordance with the Subordinate Loan Documents
and the Intercreditor Agreement, to the extent not paid from the Senior Account
pursuant to the preceding subparagraph 3(e) hereof; and
(iv) Any amounts remaining in the Intercreditor Account shall
be held in the Intercreditor Account until the occurrence of an Intercreditor
Payment Date. Upon the occurrence of an Intercreditor Payment Date, any funds or
other amounts then held in the Intercreditor Account may be paid at the sole
option and election of Senior Lender to reduce the outstanding balance of the
Loan, by applying such amounts (x) first to amounts owing pursuant to the Senior
Loan Documents other than principal and interest, then (y) to accrued but unpaid
interest, and then (z) to reduce the principal balance of the Loan.
Additionally, to the extent that the amount held in the Intercreditor Account at
any time exceeds the Maximum Intercreditor Account Amount, then any funds or
amounts then held in the Intercreditor Account in excess of the Maximum
Intercreditor Account Amount may, at the sole option and election of Senior
Lender, be paid or applied by Senior Lender in accordance with the preceding
sentence.
16
<PAGE>
(g) After the occurrence of a Trigger Date or an Application Trigger
Date and until the occurrence of a Restoration Date, Manager hereby agrees to
remit to the Account the maximum amount to which Borrower is then and thereafter
entitled pursuant to the Management Agreement, notwithstanding any contrary
requests or instructions from Borrower.
(h) Any interest earned on the Account or the Intercreditor Account
shall be added thereto and reported under Borrower's taxpayer identification
number.
(i) In the event that Senior Lender notifies Escrow Agent, Borrower
and Subordinate Lender that an Application Trigger Date has occurred, Escrow
Agent shall immediately deliver all funds or amounts then or thereafter held in
the Cash Collateral Account to Senior Lender for deposit into the Senior
Account.
(j) Borrower acknowledges and agrees that the Senior Account and the
Intercreditor Account are the sole property of Senior Lender and have been
established solely to provide for the payment of Indebtedness owed to Senior
Lender and Subordinate Lender. Borrower has absolutely no rights whatsoever
with respect to the Senior Account or the Intercreditor Account or any funds
contained therein (other than the right to receive credit against the Debt for
any such amounts applied against the Debt) and under no circumstances whatsoever
shall Borrower ever have or claim to have any rights whatsoever with respect to
the Senior Account or the Intercreditor Account or any funds contained therein.
Specifically, but without limitation, Borrower acknowledges and agrees that in
the event that a bankruptcy proceeding is commenced by or against Borrower, the
Senior Account and the Intercreditor Account and/or any funds contained in the
Senior Account and/or the Intercreditor Account shall not constitute the
property of Borrower's bankruptcy estate and Borrower shall not claim or assert
that the Senior Account and/or the Intercreditor Account or any funds contained
therein constitute the property of Borrower's bankruptcy estate.
17
<PAGE>
(k) Any amounts applied to reduce the principal balance of the Loan
pursuant to this Agreement shall be without any Yield Maintenance Payment or
other prepayment premium or penalty, notwithstanding any provisions of the
Senior Loan Documents to the contrary, unless an Event of Default has occurred
and is continuing and has not been cured by Subordinate Lender within five days
after written notice from Senior Lender, in which case any Yield Maintenance
Payments required by the Senior Loan Documents shall be fully due and payable,
subject to Paragraph 29 of the Intercreditor Agreement.
4. Cash Collateral.
---------------
(a) Borrower shall take all reasonably necessary actions and shall
otherwise reasonably cooperate to ensure that, when required by this Agreement,
all of the Net Cash Flow is paid into the Account in accordance with this
Agreement, including without limitation paying into the Account any Net Cash
Flow inadvertently or otherwise received by Borrower in violation of this
Agreement.
(b) Borrower hereby grants to Escrow Agent (and all persons
designated by Escrow Agent, including without limitation the officers and
employees of the financial institution where the Cash Collateral Account is
maintained) the full right, power and authority, which shall be deemed to be
coupled with an interest, to endorse and deposit all checks and credit card or
similar receipts pertaining to the Mortgaged Property delivered for deposit into
the Cash Collateral Account, whether or not made payable to Borrower, Escrow
Agent, Manager or otherwise, and Borrower agrees to execute all necessary or
appropriate documentation confirming the authority granted hereby. On or prior
to the tenth (10th) day of each month after the Trigger Date, Escrow Agent (or
its designee, nominee or assignee) shall furnish Senior Lender, Subordinate
Lender, Borrower and Manager with a reasonably detailed accounting of all Net
Cash Flow deposited into the Cash Collateral Account for the preceding month and
the use of any amounts withdrawn from the Cash Collateral Account. The monies
contained in the Cash Collateral Account may be transferred by Escrow Agent from
time to time to any other account or sub-account chosen by Senior Lender in
accordance with this Agreement, provided that each such account and the monies
contained therein
18
<PAGE>
shall remain subject to the terms and provisions of this Agreement.
(c) Borrower hereby grants to Senior Lender (and all persons
designated by Senior Lender, including without limitation the officers and
employees of the financial institution where the Senior Account is maintained)
the full right, power and authority, which shall be deemed to be coupled with an
interest, to endorse and deposit all checks and credit card or similar receipts
pertaining to the Mortgaged Property delivered for deposit into the Senior
Account, whether or not made payable to Borrower, Senior Lender, Manager or
otherwise, and Borrower agrees to execute all necessary or appropriate
documentation confirming the authority granted hereby. On or prior to the tenth
(10th) day of each month during the term of this Agreement, Senior Lender (or
its designee, nominee or assignee) shall furnish Subordinate Lender, Borrower
and Manager with an accounting of all amounts deposited into the Senior Account
for the preceding month and the use of any amounts withdrawn from the Senior
Account. The monies contained in the Senior Account may be transferred by
Senior Lender from time to time to any other account or sub-account chosen by
Senior Lender in accordance with this Agreement, provided that each such account
and the monies contained therein shall remain subject to the terms and
provisions of this Agreement.
(d) Borrower hereby confirms that all Cash Collateral is subject to
(i) Senior Lender's first priority lien and security interest created by the
Loan Documents and (ii) Subordinate Lender's second priority lien and security
interest created by the Subordinate Loan Documents. In addition to, and without
limitation of, any such liens or security interests, Borrower hereby confirms
each Lender's security interest in and to all Cash Collateral as security for
the obligations to Senior Lender under the Loan Documents and to the Subordinate
Lender under the Subordinate Loan Documents. Borrower acknowledges and agrees
that Senior Lender has a presently enforced, possessory and "choate" first
priority lien and security interest in and to all Cash Collateral and that
Subordinate Lender has a presently enforced, possessory and "choate" second
priority lien and security interest in the Cash Collateral, notwithstanding the
License. On demand, from time to time, Borrower agrees to execute and deliver
to each
19
<PAGE>
Lender and hereby authorizes each Lender to execute in the name of Borrower to
the extent each Lender may lawfully do so, financing statements or comparable
security instruments as may reasonably be requested or required by each Lender
to perfect or continue the respective security interests in the Cash Collateral
Account and Lender's rights with respect to the other accounts provided for
herein.
5. Administration of Accounts.
--------------------------
(a) The Senior Account shall be administered solely by Senior Lender.
Senior Lender shall have the sole, absolute and unconditional right, at any time
after the Application Trigger Date, without notice, to designate a qualified
third party accountant or Approved Institution acceptable to Senior Lender to
administer the Senior Account on its behalf in accordance with the provisions of
this Agreement, which shall by instrument in form and substance satisfactory to
Senior Lender in all respects, be assumed by any such third party accountant or
Approved Institution. The reasonable costs of any such third party accountant or
Approved Institution shall be paid by Borrower. Borrower agrees that the
reasonable fees of Senior Lender, or such other accountant or Approved
Institution incurred in establishing and administering the Senior Account shall
be paid upon the occurrence of an Application Trigger Date and on a monthly
basis out of funds other than the Cash Collateral, the funds in the Senior
Account or the funds in the Intercreditor Account, notwithstanding Senior
Lender's option to pay such costs and expenses from the Cash Collateral or funds
in the Senior Account in accordance with Paragraph 3(d)(ii) above. Borrower
acknowledges that any third party accountant or Approved Institution designated
subsequent to the execution hereof to administer the Senior Account shall
collect the Net Cash Flow as agent of and in trust for the use and benefit of
the Lenders and for application in accordance with the terms of this Agreement.
The amounts to be held in the Senior Account shall be held in an Account
maintained by Senior Lender or in the event Senior Lender so designates, by such
other accountant or Approved Institution as agent of and in trust for the
benefit of Senior Lender.
(b) The Cash Collateral Account shall be administered by Escrow Agent.
All costs of the Escrow Agent
20
<PAGE>
shall be paid by Borrower. Escrow Agent shall have the right, at any time after
the date hereof, with the consent of Senior Lender, and the consent of
Subordinate Lender, which consent by Subordinate Lender shall not be
unreasonably withheld or delayed, to designate a qualified third party
accountant or Approved Institution to administer the Cash Collateral Account on
its behalf in accordance with the provisions of this Agreement, which shall by
instrument in form and substance satisfactory to Escrow Agent and Senior Lender
in all respects, be assumed by any such third party accountant or Approved
Institution. Borrower agrees that the reasonable fees of Escrow Agent, or such
other accountant or Approved Institution incurred in establishing and
administering the Cash Collateral Account shall be paid upon the occurrence of a
Trigger Date and on a monthly basis out of funds other than the Cash Collateral,
the funds in the Senior Account or the funds in the Intercreditor Account,
notwithstanding Senior Lender's option to pay such costs and expenses from the
Cash Collateral or funds in the Senior Account in accordance with Paragraph
3(d)(ii) above. Borrower acknowledges that any third party accountant or
Approved Institution designated subsequent to the execution hereof to administer
the Cash Collateral Account shall collect the Net Cash Flow as agent of and in
trust for the use and benefit of the Lenders and for application in accordance
with the terms of this Agreement. The Cash Collateral shall be held in an
account maintained by Escrow Agent or in the event Escrow Agent so designates,
by such other accountant as agent of and in trust for the benefit of Escrow
Agent, Lenders and Borrower.
(c) The Intercreditor Account shall be administered solely by Senior
Lender. Senior Lender shall have the sole, absolute and unconditional right, at
any time after the Application Trigger Date, without notice, to designate a
qualified third party accountant or Approved Institution acceptable to Senior
Lender to administer the Intercreditor Account on its behalf in accordance with
the provisions of this Agreement, which shall by instrument in form and
substance satisfactory to Senior Lender in all respects, be assumed by any such
third party accountant or Approved Institution. The costs of any such third
party accountant or Approved Institution shall be paid by Borrower. Borrower
agrees that the reasonable fees of Senior Lender, or such other accountant or
Approved
21
<PAGE>
Institution incurred in establishing and administering the Intercreditor Account
shall be paid upon the occurrence of an Application Trigger Date and on a
monthly basis out of funds other than the Cash Collateral or funds in the Senior
Account or the Intercreditor Account, notwithstanding Senior Lender's option to
pay such costs and expenses from the Cash Collateral or the funds in the Senior
Account in accordance with Paragraph 3(d)(ii) and 3(f) above.
6. No Forbearance or Waiver of Remedies.
------------------------------------
(a) Nothing contained herein shall be deemed to be an agreement by
Lenders to forbear in exercising any of their rights or remedies available under
the Loan Documents, at law or in equity, during the pendency of this Agreement.
Specifically, but without limitation, nothing contained in this Agreement shall
limit or restrict the rights of Senior Lender after the occurrence and during
the continuation of an Event of Default under the Senior Loan Documents or the
rights of Subordinate Lender after the occurrence and during the continuation of
an Event of Default (as defined in the Subordinate Loan Documents); provided,
however, that Subordinate Lender's exercise of its rights shall be limited as
set forth in the Intercreditor Agreement. Upon the occurrence and during the
continuation of an Event of Default, Senior Lender shall have the absolute,
unconditional and unqualified right, at any time, in its sole and absolute
discretion, to (i) apply any funds or other amounts then held in the
Intercreditor Account, Senior Account or the Cash Collateral Account to the
Loan, in such order and manner as may be permitted by the Senior Loan Documents,
notwithstanding any provision to the contrary in this Agreement (including
without limitation Paragraph 3 hereof), and (ii) pursue all rights and remedies
available pursuant to the Senior Loan Documents, applicable law or otherwise,
without any limitation or restriction as a result of this Agreement. Lenders
expressly reserve any and all rights and remedies available to them under the
Senior Loan Documents or Subordinate Loan Documents, as applicable, at law or in
equity, including, without limitation, the right to accelerate the Loan and the
Subordinate Loan, as applicable, and to commence an action to foreclose the
Senior Mortgages or Subordinate Mortgages, as applicable, pursue rights with
respect to Cash Collateral (including, without limitation, "cash collateral" as
defined in the
22
<PAGE>
Bankruptcy Code), petition for the appointment of a receiver, or pursue any
other rights or remedies, including, but not limited to, seeking a lifting of
the automatic stay in, or dismissal or conversion of, any bankruptcy case,
seeking the appointment of a trustee for the Borrower, termination of either or
both of the exclusive periods set forth in section 1121 of the Bankruptcy Code
or the filing by Lenders of a Chapter 11 plan with respect to Borrower, and
Lenders expressly reserve all such rights or remedies and any and all other
rights and remedies afforded Lenders under this Agreement, under state law or
other applicable law, under the Bankruptcy Code or otherwise, irrespective of
whether this Agreement is in effect, it being expressly agreed that the
termination of this Agreement shall in no event or under any circumstances be a
condition precedent to the exercise by Senior Lender of any of such rights and
remedies; provided however, that the provisions of this sentence shall be
subject to the limitations of the Intercreditor Agreement. No failure to
exercise or delay by Lenders in exercising any right, power or privilege under
the Loan Documents or Subordinate Loan Documents, at law or in equity shall
preclude any other or further exercise thereof, or the exercise of any other
right, power or privilege. The rights and remedies provided in this Agreement
and the Loan Documents are cumulative and not exclusive of each other or of any
right or remedy provided by law or in equity. Except as otherwise expressly
provided in the Loan Documents, no notice to or demand upon Borrower in any
instance shall, in itself, entitle Borrower to any other or further notice or
demand in similar or other circumstances or constitute a waiver of the right of
Senior Lender to any other or further action in any circumstances without notice
or demand.
7. Expenses, Attorneys' Fees. Senior Lender is hereby authorized to
-------------------------
reimburse itself from the Senior Account or the Intercreditor Account or to
receive reimbursement from the Cash Collateral Account for all reasonable
amounts incurred by or on behalf of Senior Lender for attorneys' fees and all
other expenses reasonably incurred by or on behalf of Senior Lender in
connection with this Agreement or otherwise chargeable to Borrower as provided
in the Loan Documents (to the extent that funds are available in the Senior
Account and/or the Intercreditor Account and/or the Cash Collateral Account).
In the event
23
<PAGE>
any dispute shall arise concerning the subject matter of this Agreement, Lenders
shall be entitled to recover from Borrower their reasonable attorneys' fees and
costs incurred in connection therewith, including without limitation, all costs
of trial, appellate and bankruptcy proceedings (other than any of same arising
or resulting from a dispute solely between Senior Lender and Subordinate Lender
and not arising from or based upon the actions or failure to act of Borrower).
The rights and remedies of Lenders contained in this paragraph shall be in
addition to, and not in lieu of, the rights and remedies contained in the Loan
Documents and Subordinate Loan Documents and as otherwise provided by law or in
equity.
8. Lenders Not Liable for Expenses. Nothing in this Agreement shall be
-------------------------------
intended or construed to hold Lenders liable or responsible for any expense,
disbursement, liability or obligation of any kind or nature whatsoever,
including, but not limited to, wages, salaries, payroll taxes, withholding,
benefits or other amounts payable to or on behalf of Borrower, whether or not
there is sufficient money in the Cash Collateral Account and/or the Senior
Account and/or the Intercreditor Account to pay such expenses or costs and
whether any present or future creditor attempts to assert a claim against
Lenders or the Mortgaged Property, including, but not limited to, any attempt in
any bankruptcy proceeding to assert a claim under Section 506(c) of the
Bankruptcy Code, or any other provision of the Bankruptcy Code. Nothing
contained in this Agreement shall limit Subordinate Lender's right to
reimbursement from Borrower for any costs or expenses required to be paid
pursuant to the Subordinate Loan Documents, subject, however, in all event to
the provisions of the Intercreditor Agreement.
9. Management Company's Duties. Manager hereby expressly confirms and
---------------------------
acknowledges that Manager shall at all times have a fiduciary duty to Lenders
with respect to the administration of Net Cash Flow in accordance with this
Agreement.
10. No Joint Venture. This Agreement shall not constitute a joint venture
----------------
or partnership agreement of any kind between the parties hereto or otherwise
create the relationship of joint venturers or partners among the
24
<PAGE>
parties hereto. Nothing contained herein shall characterize or be deemed to
characterize Lenders as "mortgagee-in-possession."
11. Injunctive Relief/Irreparable Harm. Borrower and Manager acknowledge
----------------------------------
and agree that any breach or default by either Borrower or Manager pursuant to
this Agreement would result in irreparable harm to Senior Lender and Subordinate
Lender and that therefore money damages would not be an adequate remedy to
compensate Senior Lender or Subordinate Lender for such breach or default.
Accordingly, Borrower and Manager acknowledge and agree that in the event of a
breach or default by either of them pursuant to the terms of this Agreement,
Senior Lender and/or Subordinate Lender shall each be entitled to specific
performance of Borrower's and Manager's obligations under this Agreement and/or
any other equitable remedy which Lenders may seek, in their sole and absolute
discretion, and Borrower and Manager hereby waive and release any right to claim
that monetary damages would be an adequate remedy.
12. Transfer, etc. Without the prior written consent of Lenders, Borrower
--------------
will not sell, assign, transfer or otherwise dispose of, grant any option with
respect to, or pledge or grant any security interest in or otherwise encumber
any of the Cash Collateral or any interest therein, except for the pledge
thereof and security interests therein provided for in this Agreement or in any
of the other Senior Loan Documents or Subordinate Loan Documents, and any such
purported action in violation of this paragraph shall be void.
13. Duty as to Collateral. Neither Senior Lender, Subordinate Lender,
---------------------
Escrow Agent nor any of their respective officers, directors or employees shall
be liable for any action taken or omitted to be taken in good faith by them
hereunder or in connection herewith except for their own gross negligence or
willful misconduct. Senior Lender, Subordinate Lender and Escrow Agent may rely
on all certificates, documents and other proofs delivered to them and believed
by them in good faith to be reliable as to the facts therein disclosed and the
statements therein made, and any such certificate, document or other proof shall
be evidence of such facts to protect such parties in any action that they may or
may not do, by reason of the supposed
25
<PAGE>
existence of such fact. Neither Senior Lender, Subordinate Lender, Escrow Agent
nor their agents shall incur any liability to Borrower arising our of their
taking or failing to take any action hereunder except for their own willful
misconduct or gross negligence.
14. Representations and Warranties. Borrower hereby represents and
------------------------------
warrants that:
(a) Borrower has full legal right to execute, delivery and perform
this Agreement and this Agreement has been duly executed and delivered by
Borrower and constitutes a legal, valid and binding obligation of Borrower
enforceable against Borrower in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally.
(b) No security agreements have been executed by Borrower and
delivered, and no financing statements have been filed by Borrower in any
jurisdiction, granting or purporting to grant a lien on or security interest in
the funds constituting or to constitute the Cash Collateral or to be held in the
Senior Account or Intercreditor Account to any secured party except in
connection with this Agreement and the other Loan Documents.
(c) No consent of any other party and no consent, license, approval
or authorization of, exemption by, or registration or declaration with, any
governmental instrumentality is required to be obtained in connection with the
execution, delivery or performance of this Agreement.
(d) Borrower's federal tax identification number is 52-1558094.
(e) Borrower will defend Senior Lender's right and interest in and to
the Cash Collateral and the Senior Account and the Intercreditor Account and the
income, distributions and Proceeds thereof against the claims and demands of all
Persons whomsoever (other than parties claiming through Senior Lender).
26
<PAGE>
(f) Borrower will defend Subordinate Lender's right and interest in
and to the Cash Collateral and the Senior Account and the Intercreditor Account
and the income, distributions and Proceeds thereof against the claims and
demands of all Persons whomsoever (other than parties claiming through
Subordinate Lender).
15. Remedies. In addition to the rights, powers and remedies of the Loan
--------
Documents, Lenders shall have all of the rights, powers and remedies now or
hereafter permitted in law or equity, including without limitation, those of a
secured party under the Uniform Commercial Code, all such rights and remedies
being cumulative, not exclusive, and enforceable alternatively, successively or
concurrently, at such time or times as Lenders deem expedient, such remedies to
be exercised only after the occurrence and during the continuation of an Event
of Default and subject to the provisions of the Intercreditor Agreement.
16. Modifications. If any or all of the provisions of this Agreement are
-------------
hereafter modified, vacated or stayed by subsequent order of any court, such
stay, modification or vacation shall not affect the validity and enforceability
of any contractual right, property right, lien, security interest or priority
authorized hereby with respect to any of the Net Cash Flow which is deemed by
this Agreement to be Cash Collateral and which have been used pursuant to this
Agreement.
17. Governing Law. This Agreement shall be construed in accordance with
-------------
the internal laws of the State of New York, without regard to its conflict-of-
laws principles.
18. Benefit. This Agreement shall to the extent legally permissible be
-------
binding upon and shall inure to the benefit of Senior Lender, Subordinate
Lender, Borrower, Manager and their respective successors and assigns, to the
extent successors and assigns are permitted under the respective Senior Loan
Documents and Subordinate Loan Documents. This Agreement is made for the sole
protection of the parties hereto and their respective successors and assigns.
19. Miscellaneous. No other person shall have any right whatsoever
-------------
hereunder. Any notice, request, direction
27
<PAGE>
or demand given or made under this Agreement shall be in writing and shall be
given in accordance with the Loan Documents or Subordinate Loan Documents. Each
party to this Agreement may designate a change of address by notice given to the
other party fifteen (15) days prior to the date such change of address is to
become effective. Time shall be of the essence in the performance of each and
every one of the provisions hereof. If any of the provisions of this Agreement
is held to be invalid or unenforceable, the remaining provisions shall remain in
effect without impairment. This Agreement may not be modified, amended or
terminated except by an agreement in writing executed by all of the parties
hereto. Notwithstanding any provision to the contrary herein or in any of the
Loan Documents, upon the occurrence of an Event of Default and an acceleration
of the Loans as permitted by the Loan Documents, Borrower shall have no right to
cure any Event of Default and no right to otherwise reinstate the Loans.
20. Counterparts. It is understood and agreed that this Agreement may be
------------
executed in telecopied, facsimile, or original counterparts, each of which
shall, for all purposes, be deemed an original and all of such counterparts,
taken together, shall constitute one and the same Agreement, even though all of
the parties hereto may not have executed the same counterpart of this Agreement.
21. Conflict. To the extent of any conflict between the terms and
--------
provisions of this Agreement and the Intercreditor Agreement, the terms and
provisions of the Intercreditor Agreement shall prevail and control.
22. Escrow Agent. The Escrow Agent may become a party to this Agreement
------------
at any time after the Escrow Agent is selected in accordance with this Agreement
by providing written notice to such effect to each of the parties to this
Agreement. The Escrow Agent shall neither be responsible for or under, nor
chargeable with knowledge of, the terms and conditions of any other agreement,
instrument or document in connection herewith other than the Senior Loan
Documents and Subordinate Loan Documents and shall be required to act in respect
of the Cash Collateral only as provided in this Agreement. This Agreement sets
forth all the obligations of the Escrow Agent with respect to any and all
matters pertinent to the escrow contemplated hereunder.
28
<PAGE>
The Escrow Agent shall incur no liability in connection with the discharge of
its obligations under this Agreement or otherwise in connection therewith,
except such liability as may arise from the gross negligence or willful
misconduct of the Escrow Agent. Borrower hereby agrees to indemnify Escrow Agent
and hold Escrow Agent harmless from any loss, cost, liability or expense
incurred by Escrow Agent as a result of this Agreement or the performance of
Escrow Agent's obligations hereunder, except to the extent caused by Escrow
Agent's gross negligence or willful misconduct. The Escrow Agent may consult
with counsel of its choice and shall not be liable for any action taken or
omitted to be taken by the Escrow Agent in accordance with the advice of such
counsel. The Escrow Agent shall not be bound by any modification, cancellation
or rescission of this Agreement unless in writing and signed by the Escrow
Agent. Each of the parties to this Agreement hereby covenants and agrees to
execute and deliver any further documentation or amendments to this Agreement
(provided that such amendments are not inconsistent with the provisions of this
Agreement) reasonably requested by Escrow Agent as a condition to Escrow Agent
acting with respect to this Agreement.
23. Valid Security Interest. The parties hereto agree that this Agreement
-----------------------
is effective to create a valid lien on and security interest in the funds on
deposit in the Cash Collateral Account and to transfer full and complete
ownership of the Senior Account and the Intercreditor Account and the funds
therein to Lender, and Borrower has taken no action which would subject such
funds to any prior lien or security interest or to any agreement purporting to
grant to any third party a lien or security interest on the property or assets
of Borrower which would include such funds (other than any rights of the Manager
under the Management Agreement or this Agreement).
24. Estoppel Certificates. Each party to this Agreement agrees to execute
---------------------
and deliver to any other party to this Agreement within ten (10) days after
written request by such other party, an estoppel certificate certifying that (i)
this Agreement is in full force and effect, (ii) this Agreement is unmodified
(or specifying any modifications), (iii) to such party's knowledge, whether any
other party to this Agreement is then in default under this Agreement, and if
so, specifying the nature of the default, and (iv) as to
29
<PAGE>
any other information with respect to this Agreement reasonably requested by the
requesting party.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
in manner and form sufficient to bind them, as of the day and year first set
forth above.
SENIOR LENDER:
GERMAN AMERICAN CAPITAL
CORPORATION, a Maryland
corporation, as agent or trustee
for itself and others, and its
successors and assigns
By:
------------------------------
Joseph G. Kiely
Vice President
By:
------------------------------
Charlene S. Chai
Authorized Signatory
SUBORDINATE LENDER:
STARWOOD MEZZANINE INVESTORS, L.P.,
a Delaware limited partnership
By: STARWOOD CAPITAL GROUP, L.P.,
a Delaware limited
partnership, its general
partner
By: BSS CAPITAL PARTNERS,
L.P., a Delaware limited
partnership, its general
partner
By: STERNLICHT HOLDINGS
II, INC., a Delaware
corporation, its
general partner
By:
-----------------
30
<PAGE>
Jay Sugarman
Executive Vice
President
BORROWER:
MARRIOTT RESIDENCE INN LIMITED
PARTNERSHIP, a Delaware limited
partnership
By: RIBM One Corporation, General
Partner
By:
--------------------------
Bruce D. Wardinski
Vice President
MANAGER:
RESIDENCE INN BY MARRIOTT, INC., a
Delaware corporation
By:
--------------------------
Name:
------------------------
Title:
-----------------------
31
<PAGE>
EXHIBIT "A"
-----------
DESCRIPTION OF INNS
32
<PAGE>
Exhibit 10.5
LOAN AGREEMENT
THIS LOAN AGREEMENT dated as of October 10, 1995, by and between
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP, a Delaware limited partnership (the
"Borrower"), and STARWOOD MEZZANINE INVESTORS, L.P., a Delaware limited
--------
partnership (the "Lender"), sets forth the binding agreement of the parties.
------
* * *
The Borrower proposes to borrow one loan in the principal amount of up
to U.S. $30,000,000.00 pursuant to and in accordance with the terms hereof.
On the terms and subject to the conditions set forth in this
Agreement, the Lender is willing to make such loan.
In consideration of the premises and the mutual obligations contained
in this Agreement, the Borrower and the Lender hereby agree as follows.
SECTION 1
DEFINITIONS
The following capitalized expressions, as used in this Agreement, have
the following meanings (such meanings to be equally applicable to both the
singular and the plural forms of such expressions):
"Accountants" means Arthur Andersen L.L.P., or another firm of
-----------
certified public accountants of reputable national standing, acting as
accountants for the Borrower, and reasonably acceptable to Lender.
<PAGE>
"Accounting Period" means the accounting period currently used by the
-----------------
Borrower containing four or five 7-day weeks; provided, however, that each
period of 13 Accounting Periods shall contain not less than an aggregate of 364
days and not more than an aggregate of 371 days, and further provided that as
used herein the "Annual Accounting Period" shall mean the period of 13
------------------------
Accounting Periods based on Manager's fiscal year currently in effect.
"Adjusted Senior Notes Debt Service" means Senior Notes Debt Service
----------------------------------
calculated for the purposes of Section 2.12 of the Senior Loan Agreement and
adjusted by the reduction in the principal amount of the Senior Loan that will
result from the payment of the Release Price.
"Affiliate" means, with respect to any Person, any other Person which,
---------
directly or indirectly, controls, is controlled by or is under common control
with any such Person.
"Agreement" means this Loan Agreement, as the same may from time to
---------
time be amended, supplemented or modified in accordance with the terms hereof.
"All Indebtedness Debt Service" means for any period, Senior Notes
-----------------------------
Debt Service or Adjusted Senior Notes Debt Service, as applicable, plus all
amounts paid or due and payable by the Borrower under the Loan or any
indebtedness permitted by Section 8.3 of this Agreement (including, without
limitation, amounts payable with respect to Capital Leases), other than
prepayments of principal (and for such purpose "prepayments" shall not include
(x) regularly scheduled principal amortization payments, and (y) any payments
required pursuant to Section 2.4 (b)).
"Allocated Loan Amount" means the initial amount of the Loan allocated
---------------------
to each Inn, as set forth on Exhibit A, less the amount of the principal
payments allocated by Lender to each Inn. Except for prepayments pertaining to
a particular Inn or Inns which will be allocated to the
2
<PAGE>
affected Inn or Inns, such allocation by Lender will be based on the Applicable
Ratio in effect at the time of a payment.
"Annual Financial Statement" means the annual audited financial
--------------------------
statement of the Borrower prepared by the Accountants in accordance with GAAP
applied consistently throughout the term, except as approved by the Accountants
and disclosed therein.
"Annual Operating Projection" has the meaning set forth in Section
---------------------------
8.03 of the Management Agreement.
"Annual Rolling Average Ratios" has the meaning set forth in the Four
-----------------------------
Party Agreement.
"Applicable Percentage" for each Inn means the amount set forth for
---------------------
each Inn on Exhibit A.
---------
"Applicable Ratio" for any Inn means the Applicable Percentage of such
----------------
Inn divided by the sum of the Applicable Percentages of all Inns then subject to
the Mortgages.
"Assignment of Management Agreement" means the Assignment of
----------------------------------
Management Agreement by the Borrower to the Lender and Manager's Consent dated
as of the Closing Date.
"Assignments of Rents and Revenues" means the collective reference to
---------------------------------
the 15 separate Assignments of Rents and Revenues dated as of the Closing Date
from the Borrower to the Lender collectively assigning to Lender Borrower's
rights with respect to all Rents, Revenues and Other Collateral.
"Average Remaining Life" means a time period equal to the weighted
----------------------
arithmetic mean of the periods of time that each dollar of the Loan would be
outstanding prior to the Maturity Date assuming no payments or amortization of
the
3
<PAGE>
Loan other than as required by Section 2.4(a) of this Agreement.
"Borrower" means Marriott Residence Inn Limited Partnership, a
--------
Delaware limited partnership.
"Borrower's Certificate" means the certificate executed by Borrower
----------------------
for the benefit of Lender contemporaneously herewith.
"Business Day" means each day other than a Saturday, Sunday or any day
------------
on which banks in New York, New York are authorized or required to close.
"Capital Lease" means, with respect to any Person, a lease of any
-------------
property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, either would be required to be classified and accounted
for as a Capital Lease on a balance sheet of such Person or otherwise be
disclosed as such in a note to such balance sheet.
"Closing Date" means the date on which Lender disburses the proceeds
------------
of the Loan to Borrower.
"Collateral and Security" means the Mortgaged Property, Proceeds and
-----------------------
all other collateral and security for the Loan.
"Combined DSCR" means the ratio of Net Income Available for Debt
-------------
Service to All Indebtedness Debt Service for the period in question.
"Combined LTV" means the ratio of the sum of (i) the outstanding
------------
principal balance of the Loan, plus (ii) the outstanding principal balance of
the Senior Loan, plus (iii) the amount of all other outstanding indebtedness of
Borrower permitted pursuant to Section 8.3 (including without limitation, the
capitalized amount of any indebtedness for Capital Leases in accordance with
GAAP), divided by the values of the Inns as set forth in Exhibit I.
---------
4
<PAGE>
"Combined Outstanding Principal Balances" shall mean for each Inn the
---------------------------------------
sum of (i) the Allocated Loan Amount for such Inn at such time, plus (ii) the
Senior Loan Outstanding Principal Balance for such Inn at such time as
determined pursuant to the Senior Loan Documents, plus (iii) the amount of all
other outstanding indebtedness of Borrower permitted pursuant to Section 8.3
(including, without limitation, the capitalized amount of any indebtedness for
Capital Leases in accordance with GAAP) allocable to such Inn based on the
Applicable Ratios.
"Commitment" means $30,000,000.00.
----------
"Control", "controlled by" or "under common control with" mean, for a
------- ------------- -------------------------
corporation, ownership, directly or indirectly, of outstanding voting stock
entitling the holder thereof to elect a majority of the board of directors
(irrespective of whether or not at the time stock of any other class or classes
of such corporation shall or might have voting power by reason of the happening
of any contingency); for a Person other than a corporation with ownership
interests entitling the holder thereof to elect the equivalent of a board of
directors, the ownership, directly or indirectly, of interests sufficient to
elect the equivalent of a majority thereof; or, for any other Person, control by
any other means.
"Controlled Group" means all members of a controlled group of
----------------
corporations and all trades or businesses (whether or not incorporated) which,
together with any Person, are under common control or treated as a single
employer under Section 414(b), (c), (m) or (o) of the IRC.
"Debt" means the aggregate of: (i) any amounts advanced to the
----
Borrower pursuant to the terms hereof or pursuant to the other Related
Documents; (ii) any and all other amounts required by the terms hereof or by the
terms of any of the other Related Documents to be paid by the Borrower to the
Lender, including, without limitation,
5
<PAGE>
interest; (iii) to the extent permitted by law or by the Mortgages, any and all
additional advances made by the Lender to protect or preserve the Sites or any
improvements located on any Site or the security interests created by the Loan
Documents, or for taxes, assessments or insurance premiums, as provided in the
Related Documents, or for the performance of any of the Borrower's obligations
under the Related Documents or for any other purposes provided in the Related
Documents; (iv) any and all reasonable attorneys' fees, costs, expenses,
judgments, settlements and compromises incurred by the Lender in any suit,
action, legal proceeding or dispute of any kind in which the Lender is a party
or appears as party plaintiff or defendant, arising from or related to the Loan
other than suits, actions or proceedings (x) solely among parties holding an
interest in Lender's rights with respect to the Loan; or (y) solely between
Lender and Subordinate Creditor and not arising from or based upon the actions
or failure to act of Borrower; and (v) any and all other reasonable expenses
incurred by the Lender, or sums advanced by the Lender on behalf of the
Borrower, in accordance with the terms of this Agreement or any of the other
Related Documents.
"Default" means any event or failure of any event or condition to
-------
occur which constitutes or would constitute, after the giving of notice or lapse
of time or both, an Event of Default.
"Default Rate" means the Interest Rate plus three percent (3%).
------------
"Defeasance Payment" shall mean a payment in the amount required by
------------------
Section 2.5(a)(ii) into a collateral account with an entity reasonably
satisfactory to Lender in its sole and absolute discretion for the sole benefit
of Lender, established pursuant to an escrow agreement in form and substance
satisfactory to Lender in its sole and absolute discretion, with collateral
rated "A" or better by either of Standard & Poor's Corporation or Moody's
Investors
6
<PAGE>
Service and not subject to credit watch by either rating agency.
"Distribution Conditions" has the meaning set forth in Section 8.9.
-----------------------
"Dollars" and the sign "$" mean such coin or currency of the United
-------
States of America as is, at the relevant time, legal tender for the payment of
public and private debts.
"DSCR" means the ratio of Net Income Available for Debt Service to
----
Adjusted Senior Notes Debt Service or Senior Notes Debt Service, as applicable,
with respect to the period in question.
"Environmental Indemnity" means that certain Indemnity Agreement made
-----------------------
by Borrower and General Partner in favor of Lender contemporaneously herewith.
"Environmental Insurance Policy" has the meaning set forth in the
------------------------------
Indemnity Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended, as now or hereafter in effect or any successor legislation.
"Event of Default" has the meaning specified in Section 9.1 hereof.
----------------
"Excluded Taxes" has the meaning set forth in Section 3.1(c) hereof.
--------------
"Extraordinary Revenues" means, for any period, the proceeds received
----------------------
by or on behalf of the Borrower in such period, as permitted in this Agreement
and the Mortgages, otherwise than from ordinary operations, including without
limitation: (i) sales or dispositions of assets of the Borrower other than in
the ordinary course of operating the Inns (and for this purpose the disposition
of
7
<PAGE>
up to $1,000,000 of Personal Property pursuant to the proviso at the end of
Section 81 as well as any other dispositions of Personal Property shall be
deemed to be outside the ordinary course of business); (ii) damage recoveries
and casualty insurance proceeds; (iii) other insurance proceeds, except proceeds
of business interruption insurance; (iv) securities and other property acquired
and held for investment; (v) condemnation awards or proceeds of sales in lieu of
and under the threat of condemnation; (vi) capital contributions of partners of
the Borrower or from loans made to the Borrower; (vii) any borrowings or similar
financings or any refinancings permitted under the Loan Documents; and (viii)
proceeds of any litigation in connection with the Inns, whether by settlement or
otherwise.
"Financing Statements" has the meaning specified in Section 4.1(n)
--------------------
hereof.
"Four Party Agreement" means that certain Four Party Agreement among
--------------------
Borrower, Lender, Senior Lender and Manager entered into contemporaneously
herewith.
"GAAP" means generally accepted accounting principles in the United
----
States of America in effect from time to time, consistently applied.
"General Partner" means RIBM One Corporation, a Delaware corporation,
---------------
or any other Subsidiary of Host that succeeds to the obligations of the General
Partner under and as permitted by this Agreement, in its capacity as the general
partner of the Borrower.
"General Partner Note" means the collective reference to (i) that
--------------------
certain demand note in the original principal amount of $6,600,000.00 executed
by HMC GP Holdings, Inc. and payable to the order of the General Partner, and
(ii) that certain Guaranty of Host whereby Host guaranteed the payment of such
note.
8
<PAGE>
"General Partner Note Certificate" means that certain Certificate of
--------------------------------
the General Partner certifying the authenticity of the General Partner Note.
"Governmental Authority" means any nation, government, state or
----------------------
political subdivision of any thereof, including, without limitation, any
monetary authority, central bank or its equivalent, any court or any other
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Gross Revenues" has the meaning set forth in the Management
--------------
Agreement.
"Hazardous Substances" has the meaning specified in Section 4.1(l)
--------------------
hereof.
"Host" means Host Marriott Corporation, a Delaware corporation.
----
"Indebtedness" means, as to any Person, the sum of the following
------------
(without duplication): (i) all obligations of such Person for borrowed money,
all obligations evidenced by bonds, debentures, notes or other similar
instruments and all securities issued by such Person providing for mandatory
payments of money, whether or not contingent; (ii) all obligations of such
Person pursuant to revolving credit agreements or similar arrangements (which
obligations shall be deemed to equal the maximum commitment of the lenders
thereunder, whether currently outstanding or undrawn and available); (iii) all
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business that are not more than 90 days past due; (iv) all obligations of such
Person as lessee under Capital Leases; (v) all obligations of such Person to
purchase securities (or other property) which arise out of or in connection with
the sale of the same or substantially similar securities or property; (vi) all
obligations, whether contingent or not,
9
<PAGE>
of such Person to reimburse any Person in respect of amounts paid under a letter
of credit or similar instrument; (vii) the maximum amount that would be payable
by any Person as of any date in question pursuant to any interest rate exchange
agreements, currency swap agreements or similar agreements obligating such
Person to make payments, determined as if the contingency or contingencies that
would cause an acceleration of such payments occurred on such date; (viii) all
Indebtedness of others secured by a Lien on any asset of such Person, whether or
not such Indebtedness is assumed by such Person, provided that if the obligation
of such Person is limited to recourse to the asset in question, the amount of
Indebtedness pursuant to this clause (viii) shall be limited to the fair market
value of the asset as determined by Lender, in Lender's sole discretion; and
(ix) all liabilities (whether or not contingent) of such Person and its
Controlled Group arising under Title IV of ERISA or Section 412 of the IRC with
respect to all Pension Plans; (x) all guarantees by such Person of or with
respect to the Indebtedness of another Person; and (xi) any accrued but unpaid
fees or other amounts owing pursuant to the Management Agreement.
"Independent Accountants" means any "Big Six" accounting firm selected
-----------------------
by Lender, in Lender's sole and absolute discretion.
"Inn Income" means, for any period, all Gross Revenues, determined in
----------
accordance with GAAP, received by or on behalf of the Borrower in such period
but excluding (to the extent any of the following are included in Gross
Revenues): (i) all refundable deposits, refunds, rebates, discounts and credits
of a similar nature given, paid or returned by or on behalf of the Borrower;
(ii) applicable sales, use, excise, cabaret or occupancy taxes or similar taxes
collected directly from patrons, guests or other Persons, or as part of the
sales price of any goods or services or admission fees; (iii) gratuities or
income in lieu of gratuities which Borrower or Manager pays over to employees of
the Inns; (iv) Extraordinary Revenues; (v)
10
<PAGE>
proceeds from business interruption insurance; and (vi) interest earned on any
of the reserves established pursuant to the Management Agreement; (vii) credits
or refunds made to guests; (viii) telephone or other charges collected to offset
a direct expense incurred by or for guests; (ix) the value of complimentary
rooms, food and beverage or services, and (x) any payments to Lender made on
Borrower's behalf by any Person other than Borrower.
"Inn Operating Expenses" means, for any period, all Deductions (as
----------------------
defined in the Management Agreement) as determined in accordance with GAAP;
plus, to the extent not included in Deductions, (i) all amounts paid to the
General Partner pursuant to the Related Documents; plus (ii) payments required
to be made to any reserves or escrows established pursuant to the Management
Agreement or required by this Agreement or the Loan Documents (other than those
required by the Four Party Agreement) or actually maintained; plus (iii) Base
Management Fees (as defined in the Management Agreement) whether paid accrued or
incurred, (iv) any management fees other than Base Management Fees (including
without limitation, any Incentive Management Fees, as defined in the Management
Agreement), to the extent paid in such period, regardless of whether such
Management Fees are incurred or accrued in such period or in a prior period, and
(v) the other costs and expenses incurred by the Manager that are payable by the
Borrower pursuant to the Management Agreement during such period, whether paid,
incurred or accrued, including, without limitation, the Residence Inn System Fee
(as defined in the Management Agreement) and reimbursement for Chain Services
(as defined in the Management Agreement) expenses; and (vi) all other items
properly classified as expenses of Borrower or the Inns pursuant to GAAP (other
than interest on the Loan and the Senior Loan). Notwithstanding the foregoing,
depreciation and amortization of the Inns and capitalized expenditures, all
calculated in accordance with GAAP, shall not be deemed to be Inn Operating
Expenses for purposes of this Agreement other than interest.
11
<PAGE>
"Inns" means the Inns listed in the schedule attached hereto as
----
Exhibit A, but excluding any Inns previously released from the liens of the
Mortgages in accordance with this Agreement.
"Intercreditor Agreement" means that certain Intercreditor Agreement
-----------------------
among Lender, Borrower and Senior Lender entered into contemporaneously
herewith.
"Interest Payment Date" means the first day of each calendar month
---------------------
until the Repayment Date.
"Interest Rate" means the interest rate set forth in Section 2.8 of
-------------
this Agreement.
"IRC" means the Internal Revenue Code of 1986, as amended and in
---
effect from time to time, or any successor legislation.
"Lien" means, with respect to any asset of any Person, any mortgage,
----
deed of trust, lien, pledge, charge, security interest or encumbrance of any
kind in respect of such asset, including, without limitation, any right or
arrangement with any creditor to have its claim satisfied out of such asset, or
the proceeds therefrom, prior to the general creditors of the owner thereof.
For the purposes of this Agreement and the other Related Documents, such Person
shall be deemed to own subject to a Lien any asset that it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, Capital Lease or other title retention agreement relating to such
asset.
"Loan" means the principal amount of $30,000,000 advanced by the
----
Lender to the Borrower pursuant to the Promissory Note or, where the context so
requires, the amount thereof then outstanding.
"Loan Documents" means this Agreement, the Security Documents, the
--------------
Manager's Agreement, the Intercreditor Agreement, the Promissory Note, the
12
<PAGE>
Environmental Indemnity, the Four Party Agreement, Borrower's Certificate,
Manager's Certificate, Manager Estoppel Certificate, General Partner Note
Certificate and the SNDA Agreements.
"LTV" means the ratio of the outstanding principal balance of the
---
Senior Loan divided by the values of the Inns as set forth in Exhibit I.
---------
"Management Agreement" means the Management Agreement dated as of
--------------------
March 29, 1988 between the Borrower and the Manager, as the same may from time
to time be amended, supplemented or modified with the written consent of Lender
in accordance with the terms of the Loan Documents.
"Manager" means Residence Inn by Marriott, Inc., a Delaware
-------
corporation.
"Manager's Agreement" means the Manager's Agreement dated as of the
-------------------
Closing Date among the Borrower, the Manager and the Lender concerning the
Management Agreement and certain of the Manager's rights and obligations
thereunder.
"Manager's Certificate" means the certificate described in Section
---------------------
4.1(e).
"Material Adverse Effect" shall mean a material adverse effect on (i)
-----------------------
the assets, operations, or financial condition of Borrower taken as a whole,
(ii) Borrower's ability to pay either the Loan or the Senior Loan in accordance
with this Agreement, (iii) any Inn individually or the value thereof, (iv) the
Loan or Lender's interest therein, or the Senior Loan or Senior Lender's
interest therein, or (v) Lender's Liens or Senior Lender's liens (individually
or collectively) on the Collateral and Security or the priority of any such Lien
or lien.
13
<PAGE>
"Material Agreement" shall mean any material written or oral
------------------
agreement, contract, commitment or under standing requiring payments, pledges,
or performance executed or assumed by Borrower in connection with the Inns which
provides for payments by Borrower over the term of any such agreement, contract,
commitment or understanding in excess of One Hundred Thousand and No/100 Dollars
($100,000.00) and which is not cancelable by the Borrower upon sixty (60) days'
or less notice without liability for further payment other than a penalty less
than $10,000.
"Maturity Date" means September 30, 2002.
-------------
"Monthly Payment" has the meaning set forth in Section 2.4.
---------------
"Mortgaged Property" means, collectively, the "Mortgaged Property" as
------------------
defined in each and all of the Mortgages.
"Mortgages" means the security instruments dated as of the Closing
---------
Date from the Borrower to the Lender granting a second security interest in the
fee simple interest in the Sites and the buildings, improvements and fixtures
located thereon and a second security interest in the Rents, Revenues and Other
Collateral generated by the Inns and the furniture, fixtures, equipment and
other personalty in the Inns, a schedule of which security instruments is
attached hereto as Exhibit B, properly executed in form for recording and
delivered, as the same may from time to time be amended, supplemented or
modified in accordance with the terms thereof. Each of the Mortgages shall be
substantially in a form approved by Lender with such changes as may be
reasonably necessary or appropriate in the opinion of counsel to the Lender to
comply with the requirements of the state in which each Inn is located.
"Net After Debt Service Cash Flow" means for any period (i) Net Cash
--------------------------------
Flow less (ii) (a) Senior Notes Debt Service, plus (b) regularly scheduled
payments of principal
14
<PAGE>
and interest required to be paid to the Lender pursuant to the Loan Documents.
"Net Cash Flow" means all (i) Operating Profit (as defined in the
-------------
Management Agreement) and other amounts required or permitted to be paid to
Borrower pursuant to the Management Agreement, plus (ii) all cash or other
amounts to which Borrower is entitled from any source or which Borrower
otherwise receives.
"Net Income Available for Debt Service" means, for any period, the
-------------------------------------
amount by which Inn Income exceeds Inn Operating Expenses.
"Other Collateral" means, collectively, the "Other Collateral" as
----------------
defined in each and all of the Mortgages.
"Outstanding Principal Balance" shall mean the outstanding principal
-----------------------------
balance of the Promissory Note.
"Partnership Agreement" means the Amended and Restated Agreement of
---------------------
Limited Partnership of the Borrower, dated as of March 29, 1988, as the same may
from time to time be amended in accordance with the terms thereof, but only to
the extent permitted by this Agreement.
"Pension Plan" means at any time and as to any Person an employee
------------
pension benefit plan which is covered by Title IV of ERISA or subject to the
minimum funding standards under Part 3 of Title I of ERISA or Section 412 of the
IRC and is maintained by such Person or any member of its Controlled Group or
contributed to within the past 6 years by such Person or any member of its
Controlled Group.
"Periodic Reports" means the statements substantially in the form of
----------------
Exhibits E, F and G required to be furnished by the Borrower to the Lender
pursuant to Section 7.1(c) hereof.
15
<PAGE>
"Person" means an individual, estate, unincorporated association, a
------
corporation, company, partnership, trust, joint stock company, voluntary
association, joint venture, limited liability partnership, limited liability
company, Governmental Authority, juridical entity or any other entity of
whatever nature.
"Personal Property" means, collectively, fixtures, machinery,
-----------------
equipment, and personal property.
"Proceeds" has the meaning set forth for such term in the U.C.C.
--------
"Promissory Note" means the note issued by the Borrower dated as of
---------------
the Closing Date in the principal amount of $30,000,000 which is secured by the
Security Documents, properly executed and delivered, as the same may from time
to time be amended, supplemented or modified in accordance with the terms
thereof.
"Proposed Release Date" has the meaning set forth in Section 2.12
---------------------
hereof.
"Regulation D" means Regulation D of the Board of Governors of the
------------
Federal Reserve System, as the same may be amended or supplemented from time to
time, or any successor regulation thereto.
"Regulatory Change" means a change after the date of this Agreement in
-----------------
any laws, rules or regulations applicable to the Lender (including, without
limitation, Regulation D), or the adoption or making after such date of any
interpretation, directive, requirement or request applying to the Lender under
any applicable laws, rules or regulations (whether or not having the force of
law) by any Governmental Authority charged with the interpretation or
administration thereof, other than any change in any laws, rules or regulations
or any interpretation, directive, requirement or request pertaining to the
assessment or imposition of any tax.
16
<PAGE>
"Related Documents" means the Loan Documents, the Management Agreement
-----------------
and the Partnership Agreement.
"Release" has the meaning set forth in Section 2.12 hereof.
-------
"Release Price" has the meaning set forth in Section 2.12 hereof.
-------------
"Remaining Inns" has the meaning set forth in Section 2.12 hereof.
--------------
"Rents" means, collectively, the "Rents" as defined in each and all of
-----
the Mortgages.
"Repayment Date" means the earlier of the Maturity Date or such
--------------
earlier date on which the Loan may become due and payable in full as a result of
acceleration in accordance with this Agreement or the Related Documents.
"Required Ratios" means that the DSCR and Combined DSCR for the
---------------
Remaining Inns after the Release in question shall be equal to the greater of
(x) 1.8:1 and 1:25:1, respectively, and (y) the DSCR and the Combined DSCR for
all of the Remaining Inns and the Inns being released immediately prior to the
Release in question.
"Requirements of Law" means, as to any Person, the certificate of
-------------------
incorporation and by-laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation, or determination of any
arbitrator or court or other Governmental Authority, in each case 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" means the collective reference to (i) "Reserve" as defined
-------
in the Management Agreement, together with (ii) any reserves required by Lender
in accordance with Sections 7.13 and 7.16 of this Agreement,
17
<PAGE>
and together with (iii) any other reserves required to be maintained pursuant to
the Loan Documents.
"Restricted Group of Inns" means the Inns listed as such on Exhibit A.
------------------------
"Revenues" means, collectively, the "Revenues" as defined in each and
--------
all of the Mortgages.
"SEC" means the Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as amended, as now
--------------
or hereafter in effect, or any successor legislation.
"Security" has the meaning attributed to such term in the Securities
--------
Act.
"Security Documents" means the collective reference to the Mortgages,
------------------
Assignment of Management Agreement, Financing Statements and Assignments of
Rents and Revenues.
"Security Interests" means the security interests granted to the
------------------
Lender by any of the Loan Documents.
"Senior Lender" means German American Capital Corporation, its
-------------
successors and assigns.
"Senior Loan" means the loans in the aggregate original principal
-----------
amount of $100,000,000 made by Senior Lender to Borrower contemporaneously
herewith.
"Senior Loan Outstanding Principal Balance" shall mean the outstanding
-----------------------------------------
principal balance of the Senior Note or Notes, as applicable, at the time in
question.
18
<PAGE>
"Senior Loan Agreement" means the Loan Agreement of even date herewith
---------------------
between Borrower and Senior Lender with respect to the Senior Loan.
"Senior Loan Documents" means the Senior Loan Agreement and the "Loan
---------------------
Documents," as defined in the Senior Loan Agreement, including without
limitation, those listed in Exhibit K.
---------
"Senior Mortgages" means the 15 separate security instruments in favor
----------------
of Senior Lender executed by the Borrower and granting a first lien to Senior
Lender with respect to the Inns.
"Senior Notes" means the 15 separate Notes in favor of Senior Lender
------------
evidencing the Senior Loan.
"Senior Notes Debt Service" means for any period, all amounts paid or
-------------------------
payable by the Borrower under the Senior Notes, the Senior Loan Agreement, and
the Senior Mortgages other than prepayments of principal (and for such purposes,
"prepayment" shall not include the required monthly principal payments pursuant
to Section 2.4(a) of the Senior Loan Agreement).
"Shares" has the meaning set forth in Section 6.1(r) hereof.
------
"Sites" means the land described on Exhibit A to each of the
-----
Mortgages.
"Six Period Rolling Average Ratios" has the meaning set forth in the
---------------------------------
Four Party Agreement.
"SNDA Agreements" mean the Subordination, Nondisturbance and
---------------
Attornment Agreements between the Lender and the Manager with respect to each of
the Sites, each of which is dated as of the Closing Date.
19
<PAGE>
"Subsidiary" means, as to any Person, any corporation of which at
----------
least a majority of the outstanding voting stock having by the terms thereof
ordinary voting power to elect a majority of the board of directors of such
corporation (irrespective of whether or not at the time stock of any other class
or classes of such corporation shall or might have voting power by reason of the
happening of any contingency) is at the time owned or controlled directly or
indirectly by such Person or one or more of its Subsidiaries.
"Subordinate Loan Outstanding Principal Balance" shall mean the
----------------------------------------------
Outstanding Principal Balance.
"Tax" or "Taxes" has the meaning set forth in Section 3.1(c) hereof.
--- -----
"Three Period Rolling Average Ratios" has the meaning set forth in the
-----------------------------------
Four Party Agreement.
"Title Insurance Policies" has the meaning specified in Section 4.1(b)
------------------------
hereof.
"Total Loss" has the meaning specified in the Mortgages.
----------
"Treasury Rate" means the yield rate of a U.S. Treasury Note having a
-------------
remaining term equal to the Average Remaining Life, provided that if no U.S.
Treasury Note has a remaining term equal to the Average Remaining Life, a yield
rate determined by interpolating the rates of those U.S. Treasury Notes then
having a remaining term closest to but shorter than and closest to but longer
than the Average Remaining Life, as reported in The Wall Street Journal or
similar publication on the fifth (5th) Business Day preceding the date of
prepayment.
"U.C.C." means the Uniform Commercial Code as in effect from time to
------
time in the state in which the Inn in question is located or if no particular
Inn is in question,
20
<PAGE>
the Uniform Commercial Code as in effect from time to time in the State of New
York.
"U.S. Governmental Authority" means any Governmental Authority located
---------------------------
within the United States of America or any political subdivision thereof.
"Yield Maintenance Payment" means the greater of (a) one percent of
-------------------------
the outstanding principal balance of the amount of the Loan being prepaid, or
(b) the present value of the excess, if positive, of the aggregate amount of
interest which would be earned, on the outstanding principal balance of the Loan
from time to time assuming no prepayments of the Loan, at the Interest Rate,
over the aggregate amount of the interest which would be earned at the Treasury
Rate, determined as follows:
(1) the difference between the Interest Rate and the Treasury Rate
shall be multiplied by the relevant prepaid principal amount;
(2) the product thus obtained will be divided by twelve to determine
the monthly differential of earned interest ("Monthly Earned Interest
Differential") at the Interest Rate over earned interest at the Treasury Rate;
and
(3) the Monthly Earned Interest Differential will be multiplied by an
amount equal to the present value of a series of one dollar ($1.00) payments per
period, such present value factors being based on an interest rate per month
equal to one-twelfth (1/12) of the Treasury Rate and the number of payments or
periods equal to the Average Remaining Life.
Any accounting term used in this Agreement shall have, unless
otherwise specifically provided herein, the meaning customarily given such term
in accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
consistently applied. That certain terms or com-
21
<PAGE>
putations are explicitly modified by the phrase "in accordance with GAAP" shall
in no way be construed to limit the foregoing.
SECTION 2
THE LOAN
Section 2.1 Agreement to Lend.
-----------------
Subject to the terms and conditions of this Agreement, the Lender
hereby agrees to make a loan to the Borrower in the amount of the Commitment.
Section 2.2 Purpose of the Loan.
-------------------
The Borrower agrees that the Loan shall be used solely for the purpose
of (i) refinancing existing indebtedness of Borrower to The Sanwa Bank Limited
which is secured by a first lien against the Inns, (ii) refinancing existing
indebtedness to Host in the amount of $1,400,000, and (iii) paying costs
associated with this transaction.
Section 2.3 Cross Collateralization.
-----------------------
The Promissory Note and each and all of the Mortgages are and shall be
cross-collateralized, and pursuant to Section 9.1 hereof are also cross-
defaulted.
Section 2.4 Repayment of the Loan.
---------------------
The Borrower shall repay the Loan to the Lender as follows:
(a) On the Closing Date, Borrower shall pay to Lender all interest to
accrue on the Promissory Note through the last day of the calendar month in
which the Closing Date occurs, unless the Closing Date is the first day of a
calendar month. On the first day of the second calendar month following the
Closing Date (unless the Closing Date is the first day of a calendar month, in
which event, on the
22
<PAGE>
first day of the calendar month immediately following the Closing Date) and on
the first day of each calendar month thereafter until the first day of the
calendar month in which the Repayment Date occurs (unless the Repayment Date is
the first day of a calendar month, in which case until the first day of the
calendar month immediately preceding the Repayment Date), Borrower shall pay to
Lender the sum of $400,589.60. The amount paid with respect to the Promissory
Note shall be applied first to accrued but unpaid interest and the balance shall
be applied to reduce the principal balance, and any remaining amount shall be
applied pursuant to Section 2.5 of this Agreement. In the event any Inn is
released from the lien of the Mortgage covering such Inn, the Monthly Payment
shall be adjusted to an amount equal to the product of (a) the amount of the
Monthly Payment as set forth above, multiplied by (b) the sum of the Applicable
Percentages for all Inns then subject to the Mortgages after giving effect to
the Release in question.
(b) During the period between September 1 and September 30 of any
year, if Borrower has made the mandatory principal payment due Senior Lender
under Section 2.4(b) of the Senior Loan Agreement with respect to a prepayment
period shown below, Borrower may pay to Lender, as an optional reduction of the
principal balance of the Loan, without any Yield Maintenance Payment, Defeasance
Payment or other premium or penalty, Net After Debt Service Cash Flow for the
period from the previous September 1 until August 31 of the current year
remaining after the payments described above to Senior Lender, until the first
to occur of the following: (i) the amount paid to Lender pursuant to this
Section 2.4(b) equals the cumulative total of all prepayments under this Section
for a prepayment period shown below, or (ii) the total amount paid to Lender
pursuant to this Section 2.4(b) equals $4,000,000.00. If the total amount paid
to Lender pursuant to this Section 2.4(b) on or before each of the following
dates is less than the amount set forth beside each such date in the following
table, Borrower may pay Net After Debt Service Cash Flow from a subsequent
period (but not from any period following the
23
<PAGE>
period ending August 31, 1999) to Lender as a prepayment under this Section
2.4(b) to the extent prepayments under this Section attributable or allocated to
any period do not exceed the amounts set forth below. In no event shall Borrower
pay any Net After Debt Service Cash Flow to Senior Lender under Section
2.5(a)(i) of the Senior Loan Agreement for any prepayment period unless Borrower
has paid Lender the annual prepayment of $1,000,000 allowed under this Section
2.4(b).
<TABLE>
<CAPTION>
Prepayment Period Cumulative Payments
----------------- -------------------
<S> <C>
9/1/95 - 8/31/96 $1,000,000
9/1/96 - 8/31/97 $2,000,000
9/1/97 - 8/31/98 $3,000,000
9/1/98 - 8/31/99 $4,000,000
</TABLE>
For example, if Borrower has made prepayments of $2,000,000 to Senior
Lender under Section 2.4(b) of the Senior Loan Agreement on each of September 1,
1996 and September 1, 1997 and Borrower has made a prepayment to Lender under
this Section 2.4(b) of Net After Debt Service Cash Flow of $500,000 on September
1, 1996, then assuming Borrower has made the payments required under Section
2.4(b) of the Senior Loan Agreement during the period September 1, 1997 to
September 30, 1997 Borrower could make a prepayment under this Section 2.4(b) of
an additional $500,000 for the period September 1, 1995 to August 31, 1996 and a
prepayment of $1,000,000 of Net After Debt Service Cash Flow for the period
September 1, 1996 to August 1, 1997, for a total prepayment between September 1,
1997 and September 30, 1997 of $1,500,000, and with respect of each of said
years, would be obligated to make the prepayments to Lender in the amount of
$1,000,000 for a prepayment period before making any prepayment to Senior Lender
under Section 2.5(a)(i) of the Senior Loan Agreement.
Any principal payments so made shall be applied to the Promissory Note
in inverse order of maturity. Any
24
<PAGE>
amounts paid pursuant to Section 2.12 shall not affect the amount which may be
prepaid under this Section 2.4(b).
(c) The remaining principal balance of the Loan together with all
accrued but unpaid interest and other amounts owing pursuant to this Agreement
shall be fully due and payable on the Repayment Date.
Section 2.5 Prepayments of the Loan.
-----------------------
(a) The Borrower may not prepay the Loan, in part or in full, except
for a prepayment under Section 2.4(b) and any prepayment in accordance with and
subject to the following conditions:
(i) Subject to the provisions of subsection (iii) below,
Borrower may prepay (a) up to an additional $300,000 of the principal balance of
the Loan between September 1 through October 1 ("Prepayment Periods") of each
year through and including 1999, and (b) during the Prepayment Periods after the
year 1999 an amount, if any, such that the total principal amount paid pursuant
to Section 2.4(b) and this Section 2.5 during any such Prepayment Period is less
than or equal to $1,300,000, without paying the Yield Maintenance Payment,
Defeasance Payment or any other premium or penalty (and which right shall not
accumulate if not used), but only if Borrower has contemporaneously prepaid an
amount equal to 2.33 times the principal amount prepaid to Lender pursuant to
clauses (a) and (b) of this subparagraph (i) to the Senior Lender for
application against the Senior Loan. Any principal payments so made shall be
applied to the Promissory Note in inverse order of maturity.
(ii) Except as provided in Section 2.4(b), paragraph (i) above
and paragraph (b) below, Borrower may not prepay the Loan, but (a) Borrower may
defease all, but not a portion of, the principal and interest evidenced by the
Promissory Note by making a Defeasance Payment to an escrowee satisfactory to
Lender in Lender's sole judgment,
25
<PAGE>
in an amount sufficient, in Lender's sole judgment, to produce cash payments at
the times and in the amounts required to pay in full all interest and principal
payments attributable to the amount of principal so prepaid as and when such
payments would otherwise have become due in accordance with the terms of the
Promissory Note and this Agreement, together with all other amounts due Lender
under the Promissory Note, this Agreement or the other Loan Documents, and (b)
Borrower may defease a portion of the Loan in order to make a Release Payment in
accordance with Section 2.12.
(iii) (v) Each partial prepayment of the Loan in accordance with
subparagraph (i) above shall be in integral multiples of $25,000; (w) Borrower
shall give the Lender not less than twenty (20) Business Days' prior written
notice of the proposed prepayment; (x) each prepayment shall be made on an
Interest Payment Date; (y) notice of prepayment, once received by the Lender,
shall be irrevocable and binding on the Borrower; and (z) amounts prepaid may
not be reborrowed hereunder.
(b) (i) Upon the payment to the Borrower or to the Lender, as loss
payee, of any insurance proceeds payable upon the occurrence of a Total Loss
with respect to any of the Inns, the Borrower shall either (x) prepay the
Allocated Loan Amount with respect to such Inn(s), together with accrued
interest on the amount prepaid to the date of prepayment and together with the
Yield Maintenance Payment (provided, however, that if the casualty occurs after
October 1, 2001, no Yield Maintenance Payment shall be required), or (y) rebuild
and restore such Inn(s) in accordance with the Mortgages, and (ii) upon the
payment to the Borrower or the Lender of any condemnation awards in respect of a
Total Loss with respect to any of the Inns, the Borrower shall prepay the Loan
with respect to such Inns in full, together with accrued interest on the amount
prepaid to the date of prepayment but without the Yield Maintenance Payment or
other premium or penalty, except that Borrower shall pay to Lender any actual
costs or expenses incurred as
26
<PAGE>
the result of such prepayment (such as the cost of terminating or breaking any
swap contracts). Any prepayment pursuant to this subsection (b) shall be subject
to the following conditions: (i) the Borrower shall give the Lender not less
than twenty (20) Business Days' prior written notice of such prepayment; and
(ii) amounts prepaid may not be reborrowed hereunder. Any payments pursuant to
this Section 2.5(b) shall be applied first to pay all accrued interest and the
Yield Maintenance Payment, if any, on any principal prepaid and to the extent
the insurance proceeds or condemnation award are not sufficient to pay in full
the Allocated Loan Amount outstanding with respect to the Inn as to which the
Total Loss occurred, including all accrued but unpaid interest thereon and the
Yield Maintenance Payment, if any, with respect to the principal so repaid,
Borrower shall pay such amounts to Lender within thirty (30) days after the
receipt of such payments, but in any event within ninety (90) days after the
occurrence of the Total Loss. Any portion of any insurance proceeds or
condemnation award remaining after the payments described in the preceding
sentence shall be applied to the Outstanding Principal Balance in inverse order
of maturity.
(c) Upon an Event of Default and following the acceleration of
maturity of the Loan, a tender of payment of the amount necessary to satisfy the
indebtedness evidenced by the Promissory Note made at any time prior to a
foreclosure sale, or any judgement of foreclosure or sum due at foreclosure
(including sale under power of sale under a Mortgage), or during any redemption
period after foreclosure, by Borrower or anyone acting directly or indirectly on
behalf of Borrower shall constitute an evasion of the prepayment prohibition and
shall be deemed to be a voluntary prepayment of the Promissory Note, and the
prepayment, to the extent permitted by law, will include the Yield Maintenance
Payment.
27
<PAGE>
Section 2.6 Required Payments to Lender.
---------------------------
In the event (i) that the Application Trigger Date, as determined in
accordance with the Four Party Agreement, shall have occurred, and a Restoration
Date has not thereafter occurred, or (ii) that an Event of Default described in
Section 9.1(a) of this Agreement has occurred and has not been cured prior to
acceleration of the Loan by Lender, or (iii) that an intentional, material Event
of Default other than pursuant to Section 9.1(a) of this Agreement has occurred
and has not been cured prior to acceleration of the Loan by Lender, Borrower
shall thereafter pay or cause to be paid all Net Cash Flow to Senior Lender to
be applied to payment of the Senior Loan or the Loan as provided in the Four
Party Agreement; provided, however, that the provisions of this Section 2.6
shall in no way lessen, affect or alter the other rights and remedies of Lender
after the occurrence and during the continuation of an Event of Default pursuant
to other provisions of this Agreement, the Mortgages or the other Loan
Documents.
Section 2.7 Intentionally Deleted.
---------------------
Section 2.8 Interest.
--------
The Borrower shall pay to the Lender in arrears interest accrued on
the Loan on each Interest Payment Date at a rate equal to fifteen and one
quarter percent (15.25%) per annum (calculated on the basis of a 360-day year of
twelve 30-day months).
Section 2.9 Default Interest.
----------------
If the Borrower shall fail to make payment when and as due of any
amounts due hereunder (whether at the stated date for payment, at maturity or by
acceleration), the Borrower shall pay, to the extent permitted by applicable
law, interest to the Lender on such past due amounts at the Default Rate.
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<PAGE>
Section 2.10 Intentionally Deleted.
---------------------
Section 2.11 Payments.
--------
All payments due hereunder from the Borrower to the Lender, other than
amounts payable by the Borrower under Section 3.1(d) hereof, shall be made to
the Lender in Dollars in immediately available Federal funds by wire transfer to
Chase Manhattan Bank, N.A., New York, New York, ABA No. 021000021, Starwood
Mezzanine Investors, L.P., Acct. No. 910-2-722361, Ref: Res. Inn 722361, or to
such other account in the United States or in such manner as Lender may from
time to time reasonably direct. Whenever any payment under this Agreement or the
Promissory Note shall be due on a day which is not a Business Day, the date for
payment thereof shall be extended to the next succeeding Business Day. Payment
of amounts payable pursuant to Section 3.1(d) hereof may be made by check or
other customary means of payment.
Section 2.12 Release of Lien of a Mortgage.
-----------------------------
(a) (i) Provided that the requirements of subparagraphs (b), (c) and
(d) below shall have been satisfied, the Lender shall execute and deliver to the
Borrower an instrument (a "Release") releasing the Lender's lien and security
-------
interest in an Inn that, simultaneously with the delivery of a Release, is being
sold by the Borrower. Any Release so delivered by the Lender shall be in
recordable form and otherwise in form and substance reasonably satisfactory to
the Lender and the Borrower. Borrower shall have no right to the Release of any
Inn except (a) contemporaneously with the sale of an Inn to a third party (which
may be an Affiliate of Borrower subject to subparagraph (b) below) and then only
upon compliance with this Section 2.12, and (b) as described in the following
paragraph (ii); and
(ii) In the event that the Allocable Loan Amount with respect to
an Inn is paid in full pursuant to
29
<PAGE>
Section 2.5(b), and subject to the limitations of subparagraphs (c) and (d)
below, Lender shall execute and deliver to Borrower a Release releasing Lender's
lien and security interest with respect to such Inn as to which the event or
events described in Section 2.5(b) shall have occurred and as to which the
Allocable Loan Amount applicable to an Inn shall have been paid in full. Any
Release so delivered by Lender shall be in recordable form and otherwise in form
and substance reasonably satisfactory to Lender and Borrower.
(b) (i) The aggregate number of Inns that may be released during the
term of this Agreement may not exceed four; (ii) the sum of the Applicable
Percentages for all of the Inns released may not exceed 26.67%; (iii) no more
than one of the Inns released may be from the Restricted Group of Inns, (iv) no
more than two (2) Inns may be sold or transferred to Affiliates of Borrower or
Manager or their respective Affiliates, (v) no Inn may be released if a Trigger
Date has occurred, unless a Restoration Date has subsequently occurred, and (vi)
the total principal amount of the Loan prepaid pursuant to this Section 2.12
shall reduce the allowable prepayments that may be made pursuant to Section
2.5(a)(i) of this Agreement, in the current Prepayment Period and in all
subsequent Prepayment Periods, until the total amount of the Loan prepaid
pursuant to Section 2.5(a)(i) and this Section 2.12 is equal to the amount
allowable pursuant to Section 2.5(a)(i) on a cumulative basis from the Closing
Date until the Prepayment Period in question. As an example of clause (vi) of
the preceding sentence, if the total amount prepaid on the Loan pursuant to this
Section 2.12 during the period from September 1, 1995 through August 31, 1996 is
$3,900,000, no prepayments may be made pursuant to Section 2.5(a)(i) until the
period between September 1, 1999 and October 1, 1999.
(c) The Lender's obligation to deliver a Release with respect to any
Inn shall be subject to the satisfaction of the Lender that the following
conditions have been complied with:
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<PAGE>
(i) The Borrower shall have requested such Release not less than
twenty (20) Business Days prior to the date as of which such Release is
requested (the "Proposed Release Date"), which request shall be accompanied by a
---------------------
certificate of the Borrower to the effect that (A) no Event of Default or
Default has occurred and is continuing, and (B) (i) such Release will not
violate the requirements of this Section 2.12, or (ii) is required by Section
2.5. Such certificate shall (x) incorporate all calculations necessary to
demonstrate compliance with clause (b) (i) above, and (y) show all information
necessary to calculate the Release Price (as hereinafter defined) in the manner
required by this Section 2.12 and the calculation of the Release Price.
(ii) (a) The DSCR and Combined DSCR with respect to the Inns (the
"Remaining Inns") that will continue to be subject to the lien of any Mortgage
- ---------------
after the Proposed Release Date shall have exceeded the Required Ratios for the
most recent 13 Accounting Periods, and (b) Borrower shall have no knowledge that
the DSCR or Combined DSCR for the next ensuing 13 Accounting Periods will be
less than the Required Ratios and Borrower shall deliver a certification to
Lender to such effect. For purposes of the preceding sentence, the allocation of
Senior Notes Debt Service for each Inn shall be determined as provided in the
Senior Loan Agreement. Within fifteen (15) Business Days after receipt by the
Lender of the Borrower's request for a Release, the Lender shall notify the
Borrower whether the Lender disputes the Borrower's calculation that the
Required Ratios with respect to the Remaining Inns were exceeded for the
relevant periods. If the Lender so notifies the Borrower, then during the
immediately succeeding five Business Days the Lender and the Borrower shall
confer in good faith in an effort to resolve the dispute. If the Lender and the
Borrower determine that the Required Ratios with respect to the Remaining Inns
were exceeded for each of such periods, the requirements of this subparagraph
(ii) shall be deemed to have been satisfied. If the Lender and the Borrower are
unable to resolve their dispute within such period of five Business Days, the
Lender may engage at the
31
<PAGE>
Borrower's expense the Independent Accountants, who shall determine whether the
Required Ratios with respect to the Remaining Inns were so equaled or exceeded.
If the Independent Accountants determine that the Required Ratios with respect
to the Remaining Inns were so equaled or exceeded and provide an unqualified
written opinion to such effect and furnish to the Lender a description in
reasonable detail of the basis for such determination, the requirements of this
subparagraph (ii) shall be deemed to have been satisfied. If the Independent
Accountants do not determine that the Required Ratios with respect to the
Remaining Inns were so exceeded, then the requirements of this subparagraph (ii)
shall not be deemed satisfied and the Lender shall not be required to deliver a
Release. Lender shall be bound by the determination of any Independent
Accountants engaged by Senior Lender under the provisions of the Senior Loan
Agreement with respect to any dispute determined by Independent Accountants
under the section of the Senior Loan Agreement corresponding to a section of
this Agreement.
(iii) Borrower shall have paid to Lender all costs and expenses
reasonably incurred by Lender in connection with the requested Release and shall
have delivered to Lender all documentation that Lender may reasonably request in
order to evidence the continued enforceability of the Loan Documents with
respect to all unreleased collateral and Borrower's continued obligation with
respect to the Loan Documents, including without limitation, an estoppel
certificate in form and substance reasonably satisfactory to Lender confirming
that Borrower has no offsets, counterclaims or defenses with respect to the
Loan.
(d) Provided that the requirements of subparagraph (c) above have been
satisfied and further provided that on the date of the delivery of the Release
no Event of Default or Default shall have occurred and be continuing, and
subject to the limitations of subparagraphs (b) and (c) above, the Borrower
shall pay or cause to be paid to the Lender the aggregate of (A) the "Release
Price"
32
<PAGE>
with respect to the Inn being released from the lien of one of the Mortgages,
which Release Price shall be applied first to prepay a portion of the
Outstanding Principal Balance in inverse order of maturity, (B) all accrued
interest with respect to the Release Price, and (C) the Defeasance Payment with
respect to the Release Price. The "Release Price" shall be the lesser of (a) the
-------------
Outstanding Principal Balance plus all accrued but unpaid interest and other
amounts owing pursuant to this Agreement, or (b) the greater of (i) the
reduction of the outstanding principal balance of the Loan necessary to satisfy
the requirements of Sections 2.12(c) above, or (ii) one hundred twenty-five
percent (125%) of the Allocated Loan Amount with respect to the Inn(s) being
released; provided, however, that the Release Price shall be rounded up to the
next higher integral multiple of $10,000. Additionally, contemporaneously with
payment of the Release Price to Lender, Borrower must pay the Release Price (as
defined in the Senior Loan Documents) to Senior Lender.
(e) All determinations made by the Independent Accountants under this
Section shall be final and binding upon the Lender and the Borrower. If the
Lender notifies the Borrower that it disputes the Borrower's calculations under
this Section, the Borrower shall provide or make available to the Lender all
documents and materials reasonably requested by the Lender to assist it to make
the determinations required pursuant to this Section.
(f) Borrower shall not be entitled to any releases or credit toward
any Release Price as a result of any principal payments made or required to be
made pursuant to Section 2.4(b) hereof.
Section 2.13 Allocation to Promissory Note.
-----------------------------
All principal payments made by Borrower other than in accordance with
Sections 2.5(b), 2.5(a) or 2.12 which is in excess of the Allocated Loan Amount
of the Promissory Note with respect to the affected Inn or Inns shall be
allocated to reduce the Outstanding Principal Balance and
33
<PAGE>
the Allocated Loan Amount with respect to each Remaining Inn based on the
Applicable Ratios.
Section 2.14 Four Party Agreement. Lender's rights and Borrower's
--------------------
obligations pursuant to this Agreement and the Four Party Agreement are
cumulative and (i) Borrower shall not be entitled to any credit against amounts
owing pursuant to Sections 2.5 or 2.12 of this Agreement as a result of any
payments made to Lender pursuant to the Four Party Agreement, and (ii) Borrower
shall be entitled to credit against amounts owing pursuant to Section 2.4(b)
hereof for payments made pursuant to the Four Party Agreement only to the extent
of any amounts actually paid to Lender pursuant to the Four Party Agreement and
which are applied to the principal balance of the Loan pursuant to the Four
Party Agreement.
SECTION 3
OTHER PAYMENTS
Section 3.1 Other Payments.
--------------
(a) Intentionally Deleted.
---------------------
(b) If any Regulatory Change shall either (i) impose, modify or deem
applicable any reserve, special deposit, deposit insurance or similar
requirement against or for the account of the Lender or (ii) impose on the
Lender any other condition, including, without limitation, change any applicable
capital adequacy requirements, and the result of any event referred to in clause
(i) or (ii) above shall be to increase the cost to the Lender of making or
maintaining the Loan (by participation or otherwise), then the Borrower shall
pay to the Lender all additional amounts specified by the Lender required to
compensate the Lender for such increased costs.
34
<PAGE>
(c) All sums payable by the Borrower under this Agreement shall be
paid in full, net of all taxes, deductions, withholdings or other charges of any
kind that may be assessed, levied or imposed by any U.S. Governmental Authority
whatsoever, together with any interest, penalties or other charges thereon
(hereinafter, "Taxes"), excluding the following ("Excluded Taxes"): (i) Taxes
----- --------------
imposed on or measured by net income or alternative minimum taxable income or
taxable assets in lieu of income by the jurisdiction of incorporation of the
Lender, each taxing jurisdiction therein and the United States, New York State
or New York City, (ii) Taxes imposed on the Lender pursuant to Section 884 of
the IRC, (iii) Taxes imposed on the Lender to the extent the Tax would have been
imposed if the Lender had not engaged in the transaction contemplated by this
Agreement, except to the extent that the Taxes referred to in the preceding
clauses (i) and (ii) are imposed on amounts payable by the Borrower pursuant to
this Section 3.1(c), and (iv) Taxes in existence on the date hereof, to the
extent of the amount of such Taxes as of the date hereof. If the Borrower is
prohibited by law from making one or more payments under this Agreement free of
Taxes (other than Excluded Taxes), or if any U.S. Governmental Authority shall
at any time assert that the Lender is required to pay any Taxes (other than
Excluded Taxes), with respect to payments made by the Borrower under this
Agreement, then the Borrower shall pay such additional amount to the Lender as
may be necessary in order that the actual amount received by the Lender after
taking into account all such Taxes other than Excluded Taxes (and after payment
of any additional Taxes (including Excluded Taxes) that may be payable by the
Lender as a consequence of the payment of such additional amount) shall equal
the amount that would have been received by the Lender if such Taxes were not
required to be paid. In any event, if the Borrower is required to pay any Taxes
with respect to any sums payable under this Agreement, it shall deliver to the
Lender official receipts or certified copies thereof or other documentation
sufficient to evidence the Borrower's payment thereof.
35
<PAGE>
(d) The Borrower shall reimburse the Lender for all costs and
expenses, including, without limitation, the disbursements, other charges and
reasonable fees of counsel and all out-of-pocket costs reasonably incurred by
the Lender, whether before, on or after the Closing Date, in connection with (i)
the preparation, negotiation and issuance of the Loan Documents, including all
research and advice in connection therewith, (ii) the preparation, negotiation,
execution and delivery of all certificates, agreements, instruments and opinions
delivered in connection herewith and therewith, (iii) any amendment,
modification or supplement to any of the Loan Documents or any agreement or
instrument delivered in connection herewith or therewith requested by Borrower,
(iv) any waiver of any provision of this Agreement, any of the Loan Documents,
or any agreement or instrument delivered in connection herewith or therewith,
(v) any restructuring of the terms of any of the Loan Documents, or any
agreement or instrument delivered in connection herewith or therewith, (vi) the
enforcement of the Loan Documents or any agreement or instrument delivered in
connection herewith or therewith from and after the occurrence and during the
continuation of a Default or an Event of Default, and (vii) all due diligence
costs and expenses incurred by Lender in connection with making the Loan to
Borrower. All of the foregoing expenses shall be reimbursed by the Borrower
whether or not the Lender gives notice to the Borrower of such Default or Event
of Default under this Agreement or takes any other action to enforce the
provisions of any of the Loan Documents or any agreement or instrument delivered
in connection herewith and therewith. The Borrower shall pay any and all title
insurance costs, recording costs and taxes, stamp and other taxes and fees
payable or determined to be payable in connection with the execution, delivery,
filing, recording and enforcement of any of the Loan Documents or any agreement
or instrument delivered in connection herewith or therewith and shall save the
Lender harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes and fees.
36
<PAGE>
(e) All amounts payable pursuant to Sections 3.1(b), (c), (d) and (f)
and 11.5 hereof shall be due and payable not later than fifteen (15) Business
Days following written demand by the Lender, and the obligation to pay such
amounts shall survive the repayment of the Loan and shall continue in full force
and effect so long as the possibility of any such liability, claims or losses
pursuant to such sections exists. Upon request by Borrower, Lender shall
provide Borrower with reasonable supporting documentation with respect to any
amounts payable pursuant to this Section 3.1.
(f) To the extent that the Borrower or any Affiliate of the Borrower
has had any dealings with any broker in connection with the application for or
negotiation of the Loan, any brokerage commissions or similar compensation due
in connection therewith shall be paid in full by the Borrower when due. The
Borrower agrees to and does hereby indemnify the Lender from and against any an
all liability, claims or losses (including reasonable attorneys' fees) incurred
by the Lender arising or allegedly arising by reason of or in connection with
any dealings between any such broker and the Borrower or the Lender.
SECTION 4
CONDITIONS PRECEDENT TO ADVANCE THE LOAN
The obligation of the Lender to advance the Loan is subject to the
fulfillment on the Closing Date, as determined in the sole discretion of the
Lender, of the conditions precedent set forth in this Section 4.
Section 4.1 Documents Pertaining to the Collateral and Security.
---------------------------------------------------
The Borrower shall deliver (or cause to be delivered) to the Lender
the following documents, instruments and agreements, to the extent applicable to
each item of the Collateral and Security or the Management
37
<PAGE>
Agreement as determined by the Lender, each of which shall be in form and
substance satisfactory to the Lender:
(a) All Loan Documents, fully executed;
(b) Paid title insurance policies (the "Title Insurance Policies") in
------------------------
form and content acceptable to the Lender (acting with or without the advice of
its counsel), with respect to each of the Mortgages in the amount of at least
the principal amount of the Allocated Loan Amount for each Inn insuring that (i)
to the extent available in each jurisdiction, that each Mortgage is in all
respects legal, valid and binding upon the Borrower in accordance with its
terms, and (ii) that as of the Closing Date, each Mortgage constitutes a valid
second lien and second security interest in the premises encumbered by such
Mortgage, subject only to the lien of the Senior Loan Documents, free and clear
of all defects and encumbrances except as set forth in Exhibit B to each
Mortgage and the exclusions from coverage, and containing (A) full coverage (by
affirmative insurance) against liens of mechanics, materialmen, laborers, and
any other Persons who might claim statutory or other common law liens; (B) no
survey exceptions other than those set forth in Exhibit B to each Mortgage; (C)
such other endorsements as the Lender may deem necessary to insure that any off-
site easements benefitting any of the Inns are valid and enforceable in
accordance with their terms; (D) a "tie-in" endorsement to the Title Insurance
Policy for each of the other Inns; and (E) such other endorsements as the Lender
(acting with or without the advice of its counsel) may reasonably require. Such
Title Insurance Policies shall be issued by Chicago Title Insurance Company
("Chicago"), or another title insurance company reasonably satisfactory to the
-------
Lender (acting with or without the advice of its counsel). Direct access
reinsurance agreements, or at Lender's option, co-insurance agreements
reasonably acceptable to Lender, shall be provided as required by the Lender;
38
<PAGE>
(c) (i) Evidence satisfactory to the Lender that the requirements set
forth in Exhibit D have been complied with and that all policies of insurance
required by Exhibit D are in full force and effect and contain a provision that
they will not be cancelled or materially amended or the amount of insurance
reduced without 30 days' prior notice to the Lender, and (ii) copies of all of
the relevant policies and the original endorsements or insurance certificates
evidencing the coverages required by Exhibit D;
(d) Evidence satisfactory to the Lender that funds necessary to pay
all taxes in respect of the Mortgages and all recording and filing fees and
other expenses necessary in connection with the recordation of the Mortgages and
the perfection of the Security Interests have been paid to the issuer of the
Title Insurance Policies or to other Persons reasonably satisfactory to the
Lender;
(e) A certificate, dated the Closing Date, of the Borrower, and a
certificate, dated the Closing Date, of the Manager, each of which shall be in
form satisfactory to Lender.
(f) An as-built survey with respect to each Inn, certified to the
Lender and the title insurer within 90 days immediately preceding the Closing
Date by a surveyor registered in the state in which the Inn shown on such survey
is located, each of which surveys shall show (A) the boundaries of the Site, (B)
the location and dimension of all improvements located on the Site, (C) the
location and identity of all visible or recorded easements and rights-of-way
across or serving the Site, (D) that the improvements comply with all setback
requirements and zoning restrictions, (E) that, except as shown on the survey,
the improvements do not encroach on adjoining property or on any easement or
right of way, (F) that there are no encroachments on the Site, except to a de
minimis extent, (G) that the Site is not located within any flood plain area
(unless flood insurance satisfactory to the Lender is provided), and (H) any
other matters that the Lender may reasonably require;
39
<PAGE>
(g) A letter from the title insurer or certifications from attorneys
acceptable to the Lender stating that a search of the public records in the
central filing authority and county of the principal place of business of
Borrower and each state and county in which an Inn is located disclosed no
conditional sales contracts, chattel mortgages, leases of personalty (other than
as disclosed to Lender in writing and approved by Lender), financing statements
or title retention agreements that affect any Inn or Site or any other
collateral or security assigned or pledged to the Lender pursuant to this
Agreement or any of the Related Documents, except such matters as the Lender may
have approved in writing, except for the Financing Statements;
(h) A copy of the certificate of occupancy for all improvements
located on each Site or evidence satisfactory to the Lender that no certificate
of occupancy is required by any applicable Requirement of Law;
(i) A copy of all licenses and permits required for or used in
connection with the legal operation of each Inn and all other improvements
located on each Site and evidence satisfactory to the Lender that no other
licenses or permits are required by any applicable Requirement of Law;
(j) Financial statements for the Borrower and the General Partner
which shall be the most recent statements available on the Closing Date and
which shall include certificates by an appropriate officer of the General
Partner or Host that the information contained therein is true and complete;
(k) A current inspection report with respect to each Inn, prepared by
Merritt & Harris or other engineers satisfactory to the Lender, which reports
shall not describe any material defect in the condition of any improvements
located on any Site;
40
<PAGE>
(l) A current report prepared by Dames & Moore, substantially to the
effect that each Site contains no pollutants, contaminants, hazardous or toxic
wastes or other substances (including, without limitation, asbestos), the
removal of which is required or the use, maintenance or handling of which is
restricted, prohibited or penalized by any Requirement of Law (collectively,
"Hazardous Substances"), except for materials (i) that are in quantities
- ---------------------
permitted by all Requirements of Law and (ii) that are stored, used and disposed
of in accordance with all Requirements of Law;
(m) An appraisal satisfactory to the Lender prepared with respect to
each Inn by Cushman & Wakefield (the "Appraisals");
----------
(n) Acknowledgement copies of proper Financing Statements (Forms UCC-1
and UCC-3) duly filed under the Uniform Commercial Code of each jurisdiction as
may be necessary or, in the reasonable opinion of Lender, desirable to perfect
the security interests created by the Loan Documents (the "Financing
Statements");
(o) Certified copies of Requests for Information or copies (Form UCC-
11), or equivalent reports, listing the financing statements referred to in
paragraph (n) above and all other effective financing statements which name the
Borrower as debtor and which are filed in the jurisdictions referred to in said
paragraph (n), together with copies of such other financing statements;
(p) Evidence that all other actions necessary or, in the opinion of
Lender, desirable to perfect and protect the security interests created by this
Agreement, have been taken;
(q) payment of all fees and expenses of (i) Lender's outside counsel,
Katten Muchin & Zavis, (ii) all special local counsel retained in connection
with any of the Loan Documents and the transactions contemplated thereby
41
<PAGE>
and (iii) all third party costs and expenses incurred by Lender in connection
with the transaction contemplated by this Agreement, including, without
limitation, costs of environmental appraisals, structural reports, due diligence
and travel expenses; and
(r) A letter, executed by Borrower, addressed to the Accountants
instructing them to comply with the provisions of Section 7.14 hereof.
Section 4.2 Authorization; Related Documents.
--------------------------------
The Lender shall have received:
(a) Evidence satisfactory to the Lender to verify the authority of the
individual or individuals executing the Related Documents to which the Borrower
is a party legally to bind the Borrower, and the authority of each individual,
other than representatives of the Lender, who will sign the other statements,
reports, certificates and documents called for by the terms of the Related
Documents to which the Borrower is a party and who will otherwise act under the
Related Documents for and on behalf of the Borrower;
(b) The specimen signature of each individual named pursuant to
Section 4.2(a) hereof certified by an appropriate officer to be a true specimen
thereof;
(c) Executed counterparts of each of the Related Documents, in form
and substance satisfactory to the Lender, and all statements, reports,
certificates and documents required to be provided to the Lender on the Closing
Date pursuant to the terms of the Loan Documents, in the form required hereby
and thereby;
(d) (i) A favorable written opinion addressed to the Lender, dated
as of the Closing Date, of both Hogan & Hartson, counsel to the
Borrower, the General Partner and Host, and an opinion of the Deputy
General Counsel of Host, as to such matters
42
<PAGE>
as the Lender may reasonably request, such opinions to be in form and
substance satisfactory to the Lender; provided, however that Borrower
shall provide evidence satisfactory to Lender that the opinion of the
General Counsel of Host shall (i) represent an unconditional
obligation of Host, and (ii) be covered by the directors and officers'
insurance maintained by Host; and
(ii) A favorable written opinion addressed to the Lender, dated
as of the Closing Date, of the General Counsel or Deputy General
Counsel of Marriott International, Inc., as counsel to the Manager, as
to such matters as the Lender may reasonably request, such opinion to
be in form and substance satisfactory to the Lender; provided, however
that Borrower shall provide evidence satisfactory to Lender that the
opinion of the General Counsel or Deputy General Counsel of Marriott
International, Inc. shall (i) represent an unconditional obligation of
Marriott International, Inc., and (ii) be covered by the directors and
officers' insurance maintained by Marriott International, Inc.; and
(e) The Borrower's Certificate;
(f) Evidence satisfactory to the Lender that the execution, delivery
and performance of the Related Documents to which the Borrower is a party has
been authorized by the General Partner and the Partnership Agreement;
(g) Certificates, dated as of the Closing Date, of the secretary or an
assistant secretary of each of the General Partner, the Manager and Host
(together with copies of the documents referred to below), certifying:
(i) That attached thereto is a true and complete copy of the
Certificate of Incorporation of the entity on whose behalf such
certificate is
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given, together with all amendments thereto and that such Certificate
of Incorporation has not been amended since the date of the last
amendment attached to the certificate;
(ii) That attached thereto is a true and complete copy of the
by-laws of the entity on whose behalf such certificate is given,
together with all amendments, as entered into or in effect on the date
of such certificate;
(iii) That attached thereto is a true and complete copy of
resolutions duly adopted by the Board of Directors of the entity on
whose behalf such certificate is given, authorizing the execution,
delivery and performance of the Related Documents to which such entity
is a party and that such resolutions have not been revoked, annulled
or modified in any manner and are in full force and effect;
(h) Recently dated good standing certificates, and if applicable,
certificates of existence for each of the Borrower, the General Partner, the
Manager and Host;
(i) A favorable written opinion addressed to the Lender, dated as of
the Closing Date, of counsel to the Lender in each state in which one or more of
the Sites is located, as to such matters relating to the subject matter of the
Loan Documents as the Lender may reasonably request, such opinion to be in form
and substance reasonably satisfactory to the Lender;
(j) Evidence satisfactory to Lender that Borrower, Manager and to the
extent necessary, the General Partner are qualified to do business in all
jurisdictions in which Sites are located;
(k) Certified copies of all of the Senior Loan Documents; and
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(l) Such other documents, instruments, approvals (and, if requested by
the Lender, certified duplicates of executed copies thereof) and opinions as the
Lender may reasonably request.
Section 4.3 Certificate of the Borrower.
---------------------------
The following statements shall be true and correct on the Closing
Date, and the Lender shall have received a certificate of the Borrower signed by
a duly authorized officer of the Borrower, dated the Closing Date, stating that:
(i) The representations and warranties of the Borrower and the
General Partner contained in each of the Related Documents to which
the Borrower is a party and in all certificates, documents and
instruments delivered by the Borrower or the General Partner pursuant
to such Related Document, including, without limitation, those set
forth in Exhibit C attached hereto, are true and correct in all
material respects on and as of the Closing Date as though made on and
as of the Closing Date;
(ii) No Default (and no Event of Default as defined in the
Mortgages) has occurred and is continuing or would result from the
execution, delivery or performance of the Related Documents to which
the Borrower is a party or from the advance of the Loan;
(iii) There has been no material adverse change in the financial
condition or results of operations of the Borrower since the date of
the most recent Annual Financial Statement delivered to Lender.
(iv) Each of the Inns and all other improvements located on each
Site are undamaged
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except for any damage that will be repaired during the course of
ordinary maintenance programs with respect to the Inns and such other
improvements; provided, however, that if any more extensive such
damage exists as of the Closing Date then (i) the cost of restoration,
as certified by the Borrower does not exceed $1,000,000 in the
aggregate, (ii) such damage does not affect more than one Inn, (iii)
the Lender has been provided with evidence reasonably satisfactory to
the Lender that such damaged Inn or other improvement can be restored
to substantially the same condition as existed prior to the occurrence
of such damage, the certificate of the Borrower shall so indicate and
the Borrower and the Lender shall enter into such agreement with
respect to the repair, restoration or replacement of such damage as
the Lender may reasonably require, and (iv) any insurance proceeds are
being held by Lender; further provided, that if the cost of
restoration of any such damage exceeds $1,000,000, as estimated by the
Lender, such certificate shall so indicate, and the Lender shall be
provided with substitute collateral reasonably satisfactory to the
Lender;
(v) All required approvals and permits (including temporary or
permanent certificates of occupancy) have been obtained;
(vi) Each of the Inns and all other improvements located on each
Site may legally be occupied, free of any violation (or claimed
violation) of building, environmental and zoning laws (including any
law requiring any environmental assessment or impact statement) or
other applicable legal or insurance underwriters requirements and
recorded covenants, conditions and restrictions; and
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(vii) All improvements on each Site have been finally completed
prior to the Closing Date and paid for, in accordance with all
Requirements of Law, and permanent certificates of occupancy for all
portions of each Inn and all other improvements located on the
Premises have been obtained.
(viii) Such other matters as may be reasonably required by
Lender.
Section 4.4 Other Conditions Satisfied.
--------------------------
Each of the other conditions precedent required to be satisfied and
documents to be delivered on the Closing Date by the Borrower under the Loan
Documents or under the Related Documents shall have been properly satisfied and
delivered in accordance with the relevant provisions thereof.
Section 4.5 Ratios.
------
(a) The DSCR, as determined by Lender, in its sole discretion, shall
be greater than or equal to 1.80.
(b) The Combined DSCR, as determined by Lender, in its sole
discretion, shall be equal to or greater than 1.25.
(c) The LTV, as determined by Lender, in its sole discretion, shall be
equal to or less than .60.
(d) The Combined LTV, as determined by Lender, in its sole discretion,
shall be equal to or less than .75.
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Section 4.6 Capital Reserves.
----------------
Lender shall determine that adequate capital reserves are being or
will be maintained with respect to the Inns.
SECTION 5
OBLIGATIONS ABSOLUTE
Section 5.1 Obligations of the Borrower.
---------------------------
The obligations of the Borrower under this Agreement shall be
absolute, unconditional and irrevocable, and shall be paid and performed
strictly in accordance with the terms of this Agreement, under all circumstances
whatsoever, including, without limitation, the following circumstances:
(a) Any lack of validity or enforceability of this Agreement or all or
any of the other Related Documents;
(b) Any amendment or waiver of, or any consent to departure from, this
Agreement or all or any of the other Related Documents except to the extent so
waived or consented to in writing by the Lender; or
(c) The existence of any claim, set-off, defense or other rights which
the Borrower or Host may have at any time against the Lender or any other
Person, whether in connection with the Related Documents or any unrelated
transactions.
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SECTION 6
REPRESENTATIONS AND WARRANTIES
Section 6.1 Representations and Warranties.
------------------------------
Each of the Borrower and the General Partner represents and warrants
as follows:
(a) The Borrower is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
Borrower has the requisite power to own its property and to conduct the business
in which it engages and is duly qualified to do business as a foreign limited
partnership in each jurisdiction in which Sites are located.
(b) Each of the Borrower and the General Partner on behalf of the
Borrower has all requisite legal right, power and authority to execute, deliver
and perform this Agreement and to consummate the transactions to be consummated
by the Borrower as contemplated hereby. The execution, delivery and performance
by the Borrower of this Agreement and the consummation by the Borrower of the
transactions as contemplated hereby have been duly authorized by all necessary
action on the part of the Borrower. The execution, delivery and performance by
the General Partner on behalf of the Borrower of this Agreement and the
consummation by the General Partner of the transactions as contemplated hereby
have been duly authorized by all necessary action on behalf of the General
Partner. All consents of any other Person (including partners or creditors of
the Borrower but excluding the Lender), and all consents or authorizations of,
or other acts by or filings with any Governmental Authority, required to be
obtained or made by the Borrower or its Affiliates in connection with the
execution, delivery and performance of, and the validity, binding effect and
enforceability of the Borrower's obligations under this Agreement have been
obtained or made and are in full force and effect.
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(c) This Agreement has been duly executed and delivered by the
Borrower, and assuming due authorization, execution and delivery by the Lender,
constitutes the legal, valid and binding obligation of the Borrower, enforceable
against it in accordance with the terms hereof, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law). The Borrower has performed all of its material
obligations that are currently due to be performed under this Agreement.
(d) The execution, delivery and performance by the Borrower of any
Related Document to which the Borrower is or will be a party and the
consummation of the transactions contemplated hereby and thereby (i) are within
the Borrower's and its partners' partnership and/or corporate power; and (ii)
have been duly authorized by all necessary or proper partnership and/or
corporate action. The execution, delivery and performance by the Borrower of any
Related Document to which the Borrower is or will be a party and the
consummation of the transactions contemplated hereby and thereby will not (i) in
any material respect conflict with or constitute on the part of the Borrower a
breach of or default under any agreement, indenture, lease or other instrument
to which the Borrower is a party or by or to which it or its revenues,
properties, assets or operations are bound or subject, or violate any
Requirements of Law; (ii) result in the creation or imposition of any Lien upon
any of the Borrower's revenues, properties or assets, other than as specifically
contemplated hereby or by the Related Documents or as created by the Senior Loan
Documents; (iii) result in the acceleration of any Indebtedness of the Borrower;
or (iv) result in any material adverse change in any agreement material to the
operation of any of the Inns.
(e) No litigation, investigation or other proceeding is pending or, to
the knowledge of the Borrower,
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threatened, before or by any arbitrator or Governmental Authority in any way
restraining or enjoining, or threatening or seeking to restrain or enjoin, or in
any way questioning or affecting the validity, binding effect or enforceability
of, any provisions of any Related Document to which the Borrower is or will be a
party, as against the Borrower or the legal existence of the Borrower or any of
its Partners, the status of its partners as partners, or the Borrower's right to
conduct its operations as proposed to be conducted, to perform its obligations
under the Related Documents to which it is or will be a party, or to consummate
any of the transactions to which it is or will be a party as contemplated hereby
and thereby.
(f) No litigation, investigation or other proceeding is pending or, to
the knowledge of the General Partner, threatened, before or by any arbitrator or
Governmental Authority in any way restraining or enjoining, or threatening or
seeking to restrain or enjoin, or in any way questioning or affecting the
validity, binding effect or enforceability of, any provisions of any Related
Document to which the Borrower is or will be a party, as against the General
Partner or the legal existence of the General Partner, the entitlement of the
directors or officers of the General Partner to their respective positions and
offices, or its right to conduct its operations as conducted, to perform its
obligations under any Related Document to which the Borrower is or will be a
party, or to consummate any of the transactions to which it is or will be a
party as contemplated hereby and thereby.
(g) There is no action, suit, investigation or other proceeding
pending or, to the knowledge of the Borrower, threatened before or by any
arbitrator or Governmental Authority, nor any other event or circumstances,
which would have a material adverse effect on the power or ability of the
Borrower to perform its obligations under any Related Document to which it is or
will be a party or the transactions as contemplated hereby and thereby.
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(h) There is no action, suit, investigation or other proceeding
pending or, to the knowledge of the General Partner, threatened before or by any
arbitrator or Governmental Authority, nor any other event or circumstances,
which would have a material adverse effect on the power or ability of the
General Partner to act as the general partner of the Borrower with respect to
performance by the Borrower of its obligations under any Related Document to
which the Borrower is or will be a party or to consummate the transactions as
contemplated hereby and thereby.
(i) The Borrower is not in default under or with respect to any
contractual obligation in any respect which could materially and adversely
affect its ability to perform its obligations under any Related Document to
which it is or will be a party, nor is the Borrower in default under any
existing judgment, order, award or decree of any arbitrator or Governmental
Authority binding upon or affecting it which could materially and adversely
affect its ability to perform its obligations under any Related Document to
which it is or will be a party.
(j) The General Partner is not in default under or with respect to any
contractual obligation in any respect which would materially and adversely
affect its ability in its capacity as general partner to perform the obligations
of the Borrower under any Related Document to which the Borrower is or will be a
party, nor is the General Partner in default under any existing judgment, order,
award or decree of any arbitrator or Governmental Authority binding upon or
affecting the General Partner which could materially and adversely affect its
ability in its capacity as general partner to perform the obligations of the
Borrower under any Related Document to which the Borrower is or will be a party.
(k) No Default has occurred and is continuing and the Borrower is not
in default under any of the Related Documents to which it is or will be a party
(other than
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defaults existing under financing provided by The Sanwa Bank Limited which is
being repaid on the Closing Date and which repayment shall cure any existing
default).
(l) All Taxes, assessments, fees and other governmental charges
against the Borrower and the General Partner and upon any of their respective
properties which are due have been paid and no claims are being asserted with
respect to any of the foregoing, except such matters as have been disclosed in
writing to the Lender (provided that if any such matter shall give rise to a
Lien against any Collateral and Security, then such Lien shall be bonded over or
other security reasonably satisfactory to the Lender shall have been provided to
secure the discharge of such Lien).
(m) The Borrower does not have outstanding any contractual undertaking
or obligation other than those contemplated by the Related Documents and such
other undertakings and obligations as may be now or in the future undertaken in
the ordinary course of operating the Inns, but no such undertakings or
obligations involve the incurrence of any Indebtedness by the Borrower other
than the Indebtedness permitted hereunder and other than ordinary course of
business trade payables not in excess of an amount acceptable to Lender.
(n) The Borrower has furnished the Lender with a copy of its balance
sheet as of June 16, 1995 and income statements of the Borrower and for each of
the Inns for the most recent Annual Accounting Period and for all Accounting
Periods since the end of the most recent Annual Accounting Period which ended 30
days or more prior to the Closing Date. Such balance sheet and income
statements fairly present the financial condition of the Borrower and each Inn
as of their respective dates. Since the date of such balance sheet there has
been no material adverse change in the financial condition or results of
operations of the Borrower.
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(o) The principal place of business of the Borrower and the General
Partner is in Montgomery County, Maryland.
(p) Neither the Borrower nor the General Partner knows of any reason
why the representations and warranties of the Borrower and the General Partner
contained in the Related Documents to which the Borrower or the General Partner
is or will be a party will not be true and correct in all material respects on
the Closing Date.
(q) Neither the Borrower nor the General Partner is an "investment
company" or a company "affiliated" with or "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended,
and neither the Borrower nor the General Partner will become such by reason of
its execution and delivery of, or performance of its obligations under, any of
the Related Documents to which the Borrower is or will be a party.
(r) All of the outstanding shares of capital stock (the "Shares") of
------
the General Partner have been duly authorized, validly issued and are fully paid
and nonassessable and all of the Shares of the General Partner are owned of
record by Host, directly or indirectly. All of the Shares of Host have been
duly authorized, validly issued and are fully paid and nonassessable. There are
no outstanding options, contracts, calls, commitments or demands of any kind
relating to any of the Shares of the General Partner. None of the Shares of the
General Partner is subject to any Lien. There are no outstanding Securities of
the General Partner, Host other than the Shares. The General Partner has no
Subsidiaries.
(s) Neither the Borrower nor any member of a Controlled Group of which
the Borrower is a member maintains or contributes to or has an obligation to
contribute to any Pension Plan. Neither the Borrower nor such member is
obligated to make contributions on behalf of employees of
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<PAGE>
the Borrower in such capacity in respect of any Pension Plan.
(t) The Borrower owes no Indebtedness to any Person, except for
Indebtedness created or to be created in accordance with the Loan Documents and
the Senior Loan Documents and except for ordinary course of business trade
payables not in excess of $115,000.
(u) The Borrower has delivered or caused to be delivered to the Lender
copies of the Partnership Agreement and the Management Agreement which are (i)
true and complete, including all amendments thereto, (ii) in full force and
effect, with no notice of default, acceleration or termination outstanding or in
effect and (iii) to the Borrower's best knowledge, are not subject to any
material default or any event or condition which with notice or lapse of time or
both would constitute a material default. No mortgages (other than mortgages
that will be satisfied on the Closing Date) affecting any Inn are outstanding or
in effect with respect to any Inn. There are no leases or occupancy agreements
with respect to any Site or any improvements located on any Site (i) providing
for rental payments during the current fiscal year of more than 1% of the gross
revenues budgeted to be derived from such Site and all improvements located on
such Site, or (ii) demising any portion of any Site or any improvements located
thereon for use as an eating facility, or (iii) demising more than 5% of the
usable floor area contained in the improvements located on any Site, or (iv)
except as otherwise disclosed in writing to Lender, providing for a term of more
than one year.
(v) The insurance listed in Exhibit D constitutes all of the insurance
policies in effect with respect to the Inns. Each of such policies, including,
without limitation, each policy to be delivered pursuant to Section 4.1(c)
hereof, is in full force and effect, with no outstanding notice of default or of
material unperformed work, and such policies substantially fulfill the insurance
requirements of
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the Mortgages and do not violate any requirements thereof in any material
respect, except that the Lender has not heretofore been named as an additional
insured or as a loss payable party. To the extent that any of the provisions
regarding insurance contained in Section 2.4 of any of the Mortgages is
inconsistent with any of the insurance provisions contained in Exhibit D
attached hereto, the provisions contained in Exhibit D hereto shall govern.
(w) Borrower owns no material assets other than the Inns and the
rights and assets associated therewith and has no material liabilities other
than those associated with the Inns. The General Partner is a single purpose
entity that is wholly owned, directly or indirectly, by Host. The General
Partner is the sole general partner of the Borrower.
(x) The Borrower or an Affiliate of the Borrower owns and possesses
plans and specifications for all improvements located on any Site.
(y) Borrower has all material licenses, permits, inspections,
authorizations, certifications, consents or approvals from or by, and has made
all material filings with, and has given all material notices to, all
Governmental Authorities having jurisdiction, to the extent required for
Borrower's ownership, operation and conduct of its business and all of same are
in full force and effect and Borrower is in compliance with its partnership
agreement and is in compliance in all material respects with all applicable
provisions of law.
(z) Borrower has not received any notice, and has no knowledge, of any
pending, threatened or contemplated condemnation proceeding or environmental
proceeding or investigation affecting any Inn, or any proposed termination or
impairment of any parking at any Site.
(aa) Each Site has access to and from public streets and roads
adequate for its intended use, and all such streets and roads have been
completed.
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(bb) All federal, state, local and foreign tax returns, reports and
statements required to be filed by Borrower have been filed with the appropriate
Governmental Authority and all charges, payments and other impositions shown
thereon to be due and payable have been paid prior to the date on which any
fine, penalty, interest or late charge may be added thereto for nonpayment
thereof, or any such fine, penalty, interest, late charge or loss has been paid,
except as set forth in Exhibit J attached hereto.
---------
(cc) No information contained in this Agreement, the other Loan
Documents, or any written statement furnished by or on behalf of the Borrower
pursuant to the terms of this Agreement contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
contained herein or therein not materially misleading in light of the
circumstances under which made.
(dd) All approvals from Governmental Authorities necessary or
appropriate for the execution, delivery and performance (x) by the Borrower of
the Related Documents to which it is a party, and (y) by the General Partner on
behalf of the Borrower of the Related Documents to which it is a party
(including, without limitation, evidence of authority to transact business in
every jurisdiction in which such authority is necessary to comply with
Requirements of Law), have been obtained and none of such approvals have been
revoked, annulled or modified in any manner and are in full force and effect.
(ff) There are no material items of deferred maintenance with respect
to any of the Inns.
(gg) All of the Loan Documents to which Borrower is a party are the
legal, valid and binding obligation of Borrower, enforceable in accordance with
their terms, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement of
creditors' rights generally, and by general principles of equity (regardless of
whether such
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enforcement is considered in a proceeding in equity or at law), and there is no
offset, defense, counterclaim or right to rescission with respect to such Loan
Documents or any other agreements.
(hh) Pursuant to the Management Agreement, after giving effect to the
transactions occurring contemporaneously herewith, the Capital Contributions as
of the date hereof are $66,262,626; the Adjusted Capital Contributions are $
67,656,651; and Owner's Capital Return is $85,164,079 (with each of such terms
having the meaning given in the Management Agreement).
(ii) There are no leases or occupancy agreements affecting any of the
Inns.
Section 6.2 Survival.
--------
The representations and warranties of the Borrower in this Agreement
shall survive the execution, delivery and acceptance hereof by the parties
hereto and the closing of the transactions described herein or related hereto.
SECTION 7
AFFIRMATIVE COVENANTS
Each of the Borrower and the General Partner covenants and agrees with
the Lender that, so long as any amount is owing to the Lender under any of the
Related Documents:
Section 7.1 Information.
-----------
(a) The Borrower will furnish to the Lender, within 15 Business Days
after it is required to be filed with the SEC, a copy of the 10-K of the
Borrower, which shall include the Borrower's annual report. Each Annual
Financial Statement included in such annual report shall be certified by the
Accountants as fairly presenting the
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financial condition and results of operations of the Borrower as at and for the
fiscal year covered by such report. All Annual Financial Statements provided by
the Borrower to the Lender hereunder shall be complete and correct in all
material respects.
(b) The Borrower will furnish to the Lender, within 15 Business Days
after it is required to be filed with the SEC, a copy of (i) the 10-Q of the
Borrower and (ii) any 8-K of the Borrower.
(c) Borrower shall furnish to Lender the following reports:
(i) As soon as available, but in all events within 27 days after
the end of each Accounting Period: (a) unaudited financial statements
substantially in the form of Exhibit E attached hereto, covering such Accounting
Period and the Annual Accounting Period for the period to date showing in detail
for each Inn separately among other things, a breakdown of sales revenues and
operating expenses, and the calculation of house profit, average suite and
average occupancy rates, each of the foregoing with a comparison to budget and
prior year, and (y) total sales, average suite and average occupancy rates and
house profit on a consolidated basis for all Inns, for the period year to date
and compared to budget, and (b) an unaudited consolidated profit and loss
statement and escrow analysis and unaudited periodic and year-to-date reports
detailing for each property the calculation of Operating Profit substantially in
the form of Exhibit F attached hereto, and (c) the calculation of the Annual
Rolling Average Ratios, Six Period Rolling Average Ratios and Three Period
Rolling Average Ratios for such Accounting Period (each in the form of Exhibit G
1) together with a certification by the General Partner that no Trigger Date or
Application Trigger Date has occurred as of the end of such Accounting Period or
specifying in reasonable detail the reasons such a Trigger Date or Application
Trigger Date occurred.
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(ii) Within 60 days after the end of the Accounting Period occurring
closest to the end of each calendar quarter, quarterly and year-to-date
unaudited financial statements for the Borrower (including, without limitation,
balance sheets, income statements, statements of cash flows and the Limited
Partner Quarterly Update report).
(iii) Within 120 days after the end of each Annual Accounting Period,
audited financial statements (including balance sheet, income statement and
statement of cash flows of the Borrower), such financial statements to be
audited by the Accountants who shall provide an unqualified opinion with respect
to such statements.
(iv) At least thirty (30) days before the beginning of each Annual
Accounting Period operating budgets and capital budgets, together with all
supporting detail and assumptions, to the extent available to Borrower.
(v) All material reports or other material documentation with
respect to each Inn available to Borrower together with any supporting materials
or assumptions available to Borrower, including, but not limited to, all rent
letters, together with any other information in the possession of or available
to Borrower that is requested by Lender, including without limitation, a copy of
the K 1 partnership tax return for Borrower.
Each statement delivered pursuant to (i)-(iii) above shall be
accompanied by a certificate of the General Partner of the Borrower stating (i)
Borrower is not aware of any inaccuracy in any material respect in any such
reports, and (ii) that there then exists no Default or Event of Default except
as may be set forth in such certificate substantially in the form of Exhibit G
2.
(d) The Borrower will furnish to the Lender, promptly after request
therefor, such additional financial and other information as the Lender may from
time to time
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reasonably request, including the Annual Residence Inn Marketing Plan when
completed.
(e) The Borrower will furnish one copy of the final Annual Operating
Projection for each Inn promptly after receipt thereof from the Manager in
accordance with the Management Agreement. Such Annual Operating Projection
shall also include individual property and consolidated occupancy and suite rate
projections together with any supporting materials or assumptions available to
Borrower.
Section 7.2 Discharge of Obligations.
------------------------
Each of the Borrower and the General Partner will pay, discharge, or
otherwise satisfy, or cause to be paid, discharged or otherwise satisfied, at or
before maturity or before they become delinquent or in default, as the case may
be, all of their respective obligations, liabilities and Indebtedness in
accordance with the terms thereof, except (i) where any such obligation or
liability is being contested in good faith by appropriate proceedings and
reserves in conformity with GAAP with respect thereto have been provided on the
books of the Borrower or the General Partner, as the case may be, and (ii) each
account payable shall be paid not later than 90 days after the date on which
such account became due other than accounts payable being contested in good
faith, which shall not be required to be paid within 90 days if reserves in
conformity with GAAP are maintained. Each of the Borrower and the General
Partner will keep each Inn, all other improvements located on any Site and all
Personal Property used in the operation and maintenance of any Inn or other such
improvements free and clear of all Liens other than Liens permitted under the
Loan Documents. Each of the Borrower and the General Partner will apply funds
derived from the Inns in accordance with the terms and priorities established in
this Agreement and the other Related Documents.
Section 7.3 Maintenance of Existence.
------------------------
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(a) The Borrower will (i) keep in full force and effect its
partnership existence, except for automatic dissolutions resulting from the
admissions or withdrawal of partners as permitted by this Agreement, provided
that in each such instance the partnership existence of the Borrower shall be
reconstituted contemporaneously with such automatic dissolution, and (ii) comply
with all Requirements of Law material to the conduct of its business (including,
without limitation, continuing to be qualified to engage in business in each
jurisdiction where such qualification is required) and the performance of its
obligations under this Agreement and the other Related Documents to which it is
a party.
(b) The General Partner will (i) maintain its corporate existence in
good standing and (ii) comply with all Requirements of Law material to the
conduct of its business (including, without limitation, continuing to be
qualified to engage in business in each such jurisdiction where such
qualification is required) and the performance of the obligations of the
Borrower under the Loan Documents to which the Borrower is a party.
Section 7.4 Maintenance of Records.
----------------------
The Borrower will keep proper books of record and account in which
full, true and correct entries in conformity with the Partnership Agreement,
GAAP and all Requirements of Law shall be made of all dealings and transactions
in relation to its activities.
Section 7.5 Furnishing Notice.
-----------------
The Borrower will, as soon as possible but no later than two Business
Days after an officer of the General Partner obtains knowledge thereof, give
notice to the Lender of:
(i) The occurrence of any Default or Event of Default;
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(ii) Any litigation, investigation or proceeding that may exist
at any time with respect to the Borrower other than (A) matters
covered by workers' compensation insurance and other insurance listed
in Section 1 of Exhibit D hereto and (B) matters in which the amount
claimed is less than $100,000 per incident and $500,000 in the
aggregate; and
(iii) A material adverse change in the business, operations,
property or financial or other condition of the Borrower or the
General Partner.
Each notice pursuant to this Section 7.5 shall be signed by a duly
authorized officer of the General Partner on behalf of the Borrower and shall
set forth details of the occurrence referred to therein and state what action
the Borrower has taken, and proposes to take, with respect thereto.
Section 7.6 Proceeds of the Loan.
--------------------
The Borrower will apply the proceeds of the Loan solely for the
purposes set forth in Section 2.2 hereof.
Section 7.7 Senior Loan Documents.
---------------------
Borrower agrees to comply with and perform all of the terms and
conditions of the Senior Loan Documents on its part to be complied with or
performed. Borrower agrees not to modify or amend the terms and provisions of
the Senior Loan Documents in any respect without first having obtained the
written consent of Lender, which consent may be given or withheld by Lender, in
its sole and absolute discretion, except as expressly permitted in Section 1.b.
of the Intercreditor Agreement, and no consent of Lender is required for
modification and amendments to the Senior Loan Documents expressly permitted by
Section 1.b of the Intercreditor Agreement. Borrower agrees to promptly give
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Lender written notice of the occurrence of any Default under the Senior Loan
Documents upon Borrower's receipt of a written notice of Default from the Senior
Lender, which notification to Lender shall include a copy of the written notice
sent by the Senior Lender, in order to permit Lender to exercise the cure rights
provided in this paragraph. Borrower further covenants and agrees to give
Lender written notice of the occurrence of any Default under the Senior Loan
Documents immediately upon Borrower's obtaining knowledge of such Default,
whether or not Borrower has received written notice of Default from Senior
Lender. Upon the occurrence and during the continuation of a Default by
Borrower under the Senior Loan Documents, or if Lender is permitted to make any
payments to Senior Lender under the Intercreditor Agreement, Lender shall not be
obligated to, but, at its sole election and in its sole discretion, and with or
without prior written notice to Borrower, may elect to (i) pay any payment of
principal or interest of, or any other monies due or declared due on the Senior
Loan Documents, including without limitation, fees, default interest and yield
maintenance payments, or (ii) cure any other Default under the Senior Loan
Documents. Lender shall notify Borrower of such advance immediately after the
making thereof, but none of Lender's rights or remedies shall be limited or
impaired on account of Lender's failure to do so. Lender agrees that Borrower
may repay two (2) advances made by Lender under this Section in each calendar
year, upon payment of the amount thereof plus interest calculated at the Default
Rate, but shall have no other right to repay such advances. Borrower covenants
with Lender that to the extent that Lender so pays any monies due or declared
due on the Senior Loan Documents, including, without limitation, yield
maintenance payments, or incurs any costs in connection with the cure of any
default under the Senior Loan Documents, that said payments and sums expended by
Lender (and the amounts thereof) shall constitute a part of the indebtedness
secured by the Mortgages and shall be payable by Borrower to Lender upon demand,
with interest upon the unpaid amount thereof from the date of Lender's payment
thereof until repaid to Lender at the Default Rate.
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In addition thereto, in the event and to the extent that Lender makes said
payments or expends said sums, Lender shall become and be subrogated to and
enjoy all the rights, liens, powers and privileges granted to the owner and
holder of the Senior Loan Documents and, in Lender's sole discretion and at its
sole election, the Senior Loan Documents shall remain in existence for the
benefit of, and to secure, such indebtedness; provided, however, that Lender
shall have no such rights of subrogation or any other rights or privileges
under, or right to participate in, the Senior Loan Documents unless and until
all sums secured thereby have been fully paid to the Senior Lender or, with
respect to Senior Lender's rights with respect to a particular Site or Sites,
until such time as the Mortgage of Senior Lender has been released or otherwise
discharged with respect to such Site, whether by payment, foreclosure,
redemption or otherwise.
Section 7.8 Management Agreement.
--------------------
The Borrower will duly perform in all material respects the
obligations contemplated to be performed by it under the Management Agreement
and will, with due diligence and in a reasonable and prudent manner, enforce its
rights under the Management Agreement and will not waive any of Borrower's
rights or Manager's obligations under the Management Agreement without the prior
written consent of Lender, which may be withheld in Lender's sole discretion.
Section 7.9 Insurance.
---------
The Borrower will maintain in full force and effect the insurance
described in Exhibit D hereto and deliver to the Lender not less than 15 days
prior to the expiration of each policy listed in Exhibit D evidence reasonably
satisfactory to the Lender that such policy has been renewed or that a
comparable policy reasonably satisfactory to the Lender has been obtained and
that the premium with respect thereto has been paid.
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Section 7.10 Payment of Debt.
---------------
The Borrower will pay the Debt in accordance with this Agreement and
the other Related Documents.
Section 7.11 Compliance With Law.
-------------------
The Borrower shall cause all of the Inns to comply in all material
respects with all requirements of Governmental Authorities (including, without
limitation, all requirements with respect to environmental matters).
Section 7.12 Consultation with Lender.
------------------------
Upon Lender's written request, Borrower agrees to consult with Lender
(and to use commercially reasonable best efforts to cause Manager to join in the
consultation with Lender) no more than once per calendar quarter, and to take
into consideration Lender's advice and opinions with respect to matters
discussed.
Section 7.13 Capital Reserves.
----------------
Until the Loan is repaid in full, Borrower shall on or before the date
that is thirty (30) days after the end of each Accounting Period occurring
closest to the end of each calendar quarter deposit an amount equal to at least
five percent of Gross Revenues for such Accounting Period and any prior
Accounting Periods during the preceding calendar quarter as to which such
deposit has not been made, into the Reserve, and the disposition of such amount
shall be governed by the Management Agreement. Additionally, Borrower shall not
increase or decrease, or agree to any increase or decrease in, the amount of the
Reserve (as defined in the Management Agreement) or any other reserves
maintained pursuant to the Management Agreement without the prior written
consent of the Lender.
Section 7.14 Access.
------
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(a) Borrower shall grant Lender access to all of the Inns and to
representatives of the Manager from time to time as may be reasonably requested
by Lender. Such access shall be provided on at least a semi-annual basis and on
a quarterly basis if the Trigger Date (as defined in the Four Party Agreement)
has occurred. Additionally, Lender and any of its officers, employees and/or
agents shall have the right, exercisable as frequently as Lender (or any
representative of Lender) reasonably determines to be appropriate, during normal
business hours (or at such other times as may reasonably be requested by Lender
or any representative of Lender) to inspect any Inn (consistent with Borrower's
rights under the Loan Documents). Prior to an Event of Default, any such access
and right to inspect shall be at Lender's cost during normal business hours and
upon reasonable advance notice and Lender shall use good faith efforts to
minimize any interference with Borrower's operations. Lender and any of its
officers, employees and/or agents shall have the right, exercisable as
frequently as Lender (or any representative of Lender) reasonably determines to
be appropriate, but not more often than twice in any Annual Accounting Period
prior to an Event of Default, during normal business hours (or at such other
times as may reasonably be requested by Lender or any representative of Lender),
to inspect, audit and make extracts from all of the Borrower's records, files
and books of account at Lender's cost except as provided below. The Borrower
shall deliver any document or instrument reasonably necessary for Lender (or any
representative of Lender), as any of them may reasonably request, to obtain
records from any service bureau maintaining records for the Borrower, and shall
maintain duplicate records or supporting documentation on media, including,
without limitation, computer tapes and discs owned by the Borrower. The
Borrower shall cooperate with Lender to instruct its banking and other financial
institutions and Manager to make available to Lender such information and
records as Lender (or any representative of Lender) may reasonably request.
Borrower shall pay to Lender the travel expenses and reasonable out-of-pocket
costs incurred by Lender in performing any single audit in
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any calendar year if any audit performed by, or on behalf of, the Lender
discloses that Borrower's statement of Gross Revenues, Net Cash Flow, Inn
Income, Inn Operating Expenses or Net Income Available for Debt Service is
misstated or otherwise incorrect by greater than 5% of Borrower's reported
amount. Notwithstanding the foregoing, during any period that an Event of
Default has occurred and is continuing, Borrower shall be responsible for the
full cost and expense of any investigation or audit conducted by Lender,
provided that Lender shall conduct no more than one such audit per year.
(b) The Borrower authorizes Lender to communicate directly with the
Accountants and irrevocably authorizes those accountants, at any time prior to
repayment of the Loan in full, to disclose to Lender any and all financial
statements and other supporting financial documents and schedules including
copies of any management letter with respect to the business, financial
condition and other affairs of the Borrower. Lender agrees not to exercise the
rights set forth in this subsection (b) until the earlier to occur of (i) an
Event of Default or (ii) a Trigger Date (as defined in the Four Party
Agreement). Lender further agrees to use reasonable efforts not to create an
undue burden on the Accountants as a result of the exercise of Lender's rights
pursuant to this subsection (b) and to cause all parties with an interest in the
Loan to act as a group to the extent practicable (but without waiving Lender's
rights with respect to the information described in this subsection (b)).
(c) If construction, renovation or repair having an estimated cost in
excess of $500,000 is contemplated or is recommended by any engineers or
architects retained by Borrower or Manager for any Inn, Lender shall have the
right to have an architect or engineer reasonably acceptable to Lender, at
Borrower's cost, make periodic inspections of the Inn in question.
Section 7.15 Material Agreements.
-------------------
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Borrower shall notify Lender of any Material Agreements entered into
after the date hereof. Borrower shall perform, within all required time periods
(after giving effect to any applicable notice or grace periods), all of its
obligations and enforce all of its rights under each Material Agreement to which
it is a party if the failure to perform such obligations or enforce such rights
would have a material adverse effect on Borrower.
Section 7.16 Additional Reserves.
-------------------
In the event that Lender at any time determines that the Reserves then
being maintained pursuant to the Management Agreement are inadequate, Lender may
require, in Lender's sole but good faith discretion, that Borrower establish or
increase the amount of any reserves that Lender determines to be necessary or
appropriate, provided that Lender shall provide Borrower with a reasonably
detailed explanation of Lender's determination. All Reserves shall be
maintained in cash (and not merely through accounting entries) and shall be held
by Lender or by Manager pursuant to the Management Agreement. Lender shall have
the right to approve in advance any use of the Reserves, in Lender's sole, but
good faith discretion, except to the extent that Borrower does not have the
right to approve the use of the Reserves pursuant to the Management Agreement.
Section 7.17 Four Party Agreement.
--------------------
Borrower shall pay, or cause to be paid, all Net Cash Flow, in
accordance with and as required by the Four Party Agreement.
Section 7.18 Environmental Insurance.
-----------------------
Borrower shall maintain the Environmental Insurance Policy in full
force and effect in accordance with and subject to the same terms and conditions
set forth in the Indemnity Agreement.
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Section 7.19 General Partner Net Worth.
-------------------------
Borrower shall cause the General Partner to at all times maintain (i)
a net worth determined in accordance with GAAP of at least $6,600,000 (exclusive
of General Partner's interest in Borrower), and (ii) either cash in the amount
of at least $6,600,000 or the General Partner Note that is in full force and
effect in such amount.
SECTION 8
NEGATIVE COVENANTS
Each of the Borrower and the General Partner hereby covenants and
agrees with the Lender that, so long as any amount is owing to the Lender under
any of the Loan Documents:
Section 8.1 Consolidations, Mergers and Sales of Assets.
-------------------------------------------
The Borrower will not, without the prior written consent of the
Lender, (a) consolidate with or merge into any other Person or (b) sell, assign,
encumber, lease or otherwise transfer any of the Inns or any interest therein or
any assets directly related thereto to any other Person (provided that Lender
will not unreasonably withhold Lender's consent to the granting of easements or
similar rights reasonably necessary in connection with the ownership and
operation of the Mortgaged Property and which do not adversely affect Lender's
rights), other than (i) as permitted by the Loan Documents, including, without
limitation, Section 2.12 hereof or (ii) Personal Property used in connection
with the operation or maintenance of the Inns or any of them that is replaced
with Personal Property of a similar nature and quality equal to or better than
the Personal Property disposed of (except that obsolete Personal Property need
not be replaced), provided that Borrower may over the term of the Loan sell or
dispose of Personal
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Property with a value of not more than $1,000,000 in the aggregate.
Section 8.2 Place of Business.
-----------------
Neither the Borrower nor the General Partner will change its principal
place of business outside Montgomery County, Maryland, without the prior written
consent of Lender, which consent shall not be unreasonably withheld provided
that Borrower executes, delivers, files and records such documents and
instruments as Lender may reasonably require to continue Lender's rights with
respect to all of the Collateral and Security for the Loan and the perfection of
Lender's rights with respect thereto.
Section 8.3 Incurrence of Indebtedness.
--------------------------
(a) The Borrower will not create, incur, assume or suffer to exist any
Indebtedness of or relating to the Borrower of any kind or nature, except for
Indebtedness that is both (a) an Additional Inn Investment (as defined in the
Management Agreement) and (b)(i) expressly contemplated or permitted by this
Agreement, (ii) non-capital equipment leases entered into in the ordinary course
of business not to exceed required annual payments of $1,100,000 in the
aggregate during any Annual Accounting Period, of which payments of no more than
$600,000 in the aggregate during any Annual Accounting Period may come from
sources other than the Reserve (as defined in the Management Agreement) (capital
leases being subject to the following clause (iii)), or (iii) unsecured
Indebtedness incurred in the ordinary course of business not exceeding
$5,000,000, in the aggregate, provided that (a) such Indebtedness is either (x)
loaned to Borrower by Host or General Partner, or (y) a capital lease, and (b)
any such indebtedness is unsecured, fully subordinated, does not subject any
assets of Borrower to foreclosure or the imposition of any Lien and is otherwise
not enforceable to the detriment of Lender.
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(b) The General Partner will not create, incur, assume or suffer to
exist any Indebtedness of the General Partner of any kind or nature, except for
(i) costs and expenses arising from the execution and delivery of the Related
Documents to which the Borrower is a party, and (ii) Indebtedness created or to
be created as specifically permitted under this Agreement.
Section 8.4 Purchase of Property.
--------------------
Neither the Borrower nor the General Partner will purchase any
property (other than Personal Property to be used in connection with the Inns in
the ordinary course of business), whether real or personal, tangible or
intangible, whether for investment or resale or for any other purpose
whatsoever, except with the prior written approval of the Lender, which consent
shall not be unreasonably withheld, conditioned or delayed and as specifically
provided for in the Loan Documents.
Section 8.5 Maintenance of Purpose.
----------------------
The Borrower will not engage in any business or operate for any
purpose other than that set forth in Section 2.03 of the Partnership Agreement
nor will Borrower materially change in any manner Borrower's business or acquire
any assets not related to the Inns, without Lender's prior written consent in
each instance.
Section 8.6 Distributions to Partners by the Borrower.
-----------------------------------------
The Borrower will not (i) make any distributions to its partners
(inclusive of repayments of loans made by any partner of the Borrower to the
Borrower) from the proceeds of borrowings, (ii) make any distributions to its
partners (inclusive of repayments of such partner loans) more frequently than
quarterly, (iii) make any distributions to its partners (inclusive of repayments
of such partner loans) except in accordance with the provisions of the
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Partnership Agreement and the other Related Documents, (iv) make any
distributions to its partners (inclusive of repayments of such partner loans),
unless the ratio of Net Income Available for Debt Service to All Indebtedness
Debt Service calculated on a cumulative basis for the preceding thirteen (13)
Accounting Periods is at least 1.10, (v) make any distributions to its partners
(inclusive of repayments of such partner loans) if the Trigger Date, as
determined in accordance with the Four Party Agreement, shall have occurred and
no corresponding Restoration Date shall have occurred, or (vi) make any
distributions to its partners (inclusive of repayments of such partner loans)
unless the Distribution Conditions are then satisfied.
Section 8.7 Amendments to Agreements.
------------------------
(a) Borrower shall not terminate or enter into or consent to any
amendment, modification, waiver or supplement of any provision of the Management
Agreement without the prior written consent of the Lender, which consent may be
withheld in Lender's sole discretion.
(b) The General Partner shall not, either as a general partner or a
limited partner, terminate or enter into or consent to any amendment,
modification, waiver or supplement of any provision of the Partnership Agreement
without the prior written consent of the Lender, which shall not be unreasonably
withheld, conditioned or delayed, except that the General Partner may, without
Lender's consent, enter into administrative or ministerial amendments that do
not impair the rights and remedies of the Lender under this Agreement and the
other Related Documents or the position and interests of the Lender as a secured
party entitled to the security interests and to receive payments as contemplated
by this Agreement and the other Related Documents.
(c) The General Partner will not, without the prior written consent of
the Lender, which consent shall not be unreasonably withheld, conditioned or
delayed, enter into
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or consent to any termination, amendment, waiver or supplement of any of the
provisions of the General Partner's Certificate of Incorporation and By-Laws,
except that such consent of the Lender shall not be required for any waiver,
amendment or modification of such Certificate of Incorporation or By-Laws that
does not in any way (i) affect the obligations of the Borrower owed to the
Lender under this Agreement and the other Related Documents, or (ii) impair the
rights and remedies of the Lender under this Agreement and the other Related
Documents or the position and interests of the Lender as a secured party
entitled to the security interests and to receive payments as contemplated by
this Agreement and the other Related Documents, or (iii) impair the value of the
Borrower's interests in the Inns or the Management Agreement. In the event of
any waiver, amendment or modification of the General Partner's Certificate of
Incorporation or By-Laws with respect to which the General Partner believes that
the consent of the Lender is not required, the Borrower shall furnish to the
Lender (i) at least ten days prior to execution thereof, a copy of the proposed
amendment or modification, and (ii) within 30 days following the execution and
delivery thereof a copy thereof, certified to be true and complete by the
General Partner.
Section 8.8 Issuance of Rights.
------------------
The General Partner will not issue any stock options, warrants,
rights, calls or commitments of any character calling for or permitting the
issuance, transfer, sale or delivery of the Shares of the General Partner or any
other Security.
Section 8.9 Payment of Distributions.
------------------------
The General Partner will not pay or declare any dividend or
distribution on account of, or redeem or otherwise purchase any of, the Shares
or Securities or other instruments convertible into or exchangeable for the
Shares or Securities, unless (i) the net worth of the General
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Partner (exclusive of the General Partner's interest in Borrower) determined in
accordance with GAAP is at least $6,600,000, (ii) the General Partner then has
either cash of at least $6,600,000 or the General Partner Note is in full force
and effect in at least such amount, (iii) the Environmental Insurance Policy is
then in full force and effect and complies with Section 4(g) of the
Environmental Indemnity, and (iv) Borrower does not then anticipate, or have
reason to believe, that Borrower will be required to pay or provide for any
capital improvements to any Inns that cannot be paid for from Net After Debt
Service Cash Flow or from the Reserves, at the time payment is required
(collectively, the "Distribution Conditions").
Section 8.10 Issuance of Securities.
----------------------
The General Partner will not issue, transfer, sell or deliver any
Shares of the General Partner or other instruments convertible into or
exchangeable for the Shares of the General Partner.
Section 8.11 Other Activities.
----------------
Neither the Borrower nor the General Partner will enter into any
transaction (including, without limitation, the establishment of or the
undertaking of any obligations to make contributions to any Pension Plan) with
any Person pursuant to which it will undertake any material obligations or
liabilities, other than in the ordinary course of business in connection with
the ownership of the Inns, except as contemplated by the Related Documents or as
approved in writing by the Lender.
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Section 8.12 Creation of Liens.
-----------------
Neither the Borrower nor the General Partner will create, incur,
assume or suffer to exist any Lien upon any of their respective properties,
assets or revenues, whether now owned or hereafter acquired, except (i) Liens
for taxes not yet due and payable, (ii) Liens that are being contested in good
faith by appropriate proceedings, provided that adequate reserves with respect
thereto are maintained on their respective books in accordance with GAAP and
further provided that within 30 days after notice from the Lender, the Borrower
will furnish or cause to be furnished to the Lender cash, surety company bond or
other security reasonably satisfactory to the Lender, sufficient to cover the
amount being contested, securing the payment of such contested amount and all
items of interest, penalties and costs in connection therewith when finally
determined, (iii) other Liens created pursuant to or permitted by the terms of
the Loan Documents, and (iv) mechanics' and other statutory Liens, provided that
all such Liens shall be discharged of record or bonded over within 30 days after
the Borrower receives notice thereof.
Section 8.13 Transfers by the General Partner.
--------------------------------
The General Partner will not (a) consolidate with or merge into any
other Person or (b) sell, assign, lease or otherwise transfer (whether in one
transaction or in a series of transactions) any of its assets (whether now owned
or hereafter acquired and including, without limitation, its interests in the
Borrower) to any Person, other than (i) as permitted by the Loan Documents
unless the Lender gives its prior written consent thereto, or (ii) in
transactions involving only a Person that is wholly owned, directly or
indirectly, by Host and that is and will remain a Subsidiary of Host.
Section 8.14 Hazardous Substances.
--------------------
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The Borrower will not bring any Hazardous Substances onto any of the
Sites, or permit any other Person to do so, except for materials (i) that are in
quantities permitted by all Requirements of Law and (ii) that are stored, used
and disposed of in accordance with all Requirements of Law.
Section 8.15 Restrictions on Action Under Management Agreement.
-------------------------------------------------
Without the prior written consent of Lender, which may be withheld in
Lender's sole and absolute discretion, Borrower shall not agree to any of the
following pursuant to the Management Agreement:
(a) An increase in the contributions to the Repairs and Equipment
Reserve (as defined in the Management Agreement) in excess of the amount set
forth in Section 7.02(B) of the Management Agreement or the expenditure of any
amounts pursuant to Section 7.02(E) of the Management Agreement.
(b) The expenditure of any amounts in excess of the Repairs and
Equipment Reserve pursuant to Section 7.02(C) of the Management Agreement.
(c) Allowing any amount to be provided for in the Building Estimate
(as defined in the Management Agreement) or allowing any expenditures for the
Building Estimate.
(d) The expenditure of any amounts pursuant to the Management
Agreement, other than as set forth in subparagraphs 8.15(a)-(c) above, in excess
of the amounts that Manager is permitted to spend without the consent of
Borrower pursuant to the Management Agreement.
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SECTION 9
EVENTS OF DEFAULT
Section 9.1 Events of Default.
-----------------
The occurrence of any of the following events shall be an "Event of
Default" hereunder unless waived by the Lender pursuant to Section 11.1 hereof:
(a) The Borrower fails to pay (i) any principal or interest
(including, without limitation, default interest) due hereunder in respect of
the Loan within one Business Day following the due date of such amount, or (ii)
any other amount due pursuant to this Agreement or any of the other Loan
Documents within five days after the due date; or
(b) Any representation or warranty made by the Borrower pursuant to
this Agreement, any representation or warranty made or deemed made in connection
with information provided by the Borrower pursuant to Section 7.1 hereof, or any
other representation or warranty made or deemed made by the Borrower in any of
the Loan Documents or in any certificate, document, financial or other written
statement furnished to the Lender at any time under or pursuant to the terms of
any Loan Document, shall prove to have been false or incorrect in any material
respect when made or deemed made, and in any of the foregoing circumstances the
breach of such representation or warranty has a Material Adverse Effect; or
(c)(i) An Event of Default (as defined in the relevant agreement)
shall occur and be continuing under any of the Loan Documents, or if no cure
period is specified for any of the Borrower's obligations under any of the Loan
Documents (but exclusive of any obligations for which no notice or cure is
available), a breach or default by Borrower shall occur as to such obligation
under any of such Loan Documents which remains uncured for thirty (30) days
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after written notice thereof from Lender to Borrower, provided that if same
cannot be cured within thirty (30) days despite diligent and continuous efforts
to cure, such thirty (30) day period shall be extended to a total period of
ninety (90) days, provided that Borrower diligently and continuously prosecutes
such cure to completion; or (ii) the Borrower or the General Partner shall fail
to perform or observe any term, covenant or agreement contained in Sections 7.3,
7.5, 7.6, 7.18, 7.19 or Section 8 of this Agreement; or (iii) the Borrower or
the General Partner shall fail to perform or observe any term, covenant or
agreement contained in Sections 7.1, 7.2, 7.4, 7.7, 7.8, 7.11, 7.13, 7.14 or
7.15 of this Agreement or any other provision of this Agreement within thirty
(30) days after obtaining knowledge thereof; (iv) the insurance required to be
maintained pursuant to Section 7.9 of this Agreement shall not be maintained;
(v) the Manager shall cease to be manager of the Inns unless Lender has
otherwise agreed to such change in writing; or (vi) the Borrower or the General
Partner shall fail to perform or observe the provisions of Section 7.17 hereof
and such failure shall continue for five (5) days after written notice from
Lender, provided that Lender shall be required to give only one such notice
during any 12 month period, and thereafter, such failure shall constitute an
Event of Default without notice; or
(d) Any provision affecting the obligation to make payments under this
Agreement shall at any time for any reason cease to be valid and binding on the
Borrower or shall be declared to be null and void without the necessity of
election by the Borrower, or the validity or enforceability of any material
provision of any of the Loan Documents shall be contested by the Borrower or any
Governmental Authority or the Borrower shall deny that it has any further
liability or obligation under any of the Loan Documents; or
(e) Any monetary default shall occur with respect to any Indebtedness
for borrowed money of the Borrower, which shall not have been cured within the
period of grace,
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if any, provided in the instrument or agreement under which such Indebtedness
was created, or if any non-monetary default shall occur with respect to any such
Indebtedness and the maturity of such Indebtedness shall be accelerated by
reason of such non-monetary default, unless the Borrower shall have satisfied,
or caused to be satisfied, all of its obligations with respect thereto; or
(f) If at any time there shall be rendered by courts or Governmental
Authorities any judgment against the Borrower that has been entered and is
immediately enforceable (all rights to appeal having been exhausted or having
expired) involving an amount in excess of $100,000, and that has not been (i)
satisfied within thirty (30) days after the judgment in question is immediately
enforceable, if the judgment is for $1,000,000 or less (or fifteen (15) days if
the amount is in excess of $1,000,000), or (ii) covered in full by insurance
satisfactory to Lender (except that such insurance may exclude from coverage
reasonable deductibles which Borrower pays in full within fifteen (15) days
after the judgment in question is immediately enforceable).
(g) The Borrower or the General Partner shall:
(i) Make a general assignment for the benefit of creditors; or
(ii) File a petition in bankruptcy, petition or apply to any
tribunal or applicable Governmental Authority for the appointment of a
custodian, receiver, conservator, trustee or other official with
similar powers for it or a substantial part of its property or assets,
or commence any case or proceeding under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution or
liquidation or similar law or statute of any jurisdiction, whether now
or hereafter in effect; or
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(iii) Indicate its consent to, approval of or acquiescence in
any such petition or application filed against it, any case or
proceeding commenced against it or any order for relief or the
appointment of a custodian, receiver, conservator, trustee or other
official with similar powers or regulatory authority for it or any
substantial part of any of its properties or assets; or suffer to
exist any such case or proceeding in which an order for relief is
entered; or suffer to exist any such case or proceeding, or any such
custodianship, receivership, conservatorship, trusteeship or
jurisdiction of such other official or regulatory authority,
undischarged for a period of 60 days or more; or
(iv) Generally fail to pay or be unable to pay its debts as
such debts become due; or
(v) Have concealed, removed, or permitted to be concealed or
removed, any part of its property, with intent to hinder, delay or
defraud its creditors or any of then, or have made or suffered a
transfer of any of its property which is fraudulent under any
bankruptcy, fraudulent conveyance or similar law, or have suffered or
permitted, while insolvent, any creditor to obtain a Lien upon any of
its property through legal proceedings or distraint which is not
vacated within 30 days from the date such Lien is created; or
(vi) Take any appropriate corporate or partnership action to
authorize any of the foregoing; or
(h) Any authorization or approval of any Governmental Authority or
otherwise, or any consent or waiver under any resolution, indenture or loan or
credit
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agreement or any other agreement or instrument to which the Borrower is a party
or by which the Borrower or any of its properties may be bound or affected which
authorization, approval, consent or waiver is necessary to enable the Borrower
to comply with its obligations to pay any amounts due or perform any other
material obligations under any of the Loan Documents, is revoked, rescinded,
withdrawn, withheld or otherwise ceases to be in full force and effect; or
(i) The General Partner shall at any time or for any reason whatsoever
fail to perform any of its material obligations under the Partnership Agreement
or shall take an action which would cause it to be in breach of any material
provision thereof which has or will have a material adverse effect on the
Lender's interests as a secured party entitled to the security interests and to
receive payments as contemplated by the Related Documents; or
(j) The General Partner shall terminate, dissolve, or enter into a
consent to any amendment, modification, waiver or supplement of any provision of
the Partnership Agreement, other than in accordance with Section 8.7(b), without
the prior written consent of the Lender which consent shall not be unreasonably
withheld, conditioned or delayed; or
(k) The Management Agreement is terminated, amended or modified, or
the provisions of it are waived, in any respect without the prior written
consent of the Lender, which consent may be withheld in the Lender's sole
discretion;
(l) Any Event of Default under and as defined in the Senior Loan
Documents shall occur and be continuing; or
(m) Any sale, transfer or conveyance of any of the Inns or any
interest therein or part thereof other than in accordance with Sections 2.12 or
8.1.
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(n) Any of the statements contained in the Borrower's Certificate or
the Manager's Certificate shall not be true, correct and complete in all
material respects when made and same has a Material Adverse Effect.
(o) If the General Partner shall cease to be wholly owned (directly or
indirectly) by Host.
SECTION 10
CONSEQUENCES OF DEFAULT
Section 10.1 Remedies.
--------
(a) If an Event of Default shall occur and be continuing the Lender
shall have the right, at its sole option, by written notice to the Borrower to
declare all amounts owing under this Agreement and each of the Loan Documents to
which the Lender is a party to be immediately due and payable and such amounts
shall thereupon become due and payable without presentment, demand, protest or
notice of any kind, other than the notice specifically required by this Section
10.1(a), all of which are hereby expressly waived by the Borrower.
Notwithstanding any provision to the contrary in any of the Loan Documents, upon
the occurrence of an Event of Default and an acceleration of the Loans as
described in the preceding sentence, Borrower shall have no right to cure any
Event of Default and no right to otherwise reinstate the Loans.
(b) If an Event of Default shall occur and be continuing, in addition
to the rights of the Lender pursuant to Section 10.1(a) hereof, the Lender may,
subject to the provisions of Section 11.6 hereof, pursue such rights and
remedies against the Borrower or otherwise as are provided under and pursuant to
this Agreement and the Related Documents and as may be available to the Lender
at law or in equity. No waiver of any Event of Default shall constitute a
waiver of any other or any succeeding Event of Default except to the extent
provided in such waiver.
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(c) If the Borrower defaults in the payment of any tax, assessment,
encumbrance or other imposition or in its obligation to furnish insurance
hereunder or in the performance or observance of any other covenant, condition
or term in this Agreement, the Lender may, at its option, without waiving or
affecting any of its rights hereunder, after three (3) days prior notice to
Borrower, except in the case of an emergency, in which case no notice shall be
required, perform or observe the same, and all payments made or costs or
expenses incurred by the Lender in connection therewith shall be repaid by the
Borrower to the Lender upon demand therefor, with interest thereon at the rate
of interest provided for in Section 2.9 hereof in the case of a default.
Nothing contained herein shall be construed as requiring the Mortgagee to
advance or expend monies for any purposes mentioned in this subparagraph. The
Lender is hereby empowered to enter and to authorize others to enter upon any
Site and all improvements located on any Site for the purpose of performing or
observing any such defaulted covenant, condition or term, without thereby
becoming liable to the Borrower or any Person in possession holding under the
Borrower.
(d) If an Event of Default occurs and the Lender accelerates the Loan
as a result of any such Event of Default, the Lender shall be entitled to
collect all amounts that the Borrower would be required to pay to the Lender in
the case of a prepayment under Section 2.5 of this Agreement.
Section 10.2 No Estoppel.
-----------
Notwithstanding that the Lender is familiar with the terms of the
Management Agreement and has agreed to make the Loan after having reviewed the
Management Agreement, no provision thereof shall in any manner estop or
otherwise preclude the Lender from the full exercise of its rights and remedies
hereunder upon the happening of a Default or an Event of Default hereunder,
including, without limitation, a Default or an Event of Default that is
occasioned by the
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Borrower taking action or failing to act as required or permitted by the
Management Agreement.
Section 10.3 Allocation.
----------
If Lender, in its sole and absolute discretion, deems necessary or
desirable in connection with the exercise of remedies of any enforcement action
in connection with the Loan to allocate the Loan or the principal balance of or
interest on the Promissory Note to a particular Inn or Inns, Borrower hereby
authorizes and directs Lender to make any such allocation or allocations and
agrees to execute any and all documents or instruments necessary to effectuate
the foregoing.
SECTION 11
MISCELLANEOUS
Section 11.1 Amendments.
----------
No amendment or waiver of any provision of this Agreement and no
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
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
Section 11.2 Notices.
-------
Any notice and other communication required or permitted hereunder
shall be in writing and shall be personally delivered, sent by a nationally
recognized overnight delivery service, by facsimile transmission or sent by
certified, registered mail, postage prepaid to the addresses set forth below:
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If to the Borrower, to:
Marriott Residence Inn Limited Partnership
c/o RIBM One Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Telecopy No. (301) 530-2855
Attention: Law Department 72-924.11
If to the Lender, to:
Starwood Mezzanine Investors, L.P.
Three Pickwick Plaza
Suite 250
Greenwich, Connecticut 06830
Telecopy No. (203) 861-2101
Attention: Mr. Jay Sugarman
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
Telecopy No. (312) 902-1061
Attention: Marcia W. Sullivan
All notices and other communications shall be deemed to have been duly given, on
(i) the date of delivery if delivered personally, (ii) the date of receipt if
sent by facsimile transmission, or (iii) the date of receipt if sent by mail or
by a nationally recognized overnight delivery service, whichever shall first
occur. Any Person may by notice given in accordance with this Section 11.2 to
each of the other Persons listed above designate another address for receipt of
notices and other communications hereunder.
Section 11.3 No Waiver.
---------
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No failure on the part of the Lender to exercise, and no delay in
exercising, any right hereunder or single or partial exercise thereof or the
exercise by the Lender of any other rights, shall operate as a waiver of any
right hereunder. The remedies herein provided are cumulative and not exclusive
of any remedies provided by law.
Section 11.4 Continuing Obligation, Assignments and Participation.
----------------------------------------------------
This Agreement is a continuing obligation and shall (i) be binding
upon the Borrower, the General Partner, the Lender and their respective
successors and transferees and permitted assigns and (ii) inure to the benefit
of and be enforceable by the Borrower, the General Partner, the Lender and their
respective successors and transferees and assigns; provided, however, that the
Borrower and the General Partner may not (by operation of law or otherwise)
sell, transfer or assign any of their rights or delegate or transfer any of
their obligations under this Agreement without the prior written consent of the
Lender. The Lender may (i) sell, transfer or assign the Loan or any of Lender's
rights with respect to the Loan without notice to or the requirement of any
consent by Borrower or any other party, or (ii) grant participations in Lender's
rights and obligations under this Agreement and the Loan Documents without the
consent of the Borrower; provided, however, that the Borrower shall have no
obligation to pay any indemnity pursuant to Section 3.1(b) or 3.1(c) hereof for
the account of a holder of a participation in excess of the lesser of (x) the
amount actually incurred by the participant or (y) the comparable indemnity (if
any) that the Borrower would have had to pay to the Lender in respect of the
participated amount had the Lender not sold such participation and shall not
incur liability under the indemnity in an aggregate amount greater than the
liability that would have been incurred had Lender not sold participations in
the Loans. Lender will endeavor to provide Borrower with notice of any sale of
all of Lender's interest in the Loan (but Lender shall have no obligation to
provide Borrower with notice of
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the sale of any participation, undivided interest or other interest in the
Loan), but in any event Borrower shall be protected in dealing with Lender until
Borrower receives notice of any sale of all of Lender's interest in the Loan.
The Borrower hereby consents to Lender's sale, participation, assignment,
transfer or other disposition, at any time or times, of the Loan, this
Agreement, any of the Loan Documents or of any portion thereof or interest
therein, including, without limitation, Lender's rights, title, interests,
remedies, powers or duties hereunder or thereunder. Borrower acknowledges and
agrees that Lender may sell participations or undivided interests in the Loan or
may transfer the Loan to one or more trusts and sell participations or undivided
interests in the trust(s). Borrower shall cooperate with Lender in all
reasonable respects in Lender's marketing efforts including, without limitation,
making the Sites and Inns available for inspection, making Manager available,
issuing estoppel certificates as reasonably requested, assisting in the
preparation of appropriate disclosure documents or placement memoranda, and
amending the Loan Documents as reasonably required by any direct or indirect
transferee of the Loan, provided that such amendments impose no undue
incremental obligations or limitations on Borrower.
Section 11.5 Indemnification.
---------------
The Borrower shall indemnify the Lender for and hold the Lender
harmless from and against any and all claims, damages, losses, liabilities,
reasonable costs and expenses of any kind whatsoever which the Lender may incur
(or which may be claimed against the Lender by any Person whatsoever) by reason
of, or in connection with the execution and delivery of this Agreement or the
performance of the Lender's obligations under the Loan Documents; provided,
however, the Borrower shall have no obligation to indemnify the Lender for any
such claims, damages, losses, liabilities, costs or expenses arising by reason
of the gross negligence or willful misconduct of the Lender or arising pursuant
to any agreements (including the
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organizational documents of Lender) to which Lender is a party that are
unrelated to the Loan or the Inns.
Section 11.6 Limitation of Liability.
-----------------------
Notwithstanding any contrary provision in any of the Loan Documents,
it is hereby expressly agreed that, except as otherwise provided in this Section
or any section of any of the other Loan Documents entitled "Limitation of
Liability," neither the Borrower nor the General Partner shall have any personal
liability for (i) the payment of any amount due to the Lender by the Borrower
under this Agreement or any of the other Loan Documents, including, but not
limited to, the repayment of the Debt, or (ii) the performance or discharge of
any covenant or undertaking hereunder or under the other Loan Documents, and in
the event of any Event of Default hereunder or thereunder, the Lender shall
proceed solely against the Collateral and Security, and the Lender shall not
seek or claim recourse against the Borrower and the General Partner for any
deficiency or any personal judgment after a foreclosure of the lien of any of
the Security Documents or other Loan Documents or for the performance or
discharge of any covenants or undertakings of the Borrower hereunder or under
any other Loan Documents. Notwithstanding the foregoing, nothing contained in
this Section shall relieve the Borrower or the General Partner of any personal
liability for any loss, cost, expense, damage or liability arising or resulting
from (A) any breach of any representation or warranty made in this Agreement
that was materially incorrect when made and such fact was known to Borrower on
the Closing Date, (B) any amount paid or distributed to the Manager or Host or
any Affiliate of either of them or to any partner of the Borrower in violation
of the provisions of the Related Documents, (C) any breach of Sections 3.1(b),
(c) and (f) or 11.5 hereof if the basis of such loss, cost, expense damage or
liability is asserted after the repayment of the Loans and the release by the
Lender of the security interests granted to the Lender in connection with the
Loans and Lender did not have actual knowledge of the basis of
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such loss, cost, expense, damage or liability at the time of repayment of the
Loan, (D) fraud or breach of trust, including but not limited to misapplication
of loan proceeds or any insurance proceeds or condemnation awards or other sums
that are part of the Collateral and Security that may come into the possession
or control of the Borrower or the General Partner or any Affiliate of either of
them, (E) the failure by the Borrower or the General Partner to apply the Rents,
Revenues and Other Collateral derived from the Collateral and Security in
accordance with the terms of the Loan Documents, (F) the collection of Rents,
Revenues and Other Collateral by the Borrower or the General Partner after an
Event of Default in violation of the Loan Documents, (G) any mechanic's,
materialmen's or other liens against the Collateral and Security, unless bonded
over in a manner acceptable to Lender, (H) the failure of the Borrower or the
General Partner to pay any taxes and assessments on the Collateral and Security
when due, (I) the failure of the Borrower or the General Partner to maintain
insurance on the Collateral and Security and pay insurance premiums when due as
required by the Mortgages, (J) any payments made by the Borrower or the General
Partner to Manager or Borrower's Affiliates after an Event of Default (other
than amounts required to be paid pursuant to the Management Agreement), (K)
Borrower's relocating its principal place of business outside of Montgomery
County, Maryland without having complied with Section 82 hereof, (L) any tort
claims that Lender may have against Borrower or General Partner, (M) any Event
of Default under Section 9.1(m) of this Agreement, (N) waste or failure to
maintain the Collateral and Security in accordance with the Loan Documents, (O)
misappropriation of tenant or other deposits, (P) violation of Sections 3.1(g),
8.6 or 8.7(a) or (b) of this Agreement, (Q) violation of Sections 2.27 or 2.28
of any of the Mortgages, (R) any breach of Borrower's or General Partner's
obligations under the Environmental Indemnity, or (S) any reduction of the
principal balance of the Promissory Note as a result of the confirmation of a
plan of reorganization or sale of any of the Collateral and Security pursuant to
Section 363 of the U.S. Bankruptcy Code in any bankruptcy proceeding with
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respect to Borrower. Nothing contained in this Section shall (i) prevent the
Lender from exercising any rights or remedies against the Collateral and
Security or any property encumbered by any of the Loan Documents or from joining
the Borrower or General Partner in any action whereby Lender seeks to pursue
Lender's rights with respect to the Collateral and Security or other collateral
for the Promissory Notes, provided that no personal liability or deficiency
judgment is sought as to Borrower or General Partner, or (ii) be deemed to be a
release or impairment of the Debt evidenced by the Promissory Notes or any
security interest in favor of the Lender encumbering any of the Collateral and
Security, or any property encumbered by any of the Related Mortgages. It is
hereby expressly agreed that neither any limited partner of the Borrower nor any
director, officer, shareholder, partner or employee of the Borrower nor the
legal or personal representative, successor or assign of any of the foregoing,
nor any other principal of the Borrower or any partner of the Borrower, whether
disclosed or undisclosed, shall have any personal liability under this Agreement
or any of the other Loan Documents, except as personal liability may be
specifically imposed upon the General Partner in accordance with this Section
and similar Sections in the other Loan Documents. It is the intention of the
parties hereto that this Section shall govern every other provision of the Loan
Documents and that the absence of explicit reference to this Section in any
provision of the Loan Documents shall not be construed to deny the application
of this Section to such provision, notwithstanding the presence of explicit
reference to this Section in other provisions of the Loan Documents.
Section 11.7 Application of Proceeds.
-----------------------
(a) Unless an Event of Default shall occur and be continuing, all
payments received by the Lender under this Agreement (other than payments
pursuant to Sections 2.5 and 2.12 which shall be applied in accordance with such
sections), the Promissory Note or the Related Documents shall be applied by the
Lender to the obligations of the
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Borrower under this Agreement in the following order of priority:
(i) First to interest at the Default Rate due on amounts payable
under this Agreement, if any;
(ii) Then to amounts payable pursuant to Section 3.1(d) hereof
and any other reasonable expenses of counsel or other professional
advisors of Lender and out-of-pocket expenses of Lender and costs
payable pursuant to the terms of this Agreement;
(iii) Then to the payment or reimbursement of amounts payable
pursuant to Sections 3.1(b), (c), (f) and (g) hereof;
(iv) Then to the payment of accrued but unpaid interest on the
Loan;
(v) Then to the payment of principal due on the Loan, in inverse
order of maturity;
(b) Upon the occurrence and during the continuation of an Event of
Default, all payments received by the Lender under this Agreement or the Related
Documents shall be applied by the Lender to the obligations of the Borrower
under this Agreement in the following order of priority (references are to the
clauses contained in Section 11.7(a) hereof): first under clause (ii), then
under clause (i), then under clause (iii), then under clause (iv), and then
under clause (v).
Section 11.8 Counterparts.
------------
This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed shall constitute an original but
all such
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counterparts, when taken together, shall constitute one and the same instrument.
Section 11.9 Entire Agreement.
----------------
This Agreement and the other Related Documents and the other
agreements and instruments delivered in connection herewith and therewith
contain the entire agreement between the parties concerning the subject matter
hereof and thereof and supersede all prior agreements, arrangements and
understandings relating to the subject matter hereof and thereof.
Section 11.10 Governing Law.
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to agreements made and to be
performed entirely within such State.
Section 11.11 Submission to Jurisdiction.
--------------------------
(a) Except as set forth in the last sentence of this subparagraph, the
Borrower and the Lender each hereby irrevocably consent that any suit, legal
action or proceeding against it or any of its property with respect to any of
the rights or obligations arising directly or indirectly under or relating to
the Related Documents to which it is a party, subject to the limitations
contained in Section 11.6 hereof, may be brought in any New York State or United
States Federal court located in the Borough of Manhattan, City and State of New
York, as the Lender may elect, and by execution and delivery of the Related
Documents to which it is a party the Borrower and the Lender each hereby
irrevocably submits to and accepts with regard to any such suit, legal action or
proceeding, for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. The Borrower hereby
irrevocably designates, appoints and empowers Prentice Hall Corporation System,
Inc. as its agent to
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receive for and on its behalf service of process in New York in any suit, legal
action or proceeding with respect to the Related Documents to which it is a
party. A copy of any such process served on such agent shall be promptly
forwarded by airmail by the Person commencing such suit, legal action or
proceeding to the Borrower at its address set forth in Section 11.2 hereof, but
the failure of the agent to send, or of the Borrower to receive, such copy shall
not affect in any way the validity or sufficiency of the service of process by
service upon such agent. The Borrower and the Lender each further irrevocably
consents to the service of process in any such suit, legal action or proceeding
by the mailing of copies thereof by registered or certified airmail, postage
prepaid, return receipt requested, to the Borrower and the Lender at their
respective addresses set forth in Section 11.2 hereof (as changed by notice from
time to time as provided therein). The foregoing shall not limit the right of
the Lender or the Borrower to serve process in any other manner permitted by law
or, subject to the limitations contained in Section 11.6 hereof, to bring any
suit, legal action or proceeding or to obtain execution of judgment in any other
jurisdiction, including, without limitation, Delaware and the other
jurisdictions in which the Sites are located, it being the intention of the
parties that any action or proceeding to foreclose any of the Mortgages may be
brought in the jurisdiction in which the Site encumbered by such Mortgage is
located.
(b) The Borrower and Lender each hereby irrevocably waives any
objection which they may now or hereafter have to the laying of venue of any
suit, legal action or proceeding arising directly or indirectly under or
relating to the Related Documents to which it is a party, subject to the
limitations contained in Section 11.6 hereof, in any court located in the
Borough of Manhattan, City and State of New York and hereby further irrevocably
waives any claim that a court located in the Borough of Manhattan, City and
State of New York is not a convenient forum for any such suit, legal action or
proceeding.
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(c) The Borrower hereby irrevocably waives any right it may have under
the laws of any jurisdiction to commence by publication any suit, legal action
or proceeding with respect to the Related Documents to which it is a party.
(d) The Borrower hereby irrevocably agrees that any suit, legal action
or proceeding commenced by it with respect to any rights or obligations arising
directly or indirectly under or relating to the Related Documents to which it is
a party shall be brought exclusively in any New York State or United States
Federal court located in the Borough of Manhattan, City and State of New York
unless no such court has jurisdiction over the action which Borrower seeks to
bring.
Section 11.12 Waiver of Immunity.
------------------
To the extent that the Lender may have or may hereafter become
entitled to or have attributed to it any right of sovereign immunity from any
legal action, suit or proceeding or from execution of judgment, or other legal
process or proceeding for the giving of any relief or for the enforcement of any
judgment, in the forum specified in Section 11.11(b), with respect to its
obligations, liabilities or any other matter under or arising out of or in
connection with this Agreement, to the extent it may lawfully do so, the Lender
hereby irrevocably and unconditionally waives, and agrees not to plead or claim,
any such sovereign immunity.
Section 11.13 Confidentiality.
---------------
Except as otherwise set forth in this section, Borrower and the
General Partner will supply the information required pursuant to Section 7.1
hereof solely for the use of the Lender and the Lender agrees to keep the
information received pursuant to Section 7.1 hereof confidential and shall not
supply such information or any part thereof to any person not employed or
affiliated with the Lender or the
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Lender's attorneys, accountants or other agents; provided, however, that the
Lender may supply the information provided pursuant to Section 7.1 hereof to any
Person which has purchased or is considering purchasing the Loan, any of
Lender's rights with respect to the Loan or a participation in the Loan.
Notwithstanding anything to the contrary set forth herein, the confidentiality
obligations referred to in this Section 11.13 shall not apply to (i) information
publicly known through no wrongful act of the Lender or (ii) information
required to be disclosed by applicable law, regulation or judicial or regulatory
process. Notwithstanding the foregoing, Lender may disclose any information as
determined by Lender in connection with the marketing or sale of the Loan or any
interest therein, including without limitation, as described in Section 11.4,
provided that Lender shall inform the recipient of such information that this
Agreement contains a confidentiality provision and that the information provided
is intended to be confidential.
Section 11.14 Headings and Interpretation.
---------------------------
Section headings in this Agreement are included herein for convenience
of reference only and shall not constitute a part of this Agreement for any
other purpose. In this Agreement, unless the context otherwise requires, the
terms "hereby," "hereof," "hereto," "herein," "hereunder," and any similar terms
refer to this Agreement as an entirety and not solely to the particular portion
in which such word is used.
Section 11.15 Severability.
------------
If any provision hereof is invalid and unenforceable in any
jurisdiction, then, to the fullest extent permitted by law, (i) the other
provisions hereof shall remain in full force and effect in such jurisdiction and
shall be construed in order to carry out the intentions of the parties hereto,
including, without limitation, Section 11.6 hereof to the fullest extent
permitted by law;
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and (ii) the invalidity or unenforceability of any provision hereof in any
jurisdiction shall not affect the validity or enforceability of such provision
in any other jurisdiction.
Section 11.16 Intentionally Deleted.
---------------------
Section 11.17 No Agency, Partnership or Joint Venture.
---------------------------------------
(a) The Lender is not the agent or representative of the Borrower, and
the Borrower is not the agent or representative of the Lender.
(b) The Borrower and the Lender intend and agree that the relationship
between them shall be solely that of creditor and debtor. Nothing herein nor
the acts of the parties hereto shall be construed to create a partnership or
joint venture between the Borrower and the Lender.
Section 11.18 Damage Lawsuit.
--------------
The sole and exclusive remedy of the Borrower for any and all adverse
claims against Lender is an action seeking monetary damages. Any such action,
regardless of the procedural form in which it is alleged, will be severed from
any enforcement by Lender of its legal, equitable and contractual rights, and no
suit can be asserted by Borrower as a defense, set-off, recoupment, or grounds
for delay, stay, subordination or injunction against any enforcement by Lender
of its legal, equitable and contractual rights under the Loan, the Loan
Documents or otherwise.
Section 11.19 Waiver of Trial by Jury.
-----------------------
Borrower and Lender hereby knowingly, voluntarily, and intentionally
waive the right to a trial by jury in respect of any litigation based hereon,
arising out or, under or in connection with this Agreement or any other Related
Documents contemplated to be executed in conjunction herewith, or any course of
conduct, course of dealings,
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statements (whether verbal or written) or actions of either party or any
exercise by any party of their respective rights under the Related Documents or
in any way relating to the Loan (including, without limitation, any action to
rescind or cancel this Agreement, and any claims or defenses asserting that this
Agreement was fraudulently induced or is otherwise void or voidable); this
waiver being a material inducement for Lender to accept this Agreement.
Section 11.20 Late Charge.
-----------
In the event that Borrower fails to make any payment of money due to
Lender under this Agreement within five (5) days after receipt of written notice
from Lender that such amount is past due after any notice or cure period, if
any, Lender shall be entitled to collect a late charge as liquidated damages,
which late charge shall be due in addition to any interest, whether or not
calculated at the Default Rate, in connection with each such delinquency in
payment. Because the actual damages suffered by Lender would be impracticable
or extremely difficult or impossible to determine, in compensation for such
delinquent payment, Borrower agrees that three percent (3%) of the amount of the
delinquent payment due and owing shall be the amount of damages to which Lender
is entitled upon the first such breach during any twelve (12) month period and
that five percent (5%) of the amount of the delinquent payment due and owing
shall be the amount of damages to which Lender is entitled for the second and
any subsequent such breach during any twelve (12) month period. Borrower shall,
in any such event, pay to Lender the late charge in such amount for each such
installment for which payment is not received by Lender on or before the date
any such payment is due, Lender and Borrower agreeing that the amount of such
liquidated damages is reasonable. The provisions of this paragraph are intended
to govern only the determination of the above-described damages in the event of
a failure in the performance of the obligation of Borrower to make timely
payments hereunder or under any of the other Loan Documents. Nothing in this
Agreement shall be construed as an express
98
<PAGE>
or implied agreement by Lender to forbear in the collection of any delinquent
payment after the occurrence of an Event of Default or shall be construed as in
any way giving Borrower the right, express or implied, to fail to make timely
payments hereunder, whether upon payment of such damages or otherwise.
Notwithstanding anything to the contrary contained herein, the right of Lender
to receive payments of such liquidated damages is without prejudice to the right
of Lender to collect any delinquent payments and any other amounts required to
be paid hereunder or under any of the other Loan Documents or to declare a
default and to exercise any rights and remedies hereunder or under any of the
other Loan Documents, or otherwise provided by law or in equity.
Section 11.21 Time.
----
Time is of the essence with respect to all obligations under this
Agreement.
Section 11.22 No Fraud.
--------
Lender agrees that Lender will not assert that breach of any of the
representations and warranties set forth in Section 6 hereof constitutes fraud
unless Borrower had knowledge of the falsehood of such representation or
warranty on the Closing Date and Lender will not assert liability for breach of
any representation or warranty against any individual officer, director or
employee of Borrower in the absence of actual fraud by such officer, director or
employee.
99
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
MARRIOTT RESIDENCE INN LIMITED
PARTNERSHIP, a Delaware limited partnership
By: RIBM ONE CORPORATION, general
partner
By:
----------------------------------
Name: Bruce D. Wardinski
Vice President
STARWOOD MEZZANINE INVESTORS, L.P.,
a Delaware limited partnership
By: STARWOOD CAPITAL GROUP, L.P.,
a Delaware limited
partnership, its general
partner
By: BSS CAPITAL PARTNERS, L.P.,
a Delaware limited
partnership, its general
partner
By: STERNLICHT HOLDINGS II, INC.,
a Delaware corporation,
its general partner
By:
-------------------------
Jay Sugarman
100
<PAGE>
Executive Vice President
101
<PAGE>
The General Partner is signing below to join in the representations
and warranties set forth in Section 6.1 and Exhibit C.
By: RIBM One Corporation, General
Partner
By:
-------------------------
Name: Bruce D. Wardinski
Vice President
102
<PAGE>
EXHIBIT A
Locations of the Inns
---------------------
<TABLE>
<CAPTION>
Allocated Applicable
--------- ----------
Principal Percentage
--------- ----------
Amount
------
<S> <C> <C> <C>
A. Restricted Group of Inns
1. Costa Mesa, California $2,220,000 7.4%
----------------------
881 Baker Street
Costa Mesa, California 92626
2. La Jolla, California $5,280,000 17.6%
--------------------
8901 Gilman Drive
La Jolla, California 92037
3. Boulder, Colorado $2,340,000 7.8%
-----------------
3030 Center Green Drive
Boulder, Colorado 80301
4. Atlanta (Buckhead), Georgia $2,100,000 7.0%
---------------------------
2960 Piedmont Road, Northeast
Atlanta, Georgia 30305
5. Atlanta (Dunwoody), Georgia $1,920,000 6.4%
---------------------------
1901 Savoy Drive
Chamblee, Georgia 30341
6. Atlanta (Cumberland), Georgia $1,920,000 6.4%
-----------------------------
2771 Hargrove Road
Smyrna, Georgia 30080
</TABLE>
1
<PAGE>
<TABLE>
<S> <C> <C> <C>
B. Other Inns
1. Long Beach, California $2,910,000 9.7%
----------------------
4111 E. Willow Street
Long Beach, California 90815
2. Chicago (Lombard), Illinois $1,860,000 6.2%
---------------------------
2001 S. Highland Avenue
Lombard, Illinois 60148
3. Southfield, Michigan $1,830,000 6.1%
--------------------
26700 Central Park Boulevard
Southfield, Michigan 48076
4. St. Louis (Chesterfield), Missouri $1,260,000 4.2%
----------------------------------
15431 Conway
Chesterfield, Missouri 63017
5. St. Louis (Galleria), Missouri $2,520,000 8.4%
------------------------------
1100 McMorrow Avenue
St. Louis, Missouri 63117
6. Cincinnati, (North), Ohio $1,320,000 4.4%
-------------------------
11689 Chester Road
Cincinnati, Ohio 45246
7. Columbus (North), Ohio $ 900,000 3.0%
----------------------
6191 West Zumstein Drive
Columbus, Ohio 43229
8. Dayton (North), Ohio $ 690,000 2.3%
--------------------
7070 Poe Avenue
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
Dayton, Ohio 45414
9. Dayton (South), Ohio $ 930,000 3.1%
--------------------
155 Prestige Place
Miamisburg, Ohio 45342
100%
--------------
$30,000,000.00 100%
</TABLE>
3
<PAGE>
EXHIBIT B
Schedule of Mortgages
---------------------
1. Deed of Trust and Security Agreement from the Borrower to Chicago Title
Insurance Company as trustee for the benefit of the Lender with respect to
the Inn located at 881 Baker Street, Costa Mesa, California.
2. Deed of Trust and Security Agreement from the Borrower to Chicago Title
Insurance Company as trustee for the benefit of the Lender with respect to
the Inn located at 8901 Gilman Drive, La Jolla, California.
3. Deed of Trust and Security Agreement from the Borrower to Chicago Title
Insurance Company as trustee for the benefit of the Lender with respect to
the Inn located at 4111 E. Willow Street, Long Beach, California.
4. Deed of Trust, Assignment of Rents, Security Agreement, Financing Statement
and Fixture Filing from the Borrower to the Public Trustee for the County
of Boulder for the benefit of the Lender with respect to the Inn located at
3030 Center Green Drive, Boulder, Colorado.
5. Deed to Secure Debt and Security Agreement from the Borrower to the Lender
with respect to the Inn located at 2960 Piedmont Road, Northeast, Atlanta,
Georgia.
6. Deed to Secure Debt and Security Agreement from the Borrower to the Lender
with respect to the Inn located at 1901 Savoy Drive, Chamblee, Georgia.
7. Deed to Secure Debt and Security Agreement from the Borrower to the Lender
with respect to the Inn located at 2771 Hargrove Road, Smyrna, Georgia.
1
<PAGE>
8. Mortgage and Security Agreement from the Borrower to the Lender with
respect to the Inn located at 2001 S. Highland Avenue, Lombard, Illinois.
9. Mortgage and Security Agreement from the Borrower to the Lender with
respect to the Inn located at 26700 Central Park Boulevard, Southfield,
Michigan.
10. Future Advance Deed of Trust from the Borrower to Michael R. Turley, solely
as trustee for the benefit of Lender with respect the Inn located at 15431
Conway, Chesterfield, Missouri.
11. Future Advance Deed of Trust and Security Agreement from the Borrower to
Michael R. Turley, solely as trustee for the benefit of Lender with respect
to the Inn located at 1100 McMorrow Avenue, St. Louis, Missouri.
12. Open End Mortgage, Security Agreement and Fixture Financing Statement from
the Borrower to the Lender with respect to the Inn located at 11689 Chester
Road, Cincinnati, Ohio.
13. Open End Mortgage, Security Agreement and Fixture Financing Statement from
the Borrower to the Lender with respect to the Inn located at 6191 West
Zumstein Drive, Columbus, Ohio.
14. Open End Mortgage, Security Agreement and Fixture Financing Statement from
the Borrower to the Lender with respect to the Inn located at 7070 Poe
Avenue, Dayton, Ohio.
15. Open End Mortgage, Security Agreement and Fixture Financing Statement from
the Borrower to the Lender with respect to the Inn located at 155 Prestige
Place, Miamisburg, Ohio.
2
<PAGE>
EXHIBIT C
Representations And Warranties
------------------------------
Each of the Borrower and the General Partner represents and warrants
as follows:
1. The Borrower owns fee simple title to each of the Inns.
2. Each of the Borrower and the General Partner on behalf of the Borrower has
all requisite legal right, power and authority to execute, deliver and
perform the Related Documents to which the Borrower is a party and to
consummate the transactions to be consummated by the Borrower as
contemplated hereby and thereby. The execution, delivery and performance
by the Borrower of the Related Documents to which it is a party and the
consummation by the Borrower of the transactions as contemplated hereby and
thereby have been duly authorized by all necessary action on the part of
the Borrower. The execution, delivery and performance by the General
Partner on behalf of the Borrower of the Related Documents to which the
Borrower is a party and the consummation by the General Partner of the
transactions as contemplated hereby and thereby have been duly authorized
by all necessary action on behalf of the General Partner. All consents of
any other Person (including partners or creditors of the Borrower but
excluding the Lender), and all consents or authorizations of, or other acts
by or filings with any Governmental Authority, required to be obtained or
made by the Borrower or its Affiliates in connection with the execution,
delivery and performance of, and the validity, binding effect and
enforceability of the Borrower's obligations under, any of the Related
Documents to which it is a party have been obtained or made and are in full
force and effect. Upon recordation of the Mortgages and the Financing
Statements, the Lender will have a valid security interest in the Mortgaged
Property, as to the creation of which no consent is required from any party
1
<PAGE>
other than those which have been obtained and are in full force and effect.
3. The Related Documents to which the Borrower is a party have been duly
executed and delivered by the Borrower, and assuming due authorization,
execution and delivery by the other parties hereto and thereto, constitute
the legal, valid and binding obligation of the Borrower, enforceable
against it in accordance with the terms hereof and thereof, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (regardless
of whether enforcement is sought in a proceeding in equity or at law). The
Borrower has performed all of its material obligations that are currently
due to be performed under each of the Related Documents to which it is a
party.
4. The execution, delivery and performance by the Borrower of any Related
Document to which the Borrower is a party and the consummation of the
transactions contemplated hereby and thereby will not (i) in any material
respect conflict with or constitute on the part of the Borrower a breach of
or default under any agreement, indenture, lease or other instrument to
which the Borrower is a party or by or to which it or its revenues,
properties, assets or operations are bound or subject, or violate any
Requirements of Law; (ii) result in the creation or imposition of any Lien
upon any of the Borrower's revenues, properties or assets, other than as
specifically contemplated by the Related Documents; (iii) result in the
acceleration of any Indebtedness of the Borrower; or (iv) result in any
material adverse change in any agreement material to the operation of any
of the Inns.
5. The representations and warranties of the Borrower and the General Partner
contained in the Related Documents to which the Borrower or the General
Partner is a party are true and correct.
2
<PAGE>
6. After consummation of the Loans, no mortgages affecting any Inn will be
outstanding or in effect with respect to any Inn, except for the Mortgages
and the mortgages securing the Senior Loan.
7. The proceeds of the Loan will be applied by the Borrower in accordance with
Section 2.2 hereof. No part of the proceeds of the sale of the Loan will
be used by the Borrower in violation of any Requirements of Law, including,
without limitation, Regulations G, T, U and X of the Board of Governors of
the Federal Reserve System.
8. After consummation of the Loan, no Financing Statement, except for liens
permitted by the Loan Documents or Senior Loan Documents, and except those
contemplated by the Loan Documents, will have been executed with respect to
any Personal Property owned by the Borrower in connection with the
operation and maintenance of each Inn, other than any of same effectively
released of record.
9. The Borrower owns free of all Liens all Personal Property necessary to
operate each Inn, except for the Liens imposed by the Financing Statements
and except for liens permitted by the Loan Documents.
10. The insurance listed in Exhibit D constitutes all of the insurance policies
in effect with respect to the Inns. Each of such policies, including
without limitation each policy delivered pursuant to Section 4.1(c) of the
Loan Agreement, is in full force and effect, with no outstanding notice of
default or of material unperformed work, and such policies substantially
fulfill the insurance requirements of the Mortgages and do not violate any
requirements thereof in any material respect.
11. Except for the Management Agreement, there is no management agreement
binding upon or affecting any of the Inns or the Borrower in respect of any
of the Inns.
3
<PAGE>
EXHIBIT D
Section A - Third Party Insurance
---------------------------------
1. The Borrower shall carry insurance against claims for bodily
injury, death or property damage occurring on, in or about any of the Sites or
any improvements located on any of the Sites and the adjoining streets,
sidewalks, curbs and ways, including claims for property of guests (subject to
the Innkeepers' liability statute of the applicable state) under broad form
policies of commercial general liability insurance, with a combined single limit
in respect of bodily injury, death and property damage caused by any single
occurrence, of not less than $25,000,000, with a per occurrence deductible of
not more than $500,000. The Lender and its successors and assigns shall be
named as an additional insured under such policies. All primary insurance shall
be maintained with insurance companies having a Best's rating of A-8 or higher;
all excess property insurance shall be maintained with insurance companies
having a Best rating of A-; excess liability insurance up to $5,000,000 shall be
maintained with insurance companies having a Best rating of A-; excess liability
insurance in excess of $5,000,000 shall be maintained with insurance companies
having a Best rating of at least B+; and the coverage limits shall be ten
percent (10%) or less of such insurance company's regulatory surplus or, if such
coverage limits exceed ten percent (10%) of such insurance company's regulatory
surplus, shall be re-insured in a manner satisfactory to Lender.
2. Pursuant to a self-insurance program maintained by Host or
Manager, no loss in excess of $50,000 shall be charged to any Inn, and losses
for amounts between $50,000 and the amount of the deductible referred to in
Paragraph 1 above shall be covered by such self-insurance program. Costs of
such self-insurance program shall be allocated to each Inn based upon the
proportion that the Gross Revenues of such Inn bears to the Gross Revenues of
all Inns covered by the Residence Inn self-insurance program.
<PAGE>
3. The current policies in effect with respect to the insurance
described in Paragraph 1 of this Section A are:
<TABLE>
<S> <C> <C>
(a) Insurer: Fidelity & Casualty Company of New York
Policy Number: SRL 334 5432
Policy Period: October 1, 1995 to October 1, 1996
Limit: $2,000,000
Deductible: $25,000 each occurrence
(b) Insurer: Fidelity & Casualty Company of New York
Policy Number: SRU 334 5433
Policy Period: October 1, 1995 to October 1, 1996
Limit: $3,000,000 excess $2,000,000
(c) Insurer: Royal Indemnity Company
Policy Number: RHA 201408
Policy Period: October 1, 1995 to October 1, 1996
Limit: $5,000,000 excess $5,000,000
(d) Insurer: Westchester Fire Insurance Company
Policy Number: XLA 2606250
Policy Period: October 1, 1995 to October 1, 1996
Limit: $10,000 excess 10,000,000
(e) Insurer: Agricultural Insurance Company
Policy Number: EXC 8727700
Policy Period: October 1, 1995 to October 1, 1996
Limit: $5,000,000 excess $20,000,000
==============================================================
</TABLE>
Section B
---------
1. The Borrower shall carry insurance concerning all of the Sites and
all improvements located on any Site, including, without limitation, all
Personal Property necessary to operate each Inn as required by the Loan
Documents, against loss or damage by fire and such other hazards as may be
included in the standard form of "all risk" building insurance from time to time
available, in amounts sufficient to prevent the Borrower and the Lender from
becoming co-insurers within the terms of the
2
<PAGE>
applicable policies, and, in any event, in an amount not less than 100% of the
then full insurable value of such improvements (exclusive of the costs of
foundations or excavations) and all Personal Property, without deduction for
depreciation, which policies shall contain replacement cost and "agreed amounts"
endorsements reasonably satisfactory to the Lender. The insurance maintained
under this Paragraph 1 shall name the Lender as mortgagee, shall bear a standard
noncontributory first mortgagee endorsement in favor of the Lender,
substantially equivalent to the New York standard mortgagee endorsement, and
shall provide that all property losses insured against shall be adjusted by the
Borrower, subject, in the case of losses of $250,000 or more, to the Lender's
approval, and shall provide that all proceeds of such insurance for claims of
$500,000 or more shall be paid directly to the Lender (subject to Borrower's
rights to rebuild or restore as set forth in the Loan Documents).
2. The Borrower shall carry insurance under a business interruption
insurance policy against loss of income arising out of damage or destruction by
fire and such other hazards as may be included in the "all risk" building
insurance carried under Paragraph 1 of this Section B in an amount equivalent to
not less than one year's interest payments on the Loans and the Subordinate
Loan, taxes and other Inn Operating Expenses that will not be reduced by reason
of any such damage or destruction. The insurance maintained under this
Paragraph 2 shall name the Lender as an additional insured and shall provide
that any insurance proceeds thereof shall be paid directly to the Borrower.
3. If any Site is designated as flood prone or a flood risk area or
if flood insurance is required pursuant to the United States Flood Disaster
Protection Act of 1973, as amended or supplemented or under any subsequent law
then in effect, flood insurance with respect to such Site shall be maintained in
an amount not less than the maximum amount available under the Federal Flood
Insurance Program. Such insurance shall name the Lender as an additional
insured.
3
<PAGE>
4. The insurance maintained pursuant to this Exhibit D shall contain
---------
coverage for any non-conforming uses resulting from casualty or condemnation or
settlement in lieu thereof in a form and with limits acceptable to Lender.
5. The current policy in effect with respect to the insurance
described in Paragraph 1 of this Section B is:
Insurer: Allendale Mutual Insurance Company
Policy Number: LP077
Policy Period: January 1, 1995 - April 1, 1996
Limit: Full repair or replacement basis
Deductible: $25,000 each occurrence (California locations
have no earthquake coverage)
================================================================================
Section C - General Provisions
------------------------------
1. The Borrower may effect the coverage required by this Exhibit D
under blanket insurance policies, provided that (x) the Borrower shall furnish
the Lender with certificates of insurance from the insurer under each such
policy specifying the amounts of the total insurance afforded by the blanket
policy allocated to the improvements and Personal Property located on any of the
Sites; (y) to the extent that at any time there are any sublimits in effect in
any blanket policy applicable to such improvements and Personal Property,
Borrower shall provide to Lender, on request, evidence that such sublimits are
in accordance with the requirements of this Agreement; and (z) any such policy
of blanket insurance shall comply in all respects with the other provisions this
Exhibit D.
2. All insurance maintained by the Borrower shall provide that:
(i) no cancellation, material change or reduction thereof shall
be effective until at least 30 days after receipt by the Lender
of written notice thereof; and
4
<PAGE>
(ii) all losses shall be payable as provided in Section B-1
hereof notwithstanding any act or negligence of the Borrower or
its agents or employees that might, absent such agreement, result
in a forfeiture of all or part of such insurance payment and
notwithstanding (x) the occupation or use of any of the Sites or
any improvements located on any Site for purposes more hazardous
than permitted by the terms of such policy, (y) any foreclosure
or other action or proceeding taken pursuant to the provision of
any mortgage or collateral assignment of beneficial interest or
(z) any change in title or ownership of any of insured property.
Section D - Self Insurance
--------------------------
Subject to Paragraph A(2) of this Exhibit D, Borrower may self insure
---------
against losses of assets caused by burglary or robbery and physical damage to
owned or leased motor vehicles of Borrower (i.e. comprehensive and collision
coverage); provided that Borrower obtains and maintains the written agreement of
Marriott International, Inc. to indemnify Borrower for any losses exceeding
$25,000 in the aggregate that would have been covered by insurance but for the
provisions of this paragraph.
Section E - Additional Insurance
--------------------------------
In addition to the insurance required by this Exhibit D or any of the
---------
Loan Documents, Lender may also require Borrower to maintain such additional
insurance and in such amounts as may be (i) required by any Governmental
Authority, or (ii) reasonably necessary in the opinion of Lender to avoid a
Material Adverse Effect.
5
<PAGE>
EXHIBIT E
Periodic Financial Statement
----------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
UNIT XX XXX FORMAT 90
- ------------------------------------------------------------------------------------------------------------------------------------
RI XXXX DIVISION 57 DISTRICT 213
- ------------------------------------------------------------------------------------------------------------------------------------
PD XX YR XX -----------------PERIOD----------------- ----------------------Y E A R T O D A T E--------------------
- ------------------------------------------------------------------------------------------------------------------------------------
SALES cent ACTUAL% cent BUDGET% cent LAST YEAR% cent ACTUAL% cent BUDGET% cent LAST YEAR%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ROOMS
- ------------------------------------------------------------------------------------------------------------------------------------
TELEPHONE
- ------------------------------------------------------------------------------------------------------------------------------------
GUEST ANCILLARY
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL SALES
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
ROOMS
- ------------------------------------------------------------------------------------------------------------------------------------
TELEPHONE
- ------------------------------------------------------------------------------------------------------------------------------------
GUEST ANCILLARY
- ------------------------------------------------------------------------------------------------------------------------------------
TOT DEPT PROFIT
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
GENERAL ADMIN
- ------------------------------------------------------------------------------------------------------------------------------------
UTILITIES
- ------------------------------------------------------------------------------------------------------------------------------------
REPAIRS & MAINTEN
- ------------------------------------------------------------------------------------------------------------------------------------
ACCIDENTS
- ------------------------------------------------------------------------------------------------------------------------------------
SALES & PROMOTION
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DEDUCT
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSE PROFIT
- ------------------------------------------------------------------------------------------------------------------------------------
FIXED EXPENSE
- ------------------------------------------------------------------------------------------------------------------------------------
PROFIT CONTRB
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
OVERHEAD
- ------------------------------------------------------------------------------------------------------------------------------------
PROFIT BFR TAX
- ------------------------------------------------------------------------------------------------------------------------------------
PROFIT AFT TAX
- ------------------------------------------------------------------------------------------------------------------------------------
NET AVAIL OCCPNCY
- ------------------------------------------------------------------------------------------------------------------------------------
NET RM RATE & % CHG
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
MAN HRS & % CHANGE
- ------------------------------------------------------------------------------------------------------------------------------------
SLS/M-H & % CHANGE
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
OCCUPIED ROOMS
- ------------------------------------------------------------------------------------------------------------------------------------
AVAILABLE ROOMS
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
ROOM REVPAR
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL REV PAR
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSE PROFIT PAR
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
ST EXT STAY %
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
PH EXT STAY %
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL EXT STAY %
- ------------------------------------------------------------------------------------------------------------------------------------
FROM PD 12-XX-94 TO XX-XX-XX UNIT XX XXX
TO YTD 12-XX-94 TO XX-XX-XX RI XXXXXX
PD XX
==================================================================================================================================
</TABLE>
2
<PAGE>
EXHIBIT F
Form of Profit and Loss Statement
---------------------------------
Date: Within 20 days of Period End
Marriott Residence Inn
Limited Partnership
10400 Fernwood Road
Bethesda, Maryland 20817
Dear Sirs:
Enclosed please find the interim accounting of operations and application of
available cash flow for the fiscal period ended __________.
<TABLE>
<CAPTION>
================================================================================
Fiscal
Current Period Year-to-Date
----------------- -----------------
--/--/-- --/--/-- --/--/-- --/--/--
- --------------------------------------------------------------------------------
<S> <C> <C>
Gross Revenues $ - $ -
- --------------------------------------------------------------------------------
House Profit - -
Less: Residence Inn System Fee - -
Base Management Fee - -
Chain Services - -
Insurance - -
Property Tax - -
Repairs and Equipment Reserve - -
Leases and Other
--------- ---------
- --------------------------------------------------------------------------------
Operating Profit Before Incentive Fee
Incentive Management Fee
Contingent Management Fee
Net Operating Profit
- --------------------------------------------------------------------------------
DISTRIBUTION TO OWNER
- --------------------------------------------------------------------------------
Operating Profit Available to Owner - -
Before Incentive Fee - -
Less: Base Management Fee Paid - -
Current Incentive MGT Fees Paid - -
Contingent Incentive MGT Fees Paid
--------- ---------
- --------------------------------------------------------------------------------
Plus: Repairs and Equipment Reserve - -
--------- ---------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C>
TOTAL DISTRIBUTION TO OWNER $ - $ -
========= =========
- --------------------------------------------------------------------------------
Amount Paid to Date $ -
=========
- --------------------------------------------------------------------------------
Amount Due and Payable $ -
=========
================================================================================
</TABLE>
<TABLE>
<CAPTION>
================================================================================
MANAGEMENT FEE PAYMENTS Fiscal
- ----------------------- Current Period Year-to-Date
----------------- -----------------
--/--/-- --/--/-- --/--/-- --/--/--
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Profit $ - $ -
- -
Less: Qualifying Debt Service
First Priority Return - -
- -
Commitment Fee not amortized?
(see example next page) - -
--------- ---------
Amount Available To Pay Fees - -
Less: Contingent Base Management Fees - -
Current Incentive Management Fees - -
Contingent Incentive Management Fees - -
--------- ---------
- --------------------------------------------------------------------------------
Total Deferred Fees $0 $0
========= =========
================================================================================
</TABLE>
The amount deferred to-date for contingent Base Management Fees (BMF) is
$__________. The amount deferred to-date for Contingent Management Fees (IMF)
is $__________.
<TABLE>
<CAPTION>
RECONCILIATION OF FF & E ESCROW FUND
- ------------------------------------
<S> <C> <C>
Bank Balance 12/3_/__: $ _______
Plus: Contributions _______
Interest Income _______
Proceeds from Dispositions _______
Less: Expenditures (-)
-------
Bank Balance xx/xx/xx $
=========
</TABLE>
Very truly yours,
2
<PAGE>
Residence Inn by Marriott, Inc.
3
<PAGE>
RESIDENCE INN BY MARRIOTT
SYNDICATION 1 RENT LETTER DETAIL
PERIOD XX, WEEK X, 19XX
<TABLE>
<CAPTION>
============================================================================================================================
BASE
SUITE TOTAL HOUSE FF&E MGMT SYSTEM PROPERTY CHAIN OPERATING INCENT
UNIT REVENUE REVENUE PROFIT RESERVE FEE FEE INSUR TAX LEASES OTHER SERVICE PROFIT MGMT FEE
- ----- --------- ------- ------ ------- ---- ------ ----- -------- ------ ----- ------- --------- --------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
57102 XX XX XX XX XX XX XX XX XX XX XX XX
- ----------------------------------------------------------------------------------------------------------------------------
57109 XX XX XX XX XX XX XX XX XX XX XX XX XX
- ----------------------------------------------------------------------------------------------------------------------------
57110 XX XX XX XX XX XX XX XX XX XX XX XX XX
- ----------------------------------------------------------------------------------------------------------------------------
57112 XX XX XX XX XX XX XX XX XX XX XX XX
- ----------------------------------------------------------------------------------------------------------------------------
57201 XX XX XX XX XX XX XX XX XX XX XX XX XX
- ----------------------------------------------------------------------------------------------------------------------------
57202 XX XX XX XX XX XX XX XX XX XX XX XX
- ----------------------------------------------------------------------------------------------------------------------------
57204 XX XX XX XX XX XX XX XX XX XX XX XX
- ----------------------------------------------------------------------------------------------------------------------------
57205 XX XX XX XX XX XX XX XX XX XX XX XX XX
- ----------------------------------------------------------------------------------------------------------------------------
57207 XX XX XX XX XX XX XX XX XX XX XX XX
- ----------------------------------------------------------------------------------------------------------------------------
57208 XX XX XX XX XX XX XX XX XX XX XX XX
- ----------------------------------------------------------------------------------------------------------------------------
57213 XX XX XX XX XX XX XX XX XX XX XX XX
- ----------------------------------------------------------------------------------------------------------------------------
57301 XX XX XX XX XX XX XX XX XX XX XX XX XX
- ----------------------------------------------------------------------------------------------------------------------------
57401 XX XX XX XX XX XX XX XX XX XX XX XX XX
- ----------------------------------------------------------------------------------------------------------------------------
57403 XX XX XX XX XX XX XX XX XX XX XX XX XX
- ----------------------------------------------------------------------------------------------------------------------------
57404 XX XX XX XX XX XX XX XX XX XX XX XX
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
XX XX XX XX XX XX XX
- ----------------------------------------------------------------------------------------------------------------------------
XX XX XX XX XX XX
============================================================================================================================
</TABLE>
4
<PAGE>
RESIDENCE INN BY MARRIOTT
SYNDICATION 1 RENT LETTER DETAIL
YEAR-TO-DATE
PERIOD XX, WEEK X, 19XX
<TABLE>
<CAPTION>
=========================================================================================================================
BASE
SUITE TOTAL HOUSE FF&E MGMT SYSTEM PROPERTY CHAIN OPERATING INCENT
UNIT REVENUE REVENUE PROFIT RESERVE FEE FEE INSUR TAX LEASES OTHER SERVICE PROFIT MGMT FEE
- ----- --------- ------- ------ ------- ---- ------ ----- -------- ------ ----- ------- --------- --------
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
57102 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -------------------------------------------------------------------------------------------------------------------------
57109 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -------------------------------------------------------------------------------------------------------------------------
57110 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -------------------------------------------------------------------------------------------------------------------------
57112 XX XX XX XX XX XX XX XX XX XX XX XX
- -------------------------------------------------------------------------------------------------------------------------
57201 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -------------------------------------------------------------------------------------------------------------------------
57202 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -------------------------------------------------------------------------------------------------------------------------
57204 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -------------------------------------------------------------------------------------------------------------------------
57205 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -------------------------------------------------------------------------------------------------------------------------
57207 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -------------------------------------------------------------------------------------------------------------------------
57208 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -------------------------------------------------------------------------------------------------------------------------
57213 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -------------------------------------------------------------------------------------------------------------------------
57301 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -------------------------------------------------------------------------------------------------------------------------
57401 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -------------------------------------------------------------------------------------------------------------------------
57403 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -------------------------------------------------------------------------------------------------------------------------
57404 XX XX XX XX XX XX XX XX XX XX XX XX XX
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL
- -------------------------------------------------------------------------------------------------------------------------
XX XX XX XX XX XX XX
- -------------------------------------------------------------------------------------------------------------------------
XX XX XX XX XX XX
=========================================================================================================================
</TABLE>
5
<PAGE>
EXHIBIT G 1
Debt Service Tracking Summary
-----------------------------
6
<PAGE>
EXHIBIT G 2
Report Certificate
------------------
[DATE]
RIBM One Corporation, on behalf of Marriott Residence Inn Limited
Partnership, hereby certifies to Starwood Mezzanine Investors, L.P. Corporation:
(a) All reports are provided in accordance with Section 7.1(c) of the
Loan Agreement dated as of October 10, 1995 between Starwood
Mezzanine Investors, L.P. Corporation and Marriott Residence Inn
Limited Partnership, and we are not aware of any inaccuracy in
any such report; and
(b) There exists no "Default" or "Event Of Default" (as such quoted
terms are defined in the Loan Agreement) as of the date hereof
except as set forth in detail herein.
Marriott Residence Inn Limited Partnership
By: RIBM One Corporation, General Partner
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
7
<PAGE>
EXHIBIT I
Schedule of Appraised Values
----------------------------
<TABLE>
<S> <C>
1. Atlanta/Buckhead $12,000,000
2. Atlanta/Cumberland $11,000,000
3. Atlanta/Perimeter East $11,000,000
4. Boulder, CO $15,000,000
5. Chicago, Lombard $11,500,000
6. Cincinnati/North $ 9,500,000
7. Columbus/North $ 6,500,000
8. Costa Mesa $14,000,000
9. Dayton North $ 4,200,000
10. Dayton South $ 6,500,000
11. La Jolla $31,000,000
12. Long Beach $20,000,000
13. Southfield $11,000,000
14. St. Louis/Chesterfield $ 9,500,000
15. St. Louis/Galleria $16,500,000
</TABLE>
1
<PAGE>
EXHIBIT J
Schedule of Unpaid Taxes
------------------------
None
1
<PAGE>
EXHIBIT K
List of Senior Loan Documents
-----------------------------
2
<PAGE>
LOAN AGREEMENT
by and between
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
and
STARWOOD MEZZANINE INVESTORS, L.P.,
------------------------------
Dated as of October 10, 1995
------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
<S> <C>
SECTION 1 DEFINITIONS............................................. 1
SECTION 2 THE LOAN................................................ 19
Section 2.1 Agreement to Lend......................................... 19
Section 2.2 Purpose of the Loan....................................... 19
Section 2.3 Cross Collateralization................................... 19
Section 2.4 Repayment of the Loan..................................... 19
Section 2.5 Prepayments of the Loan................................... 21
Section 2.6 Required Payments to Lender............................... 24
Section 2.7 Intentionally Deleted..................................... 24
Section 2.8 Interest.................................................. 24
Section 2.9 Default Interest.......................................... 24
Section 2.10 Intentionally Deleted.................................... 24
Section 2.11 Payments................................................. 24
Section 2.12 Release of Lien of a Mortgage............................ 25
Section 2.13 Allocation to Promissory Note............................ 29
Section 2.14 Four Party Agreement.......................................... 29
SECTION 3 OTHER PAYMENTS.......................................... 29
Section 3.1 Other Payments............................................ 29
SECTION 4 CONDITIONS PRECEDENT TO ADVANCE THE LOAN................ 32
Section 4.1 Documents Pertaining to the Collateral and Security....... 32
Section 4.2 Authorization; Related Documents.......................... 36
Section 4.3 Certificate of the Borrower............................... 38
Section 4.4 Other Conditions Satisfied................................ 40
Section 4.5 Ratios.................................................... 40
Section 4.6 Capital Reserves.......................................... 41
SECTION 5 OBLIGATIONS ABSOLUTE.................................... 41
Section 5.1 Obligations of the Borrower............................... 41
SECTION 6 REPRESENTATIONS AND WARRANTIES.......................... 41
Section 6.1 Representations and Warranties............................ 41
Section 6.2 Survival.................................................. 49
SECTION 7 AFFIRMATIVE COVENANTS................................... 50
Section 7.1 Information............................................... 50
Section 7.2 Discharge of Obligations.................................. 52
Section 7.3 Maintenance of Existence.................................. 52
Section 7.4 Maintenance of Records.................................... 53
Section 7.5 Furnishing Notice......................................... 53
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 7.6 Proceeds of the Loan....................................... 54
Section 7.7 Senior Loan Documents...................................... 54
Section 7.8 Management Agreement....................................... 55
Section 7.9 Insurance.................................................. 56
Section 7.10 Payment of Debt........................................... 56
Section 7.11 Compliance With Law....................................... 56
Section 7.12 Consultation with Lender.................................. 56
Section 7.13 Capital Reserves.......................................... 56
Section 7.14 Access.................................................... 57
Section 7.15 Material Agreements....................................... 58
Section 7.16 Additional Reserves....................................... 59
Section 7.17 Four Party Agreement...................................... 59
Section 7.18 Environmental Insurance................................... 59
Section 7.19 General Partner Net Worth................................. 59
SECTION 8 NEGATIVE COVENANTS....................................... 59
Section 8.1 Consolidations, Mergers and Sales of Assets................ 60
Section 8.2 Place of Business.......................................... 60
Section 8.3 Incurrence of Indebtedness................................. 60
Section 8.4 Purchase of Property....................................... 61
Section 8.5 Maintenance of Purpose..................................... 61
Section 8.6 Distributions to Partners by the Borrower.................. 62
Section 8.7 Amendments to Agreements................................... 62
Section 8.8 Issuance of Rights......................................... 63
Section 8.9 Payment of Distributions................................... 63
Section 8.10 Issuance of Securities.................................... 64
Section 8.11 Other Activities.......................................... 64
Section 8.12 Creation of Liens......................................... 64
Section 8.13 Transfers by the General Partner.......................... 65
Section 8.14 Hazardous Substances...................................... 65
Section 8.15 Restrictions on Action Under Management Agreement......... 65
SECTION 9 EVENTS OF DEFAULT........................................ 66
Section 9.1 Events of Default.......................................... 66
SECTION 10 CONSEQUENCES OF DEFAULT.................................. 70
Section 10.1 Remedies.................................................. 70
Section 10.2 No Estoppel............................................... 72
Section 10.3 Allocation................................................ 72
SECTION 11 MISCELLANEOUS............................ 72
Section 11.1 Amendments................................................ 72
Section 11.2 Notices................................................... 72
Section 11.3 No Waiver................................................. 73
Section 11.4 Continuing Obligation, Assignments and Participation...... 74
Section 11.5 Indemnification........................................... 75
Section 11.6 Limitation of Liability................................... 75
Section 11.7 Application of Proceeds................................... 78
Section 11.8 Counterparts.............................................. 78
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 11.9 Entire Agreement......................................... 79
Section 11.10 Governing Law........................................... 79
Section 11.11 Submission to Jurisdiction.............................. 79
Section 11.12 Waiver of Immunity...................................... 81
Section 11.13 Confidentiality......................................... 81
Section 11.14 Headings and Interpretation............................. 82
Section 11.15 Severability............................................ 82
Section 11.16 Intentionally Deleted................................... 82
Section 11.17 No Agency, Partnership or Joint Venture................. 82
Section 11.18 Damage Lawsuit.......................................... 82
Section 11.19 Waiver of Trial by Jury................................. 83
Section 11.20 Late Charge............................................. 83
Section 11.21 Time.................................................... 84
Section 11.22 No Fraud................................................ 84
</TABLE>
EXHIBIT A Description Of The Inns
EXHIBIT B Schedule of Mortgages
EXHIBIT C Certificate of Representation and Warranties
EXHIBIT D Schedule of Insurance
EXHIBIT E Periodic Financial Statement
EXHIBIT F Form of Consolidated Profit and Loss Statement
EXHIBIT G 1 Debt Service Tracking Summary
EXHIBIT G 2 Report Certificate
EXHIBIT H Form of Promissory Note
EXHIBIT I Schedule of Appraised Values
EXHIBIT J Schedule of Unpaid Taxes
1
<PAGE>
Exhibit 10.8
German American Capital Corporation
31 West 52nd Street
3rd Floor
New York, New York 10019
October 10, 1995
Residence Inn by Marriott, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Law Department
Marriott Residence Inn Limited Partnership
c/o RIBM One Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Law Department
Re: Loan Agreement dated as of October 10, 1995
-------------------------------------------
Ladies and Gentlemen:
We refer to the above-referenced Loan Agreement (the "Loan Agreement")
--------------
between Marriott Residence Inn Limited Partnership (the "Borrower") and German
--------
American Capital Corporation, a Maryland corporation, as agent or trustee for
itself and others, and its successors and assigns (the "Lender"). Capitalized
------
terms not otherwise defined in this letter (which is defined as the "Manager's
Letter Agreement" in the Loan Agreement) and which are defined in the Loan
Agreement shall have the meanings ascribed to them in the Loan Agreement.
Capitalized terms used herein and not otherwise defined herein or in the Loan
Agreement shall have the meaning set forth in the Management Agreement. As used
herein, the "Management Agreement" shall mean that certain Management Agreement
dated as of March 29, 1988 between the Borrower and the Manger, as amended
contemporaneously herewith.
The Borrower has requested the Lender to make the Loans on the terms
and subject to the conditions set forth in the Loan Agreement. As security for
the Borrower's obligations under the Loan Agreement and to induce the Lender to
accept the Mortgages and the Promissory Notes and to make the Loans, the
Borrower and the Manager hereby agree, by their acceptance and agreement to
<PAGE>
the terms of this letter as provided below, for the benefit of the Lender, and
intending that Lender and any Successor (as defined in Paragraph 11 below) rely
on this letter, to the following terms and conditions:
2
<PAGE>
1. From and after the date of this letter for so long as any amount
shall remain outstanding under the Loan Agreement, the Manager shall not take or
receive from the Borrower any monies or Operating Profit (as defined in the
Management Agreement) now or hereafter owing by the Borrower to the Manager in
respect of (i) the Incentive Management Fee, as defined in Section 1.01 of the
Management Agreement (the "Incentive Management Fee"), or (ii) accrued but
------------------------
unpaid Incentive Management Fees, as defined in Section 1.01 of the Management
Agreement ("Contingent Management Fees (IMF)"), or (iii) any unpaid Base
--------------------------------
Management Fee (as hereinafter defined) that accrued prior to the date hereof
("Contingent Management Fees (Base)"), unless (x) all Promissory Notes Debt
- -----------------------------------
Service then due and payable shall have been paid in full, and (y) the Borrower
shall have accrued in accordance with GAAP for the monthly installment of
principal and interest next coming due on the Loans.
2. From and after the date of this letter for so long as any amount
shall remain outstanding under the Loan Agreement and until all amounts now or
hereafter payable by the Borrower under and in accordance with the terms of the
Loan Agreement and the other Loan Documents shall have been paid in full, the
Manager agrees that following notice from Lender that a Default then exists
(whether declared or undeclared) under (i) Section 9.1(a) of the Loan Agreement
or any other Default involving the payment of money (collectively, a "Payment
-------
Default") (ii) Sections 9.1(f), (g) or (k) of the Loan Agreement, or (iii)
- -------
Sections 9.1(i) or (j) of the Loan Agreement if same has a Material Adverse
Effect, the Manager will not take or receive from the Borrower, by set-off or in
any other manner, the whole or any part of any monies or Operating Profit now or
thereafter owing by the Borrower to the Manager in respect of (i) the Incentive
Management Fee, (ii) the Contingent Management Fees (IMF), or (iii) the
Contingent Management Fees (Base) (Contingent Management Fees (IMF) and
Contingent Management Fees (Base) being collectively referred to as "Contingent
----------
Management Fees"), unless and until either (a) all Debt of the Borrower to the
- ---------------
Lender and all other amounts payable under the Loan Agreement and the other Loan
Documents, whether now or hereafter arising, direct or indirect, absolute or
contingent, shall have been fully paid, or (b) Lender notifies Manager that the
Default no longer exists. From and after the occurrence and during the
continuance of a Payment Default or a Technical Default, all such monies shall
instead be used to pay amounts due to the Lender under the Promissory Notes for
application by the Lender in accordance with the terms of the Loan Agreement.
3
<PAGE>
3. (a) If Lender or any Person designated by Lender shall receive a
deed in lieu of foreclosure to the Mortgaged Property or any portion thereof or
in the event of a mortgage foreclosure, trustee's sale, or other event
transferring title to the Mortgaged Property or any portion thereof after an
Event of Default (the "Transfer of Title"), then from and after the date
-----------------
on which the Transfer of Title occurs (the "Transfer of Title Date"), or if a
----------------------
Bankruptcy Proceeding (hereinafter defined) occurs, from and after the date on
which the Bankruptcy Proceeding is commenced (the "Bankruptcy Date"), Manager
---------------
shall have no further right to any Incentive Management Fees, any Contingent
Management Fees (IMF) or any Contingent Management Fees (Base) then due and
owing or previously accrued or deferred, as of the Transfer of Title Date
(collectively, the "Accrued Fees") and Manager hereby irrevocably and forever
------------
waives and releases any and all rights with respect to such Accrued Fees and
Manager agrees not to take or receive any Accrued Fees from any Person or from
all or any part of the property which formerly comprised the Mortgaged Property
or any portion thereof or any substitutions or replacements thereof or proceeds
or income thereof or therefrom or from Operating Profit (collectively the
"Assets") by way of set-off or in any other manner. As used herein, a
- -------
"Bankruptcy Proceeding" means the filing of a petition under the U.S. Bankruptcy
Code by Borrower, or the filing of any such petition against Borrower if same is
not dismissed within ninety (90) days.
(b) From and after the Transfer of Title Date or from and after a
Bankruptcy Date, any Incentive Management Fees or Contingent Management Fees
with respect to any Annual Accounting Period after the Transfer of Title Date or
from and after a Bankruptcy Date, including the Annual Accounting Period during
which the Transfer of Title Date or Bankruptcy Date occurs shall be payable only
to the extent that Operating Profit for such Annual Accounting Period available
for the payment of such fees, pursuant to Section 5.02 of the Management
Agreement (and in the priorities set forth in Section 5.02 of the Management
Agreement), is sufficient for the payment thereof and to the extent not paid
shall not accrue or accumulate, shall be waived and released irrevocably and
forever and shall not be payable in any subsequent Accounting Period.
Notwithstanding the preceding sentence, however, to the extent that Operating
Profit during any Annual Accounting Period exceeds the sum of (i) Qualifying
Debt Service, plus (ii) $3,300,000, then Incentive Management Fees for such
Annual Accounting Period shall be payable (to the extent Operating Profit is
available therefor pursuant to and in the
4
<PAGE>
priorities set forth in the Management Agreement) or to the extent Operating
Profit is not so available shall accrue. Manager agrees not to take or receive
from any Person or from the Assets by way of set-off or in any other manner any
amounts prohibited by this subparagraph (b); provided, however, that for
purposes of computing Qualifying Debt Service for any Accounting Period during
which the total indebtedness with respect to any of the Mortgaged Property is
less than the amount of such indebtedness existing on the day prior to the
Transfer of Title Date, then for purposes of this paragraph, Qualifying Debt
Service for all subsequent Accounting Periods shall be computed as if the
indebtedness no longer encumbering the Mortgaged Property as a result of the
Transfer of Title were still in place.
4. The Successor agrees that, in the event it shall resell the
Mortgaged Property or any portion thereof it shall cause to be included in any
contract and/or other documents of sale entered into with the purchaser of the
Mortgaged Property or any portion thereof one or more provisions requiring that,
unless the Management Agreement shall have been previously terminated in
accordance with its terms, (i) any such sale shall be subject to the
continuation in effect of the Management Agreement and (ii) the purchaser of the
Mortgaged Property or any portion thereof shall affirm the Management Agreement
and shall agree that to the extent of its interest in the Mortgaged Property or
any portion thereof (but not personally), such purchaser shall be bound by the
terms thereof as though it were an original party thereto, provided that the
Manager shall agree with such purchaser that such purchaser shall in all events
be entitled to the benefits of the Management Agreement, this letter and the
other documents being executed by Manager for the benefit of Lender
contemporaneously herewith. The Manager understands and acknowledges that any
such purchaser of the Mortgaged Property or any portion thereof may wish to
finance a portion of the purchase price to be paid therefor. The Manager,
therefore, hereby agrees that provided any such financing shall be (i) made
available on commercially reasonable terms and (ii) for an amount not in excess
of an amount (the "Net Refinancable Amount") equal to the greater of (i) 110% of
-----------------------
the combined principal balance of the Loans and the Subordinate Loan on the day
prior to the Transfer of Title Date, or (ii) seventy-five percent (75%) of the
higher of (a) the appraised value of the Mortgaged Property or any portion
thereof at the time of such purchase and (b) the total purchase price to be paid
for the Mortgaged Property or any portion thereof (including any assumption of
debt and including
5
<PAGE>
any unsecured Indebtedness incurred in the ordinary course of business and
loaned to Borrower by Host or General Partner not exceeding $5,000,000 as
allowed by Section 8.3 of the Loan Agreement) (any and all indebtedness or
financing described in the preceding provisions of this sentence are
collectively referred to herein as the "Post-Foreclosure Financing"), then
--------------------------
the provisions of Paragraph 3(b) above with respect to the availability of
Operating Profit to pay Incentive Management Fees in the priorities set forth in
the Management Agreement, shall continue to apply after the consummation of such
Post-Foreclosure Financing and all regularly scheduled payments of principal and
interest (and other regularly scheduled fees or other amounts) payable in
respect of the Post-Foreclosure Financing shall be included in Qualifying Debt
Service, subject to the limitation on the dollar amount of Stipulated Debt
Service set forth in Paragraph 21 hereof.
5. The Borrower agrees not to pay, or to enter into any other
agreement providing for payment of, any consulting, advisory, management,
compensatory or other fees or expenses or any other payments whatsoever to the
Manager in connection with the operation, liquidation, sale or resale of the
Mortgaged Property or the Assets other than as provided in the Management
Agreement, and the Manager agrees not to enter into any such agreement or to
accept any such payment.
6. Any amounts received by the Manager in contravention of the
agreements set forth in this letter shall be held by the Manager in trust for
the Lender and shall be promptly paid over by the Manager to the Lender for
application by the Lender in accordance with the terms of the Loan Agreement.
Nothing herein shall, however, be construed to limit the right of the Lender to
exercise any rights or remedies available to it under the Loan Documents or
applicable law in the event of a breach of the agreements set forth in this
letter.
7. In addition to Manager's obligations under the Four Party
Agreement, if Manager receives written notice from Lender that an Event of
Default under the Loan Agreement or any other Loan Document has occurred and is
continuing (without any obligation of Manager to determine whether such an Event
of Default has in fact occurred and is continuing), (a) Manager covenants and
agrees that any monies, Operating Profit, Rents and Revenues and Other
Collateral and/or the proceeds of any of the foregoing, now or hereafter held by
it pursuant to the Management Agreement, including without limitation, any
monies in
6
<PAGE>
the bank accounts designated by Manager pursuant to Section 8.02 of the
Management Agreement shall be held in trust for the benefit of Lender and/or
paid to Lender or as the Lender shall direct and Manager covenants and agrees
not to pay any of the foregoing to any other person, except that Manager may
apply such monies or Operating Profit in accordance with the Management
Agreement and this letter agreement, including, but not limited to, transfers
into the Repairs and Equipment Reserve, and (b) Manager shall account for and
remit to the Lender, promptly after the Lender's request for the same, any and
all monies held by Manager (and not used to pay Deductions in accordance with
the Management Agreement) or otherwise remittable to Borrower under the
Management Agreement. If any Event of Default is cured prior to acceleration,
then Lender shall notify Manager thereof and Manager may thereafter dispose of
any monies, Operating Profit, Rents and Revenues and Other Collateral as if such
Event of Default had not occurred, subject to the Four Party Agreement. Upon any
termination of the Management Agreement, Manager further agrees that it shall
account for and remit to the Lender, promptly after the Lender's request for the
same, any and all monies held by it or otherwise remittable to Borrower under
the Management Agreement or otherwise related to the Mortgaged Property. Any use
or disposition of any monies in violation of this paragraph shall constitute a
conversion of the Lender's collateral and in such event the Lender shall have
all rights and remedies available at law or in equity or pursuant to the Loan
Documents for such conversion against any and all parties who may be a party to
such conversion. In this regard, any action for conversion shall lie in tort as
well as in contract and shall not be limited by the contractual agreements of
the parties.
8. Manager acknowledges and agrees that as used herein and in the
Management Agreement, "Qualifying Debt Service" shall include, without
-----------------------
limitation, any amounts required to be paid to the Escrow Agent (as defined in
the Four Party Agreement) or to Lender pursuant to the Four Party Agreement, or
any other amounts required to be paid in accordance with the Four Party
Agreement after the occurrence of a Trigger Date or Application Trigger Date (as
such terms are defined in the Four Party Agreement), subject, however, to the
limitations on the dollar amount of Stipulated Debt Service set forth in
Paragraph 21 hereof.
9. From and after the Transfer of Title Date, the provisions of
Section 18.01 of the Management Agreement shall thereafter be of no further
force or effect, provided that
7
<PAGE>
Manager shall have the rights set forth in Paragraph 12 of the SNDA Agreements.
10. Intentionally deleted.
---------------------
11. A. After the Transfer of Title Date, notwithstanding any
provisions to the contrary contained in the Management Agreement, Manager shall
submit to Lender or any Person acquiring the Mortgaged Property or any portion
thereof through foreclosure, trustee's sale or deed in lieu of foreclosure
(together with such party's successors and assigns being collectively referred
to as "Successor") for Successor's approval (which approval shall not be
---------
unreasonably withheld or delayed, at least thirty (30) days prior to the
beginning of each Annual Accounting Period which begins after the Transfer of
Title Date, preliminary drafts of the Annual Operating Projection and Repairs
and Equipment Estimate for the next Annual Accounting Period. Successor's
approval shall be deemed to have been given if Manager has received no notice
from Successor to the contrary within thirty (30) days after Successor's receipt
of such preliminary drafts of the Annual Operating Projection and Repairs and
Equipment Estimate. Such Annual Operating Projection and Repairs and Equipment
Estimate shall be in reasonable detail and such Annual Operating Projection
shall include, without limitation, on an Inn by Inn basis, projected Inn Income,
Inn Operating Expenses, Gross Revenues and Deductions, proposed material leases
and contracts and other items as Lender may reasonably request. In preparing
the Annual Operating Projection and Repairs and Equipment Estimate for each
Annual Accounting Period, Manager's goal will be the maximization of long-term
Operating Profit, in keeping with the Residence Inn Standards (as hereinafter
defined) and the general standards of the hotel industry for similar properties.
The term "Residence Inn Standards" as used herein shall mean both the
operational standards (for example, staffing, amenities offered to guests,
advertising, etc.) and the physical standards (for example, the quality,
condition, utility and age of the FF&E, etc.) of comparable extended stay hotels
managed by Manager (or one or more of its Affiliates) operating under the trade
names "Residence Inn" or "Residence Inn by Marriott" or "Marriott Residence Inn"
("Residence Inn System") as such operational and physical standards may
--------------------
fluctuate from time to time. If there are material items in any given Annual
Operating Projection which have been budgeted at significantly different amounts
from the amounts actually experienced (or projected) for the same items in the
preceding Annual Accounting Period, Manager agrees to take
8
<PAGE>
reasonable steps to ensure that, at Successor's request, qualified personnel
from Manager's staff are available to explain these differences to Successor. A
meeting (or meetings) for such purpose shall be held, at Successor's request,
within a reasonable period of time after the submission to Successor of the
preliminary draft of the Annual Operating Projection. Manager will at all times
give good faith consideration to Successor's suggestions regarding any Annual
Operating Projection or Repairs and Equipment Estimate. Manager shall thereafter
submit to Successor, by no later than thirty (30) days after the beginning of
such Annual Accounting Period, the final Annual Operating Projection and Repairs
and Equipment Estimate.
B. Successor shall not be entitled to withhold its approval of any
Annual Operating Projection based on Successor's objection to: (i) Manager's
reasonable projections of either Gross Revenues or the components thereof; (ii)
projected costs and expenses which are "system charges" (that is, costs and
expenses which are generally uniform throughout the Residence Inn System, such
as: the charges for Chain Services; the costs of the INNsiders Club and
INNsiders Elite Club and other chain-wide marketing programs; and employee
benefits and other compensation programs); (iii) costs and expenses which are
not within the control of either Successor or Manager, such as Impositions and
the cost of utilities; or (iv) increases in projected costs and expenses of
operating the Inn, which increases arise solely as a result of the fact that
certain items of expense are marginal costs, i.e., expenses that vary based on
----
the amount of Gross Revenues but which are a constant percentage of Gross
Revenues. If Successor and Manager fail to mutually agree on the Annual
Operating Projection or Repairs and Equipment Estimate within forty-five (45)
days after the submission to Successor of the preliminary drafts described in
the first sentence of Paragraph 11.A. of this letter, either party shall have
the right to submit to arbitration (in accordance with Paragraph 15 of this
letter) the issue of whether or not Manager's proposed Annual Operating
Projection or Repairs and Equipment Estimate is reasonable, given the goals
which are set forth in the fourth sentence of Paragraph 11.A. of this letter.
While such arbitration proceedings are pending, Manager shall (i) operate the
Inn, in all material respects, based on the Annual Operating Projection for the
preceding Annual Accounting Period, with adjustments for inflation, and (ii)
make no expenditures under the Repairs and Equipment Estimate that exceed the
amount of expenditures made during the preceding Annual Accounting Period, with
adjustments for inflation.
9
<PAGE>
C. Each Annual Operating Projection and Repairs and Equipment
Estimate will constitute a standard to which Manager shall use its reasonable
best efforts to adhere. It is understood, however, that the Annual Operating
Projection and Repairs and Equipment Estimate are estimates only and that
unforeseen circumstances such as, but not limited to, the costs of labor,
materials, services and supplies, casualty, operation of law, or economic and
market conditions may make adherence to the Annual Operating Projection or
Repairs and Equipment Estimate impracticable, and Manager shall be entitled to
depart therefrom for such reasons.
D. Any and all rights of Successor set forth in this Paragraph 11
shall only apply with respect to the Inn or Inns owned by such Successor from
time to time.
12. Manager shall not enter into or maintain any contracts or
agreements with Affiliates that are not at competitive terms and rates.
13. From and after the occurrence of a Transfer of Title Date with
respect to any Inn, the fees and expenses for Chain Services ("Chain Services
--------------
Fees") for all Inns during any Accounting Period until the third anniversary of
- ----
the Transfer of Title Date shall not exceed two percent (2%) of Gross Revenues
(the "Chain Services Cap") and the level and scope of Chain Services provided
------------------
shall be substantially equivalent to those provided as of the date hereof;
provided, however, if such level or scope of services provided to all properties
for which such services are provided exceeds those provided as of the date
hereof, then the Chain Services Cap shall be increased commensurately; provided,
however, that Manager provides reasonable supporting documentation to
demonstrate that the level and scope of such services exceeds that provided as
of the date hereof, and further provided that all such services are provided at
cost without markup and are otherwise reasonable.
14. Intentionally Deleted.
---------------------
15. If there is any dispute between any Successor and Manager with
respect to the matters described in Paragraph 11 of this letter, then such
dispute, upon request by either the Successor or Manager, shall be subject to
binding arbitration in order to resolve such dispute. Such arbitration shall be
conducted pursuant to the commercial arbitration rules of the American
Arbitration Association (the "AAA") on an expedited
---
10
<PAGE>
basis, with no rights of discovery, in the City of New York office of the AAA.
In the event arbitration is so elected, the party requesting arbitration shall
do so by giving written notice to that effect to the other party, specifying in
said notice in reasonable detail the nature of the dispute and designating one
of the arbitrators, such arbitrator to be a member of the AAA having at least
ten (10) years experience in the hotel business (a "Qualified Arbitrator").
--------------------
Within ten (10) days after such written notice is given, the other party shall
designate one of the arbitrators, who shall also be a Qualified Arbitrator, by
written notice given to the party requesting arbitration and the two Qualified
Arbitrators shall select a third arbitrator within ten (10) days thereafter who
shall also be a Qualified Arbitrator. The arbitration shall commence within ten
(10) days of the appointment of the three Qualified Arbitrators, and the
Successor and Manager shall instruct the Qualified Arbitrators to render their
decision within twenty (20) days. The determination of a majority of the three
Qualified Arbitrators shall be final, binding and conclusive upon the Successor
and Manager. If a party shall fail or refuse to designate an arbitrator within
the time provided above, then such arbitrator shall be appointed upon the
application of the other party by the President of the City of New York chapter
of the AAA or if he shall fail or refuse to promptly do so, by the most senior
vice-president of that organization. Each of the Successor and Manager shall
bear the expenses of its arbitrator whether appointed by the Successor or
Manager or on behalf of the Successor or Manager. The expenses of the third
arbitrator shall be shared equally by the Successor and Manager. The decision in
any such arbitration may be enforced, on the application of either the Successor
or Manager, by the order or judgment of a court of competent jurisdiction. In
any such proceeding, each of Successor and Manager shall bear the expense of its
own attorneys and experts and the additional expenses of presenting its own
proof.
16. Intentionally Deleted.
---------------------
17. After the Transfer of Title Date, if the Management Agreement
terminates or expires for any reason, Manager shall make available to Successor
all books and records with respect to the Inns for any purpose, to the extent
same may be reasonably requested by Successor.
18. After an Event of Default, the ninety (90) day period specified
in Section 8.01 of the Management Agreement shall be of no further force or
effect and Successor shall have
11
<PAGE>
the right to audit any statements prepared by Manager covering any Accounting
Period beginning on or after the date of the occurrence of such Event of Default
as well as the thirteen Accounting Periods prior to the Event of Default,
provided that Lender exercises such right within one year after the Event of
Default, and if such audit reveals a discrepancy of more than five percent (5%)
with respect to Gross Revenues or Deductions during any Annual Accounting
Period, then Lender may audit any statements prepared by Manager covering any
Accounting Period beginning on or after October 1, 1995.
19. The provisions of the Loan Documents shall govern and control
over any contrary provision contained in Articles XI or XIV of the Management
Agreement and to the extent of any conflict, the provisions of Articles XI and
XIV of the Management Agreement shall be of no force or effect so long as the
Loans are outstanding.
20. Manager agrees, for the benefit of Borrower and/or Lender, to
execute and deliver a letter agreement in the form of this letter agreement and
Subordination, Non-Disturbance Agreements, a Manager's Consent and all other
documents executed by Manager contemporaneously herewith, in favor of any Person
providing refinancing for all or a portion of the Loans or providing Post
Foreclosure Financing, such letter agreement and other documents to be in form
and substance equivalent to those being executed contemporaneously herewith
together with such modifications thereto as may be reasonably requested by the
Person providing any such financing.
21. From and after the date of this letter, Borrower and Manager
acknowledge and agree that the Management Agreement shall be modified and
amended as follows:
a. "Stipulated Debt Service" shall mean $15,300,000 per Fiscal
-----------------------
Year.
b. "Actual Debt Service" shall mean $15,300,000 per Fiscal
-------------------
Year.
c. "Maturity Date" shall mean September 30, 2002.
-------------
d. "Operative Principal Amount" shall mean the principal amount
--------------------------
outstanding under the Loan Agreement and Subordinate Loan Agreement as of the
Maturity Date.
12
<PAGE>
e. The "Refinanced Principal Amount" shall mean an amount equal
---------------------------
to the Net Refinancable Amount.
f. "Loan Agreement" shall mean that certain Loan Agreement
--------------
being entered into between Lender and Borrower.
g. "Lender" shall mean German American Capital Corporation, as
------
agent or trustee for itself and others, and its successors and assigns.
h. Exhibits B, C and D attached to the Management Agreement
shall be replaced and superseded by Exhibits B, C and D attached hereto.
i. "Subordinate Loan" has the meaning set forth in the Loan
----------------
Agreement.
22. Manager acknowledges and agrees as follows:
a. As of the date hereof, the only amounts owing to Manager
pursuant to the Management Agreement (whether or not due and payable), including
without limitation, any unpaid Incentive Management Fees, Contingent Management
Fees (Base) or Contingent Fees (IMF), are as follows:
<TABLE>
<S> <C>
Incentive Management Fees - 0 -
Contingent Management Fees (Base) 2,505,879
Contingent Management Fees (IMF) 12,829,846
</TABLE>
b. As of the date hereof, the amount of the First Priority
Return is $6,626,262 and the amount of the Second Priority Return is $3,313,131.
c. There are no Net Refinancing Proceeds due or payable to
Manager as a result of the Loan Agreement or the transactions contemplated
thereby, the Subordinate Loan or any other transaction occurring
contemporaneously herewith (collectively, the "Transactions").
------------
d. No amounts are now owing pursuant to Section 5.02D of the
Management Agreement nor shall any such amounts ever be owing in the future.
13
<PAGE>
e. No amounts are now owing pursuant to Section 4.03D of the
Management Agreement nor shall any such amounts ever be owing in the future.
f. The amount of Working Capital held by Manager pursuant to
the Management Agreement is adequate for all purposes.
23. Manager and Borrower acknowledge and agree that Manager has no
right to any accrued but unpaid fees pursuant to Section 5.03 of the Management
Agreement as a result of the Transactions.
24. From and after the date that all sums owing from Borrower to
Lender have been repaid, including without limitation, all amounts owing
pursuant to the Loan Agreement, (i) the provisions of Paragraph 21c through 21i
hereof shall thereafter be of no further force or effect, and (ii) the
provisions of Paragraphs 21a and 21b and Paragraph 8 shall remain in full force
and effect, provided that, the Stipulated Debt Service and the Actual Debt
Service per Fiscal Year shall be equal to the lesser of (a) $15,300,000, or (b)
the actual interest paid or accrued in that Fiscal Year, plus the actual
amortization of principal in that Fiscal Year on the Refinanced Principal
Amount.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
14
<PAGE>
25. From and after the date hereof, Manager agrees to deliver to
Lender on an annual basis unaudited financial statements for Manager, to the
extent such financial statements are available, or if such financial statements
are not available, Manager's federal income tax return within thirty (30) days
after such tax return is filed.
Yours very truly,
GERMAN AMERICAN CAPITAL
CORPORATION, a Maryland
corporation, as agent or trustee
for itself and others, and its
successors and assigns
By:
--------------------------------
Joseph G. Kiely
Vice President
By:
--------------------------------
Charlene S. Chai
Authorized Signatory
Accepted and Agreed by:
MARRIOTT RESIDENCE INN
LIMITED PARTNERSHIP
By: RIBM One Corporation,
General Partner
By:
---------------------
Bruce D. Wardinski
Vice President
RESIDENCE INN BY MARRIOTT, INC.
By: _______________________
Name: _____________________
Title: ____________________
Exhibits
- --------
15
<PAGE>
A - Intentionally Deleted
B - Breakdown of Stipulated Debt Service
C - Breakdown of Operating Profit Objective
D - Breakdown of percentages for reducing First Priority Return
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000829092
<NAME> MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.00
<CASH> 3,429
<SECURITIES> 0
<RECEIVABLES> 2,462
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,495
<PP&E> 194,935
<DEPRECIATION> (54,663)
<TOTAL-ASSETS> 151,658
<CURRENT-LIABILITIES> 22,818
<BONDS> 123,519
0
0
<COMMON> 0
<OTHER-SE> 5,321
<TOTAL-LIABILITY-AND-EQUITY> 151,658
<SALES> 0
<TOTAL-REVENUES> 32,084
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15,586
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,411
<INCOME-PRETAX> 3,087
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,087
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
