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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
[FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - --- EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
Commission File Number 34-0-22164
RFS HOTEL INVESTORS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TENNESSEE 62-1534743
(STATE OR OTHER INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
850 RIDGE LAKE BOULEVARD, SUITE 220
MEMPHIS, TENNESSEE 38120
(901) 767-7005
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE AND TELEPHONE
NUMBER)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 par value
(Title of Class)
New York Stock Exchange
(Name of Market)
-----------------
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. X Yes No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ______
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $417,865,000 based on the last sale price in the
New York Stock Exchange for such stock on March 14, 1997.
The number of shares of the Registrant's Common Stock, outstanding was
24,389,000 as of March 14, 1997.
Documents Incorporated by Reference
Portions of the RFS Hotel Investors, Inc. Proxy Statement dated March 24, 1997
and filed with the Securities and Exchange Commission on March 24, 1997 with
respect to the Annual Meeting of Shareholders to be held on April 24, 1997 are
incorporated by reference into Part I and Part III. The financial statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the Company's Annual Report to Shareholders' for the year
ended December 31, 1996 are incorporated into Part II and Part IV.
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PART I
ITEM 1. BUSINESS
(a) General Development of Business
RFS Hotel Investors, Inc. (the "Company") was incorporated in Tennessee
on June 1, 1993 and is a self-administered real estate investment trust
("REIT").
The Company contributed substantially all of the net proceeds of its
public offerings to RFS Partnership, L.P. (the "Partnership") in exchange for
the sole general partnership interest in the Partnership. The Partnership began
operations in August 1993. At December 31, 1996, the Company owned an
approximately 98.7% interest in the Partnership.
(b) Financial Information About Industry Segment
The Company is in the business of acquiring equity interests in hotel
properties. See the Consolidated Financial Statements and notes thereto included
in Item 8 of this Annual Report on Form 10-K for certain financial information
required in Item 1.
(c) Narrative Description of Business
General. At December 31, 1996, the Company owned, through the
Partnership and other subsidiaries, 53 hotels (the "Hotels") containing 7,387
rooms located in 23 states. In order to qualify as a REIT for federal income tax
purposes, neither the Company nor the Partnership can operate hotels. As a
result, the Partnership leases all of its hotel properties to RFS, Inc. and
other wholly-owned subsidiaries of Doubletree Corporation (collectively, the
"Lessees") pursuant to leases (the "Percentage Leases") as described in Item 2
below.
Strategies. The Company seeks to increase funds from operations and
enhance shareholder value through its strategies for internal growth and
acquisitions.
Internal Growth Strategy. The Company's strategy for internal growth
includes participating in increased revenue at the Hotels through Percentage
Leases, limiting leverage, an extensive renovation program and affiliations with
national franchises.
The Percentage Leases provide for the payment of (i) fixed monthly base
rent and (ii) quarterly percentage rent based on a percentage of gross room
revenue, food revenue and beverage revenue, if any, at the Hotels. The use of
Percentage Leases allows the Company to participate in increased revenue at the
Hotels. See Item 2 for further information with respect to the Percentage
Leases.
The Company recognizes the potential competitive advantage gained by
owning hotel properties with little or no debt. High leverage may impair the
ability of management to renovate,
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maintain and effectively manage properties. The Board of Directors of the
Company has adopted a policy limiting the amount of indebtedness that the
Company will incur to an amount not in excess of approximately 40% of the
Company's investment in hotel properties, at cost, after giving effect to the
Company's use of proceeds from any indebtedness and accounting for all
investments in hotel properties under the purchase method of accounting.
The Company budgeted $12.1 million for capital improvements in 1996 at
the 53 hotels owned at December 31, 1996. At December 31, 1996, the Partnership
had spent $11.0 million of the budgeted amounts. The Company intends to fund the
remaining $1.1 million to complete these capital improvements during 1997. The
Company has budgeted an additional $13.8 million to be spent on capital
improvements at 52 of the 53 Hotels owned at December 31, 1996 during 1997. The
capital improvements are primarily designed to enhance revenues and the guests'
experience and include replacing such items as carpets and drapes, renovating
common areas and hotel exteriors. This does not include one Hotel at which
extensive renovations are being contemplated or the four Sheraton hotels
acquired in January 1997.
All but one of the Hotels are licensed to operate under nationally
franchised brands. The Company believes that franchised properties generally
have higher levels of occupancy and average daily rate ("ADR") than properties
which are unfranchised due to access to national reservation systems and
advertising and marketing programs provided by franchisors.
Acquisition Strategy. The Company intends to acquire equity interests
in existing hotel properties, to develop hotels and to enter into contracts to
acquire properties from third parties after development.
The Company considers investments in hotel properties which meet one or
more of the following criteria:
- Favorable market characteristics
- Long-term asset quality
- Prospects of increasing profitability
- National franchises
- Diversification-geographically, by brand and by segment
- Return on investment
The Company's current investment and acquisition policies provide that
no more than 25% of the Company's total assets may be invested in any one
property at the time of investment. The Company's current policies also provide
that the Company will not invest in luxury properties, budget hotels or resorts.
The Company's investment and acquisition policies may be changed by the Board of
Directors without shareholder approval.
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Property Management. RFS, Inc. has managed hotel properties since 1974
and, as of December 31, 1996, managed 62 hotels with 10,062 rooms in 23 states,
including 48 of the Hotels. One Hotel is managed by another wholly-owned
subsidiary of Doubletree Corporation. Three Hotels are managed by Alpha Inn
Management Company ("Alpha") and one by TMH, Inc. ("TMH") pursuant to management
agreements between the Lessees and Alpha and TMH, respectively. Alpha has
managed hotel properties since 1985 and currently manages 7 properties with 692
rooms in 6 states. TMH has managed hotel properties since 1984 and currently
manages 4 properties with 352 rooms in 3 states. The Lessees, Alpha and TMH are
generally required to perform all operational and management functions necessary
to operate the Hotels. Such functions include but are not limited to ordering
supplies, advertising and marketing, maid service, laundry and maintenance.
Alpha and TMH are paid a fee by RFS, Inc. under management agreements equal to
3% of the gross revenues of the Hotels, plus reimbursement of out-of-pocket
expenses. The Lessees manage other hotel properties in addition to the Hotels
and are not required to devote all of their time and efforts to the Hotels.
Operating Practices. The Lessees utilize a centralized accounting and
data processing system for the Hotels which facilitates financial statement and
budget preparation, payroll management, internal auditing and other support
functions for the on-site hotel management team. The Lessees provide centralized
control over purchasing and project management (which can create economies of
scale in purchasing) while emphasizing local discretion within specific
guidelines.
The Lessees develop a written marketing plan for the Hotels with a
strong emphasis on room revenue, market segmentation and yield management. The
Lessees corporate staff assists in developing corporate sales programs and
negotiating national contracts where appropriate. The Lessees monitor each sales
employee on a continuing basis. Operating multiple properties allows
participation in numerous marketing programs that might be unavailable or not
cost-efficient for an individual hotel.
Each hotel property employs a general manager who is responsible for
the overall operations of the hotel. General managers report to regional
managers, who generally have responsibility for up to fifteen hotels. Daily
operations are managed with a centralized approach through regional managers who
report to the Lessees' central office. The Lessees' strategy is to encourage
decision-making by those people closest to the hotel operation at the lowest
administrative cost.
Competition. Substantially all of the Hotels are located in a developed
area that includes other hotel properties. The number of competitive hotel
properties in a particular area could have a material adverse effect on
occupancy and ADR of the Hotels or at hotel properties acquired in the future.
New, competing hotels may be opened in the Company's markets which could
materially and adversely affect hotel operations.
Employees. At December 31, 1996, the Company had a total of 24
employees.
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Seasonality. The hotel industry is seasonal in nature. Generally, hotel
revenues are greater in the second and third quarters than in the first and
fourth quarters. This seasonality can be expected to cause quarterly
fluctuations in the percentage rent.
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act,
including, without limitation, statements containing the words "believes,"
"anticipates," "expects" and words of similar import. Such forward-looking
statements relate to future events, the future financial performance of the
Company, and involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
or industry results to be materially different from any future results,
performance or achievements expressed or implied by such forward looking
statements. Readers should specifically consider the various factors identified
in this report which could cause actual results to differ. The Company disclaims
any obligation to update any such factors or to publicly announce the result of
any revisions to any of the forward-looking statements contained herein to
reflect future events or developments.
Business Issues. The Hotels are subject to all operating risks common
to the hotel industry. These risks include, among other things: competition from
other hotels; recent over-building in the hotel industry which has adversely
affected occupancy and room rates; increases in operating costs due to inflation
and other factors; significant dependence on business and commercial travelers
and tourism; increases in energy costs and other expenses of travel; and adverse
effects of general and local economic conditions. These factors could adversely
affect the Lessees' ability to make lease payments and therefore the Company's
ability to make expected distributions to shareholders. Further, decreases in
room revenues of the Hotels will result in decreased revenues to the Partnership
under the Percentage Leases.
The Company must rely on the Lessees to generate sufficient cash flow
from the operation of the Hotels to enable the Lessees to meet the rent
obligations under the Percentage Leases. The rent obligations under the
Percentage Leases are unsecured and are not guaranteed by Doubletree. At
December 31, 1996, the Lessees are in compliance with the provisions of the
Percentage Leases.
The Company's investments are subject to varying degrees of risk
generally incident to the ownership of real property. The underlying value of
the Company's real estate investments and the Company's income and ability to
make distributions to its shareholders is dependent upon the ability of the
Lessees to operate the Hotels in a manner sufficient to maintain or increase
revenues and to generate sufficient income in excess of operating expenses to
make rent payments under the Percentage Leases. Income from the Hotels may be
adversely affected by adverse changes in national economic conditions, adverse
changes in local market conditions due to changes in general or local economic
conditions and neighborhood characteristics, competition from other hotel
properties, the impact of present or future environmental legislation and
compliance with environmental laws, the ongoing need for capital improvements,
particularly in older structures, changes in real estate tax rates and other
operating expenses, adverse changes in governmental rules and fiscal policies,
civil unrest, acts of God, including earthquakes and other natural disasters
(which may result in uninsured losses), acts of war, adverse changes in zoning
laws, and other factors which are beyond the control of the Company and the
Lessees.
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Environmental Issues. Under various federal, state and local laws and
regulations, an owner or operator of real estate may be liable for the costs of
removal or remediation of certain hazardous or toxic substances on such
property. Such laws often impose such liability without regard to whether the
owner knew of, or was responsible for, the presence of hazardous or toxic
substances. Furthermore, a person that arranges for the disposal or transports
for disposal or treatment a hazardous substance at another property may be
liable for the costs of removal or remediation of hazardous substances released
into the environment at the property. The costs of remediation or removal of
such substances may be substantial, and the presence of such substances, or the
failure to promptly remediate such substances, may adversely affect the owner's
ability to sell such real estate or to borrow using such real estate as
collateral. Thus, if such liability were to arise in connection with the
ownership and operation of the Hotels, the Company, the Partnership, the
Lessees, Alpha or TMH, as the case may be, may be potentially liable for such
costs.
Phase I Environmental Survey Assessments ("ESA's") have been obtained
on all of the Hotels from independent environmental engineering firms. The Phase
I ESA's were intended to identify potential sources on contamination for which
the Hotels may be responsible and to assess the status of environmental
regulatory compliance. No assurance can be given that the Phase I ESA's
identified all significant environmental problems or that no additional
environmental liabilities exist. The Phase I ESA's included historical reviews
of the Hotels, reviews of certain public records, preliminary investigations of
the sites and surrounding properties, screening for the presence of asbestos,
PCBs, wetlands and underground storage tanks, and the preparation and issuance
of a written report. The Phase I ESA's did not include invasive procedures, such
as soil or ground water sampling and analysis.
The Phase I ESA reports indicated that several of the Hotels have
asbestos containing materials (ACM) on or in insulation, floor or ceiling
coverings and various other structural and non-structural items. While the
precise amounts of ACM contained in the Hotels cannot be accurately determined
without incurring substantial expense, the Company believes, based on its review
of the Phase I ESA reports, that overall levels are low. The Phase I ESA on the
Clayton, Missouri Hotel indicated further testing of ACM was necessary in
certain locations within the hotel. The Phase II ESA revealed that ACM was
present and recommended that some of the ACM be removed to simplify an asbestos
management program. A portion of the ACM will be removed at a cost of
approximately $46,000. The partnership which sold the Clayton Hotel to the
Partnership will bear the cost of such removal and has escrowed funds to cover
such costs. The remaining material will be managed in-place as recommended in
the Phase II ESA report in accordance with federal, state and local laws and
regulations. The Company also believes that, given the condition and location of
ACM in the other Hotels, risks to human health are at acceptable levels. The
Company has no plans, and is not required by law, to remove ACM unless it would
be affected by proposed renovation or demolition work. Absent such scheduled
work, ACM will be managed in-place in accordance with federal, state and local
laws and regulations.
If any ACM in the Hotels becomes damaged, deteriorates, or is in an
area scheduled for renovation or demolition work, asbestos could be released
into the air and the Company may incur substantial costs to remove, encapsulate,
or enclose the asbestos in accordance with applicable law and to reduce risks to
human health. Elevated levels of airborne asbestos can create a health hazard
for workers and, to a lesser degree because of the typically short duration of
their stays, guests.
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Increased health hazards increase the probability that the Partnership will
incur liability for health-related claims.
The partnership formerly owning the hotel in Columbia, South Carolina
received notice in October 1992 regarding potential liability under the federal
Comprehensive Environmental Response, Compensation and Liability Act
("Superfund") for cleanup of contamination at a site in Greer, South Carolina.
The relevant Phase I ESA report indicated that the Columbia Hotel contributed
approximately 500 pounds of a hazardous substance to the site. This compares to
an estimated total of 42 million pounds of hazardous substances disposed of at
the site, contributed by more than 700 potential responsible parties ("PRP's")
identified currently. Under Superfund, each PRP, including the Columbia Hotel,
may be jointly and severally liable for the entire cost of the site-cleanup. On
the Greer site, removal costs alone were approximately $18 million. A PRP Group
has been formed to conduct removal action at the site, allocate liability among
the PRP's, and generally work to resolve matters at the site. The partnership
which sold the Columbia Hotel to the Partnership has agreed to remain liable for
all costs and claims incurred by the Partnership arising as a result of the
Greer Superfund site and has escrowed $5,000 to defray such costs and claims. In
response to a demand for payment from the PRP Group, a payment of $1,127 has
been made from such escrowed funds for the cost of removing drums, cylinders,
and other waste materials found on the surface of the Superfund site and the
government's oversight costs associated with the removal. In addition, a
separate claim for the cost of investigating and remediating soil and
groundwater contamination associated with the Superfund site is expected. There
have been no remediation costs or estimates thereof to date. The PRP Group's
approach to the allocation is such that the ultimate liability of each PRP is
generally expected to be proportionate to its relative contribution of hazardous
substances.
In certain cases, state and federal regulators overseeing cleanup of
Superfund sites will permit de minimis PRP's to pay an agreed upon amount and
obtain a release from further liability. No such releases have yet been
authorized or granted with respect to the Greer site. While the Company believes
that such a release may in the future be available with respect to liability
resulting from any contributions of hazardous substances from the Columbia
Hotel, there is no assurance that a release will be obtained. Unless and until
such a release is obtained, the Partnership may potentially incur liability for
the entire cost of the cleanup of the site. However, based on the Phase I ESA
reports and other information obtained by the Company regarding the relative
amount and nature of the Columbia Hotels contribution to the Greer site, the
Company believes that the liability for the hotel's substances will be only a
very small portion of the total costs of removal and remediation. To the extent
that any of the major PRP's declare bankruptcy or otherwise are unable to pay
their share of removal and remediation costs, liability for the Columbia Hotel's
substances may increase.
In all but two cases where Phase I ESA reports recommended specific
remedial action, either the prior owner or the Company has taken, provided for,
or scheduled the recommended action. the Company has decided not to undertake
the consultant's recommended actions in two cases. First, the Company has
determined that testing of the soil near the transformers at the Columbia hotel
site is unnecessary because (1) South Carolina Electric & Gas Co. tested the
transformers, determined that they did contain PCBs and removed the transformers
and (2) the consultant found no evidence (e.g. stained soil or stressed
vegetation) that PCBs were released
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from the transformers. Second, at the Clayton, Missouri Hotel site, the Company
does not intend to train employees in handling ACM because, if such an activity
becomes necessary at any of its properties, the Company will use licensed
asbestos contractors, not employees, in handling ACM.
The Phase I ESA for the Hampton Inn - Airport in Indianapolis,
indicated that the Indianapolis Hotel disposes of approximately 10% of its solid
waste at a facility that is a state Superfund site. Such a site may be subject
to investigation and remediation under the federal and state Superfund laws, and
persons that sent hazardous substances to the site may be jointly and severally
liable for the costs of the that work. The Phase I ESA report states that solid
waste from the Indianapolis Hotel was disposed of into a domestic waste cell of
the facility. A state official informed the engineering firm conducting the
Phase I ESA that this domestic waste cell is segregated by a containment
structure and is adjacent to, but not part of, the Superfund site. The Phase I
audit did not indicate that the Indianapolis Hotel has arranged for the disposal
of any hazardous substances at this facility. If the Indianapolis Hotel in fact
arranged for such disposal, however, it could be found liable for at least a
part of any response costs.
Each former owner of the Hotels has represented that it knows of no
hazardous substance or PCBs in, on, or under the hotels or the real property
upon which the Hotels are situated. With respect to the Hotels each such former
owner will remain liable for all claims and costs arising from a breach of such
representation. In addition, the seller of the Hotels will remain liable for all
costs and claims incurred by the Partnership arising as a result of the Greer
Superfund site and (other than as described above) items with respect to which
the Phase I ESA reports recommended corrective or remedial action, specifically
(i) removal by the former owner of the Hotel in Clayton, Missouri of ACM, and
(ii) removal by the former owner of the Hotel in Franklin, Tennessee of debris
dumped or buried in a corner of the real property upon which such Hotel is
situated and erection of a fence around the area to prevent further dumping. The
Company believes the former owners of the Hotels have, and will have, sufficient
assets to satisfy their obligations to the Partnership which might reasonably be
expected to arise under the contacts pursuant to which such properties were
acquired by the Partnership. There can be no assurances, however, that such
former owners will be able to satisfy any of such obligations.
Except as noted specifically above, the Phase I ESA reports have not
revealed an environmental liability or compliance concerns that the Company
believes would have a material adverse effect on the Company's business, assets
or results of operations, nor is the Company aware of an such liability or
compliance concerns. Nevertheless, it is possible that these reports do not
reveal all environmental liabilities or compliance concerns or that there are
material environmental liabilities or compliance concerns of which the Company
is unaware. Moreover, no assurances can be given that (i) future laws,
ordinances or regulations will not impose any material environmental liability
or (ii) the current environmental condition of the Hotels will not be affected
by the condition of the properties in the vicinity of the Hotels (such as the
presence of leaking underground storage tanks) or by third parties unrelated to
the Partnership or the Company.
The Company believes that the Hotels are in compliance in all material
respects with all federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances and other environmental matters. Except
as noted above with respect to the hotels in Columbia, South Carolina and
Indianapolis, Indiana, neither the Company nor, to the knowledge of the
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Company, any of the former owners of the Hotels has been notified by any
governmental authority of any material noncompliance, liability or claim
relating to hazardous or toxic substances or other environmental substances in
connection with any of its present or former properties.
Tax Status. The Company has elected to be taxed as a REIT under Section
856 through 860 of the Internal Revenue Code, commencing with its taxable period
ended December 31, 1993. The Company generally will not be subject to federal
income tax to the extent it distributes at least 95% of its REIT taxable income
to its shareholders. If the Company fails to qualify as a REIT in any taxable
year, the Company will be subject to Federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
tax rates. The Company is subject to certain state and local taxes on its income
and property and to Federal income and excise taxes on its undistributed income.
Executive Officers. Information with respect to Robert M. Solmson,
Chairman of the Board and Chief Executive Officer of the Company is incorporated
by reference to the Company's Proxy Statement. See Item 10. Information with
respect to Minor W. Perkins, President of the Company, is incorporated by
reference to the Company's Proxy Statement. See Item 10. J. William Lovelace
(age 58) is Executive Vice President of the Company. From 1991 to June 1994, he
was an officer of RFS, Inc. and Subsidiaries. From 1984 to 1991, Mr. Lovelace
served as President of Dominion Hospitality Management, Inc., a hotel management
company. Mr. Lovelace has been active in the hotel/motel industry for over 30
years. Mr. Lovelace is a graduate of the University of Missouri. Michael J.
Pascal (age 38) is Secretary, Treasurer and Chief Financial Officer of the
Company. From 1991 to June 1994, he was Chief Financial Officer of RFS, Inc.
From 1990 to 1991, he was Controller and General Counsel for Dominion
Hospitality Management, Inc., a hotel management company. From 1985 to 1990, he
was General Counsel and Chief Financial Officer for The McDowell Company. Mr.
Pascal holds a B.S. and a J.D. degree from Memphis State University. Mr.
Lovelace is Mr. Pascal's father-in-law.
ITEM 2. PROPERTIES
The following table sets forth certain pro forma information for the
year ended December 31, 1996 with respect to the Hotels. For hotels acquired
during 1996, this information includes the actual operating results both prior
and subsequent to acquisition by the Partnership.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------
AVERAGE REVENUE PER
DATE NUMBER ROOM DAILY AVAILABLE
OPENED OF ROOMS REVENUE OCCUPANCY RATE ROOM
------ -------- --------- --------- ------- -----------
HAMPTON INN HOTELS:
<S> <C> <C> <C> <C> <C> <C>
Denver, CO (Airport) 1985 138 $ 904,084 71.5% $59.42 $42.46
Detroit (Warren), MI 1988 124 776,398 66.9% 54.19 36.25
Ft. Lauderdale, FL 1986 122 2,133,164 76.4% 62.57 47.79
Hattiesburg, MS 1988 155 $2,187,265 75.2% $53.65 $40.35
Houston, TX (Hobby) (1) 1996 119 92,354 31.2% 50.08 15.64
Indianapolis, IN 1988 131 2,360,332 76.9% 64.05 49.23
</TABLE>
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<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
AVERAGE REVENUE PER
DATE NUMBER ROOM DAILY AVAILABLE
OPENED OF ROOMS REVENUE OCCUPANCY RATE ROOM
------ -------- --------- --------- ------- ----------
HAMPTON INN HOTELS, CONT'D.:
<S> <C> <C> <C> <C> <C> <C>
Lakewood (Denver), CO 1987 150 2,764,313 80.8% 62.34 50.35
Lansing, MI 1985 109 1,450,606 66.2% 54.87 36.35
Laredo, TX 1995 120 1,748,268 71.7% 55.51 39.81
Lincoln, NE 1983 111 1,815,855 80.3% 55.68 44.70
Memphis, TN 1992 120 2,297,681 82.3% 63.57 52.32
Minneapolis, MN (Airport) 1985 135 2,509,844 78.3% 64.88 50.80
Minneapolis (Milwaukee), MN 1990 127 1,964,348 70.6% 59.88 42.26
Oklahoma City, OK 1986 134 2,276,591 75.7% 61.35 46.42
Omaha, NE 1985 129 2,146,618 74.1% 61.33 45.47
Plano, TX (1) 1996 131 821,222 58.8% 62.72 36.88
Tulsa, OK 1986 148 2,092,427 68.7% 56.21 38.63
RESIDENCE INN HOTELS:
Ann Arbor, MI 1985 72 1,911,589 87.1% 83.52 72.74
Charlotte, NC 1984 80 2,080,103 89.1% 79.91 71.24
Fishkill, NY 1988 136 3,956,081 89.3% 89.24 79.70
Fort Worth, TX 1983 120 3,161,884 85.4% 84.53 72.19
Kansas City, MO 1987 96 2,195,444 77.3% 81.08 62.66
Providence, RI 1989 96 2,835,701 91.8% 88.14 80.93
Torrance, CA 1984 248 6,452,706 85.1% 83.74 71.28
Tyler, TX 1985 128 2,528,310 82.0% 66.01 54.12
Wilmington, DE 1989 120 3,010,911 90.5% 76.00 68.74
Perimeter West (Atlanta), GA 1987 128 3,514,907 76.2% 98.44 75.03
Orlando, FL 1984 176 4,654,030 83.8% 86.26 72.25
Sacramento, CA 1987 176 4,267,876 78.5% 86.99 68.31
HOLIDAY INN HOTELS:
Clayton, MO 1965 253 5,134,804 76.9% 72.14 55.45
Columbia, SC 1969 175 2,529,266 71.6% 55.13 39.49
Flint, MI 1990 171 4,268,137 81.0% 84.15 68.18
Lafayette, LA 1983 242 4,034,039 78.4% 58.13 45.55
Louisville, KY 1970 169 2,384,577 75.9% 50.78 38.55
Crystal Lake (Chicago), IL 1988 196 4,531,345 77.2% 81.86 63.17
COMFORT INN HOTELS:
Clemson, SC 1989 122 1,469,631 66.5% 49.50 32.91
Conyers, GA 1989 83 1,431,222 74.6% 63.14 47.11
Detroit (Farmington Hills), MI 1987 135 1,970,082 70.0% 56.94 39.87
Fort Mill, SC (Charlotte, NC) 1987 153 2,509,643 75.8% 59.10 44.82
Grand Rapids, MI 1982 109 1,609,293 76.0% 53.08 40.34
Marietta, GA 1989 185 2,923,866 67.9% 63.56 43.18
</TABLE>
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<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
AVERAGE REVENUE PER
DATE NUMBER ROOM DAILY AVAILABLE
OPENED OF ROOMS REVENUE OCCUPANCY RATE ROOM
------ -------- --------- --------- ------- ----------
HOLIDAY INN EXPRESS HOTELS:
<S> <C> <C> <C> <C> <C> <C>
Austin, TX 1992 125 $2,077,857 71.6% $63.42 $45.42
Chicago (Arlington Heights), IL 1989 125 2,279,018 74.2% 67.18 49.81
Chicago (Downers Grove), IL 1984 123 2,072,129 70.4% 65.36 46.03
Franklin, TN 1969 100 1,383,901 72.2% 52.38 37.81
Milwaukee (Wauwatosa), WI 1984 122 1,772,683 72.7% 54.61 39.70
Minneapolis (Bloomington), MN
(Airport) 1987 142 2,624,073 78.2% 64.57 50.49
Tupelo, MS 1963 124 1,224,217 56.6% 47.68 26.97
HAWTHORN SUITES HOTEL:
Atlanta, GA 1984 200 5,711,041 73.7% 96.26 70.93
DOUBLETREE HOTEL:
Del Mar, CA 1990 220 4,943,196 79.1% 77.64 61.39
EXECUTIVE INN HOTEL:
Tupelo, MS 1982 115 1,224,217 68.4% 52.94 36.20
COURTYARD BY MARRIOTT HOTEL:
Flint, MI (1) 1996 102 18,417 13.2% 78.04 $10.30
HOMEWOOD SUITES HOTEL:
Salt Lake City, UT (1) 1996 98 78,251 18.3% 81.01 $14.79
</TABLE>
(1) Represents operations since the opening of hotel in July 1996 for the
Hampton Inn in Plano, TX, in November 1996 for the Homewood Suites in Salt Lake
City, UT, and in December 1996 for the Hampton Inn in Houston, TX and the
Courtyard by Marriott in Flint, MI.
Recent Acquisitions and Pending Developments. The Partnership acquired
four Sheraton Hotels in California with a total of 814 rooms on January 2, 1997
for an aggregate purchase price of approximately $91 million, consisting of cash
and 2,244,934 operating partnership units. The Partnership is developing six
hotels in the following areas: Jacksonville, FL, Chandler, AZ (2), Plano, TX,
Sedona, AZ and Crystal Lake, IL.
Completion of these hotels is expected during 1997.
Master Agreement. The Company and the Partnership have entered into a
master agreement, (the "Master Agreement"), with the Lessees. Under the Master
Agreement, the Company and the Partnership have granted to the Lessees, a right
of first offer and right of first refusal (the "Right of First Refusal") to
lease hotels acquired by the Partnership or the Company until February 27, 2006
(the "Term"), subject to certain exceptions described below.
12
<PAGE> 12
During the Term, the Partnership and the Company must deliver to the
Lessees a written notice specifying the proposed Base Rent and Percentage Rent
upon which the Partnership would be willing to lease a proposed acquisition or
development hotel to the Lessees. In the event the Lessees do not agree within
15 days to lease the particular hotel pursuant to the rent terms set forth in
the notice, the Partnership may seek an alternative lessee; provided, however,
that before executing a lease with such alternative lessee, the Partnership must
send a second notice to the Lessees setting forth the final rent terms of the
proposed lease between the Partnership and such alternative lessee. The Lessees
will then have 5 days to elect to lease the hotel from the Partnership upon the
terms set forth in the second notice. If the Lessees do not make such election,
the Partnership may enter into a lease with the alternative lessee upon the
terms set forth in the second notice.
The Partnership may terminate the Right of First Refusal at any time
following February 27, 2003, in the event the hotels leased by the Lessees
throughout such seven-year period fail to meet certain financial performance
goals. The Partnership may also terminate the Right of First Refusal: (i) upon
the occurrence under a lease of an "Event of Default" by the Lessees; (ii) in
the event the Company's status as a real estate investment trust is terminated
and the leases are terminated by the Company, and the Company (a) redeems all
outstanding Series A Preferred Stock owned by the RFS, Inc. at a price per share
equal to the greater of (A) $19.00 or (B) the average sales prices for the
Company's Common Stock for the ten trading days prior to the closing date, (b)
the Partnership pays the Lessees the fair market value of the remaining terms of
the leases and (c) if such termination occurs prior to February 27, 2006, the
Partnership pays the Lessees an amount equal to $5,000,000 minus $41,667 for
each calendar month which has expired since February 27, 1996; or (iii) if RFS,
Inc. fails to maintain a minimum net worth of $15,000,000 during the term of any
lease or defaults under the terms of the Master Agreement.
The Right of First Refusal will not apply to hotels acquired or
developed by the Partnership where the seller requires, after the Partnership's
reasonable efforts to obtain a price at which the lease or management of the
hotel could be bought out or to obtain a price for the hotel without the
seller's continued management, that the seller or an affiliate of the seller be
the lessee or the manager of the hotel following acquisition by the Partnership
("Excluded Hotels"). The aggregate purchase prices for the Excluded Hotels
cannot, in the aggregate, exceed 20% of the aggregate purchase prices for all
hotels acquired by the Partnership during the Term.
The Right of First Refusal also will not apply to the acquisition by
the Partnership of any hotel (a "Subject Hotel") located in proximity to a hotel
(a "Competing Hotel") owned, leased, managed or franchised by the Lessees or an
affiliate of the Lessees such that the ownership, lease, management or franchise
of the Competing Hotel would violate the non-competition provisions of the lease
with respect to the Subject Hotel if a lease were entered into between the
Partnership and the Lessees. The foregoing exception to the Right of First
Refusal will not apply if the ownership, lease, management or franchise of the
Competing Hotel is pursuant to a lease or other agreement with the Partnership,
and even if the exception is applicable, the Partnership must notify the Lessee
of its proposed acquisition of the Subject Hotel so that the Lessees have the
opportunity to terminate its ownership, lease, management or franchise of the
Competing Hotel, or take such other action as is necessary, in order to allow
the Lessees to enter into a percentage lease with respect to the Subject Hotel
without violating the non-competition restrictions.
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<PAGE> 13
The Right of First Refusal is also inapplicable to any hotels acquired
by the Partnership from a real estate investment trust other than the Company in
connection with the acquisition by the Partnership of substantially all of the
hotels of such other real estate investment trust, whether by merger, purchase
of assets or otherwise.
RFS, Inc. is required to maintain a $15,000,000 tangible net worth
during the terms of the Leases. The Master Agreement provides that there can be
no change in control of the Lessees without prior consent of the Partnership.
The Percentage Leases. Each hotel owned by the Partnership is
separately leased to the Lessees under a Percentage Lease.
Effective February 27, 1996, each of the Percentage Leases between the
Partnership and RFS, Inc. was amended to provide the following among other
things: (i) the term of each Percentage Lease was increased to 15 years from the
date of inception; (ii) the non-compete provisions were amended to preclude the
Lessees or its Affiliates from owning, leasing, operating, managing or
franchising any hotel or motel within a five-mile radius of any hotel in which
the Partnership or an Affiliate of the Partnership has an interest, as compared
to a previous 20-mile radius restriction; (iii) events of default shall include,
among others, (a) the failure of the Lessees to pay quarterly percentage rent
when due and payable and continuing for a 10-day period after receipt of notice
from the Partnership, as compared to the previous 90-day period and (b)
occurrence of an event of default under the Master Agreement (iv) the Lessees
shall be required, not later than 60 days prior to commencement of each lease
year, to prepare and submit to the Partnership an operating budget and marketing
plan; (v) the termination of any Percentage Lease due to total condemnation will
not affect any other Percentage Leases then in effect between the Lessee and the
Partnership; (vi) any management fee payable to an Affiliate of the Lessees
shall be subordinate to the payment of rent to the Partnership under the leases;
(vii) future leases entered into between the Lessees and the Partnership will
not be subject to cross-default provisions in regard to the existing percentage
leases or other future leases; (viii) the Lessees will have an extended right
(120 days as compared to 90 days) to cure defaults under the franchise
agreements; (ix) the respective obligations of the parties relating to capital
expenditures and repairs and maintenance were clarified and amended, (x) the
Partnership will have 120 days to tender a substitute lease to the Lessee upon
sale of a hotel by the Partnership, as compared to 90 days previously, and, (xi)
percentage rent is payable within 35 days following the end of the first three
calendar quarters and on or before February 10 with respect to the fourth
calendar quarter.
On November 21, 1996, a new limited purpose subsidiary of the
Partnership issued $75,000,000 of commercial mortgage bonds secured by 15 of
the Hotels. In connection with the issuance of the bonds, the Master Agreement
was amended and new Percentage Leases were entered into for the 15 Hotels by
subsidiaries of the Partnership and the existing Lessee under terms
substantially similar to the existing Percentage Leases. The Percentage Leases
for the 15 Hotels are not cross-defaulted with the Percentage Leases for the
other Hotels.
Percentage Lease Terms. Fifteen of the Percentage Leases have terms
expiring on December 31, 2011 and each of the other Percentage Leases has a
term expiring fifteen years from the date of inception. Each Percentage Lease
is subject to earlier termination upon the occurrence of certain contingencies
described in the Percentage Lease.
Amounts Payable Under the Percentage Leases. During the term of each
Percentage Lease, the Lessee is obligated to pay (i) the greater of Base Rent or
Percentage Rent and (ii) certain other amounts, including interest accrued on
any late payments or charges (the "Additional Charges"). Base Rent accrues and
is required to be paid monthly; Percentage Rent is payable quarterly, on or
before the 35th day following the end of each of the first three calendar
quarters in each fiscal year and on or before February 10 of the next year, with
respect to the fourth calendar quarter of each
14
<PAGE> 14
fiscal year, and is calculated by multiplying fixed percentages by room revenue
and, with respect to the full service Hotels, beverage revenue and food revenue.
For the year ended December 31, 1996, room revenue for each of the Hotels
exceeded the amount required to trigger the top tier of room revenue payable as
Percentage Rent. The following table summarizes the percentages of room revenues
in excess of certain levels payable as Percentage Rent under the Percentage
Leases.
<TABLE>
<CAPTION>
FIRST TIER MIDDLE TIER TOP TIER
------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Full Service (1)................. 17% to 41.5% 30% to 70% 50% to 70%
Extended Stay.................... 24% to 41% 45% to 50% 60% to 72%
Limited Service.................. 20% to 41.5% N/A 50% to 76.5%
</TABLE>
(1) Percentage Rent formula also includes 20% of beverage revenue and 5%
of food revenue.
The rent terms for the leases for each Hotel are set forth in Exhibit
10.2(a) to this Form 10-K.
Under the Percentage Leases for all of the hotels acquired since March
1994, beginning in 1995 and for each year thereafter, the Base Rent and
Percentage Rent thresholds for each year will be adjusted to reflect any
year-to-year changes in the consumer price index ("CPI") in the two preceding
years. Additionally, the Company anticipates the Percentage Leases for hotels
acquired in the future will have a similar provision.
Other than real estate taxes, casualty insurance and maintenance of
underground utilities and structural elements, which are obligations of the
Partnership, the Percentage Leases require the Lessees to pay rent, personal
property taxes, all costs and expenses and all utility and other charges
incurred in the operation of the Hotels. The Percentage Leases also provide for
rent reductions and abatements in the event of a partial taking of any Hotel or
six months after occurrence of an event causing damage or destruction to any
Hotel.
Maintenance and Modifications. Under the Percentage Leases, the
Partnership is required to maintain the underground utilities and the structural
elements of the improvements, including exterior walls (excluding plate glass)
and the roof of each Hotel. The Partnership is required to fund capital
improvements at the Hotels subject to (i) the Partnership's right to approve
capital budgets and (ii) the Partnership's right in its sole discretion to
refuse to make any capital expenditures required by a franchisor. Otherwise, the
Lessees are required, at their expense, to maintain the Hotels in good order and
repair, except for ordinary wear and tear, and to make non-structural, foreseen
and unforeseen, and ordinary and extraordinary, repairs which may be necessary
and appropriate to keep the Hotels in good order and repair.
The Lessees, at their expense and with the Lessor's prior consent, may
make non-capital and capital additions, modifications or improvements to the
Hotels, provided that such action does not significantly alter the character or
purposes of the Hotels or significantly detract from the value or operating
efficiencies of the Hotels. All such alterations, replacements and improvements
are
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<PAGE> 15
subject to all the terms and provisions of the Percentage Leases and will
become the property of the Partnership upon termination of the Percentage
Leases. The Partnership owns substantially all personal property (other than
inventory, linens, and other nondepreciable personal property) not affixed to or
deemed a part of, the real estate or improvements thereon comprising the Hotels,
except to the extent that ownership of such personal property would cause the
rents under the Percentage Leases not to qualify as "rents from real property"
for REIT income test purposes.
Insurance and Property Taxes. The Partnership is responsible for paying
real estate taxes and casualty insurance premiums on the Hotels. The Lessees are
required to pay or reimburse the Partnership for all other insurance on the
Hotels, which must include extended coverage, comprehensive general public
liability, workers' compensation and other insurance appropriate and customary
for properties similar to the Hotels and name the Partnership as an additional
insured.
Indemnification. Under each of the Percentage Leases, the Lessees have
agreed to indemnify, and are obligated to hold harmless, the Partnership and its
Affiliates, including the Company, from and against all liabilities, costs and
expenses (including reasonable attorneys' fees and expenses) incurred by,
imposed upon or asserted against the Partnership or its Affiliates, on account
of, among other things, (i) any accident or injury to person or property on or
about the Hotels; (ii) any misuse by the Lessees or any of its agents of the
leased property; (iii) any environmental liability resulting from conditions
caused or resulting from any action or negligence of the Lessees; (iv) taxes and
assessments in respect of the Hotels (other than real estate taxes and income
taxes of the Company or Partnership on income attributable to the Hotels); (v)
liability resulting from the sale or consumption of alcoholic beverages on or in
the real property or improvements thereon; or (vi) any breach of the Percentage
Leases by Lessees; provided, however, that such indemnification will not be
construed to require the Lessees to indemnify the Company and the Partnership
against the Company's or Partnership's own grossly negligent acts or omissions
or willful misconduct.
Assignment and Subleasing. The Lessees are not permitted to sublet all
or any part of the Hotels or assign its interest under any of the Percentage
Leases, other than to an Affiliate of the Lessees, without the prior written
consent of the Partnership.
Damage to Hotels. In the event of damage to or destruction of any Hotel
covered by insurance, whether or not such damage or destruction renders the
Hotel unsuitable for the Lessees' use and occupancy , the Lessees are obligated
to the extent of any insurance proceeds made available to the Lessee and any
other sums advanced by the Partnership, to repair, rebuild, or restore the Hotel
on the terms set forth in the applicable Percentage Lease. If the insurance
proceeds are not adequate to restore the Hotel, each of the Lessees and the
Partnership has the right to terminate the Percentage Lease without affecting
any other Percentage Leases in effect between the Lessees and the Partnership,
by giving notice to the other. The Partnership will retain the insurance
proceeds. If the Lessees terminate the Percentage Lease due to the inadequacy of
the insurance proceeds, the Partnership may nullify the termination and keep the
Percentage Lease in full force by providing within 30 days after receipt of
notice of termination the Partnership's unconditional, legally binding
obligation to be responsible for restoration costs in excess of the insurance
proceeds. If the Percentage Lease is terminated by either the Lessees or the
Partnership due to the inadequacy of the insurance proceeds and the inadequacy
of insurance proceeds was the
16
<PAGE> 16
result of the Partnership's failure to maintain the proper insurance coverage as
required, the Partnership must, within 180 days, pay the Lessee the fair market
value of the applicable Percentage Lease on the date of termination or offer
other percentage leases to the Lessees having an aggregate fair market value of
no less than the fair market value of the applicable Percentage Lease. If damage
or destruction of a Hotel is not covered by insurance, the provisions of the
Percentage Lease which govern inadequacy of coverage apply. The Percentage Lease
shall remain in full force and effect during the first six months of any period
required for repair or restoration of any damaged or destroyed Hotel, after
which time, rent will be equitably abated.
Condemnation of Hotels. In the event of a total condemnation of a
Hotel, the relevant Percentage Lease will terminate with respect to such Hotel
as of the date of taking the Partnership and the Lessees will be entitled to
their shares of any condemnation award in accordance with the provision of the
Percentage Lease. In the event of a partial taking which does not render the
Hotel unsuitable for the Lessees' use, the Lessees shall restore the untaken
portion of the Hotel to a complete architectural unit but only to the extent of
any condemnation awards made available to Lessee or amounts advanced by
Partnership. If the condemnation award is not adequate to restore a Hotel, each
of the Lessees and Partnership have the right to terminate the Percentage Lease
on the Hotel without affecting the other leases between the Lessees and the
Partnership then in effect..
Events of Default. Events of Default under the Percentage Leases
include, among others, the following:
(i) the occurrence of an Event of Default under any other lease between
the Partnership and the Lessees or any Affiliate of the Lessees (with respect to
the leases entered into prior to February 27, 1996);
(ii) The failure by the Lessees to pay Base Rent when due and the
continuation of such failure for a period of 10 days after receipt by the
Lessees of notice from the Partnership thereof;
(iii) the failure by the Lessees to pay the excess of Percentage Rent
over Base Rent when due and continuation of such failure for a period of 10 days
after receipt by the Lessee of Notice from the Partnership thereof;
(iv) the failure by the Lessees to observe or perform any other term of
a Percentage Lease and the continuation of such failure for a period of 30 days
after receipt by the Lessees of notice from the Partnership thereof, unless such
failure cannot be cured within such period and the Lessees commence appropriate
action to cure such failure within said 30 days and thereafter acts, with
diligence, to correct such failure within such time as is necessary;
(v) if the Lessees shall file a petition in bankruptcy or
reorganization pursuant to any federal or state bankruptcy law or any similar
federal or state law, or shall be adjudicated a bankrupt or shall make an
assignment for the benefit of creditors or shall admit in writing its inability
to pay its debts generally as they become due, or if a petition or answer
proposing the adjudication of the Lessees as a bankrupt or its reorganization
pursuant to any federal or state bankruptcy law or any similar federal or state
law shall be filed in any court and the Lessees shall be adjudicated a bankrupt
and such adjudication shall not be vacated or set aside or stayed within 60
17
<PAGE> 17
days after the entry of an order in respect thereof, or if a receiver of the
Lessees or of the whole or substantially all of the assets of the Lessees shall
be appointed in any proceeding brought by the Lessees or if any such receiver,
trustee or liquidator shall be appointed in any proceeding brought against the
Lessees shall not be vacated or set aside or stayed within 60 days after such
appointment;
(vi) if the Lessees voluntarily discontinue operations of a Hotel for
more than 30 days, except as a result of damage, destruction, or condemnation;
or
(vii) if the franchise agreement with respect to a Hotel is terminated
by the franchisor as a result of any action or failure to act by the Lessees or
its agents, other than a failure to complete a capital improvement required by
the franchisor as a result of the Company's failure to fund the capital
improvement; or
(viii) if the Lessees default under the Master Agreement.
If an Event of Default occurs and continues beyond any curative period,
the Partnership will have the option of terminating the Percentage Lease and may
terminate any other Percentage Lease which is subject to a cross-default with
such Percentage Lease by giving the Lessees ten days' written notice of the date
for termination of the Percentage Leases and, unless such Event of Default is
cured prior to the termination date set forth in said notice, the Percentage
Leases shall terminate on the date specified in the Company's notice and the
Lessee is required to surrender possession of the affected Hotels.
Termination of Percentage Leases on Disposition of the Hotels. In the
event the Partnership enters into an agreement to sell or otherwise transfer a
Hotel, the Partnership will have the right to terminate the Percentage Lease
with respect to such Hotel and either (i) pay the Lessees the fair market value
of the Lessees' leasehold interest in the remaining term of the Percentage Lease
to be terminated or (ii) within 120 days of termination of the lease, offer to
lease to Lessees a substitute hotel on terms that would create a leasehold
interest in such Hotel with a fair market value equal to or exceeding the fair
market value of the Lessees' remaining leasehold interest under the Percentage
Lease to be terminated.
Franchise License. The Lessees are the licensee under the franchise
licenses on the hotels currently owned by the Partnership and are expected to
hold the franchise licenses for future hotels leased from the Partnership. Upon
the occurrence of certain events of default by the Lessees under a franchise
license, each franchisor has agreed to transfer the franchise license for the
hotel to the Partnership (or its designee). The Company anticipates that the
franchisors of the hotels currently under contract will agree to a similar
arrangement. In exchange, the Partnership has guaranteed all of the Lessees'
franchise payments under the franchise agreements.
Other Lease Covenants. The Lessees have agreed that during the term of
the Percentage Leases it will maintain a ratio of total debt to consolidated net
worth (as defined in the Percentage Leases) of not more than 50%, exclusive of
capitalized leases. Management fees paid to affiliates of the Lessees are
subordinated to the lease payments.
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<PAGE> 18
Breach by Partnership. If the Partnership fails to cure a breach by it
under a Percentage Lease, the Lessees may purchase the relevant Hotel from the
Partnership for a purchase price equal to at least the Hotel's then fair market
value. Upon notice from the Lessees that the Partnership has breached the
Lease, the Partnership has 30 days to cure the breach or proceed to cure the
breach, which period may be extended in the event of certain specified,
unavoidable delays.
Inventory. All inventory required in the operation of the Hotels is
purchased and owned by the Lessee at its expense. The Partnership has the option
to purchase all inventory related to a particular Hotel at its fair market value
upon termination of the related Percentage Lease.
Franchise Agreements. All but one of the Hotels, the Executive Inn in
Tupelo, Mississippi, are licensed to operate under a franchise license.
Seventeen Hotels are licensed as Hampton Inn hotels, twelve are licensed as
Residence Inn hotels, six are licensed as Comfort Inn hotels, seven are licensed
as Holiday Inn Express hotels, six are licensed as Holiday Inn hotels, one is
licensed as a Hawthorn Suites hotel, one is licensed as a Doubletree hotel, one
is licensed as a Homewood Suites, one is licensed as a Courtyard by Marriott and
one is licensed as a Ramada Hotel. Holiday Inn and Holiday Inn Express are
registered trademarks of Holiday Inn, Inc. Ramada Hotel is a registered
trademark of Franchise System Holdings, Inc. Comfort Inn is a registered
trademark of Choice Hotels International, Inc. Residence Inn and Courtyard by
Marriott are registered trademarks of Marriott Corporation. Hampton Inn and
Homewood Suites are registered trademarks of The Promus Companies, Inc. Hawthorn
Suites is a registered trademark of Hawthorn Suites Hotels. Doubletree is a
registered trademark of Doubletree Corporation.
The franchise licenses generally specify certain management,
operational, recordkeeping, accounting, reporting and marketing standards and
procedures with which the Lessees, Alpha and TMH as applicable, must comply. The
franchise licenses obligate the Lessees to comply with the franchisor' standards
and requirements with respect to training of operational personnel, safety,
maintaining specified insurance, the types of services and products ancillary to
guest room services that may be provided by the Lessee, display of signage, and
the type, quality and age of furniture, fixtures and equipment included in guest
rooms, lobbies and other common areas.
The Lessees hold the franchise license for each Hotel. The Partnership
paid the franchise license application fees with respect to the Hotels. The
franchisors may require the Partnership to complete certain capital improvements
to certain of the Hotels. The Partnership will fund the costs of the
improvements and will own the improvements. The Company estimates that all of
such required improvements to Hotels will be completed by the middle of 1997.
The franchisors of any Hotels on which improvements have been required will
permit the operation of such Hotels prior to completion of the improvements
under conditional franchise license.
Each franchise license gives the Lessees the right to operate the
particular Hotel under a franchise for a period of from ten to 20 years. The
franchise agreements provide for termination at the franchisor's option upon the
occurrence of certain events, including the Lessees' failure to pay royalties
and fees or perform its other covenants under the license agreement, bankruptcy,
abandonment of the franchise, commission of a felony, assignment of the license
without the consent of the franchisor, or failure to comply with applicable law
in the operation of the relevant hotel. The Lessees are entitled to terminate
the franchise license only by giving at least 12 months
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<PAGE> 19
notice and paying a specified amount of liquidated damages. The license
agreements will not renew automatically upon expiration. The Lessees are
responsible for making all payments under the franchise agreements to the
franchisors. Under the Holiday Inn franchise agreements, the Lessees are
required to pay a franchise fee of 4% of room revenue (plus additional fees)
from the Hotels operating as Holiday Inn hotels and a franchise fee ranging from
4-5% of room revenue (plus additional fees) from the Hotels operating as Holiday
Inn Express hotels. Under the Ramada franchise agreement, the Lessees are
required to pay a franchise fee of 3% of revenue from the Ramada Hotel, plus
fees for use of the reservation system and other miscellaneous fees. Under the
Comfort Inn franchise agreements, the Lessees are required to pay a franchise
fee ranging from 4-5% of revenue for the Hotels operating as Comfort Inn hotels
plus fees for use of the reservation system and other miscellaneous fees. Under
the Promus Companies, Inc. franchise agreements, the Lessees are required to pay
a franchise fee ranging from 4-5% of room revenue (plus additional fees) from
the Hotels operating as Hampton Inn hotels and 5% from the Hotels operating as
Homewood Suites hotels. Under the Marriott Corporation franchise agreement, the
Lessees are required to pay a franchise fee ranging from 3-5% of room revenue
(plus additional fees) from the Hotels operating as Residence Inn hotels and 5%
from the Hotels operating as Courtyard by Marriott hotels. Under the Hawthorn
Suites franchise agreement, the Lessees are required to pay a franchise fee of
4% of room revenue (plus additional fees) from the Hotels operating as Hawthorn
Suites. Under the Doubletree Corporation franchise agreement, the Lessees are
required to pay 3% from the Hotels operating as Doubletree hotels.
The franchisors have agreed that, in the event of a default by the
Lessees under a franchise agreement with respect to a franchised Hotel currently
owned by the Partnership, the franchise license for that Hotel will be assigned
to the Partnership or a designee of the Partnership acceptable to the
franchisor. The Partnership anticipates that the franchisors of future hotels
acquired will agree to similar arrangements. The Partnership will be obligated
to pay the franchisor's actual costs of investigating the Partnership's designee
and processing the transfer, but will pay no transfer fee. In consideration of
the franchisors' agreements to transfer the franchise licenses upon default by
the Lessees as described above, the Partnership has agreed to guarantee the
Lessees' obligations to make the franchise fee payments to the franchisors under
the franchise agreements.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor the Partnership currently is involved in any
material litigation nor, to the Company's knowledge, is any material litigation
currently threatened against the Company or the Partnership. The Lessees, Alpha
and TMH have advised the Company that they currently are not involved in any
material litigation, other than routine litigation arising in the ordinary
course of business, substantially all of which is expected to be covered by
liability insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the Company's shareholders during the
fourth quarter of 1996.
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<PAGE> 20
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
(A) MARKET INFORMATION
The Company's common stock began trading on the New York Stock Exchange
("NYSE") under the symbol "RFS" on September 7, 1996. It previously traded on
the Nasdaq Stock Market under the symbol "RFSI". The high and low sales prices
for the shares on The Nasdaq Stock Market prior to September 6, 1996 and on the
NYSE subsequent to September 5, 1996 and the dividends declared per share since
August 13, 1993, the date of inception, are as follows:
<TABLE>
<CAPTION>
Stock Price Dividend
High Low Per Share
---- --- ---------
<S> <C> <C> <C>
First Quarter 1995 15.87 13.00 0.29
Second Quarter 1995 16.25 14.12 0.30
Third Quarter 1995 16.25 13.75 0.31
Fourth Quarter 1995 15.75 14.37 0.33
First Quarter 1996 18.50 15.37 0.34
Second Quarter 1996 18.00 14.87 0.36
Third Quarter 1996 17.12 14.75 0.36
Fourth Quarter 1996 19.75 14.87 0.36
</TABLE>
(b) Holders
The number of holders of record of shares of common stock was 197 as of
March 14, 1997.
(c) Dividend
The Company intends to pay regular quarterly dividends, which are
dependent upon receipt of distributions from the Partnership, in order to
maintain its REIT status under the Internal Revenue Code.
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<PAGE> 21
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth (i) selected historical financial data
for the Company; (ii) selected historical financial data for RFS, Inc.; and
(iii) selected financial data for the Company's predecessor.
The following selected financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and all of the financial statements and notes thereto
included elsewhere, and incorporated by reference.
(in thousands, except per share data)
<TABLE>
<CAPTION>
THE COMPANY
---------------------------------------
1996 1995 1994 1993(1)
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total revenue $ 61,986 $ 48,307 $ 23,354 $ 2,011
Income before minority interest 35,087 31,085 14,351 1,236
Net income 34,587 30,646 14,156 1,208
Net income per share 1.37 1.26 0.94 0.25
Cash dividends per share 1.39 1.18 1.02 0.11
Funds from operations 45,723 39,663 18,109 1,576
Total assets 499,129 376,962 346,870 80,754
Total debt 133,064 30,186 2,420 0
</TABLE>
<TABLE>
<CAPTION>
RFS, INC.
---------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total revenue $151,503 $122,818 $ 62,616 $10,536
Income from continuing operations 6,668 2,129 759 639
Net income 6,668 2,129 657 565
Total assets 39,217 14,134 11,601 5,636
Total debt 324 672 1,511 1,625
</TABLE>
<TABLE>
<CAPTION>
THE INITIAL HOTELS (2)
----------------------
1993 1992
---- ----
<S> <C> <C>
Hotels' total revenue 11,668 $ 19,596
Income before interest, depreciation
and amortization 2,020 3,136
Income (loss) before minority interest
or extraordinary gain (911) (1,329)
Net income (loss) (911) (1,060)
Total assets n/a 27,923
Total debt n/a 23,772
</TABLE>
(1) For the period August 13, 1993 (inception of the Company) through
December 31, 1993.
(2) Information for the Initial Hotels relates to periods prior to August
13, 1993, the date of acquisition of the Initial Hotels by the Company.
Under the rules and regulations of the Securities and Exchange
Commission, the Initial Hotels are deemed to be the predecessor to the
Company.
22
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
Following is Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Company and the Lessee.
THE COMPANY
Incorporated herein by reference to the Company's Annual Report for the year
ended December 31, 1996 and filed as Exhibit 13.1 to this Form 10-K.
THE LESSEE
BACKGROUND
The Partnership leases all of its hotels to RFS, Inc. (the "Lessee") pursuant to
Percentage Leases as described above. Effective February 27, 1996, the Lessee
was acquired by and became a wholly-owned subsidiary of Doubletree Corporation
("Doubletree") in a business combination accounted for as a pooling of
interests. The Lessee generates substantially all of its revenues from operating
and managing hotels leased to it by the Partnership. As of December 31, 1996,
the Lessee manages and/or leases 62 hotels, 52 of which are leased from the
Partnership.
RESULTS OF OPERATIONS
Year Ended December 31, 1996 Compared with Year Ended December 31, 1995
Total revenues increased $28.7 million or 23% to $151.5 million for the
year ended December 31, 1996 compared to $122.8 million for the year ended
December 31, 1995. The increase in hotel revenues of $26.4 million was
attributable to the net addition of four leased properties as compared to the
1995 period and an increase of approximately $5 in average daily rate to $68 on
a same store basis while occupancy remained stable at approximately 77%.
Additionally, revenues in the current year include the full year results of
seven hotels that commenced operations in 1995. The margin on hotel results
(hotel revenues less leased hotel expenses and lease expenses) increased $3.0
million or 37% from $8.2 million to $11.2 million reflecting the improved
operating performance of the hotels partially offset by increased lease payments
to the lessor attributable to increased revenues.
Management and consulting fees increased 81% to $0.8 million reflecting
the net addition of eight management contracts that commenced in the first half
of 1995. Other fees and income increased $1.9 million principally attributable
to interest income on invested cash balances and loans made to the owners of
certain of the managed hotels and dividend income generated from the investment
in the convertible preferred stock of the Company.
23
<PAGE> 23
General and administrative expenses decreased 35% or $2.0 million
primarily due to a reduction in headcount realized after the acquisition of the
Lessee by Doubletree Corporation in February 1996. Business combination expenses
of $1.0 million incurred in connection with the acquisition of the Lessee by
Doubletree, principally consisted of legal, professional and accounting fees,
and certain other expenses. The nominal increase in depreciation and
amortization reflects the amortization of the franchise application fees paid in
connection with the acquisition.
The provision for income taxes in 1996 reflects a 35% effective tax
rate, the consolidated effective tax rate for Doubletree Corporation in 1995 and
1996. Prior to its acquisition by Doubletree Corporation, the Lessee was a
Subchapter S Corporation, and generally was not subject to income taxes.
Excluding the business combination expenses and utilizing an effective tax rate
of 35% for 1995, net income would have increased $4.6 million from $2.1 million
or 223%.
Year Ended December 31, 1995 Compared with Year Ended December 31, 1994
Total revenues increased $60.1 million or 96% to $122.8 million for the
year 1995 compared to $62.7 million for the year ended 1994. The increase in
hotel revenues of $60.4 million was attributable to the net addition of seven
leased properties as compared to those leased as of December 31, 1994 plus the
full year results of 31 hotels that the Lessee commenced leasing during 1994.
Additionally, the portfolio experienced increases in occupancy and the average
daily rate for guest rooms as compared to the prior year. The margin on hotel
results (hotel revenues less leased hotel expenses and lease expenses) increased
$4.4 million or 117% from $3.8 million to $8.2 million reflecting the increased
number of hotels, improved operating results and the fixed nature of certain
expenses that do not increase in proportion to increases in revenues.
General and administrative expenses increased 65% or $2.1 million
primarily due to an increase in headcount and other corporate expenses directly
attributable to the growth in the number of hotels managed and/or leased as
compared to 1994. Depreciation and amortization increased nominally.
The provision for income taxes in 1995 reflects the Lessee's election,
commencing January 1, 1995, to be taxed as a Subchapter S Corporation.
Accordingly, the Lessee was generally not subject to income taxes. For the year
ended December 31, 1994, the Lessee's effective tax rate was approximately 42%
which more closely resembles the statutory federal and state income tax rates.
Excluding the business combination expenses and utilizing an effective tax rate
of 35% for 1995, net income would have increased $1.4 million from $0.7 million
or 213%.
LIQUIDITY AND CAPITAL RESOURCES
The principal source of cash to the Lessee, other than capital contributions
from Doubletree Corporation, will come from operations. Since inception, the
Lessee, has been able to meet its rent obligations under the Percentage Leases.
During 1996, the Lessee generated cash flow from operations of $3.7 million as
compared to $6.2 million during 1995. The decrease was principally attributable
to changes in the Lessee's receivable and payables offset by an increase of $4.5
million in net income. The Lessee expects that its cash flow from operations
will be sufficient to meet its liquidity and capital requirements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated herein by reference to the Company's Annual Report to
Shareholders for the year ended December 31, 1996.
24
<PAGE> 24
RFS, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF DOUBLETREE CORPORATION)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder
RFS, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheet of RFS, Inc. and
Subsidiary (a wholly-owned subsidiary of Doubletree Corporation) ("Company") as
of December 31, 1996 and the related consolidated statements of operations,
stockholder's equity (deficit) and cash flows for the year ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. The financial statements of RFS, Inc.
as of December 31, 1995 and for each of the years in the two-year period then
ended, were audited by other auditors whose report was dated February 2, 1996,
except for a subsequent events note dated February 27, 1996, expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of RFS, Inc. as of
December 31, 1996, and the results of its operations and its cash flows for the
year ended December 31, 1996 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Memphis, Tennessee
January 20, 1997
<PAGE> 26
RFS, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF DOUBLETREE CORPORATION)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ---- ----
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $7,108 9,238
Trade receivables (net of an allowance for doubtful accounts of
$62 and $40 at December 31, 1996 and 1995, respectively) 3,287 2,507
Inventories 168 173
Prepaid expenses 354 192
Due from parent 1,749 -
------- ------
TOTAL CURRENT ASSETS 12,666 12,110
Investments in RFS Hotel Investors, Inc. 20,032 1,379
Note receivable 3,000 -
Leasehold improvements and office equipment, net 300 334
Capitalized franchise costs 2,563 -
Deferred costs and other assets, net 656 311
------ ------
$39,217 14,134
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Note payable $ 324 -
Current maturities of long-term debt - 53
Accounts payable and accrued expenses 6,350 7,071
Lease payable 6,775 5,795
Other - 185
------ ------
TOTAL CURRENT LIABILITIES 13,449 13,104
Net deficit in partnerships and ventures 314 312
Long-term debt, less current maturities - 619
Deferred income taxes 61 36
------ ------
TOTAL LIABILITIES 13,824 14,071
------ ------
</TABLE>
(Continued)
2
<PAGE> 27
RFS, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF DOUBLETREE CORPORATION)
CONSOLIDATED BALANCE SHEETS, CONTINUED
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
---- ----
STOCKHOLDER'S EQUITY:
<S> <C>
Common stock, no par value; 5,000 shares authorized;
100 and 896 shares issued and outstanding at
December 31, 1996 and 1995, respectively $ 282 282
Additional paid-in capital 18,500 -
Unearned employee compensation (141) (211)
Unrealized gain on marketable equity securities,
net of income taxes 114 22
Retained earnings (accumulated deficit) 6,638 (30)
------ ------
TOTAL STOCKHOLDER'S EQUITY 25,393 63
------ ------
Commitments and contingencies
------ ------
$39,217 14,134
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 28
RFS, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF DOUBLETREE CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
REVENUES:
<S> <C> <C> <C>
Hotel revenue $148,699 122,253 61,825
Management and consulting fees 817 452 666
Other 1,987 113 221
--------- ------- ------
TOTAL REVENUES 151,503 122,818 62,712
--------- ------- ------
EXPENSES:
Hotel expenses:
Salary and benefits 30,299 25,847 15,654
Franchise costs 10,153 8,315 4,078
Advertising and promotion 5,069 4,294 2,749
Utilities 7,090 6,151 3,317
Repair and maintenance 7,088 6,006 3,194
Leases, insurance and taxes 1,214 1,603 650
Other operating costs 16,486 14,624 6,756
--------- ------- ------
77,399 66,840 36,398
General and administrative 3,430 5,386 3,257
Business combination expenses - 1,007 -
Depreciation and amortization 266 172 77
Lease expense 60,148 47,249 21,666
--------- ------- ------
TOTAL OPERATING EXPENSES 141,243 120,654 61,398
--------- ------- ------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 10,260 2,164 1,314
Income taxes (3,592) (35) (555)
--------- ------- ------
INCOME FROM CONTINUING OPERATIONS 6,668 2,129 759
Loss on discontinued operations, net of related tax
benefit of $57 in 1994 - - (102)
--------- ------- ------
NET INCOME $ 6,668 2,129 657
========= ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 29
PAGE 5
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
5
<PAGE> 30
RFS, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF DOUBLETREE CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 6,668 2,129 657
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 290 172 147
Equity in loss of partnerships - 198 -
Provision for bad debts 22 40 131
Net gain on sale of partnership interests - - (96)
Deferred income tax provision - (158) (1)
(Increase) decrease in accounts receivable (766) 163 (989)
(Increase) decrease in other assets (1,818) 121 (182)
Increase (decrease) in accounts payable and
accrued expenses (733) 3,582 6,105
------- ------ -----
NET CASH PROVIDED BY
OPERATING ACTIVITIES 3,663 6,247 5,772
------- ------ -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in RFS Hotel Investors, Inc. (18,500) - -
Investments in partnerships and ventures (175) (270) (185)
Distributions from partnerships and ventures 2 1 84
Franchise application fees (2,626) - -
Purchase of furniture and equipment (79) (241) (56)
Loan to owners of managed hotels (3,000) - -
Purchase of marketable securities - (516) -
Increase in deferred costs and other assets (90) (82) 76
------- ------ -----
NET CASH USED BY INVESTING ACTIVITIES (24,468) (1,108) (81)
------- ------ -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Contribution of paid-in capital from parent 18,500 - -
Payments on notes payable 175 (839) (414)
Payment of preferred stock dividends - - (34)
Distributions to common stockholders - (2,055) -
Purchase of preferred and common stock - - (182)
------- ------ -----
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 18,675 (2,894) (630)
------- ------ -----
</TABLE>
(Continued)
6
<PAGE> 31
RFS, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF DOUBLETREE CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH $(2,130) 2,245 5,061
Cash and cash equivalents:
Beginning of year 9,238 6,993 1,932
------ ----- -----
End of year $ 7,108 9,238 6,993
====== ===== =====
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 19 100 150
====== ===== =====
Income taxes paid $ 3,666 123 424
====== ===== =====
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITIES:
On January 2, 1995, the Company issued 12 shares of common stock to
employees at an estimated fair value on the date of grant of $281,000. In
1995, furniture and equipment with cost and accumulated depreciation of
$250,000 was retired.
In 1994, furniture and equipment with cost and accumulated depreciation of
$250,000 was retired. The Company retired $100,000 of preferred stock
purchased during 1994. On December 31, 1994, the Company converted
$440,000 in preferred stock to common stock.
See accompanying notes to consolidated financial statements.
7
<PAGE> 32
RFS, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF DOUBLETREE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) ORGANIZATION AND PRESENTATION
Effective February 27, 1996, RFS, Inc. (the "Company") became a
wholly-owned subsidiary of Doubletree Corporation ("Doubletree") in a
transaction accounted for as a pooling of interests. The Company
generates substantially all of its revenue from operating and managing
leased hotels owned by RFS Partnership, L.P. (the "Partnership"). The
Partnership is 98% owned by RFS Hotel Investors, Inc. (the "REIT").
Substantially all of the hotels owned by the Partnership (the "Hotels")
are separately leased by the Partnership to the Company under
individual lease agreements (collectively, the Percentage Leases). The
Percentage Leases provide for the payment of annual rent equal to the
greater of (i) fixed base rent or (ii) percentage rent based on a
percentage of gross room revenue, food revenue and beverage revenue at
the Hotels. In connection with the February 27, 1996 merger with
Doubletree, the Company amended each of the individual Percentage
Leases. The significant amendments include extending the terms of the
leases, clarifying the Company's and the Partnership's responsibilities
with respect to repairs and maintenance at the hotels and clarifying
certain other provisions of the Percentage Leases. These provisions
include the Partnership granting the Company a 10-year right of first
refusal to manage and lease future hotels acquired or developed by the
Partnership.
At December 31, 1996, the Company leased 52 hotels from the
Partnership. At December 31, 1996, the Company operated 62 hotels.
Three Hotels are operated by Alpha Inn Management Company and one by
TMH, Inc. pursuant to management agreements between the Lessee and
Alpha Inn Management Company and TMH, Inc. Additionally, the Company
manages 10 hotels for unrelated entities. The Company leases and/or
manages hotel properties in 22 states, primarily in the Southeast and
Midwest and substantially all are affiliated with a nationally
recognized franchise.
Prior to December 31, 1994, the Company was the parent corporation of
six subsidiaries which were involved in various real estate development
and management activities. Effective December 31, 1994, these six
subsidiaries were merged into the Company. This merger has been treated
as a combination of entities under common control and is accounted for
in a manner similar to that of a pooling of interests.
8
<PAGE> 33
RFS, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF DOUBLETREE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) REVENUE RECOGNITION
Revenue is recognized as earned. Ongoing credit evaluations
are performed and an allowance for potential credit losses is
provided against the portion of accounts receivable which is
estimated to be uncollectible.
(b) LEASE EXPENSE
Lease expense is recognized as due to the Partnership under
the Percentage Leases commencing on the date a lease is
executed between the Partnership and the Company.
(c) CAPITALIZED FRANCHISE COSTS
In connection with the Company's acquisition by Doubletree,
franchise application fees were paid to various franchisors of
the Hotels. These fees are amortized over the remaining lives
of the franchise agreements. The recoverability of the
franchise application fees are periodically evaluated to
determine whether such costs will be recovered from future
operations.
The initial cost of obtaining the franchise licenses is paid
by the Partnership, and the ongoing franchise fees are paid by
the Company. These fees are generally computed as a percentage
of room revenue for each respective hotel in accordance with
the franchise agreements.
(d) LEASEHOLD IMPROVEMENTS AND OFFICE EQUIPMENT
Improvements to office leaseholds are amortized over the
shorter of the lives of the assets or the terms of the related
leases. Office furniture and equipment is depreciated using
the straight-line basis over their estimated useful lives,
which is 7 years for furniture and 5 years for equipment.
Accumulated depreciation at December 31, 1996 and 1995 was
approximately $431,000 and $318,000, respectively.
9
<PAGE> 34
RFS, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF DOUBLETREE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maintenance and repairs are charged to operations as incurred;
major renewals and betterments at the hotels are the
responsibility of the Partnership. When furniture and
equipment are sold, the related cost and accumulated
depreciation are removed from the respective accounts and any
gain or loss is credited or charged to operations.
(e) INVENTORIES
Inventories consisting of food and beverages are stated at the
lower of cost (generally first-in, first-out) or market.
(f) INVESTMENTS
Investments in partnerships and ventures in which the Company
controls the assets of the partnership are accounted for using
the equity method. All other investments are accounted for
using the cost method with the exception of marketable equity
securities which are classified as available-for-sale and
recorded at fair value with unrealized gains or losses
reflected in stockholder's equity pursuant to FASB Statement
No. 115.
(g) INCOME TAXES
Under the asset and liability method of accounting for income
taxes, deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to
differences between the financial statement carrying amounts
of existing assets, including net operating loss
carryforwards, and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date.
The Company's parent, Doubletree, files a consolidated federal
income tax return. The intercompany settlement of taxes paid
is based on an informal tax sharing agreement which allocates
taxes to the Company based upon a proportionate allocation of
Doubletree's consolidated current and deferred tax expenses.
Prior to its acquisition by Doubletree the Company elected
Subchapter S corporation status for federal income tax
purposes and certain states effective January 1, 1995. The
Company's Subchapter S corporation election was revoked upon
the Company's acquisition by Doubletree.
10
<PAGE> 35
RFS, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF DOUBLETREE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(h) CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents for purposes of the statement of cash flows.
(i) 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.
(j) RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform
to 1996 presentation.
(3) INVESTMENTS IN RFS HOTEL INVESTORS, INC.
The Company has the following investments in RFS Hotel Investors, Inc.
and its related entity RFS Partnership, L.P. (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
---- ----
RFS HOTEL INVESTORS, INC.
Series A Convertible Preferred Stock $18,500 -
Common Stock 691 538
RFS PARTNERSHIP, L.P.
Partnership Units 841 841
------ -----
$20,032 1,379
====== =====
</TABLE>
On February 27, 1996, the Company received from the REIT 973,684 shares
of the REIT's Series A Convertible Preferred Stock ("Series A Preferred
Stock") for an aggregate purchase price of $18.5 million or $19.00 per
share. The Series A Preferred Stock has an initial preference value of
$19.00 per share ("Stated Value"), a par value of $.01, and is senior
to the REIT's common stock as to dividends and upon liquidation of the
REIT. Each
11
<PAGE> 36
RFS, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF DOUBLETREE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
share of Series A Preferred Stock has one vote and is convertible into
one share of the REIT's common stock after the seventh anniversary of
the issuance. The shares of Series A Preferred Stock are entitled to a
$1.45 cumulative dividend per share. The Series A Preferred Stock has
mandatory redemption rights upon the occurrence of certain events which
are under the REIT's control. The REIT can redeem the Series A
Preferred Stock after the seventh anniversary of issuance at the Stated
Value, together with all accrued and unpaid dividends.
The Company's investment in the Partnership units is carried at the
amount of cash consideration the Company could have received in lieu of
Partnership units which is approximately $841,000 on 77,904 units
owned. At present, there is no market for the Partnership units.
However, the Partnership units are convertible into REIT common stock.
The Company owns 35,000 shares of REIT common stock carried at their
market value of $691,020 and $538,125 at December 31, 1996 and 1995,
respectively.
(4) INVESTMENTS IN PARTNERSHIPS
Information with respect to the Company's investments in partnerships
at December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
CARRYING VALUE
% TYPE OF (IN THOUSANDS)
ENTITY OWNERSHIP INTEREST 1996 1995
------ --------- -------- ---- ----
<S> <C> <C> <C> <C>
Devonshire Associates 10% General $ 1 $ 1
SF Partners 2% General - 1
Highland Plaza Partners, Ltd. 5% General 1 1
DDP Partners, L.P. 5% General 13 14
---- ----
15 17
Shelby Distribution Partners, L.P. 46% General (329) (329)
--- ---
$(314) $(312)
=== ===
</TABLE>
(5) NOTE RECEIVABLE
In June 1996, the Company obtained management agreements for eight
hotel properties owned by entities unrelated to the Company. In
connection with obtaining these contracts, the Company loaned $3
million to the owners, principally for renovations. The note is
unsecured, bears interest at 10% and is repayable as follows: $300,000
on December 31, 1998, $600,000 on December 31, 1999, $300,000 on
December 31, 2000, $1,800,000 on December 31, 2001.
12
<PAGE> 37
RFS, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF DOUBLETREE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) DEBT
At December 31, 1996 and 1995, debt consists of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Notes payable on premium financing contracts, monthly
payments of approximately $47,000 including interest
at 5.25% due September 1997, uncollateralized $324 -
Note payable to stockholder, monthly payments of
approximately $9,000 including interest at 8% due
through May 2011, uncollateralized, paid-off in
February 1996 - 672
--- ---
$324 672
=== ===
</TABLE>
(7) PREFERRED AND COMMON STOCK
In connection with the Company's acquisition by Doubletree, the Company
retired all its issued and outstanding common stock and issued 100 new
shares to Doubletree. In addition, Doubletree made a $18,500,000
capital contribution to the Company. The proceeds from this capital
contribution were used to acquire Series A Preferred Stock issued by
the REIT as discussed in note 3.
In 1995, the Company granted a total of 12 shares of common stock to
certain employees. These shares were recorded at the estimated fair
value on the date of grant. These shares vest ratably over the next
four years. Such vesting requirements are contingent upon the
employees' continued employment with the Company.
In 1994, the Company converted 56 shares of Series A preferred stock
and 108 shares of Series B preferred stock into 164 shares of common
stock. During 1994, the Company declared and paid dividends of $321,000
and $100,000 per share on each outstanding share of Series A and B
preferred stock, respectively. Simultaneously, with the conversion of
the preferred stock, the Company retired 280 shares of common stock
held in treasury.
13
<PAGE> 38
RFS, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF DOUBLETREE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) DISCONTINUED OPERATIONS
During 1994, the construction division and the property management
division of a former subsidiary and the operations of another former
subsidiary were sold to related parties at nominal selling prices. The
disposal date for the construction division was June 30, 1994; the
disposal date for the property management division and the operations
of the former subsidiary was December 31, 1994. No gains or losses were
recognized on these sales. The net 1994 and 1993 results of the
operations for these three activities have been presented in the
accompanying statement of income in the caption "loss on discontinued
operations." On a combined basis, these three activities had revenue of
$5,014,000 for 1994 and total assets of $179,000 at December 31, 1994.
(9) INCOME TAXES
Effective February 27, 1996, the Company's results of operations are
included in Doubletree's consolidated U.S. Federal income tax return.
Under the terms of an informal agreement, the Company makes payments to
Doubletree for a proportionate allocation of Doubletree's consolidated
current and deferred income tax expense. During 1996, income tax
expense of approximately $3,592,000 was recorded and the Company
remitted $3,666,000 to Doubletree for income tax payments. At December
31, 1996, $75,000 was due from the Parent in settlement of the 1996 tax
estimates.
The following represents the significant components of income tax
expense and the effect of recognizing deferred tax assets and
liabilities on various temporary differences for years prior to 1996
(in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
Federal:
<S> <C> <C>
Current $ - 502
Deferred - (39)
Change in tax status (161) -
--- ---
(161) 463
--- ---
State:
Current 193 54
Deferred 3 (9)
Utilization of net operating loss carryforwards - 47
--- ---
196 92
--- ---
$ 35 555
=== ===
</TABLE>
14
<PAGE> 39
RFS, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF DOUBLETREE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company income tax provision for 1995 and 1994 was calculated as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Tax at federal statutory rate $ - 447
Non-deductible expenses - 23
State income taxes, net of federal benefit 196 69
Reduction in federal deferred tax liability
due to change in tax status (161) -
Other - 16
Income tax provision $ 35 555
==== ===
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax
liabilities and assets as of December 31, 1995 are as follows (in
thousands):
<TABLE>
<CAPTION>
1995
Deferred tax liabilities: ----
<S> <C>
Furniture and equipment $ 4
Investments in partnerships 48
----
52
Deferred tax assets: ----
Allowance for doubtful accounts 2
Accruals for certain employee benefits 14
Net operating loss carryforwards 180
----
196
Valuation allowance for deferred tax assets (180)
----
16
Net deferred tax liabilities $ 36
====
</TABLE>
15
<PAGE> 40
RFS, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF DOUBLETREE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment under noncancelable
operating lease agreements expiring at varying intervals through 2002.
The future minimum rental payments required under these leases as of
December 31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C> <C>
1997 $ 301
1998 301
1999 312
2000 315
2001 315
Thereafter 79
-------
$1,623
</TABLE>
Rental expense, except for the lease expense described below, was
approximately $301,000 $431,000 and $211,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
The Company has future lease commitments to the Partnership under the
Percentage Leases through 2011. At December 31, 1996, minimum future
rental payments under the Percentage Leases are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C> <C>
1997 $ 26,979
1998 26,925
1999 26,925
2000 26,925
2001 26,925
Thereafter 201,632
-------
$336,311
</TABLE>
The Company paid base rents of approximately $25,255,000, $21,995,000
and $10,705,000 and percentage rents in excess of base rents of
approximately $34,893,000, $25,254,000 and $10,961,000 for the years
ended December 31, 1996, 1995 and 1994, respectively. At December 31,
1996 and 1995, the Company had a net payable to the Partnership of
$6,775,000 and $5,795,000, respectively, for percentage rents and other
transactions.
16
<PAGE> 41
RFS, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF DOUBLETREE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has management agreements with two hotel operators to
manage four of the leased hotels. The management agreements have terms
ranging from ten to twenty years and provide for a fee based on a
percentage of each hotel's revenue.
(11) RELATED PARTY TRANSACTIONS
Certain of the partnerships in which the Company has an interest and
certain former stockholders owed the Company approximately $439,000 and
$197,000 for advances and other transactions at December 31, 1996 and
1995, respectively.
At December 31, 1995 and 1994, the Company owed the Chairman of the
Board approximately $672,000 and $902,000, respectively, under a
promissory note for the purchase of common stock of a former
subsidiary. Interest expense related to this note was approximately
$63,000 and $73,000 for the years ended December 31, 1995 and 1994,
respectively. The promissory note was repaid in February 1996.
The Company has recognized, as income, approximately $1,340,956 and
$176,000 of distributions received from the Partnership with respect to
Series A Preferred Stock, Partnership units and REIT common stock owned
by the Company for the years ended December 31, 1996 and 1995,
respectively.
On December 31, 1994, the Company entered into a consulting agreement
("Agreement") with Hospitality Advisory Services, Inc. ("HAS"). The
Agreement requires monthly payments of $40,000 to HAS beginning January
1, 1995 through December 31, 1995 with the term of the Agreement
extended for one additional year. The Agreement also provides for
incentive fees at the discretion of the Company. The owners of HAS are
officers of RFSI and were stockholders of the Company. Total fees paid
to HAS during 1995 were approximately $780,000. The Agreement was
terminated effective February 27, 1996 and was replaced with new
consulting agreements with two former officers of the Company. These
consulting agreements may be terminated by the Company on or after
February 27, 1997. Total fees paid on these consulting agreements was
$175,000 in 1996.
(12) EMPLOYEE BENEFIT PLANS
In January 1995, the Company adopted an employee savings plan under
Section 401(k) of the Internal Revenue Code. This plan covers all
full-time employees of the Company who are 21 years of age and have
completed at least one year of continuous service. The participants'
maximum contributions are limited under applicable IRS regulations were
approximately $9,000 per participant. The Company currently contributes
50% of
17
<PAGE> 42
RFS, INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF DOUBLETREE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND UNIT DATA)
employee contributions to the plan, up to a maximum of 2% of employee
compensation. Company contributions generally vest at 20% per year
becoming fully vested in the seventh year of service. Contribution
expense related to this plan was approximately $41,000 and $195,000 for
the years ended December 31, 1996 and 1995, respectively.
The Company maintains a self-insured group health plan. Aggregate and
stop loss insurance exists at amounts which limit the Company's
exposure. Liabilities are included in accrued expenses for estimated
incurred but not reported claims.
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures about Fair Value of Financial Instruments,
defines the fair value of a financial instrument as the amount at which
the instrument could be exchanged in a current transaction between
willing parties. The Company's financial instruments consist primarily
of cash and cash equivalents, trade receivables, note receivables,
investments in partnerships and ventures, accounts payable and accrued
expenses, each as included in the balance sheets under such captions.
With the exception of note receivable, investments in partnerships and
ventures, and the investments in RFS Partnership, L.P. units, the
carrying amounts of all other classes of financial instruments
approximate fair value due to the short maturity of those instruments
or, in the case of marketable equity securities they are carried at
their estimated fair value.
The Company has determined that the fair value of its note receivable
is not significantly different from their carrying value based on
interest rate and payment terms the Company would currently offer on
notes with similar security to borrowers of similar creditworthiness.
The fair value of the partnership interests, which are carried at cost,
are estimated based upon the residual value to the Company in the
respective partnership's net assets. RFS Partnership, L.P. units, which
are convertible into REIT common shares, have a carrying value of
$841,000 and an estimated fair value of approximately $1,539,000 and
$1,197,000 at December 31, 1996 and 1995, respectively.
18
<PAGE> 43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference to the sections entitled "Election of
Class I and Class III Directors" and "Executive Compensation" in the Company's
definitive proxy statement to be filed with the Securities and Exchange
Commission within 120 days after the year covered by this Form 10-K with respect
to its Annual Meeting of Shareholders to be held on April 24, 1997 (the "Proxy
Statement"). See also Item 1. Business-Executive Officers.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to the section entitled "Executive
Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to the sections entitled "Ownership of
the Company's Common Stock" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to the section entitled "Certain
Relationships and Related Transactions" in the Proxy Statement.
25
<PAGE> 44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
The following financial statements included in the Company's Annual
Report to Shareholders for the year ended December 31, 1996 are incorporated by
reference:
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Income for years ended December 31,
1996, 1995 and 1994 Consolidated Statements of Shareholders' Equity
for years ended December 31, 1996, 1995 and 1994 Consolidated
Statements of Cash Flows for years ended December 31, 1996, 1995
and 1994 Notes to Consolidated Financial Statements
The following financial statement schedules and report of independent
accountants on the financial statement schedules are included in this report on
Form 10-K:
Report of Independent Accountants on the Financial Statement
Schedules Schedule III - Real Estate and Accumulated Depreciation
for RFS Hotel Investors, Inc.
Schedule IV - Mortgage Loans on Real Estate
The following financial statements of RFS, Inc. are included in this
report on Form 10-K: Independent Auditors' Report
ConsolidatedBalance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations for years ended December 31,
1996, 1995 and 1994
Consolidated Statements of Stockholder's Equity for years
ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for year ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
(b) Reports on Form 8-K
No filings of Form 8-K were made during the last quarter of 1996.
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
<S> <C> <C>
3.1 - Amended and Restated Charter of the Registrant (previously filed as Exhibit 3.1 to the
Company's Current Report on Form 8-K dated March 6, 1995 and incorporated herein by
reference).
</TABLE>
26
<PAGE> 45
<TABLE>
<S> <C> <C>
3.2 - By-Laws of the Registrant (previously filed as Exhibit 3.2 to the Company's Form S-11
Registration Statement, Registration No. 33-63696 and incorporated herein by reference).
3.3 - Second Amended and Restated Agreement of Limited Partnership of RFS Partnership, L.P.,
(previously filed as Exhibit 3.3 to the Company's Form S-3 Registration Statement,
Registration No. 33-83450 and incorporated herein by reference).
3.3(a) - Third Amended and Restated Agreement of Limited Partnership of RFS Partnership, L.P.,
(previously filed as Exhibit 4.3 to the Company's Form S-3 Registration Statement,
Registration No. 333-3307 and incorporated herein by reference).
* 3.3(b) - Fourth Amended and Restated Agreement of Limited Partnership.
10.1 - Consolidated Lease Amendment (previously filed as
Exhibit 10.3 to the Company's current report on Form
8-K, dated February 27, 1996 and incorporated herein
by reference).
10.2 - Form of Future Percentage Lease (previously filed
as Exhibit 10.4 to the Company's Current Report on
Form 8-K, dated February 27, 1996 and incorporated
herein by reference).
*10.2(a) - Schedule of terms of Percentage Leases
10.3 - Form of Sale and Purchase Agreement (previously
filed as Exhibit 10.2 to the Company's Form 10-K for
the year ended December 31, 1994 and incorporated
herein by reference).
*10.3(a) - Schedule of terms of Sale and Purchase Agreements
*10.4 - Employment Agreement between RFS Managers, Inc. and Robert M. Solmson
*10.5 - Employment Agreement between RFS Managers, Inc. and Minor W. Perkins
*10.6 - Employment Agreement between RFS Managers, Inc. and J. William Lovelace
*10.7 - Employment Agreement between RFS Managers, Inc. and Michael J. Pascal
*10.8 - First Amended Revolving Credit and Term Loan Agreement
*10.8(a) - First Modification to First Amended Revolving Credit and Term Loan Agreement
</TABLE>
27
<PAGE> 46
<TABLE>
<S> <C>
10.9 - Master Agreement, dated February 1, 1996 (previously filed as Exhibit 10.2 to the Company's
Current Report on Form 8-K dated February 27, 1996 and incorporated herein by
reference).
*10.9(a) - First Amendment to Master Agreement dated as of November 21, 1996.
*10.10 - Indenture dated as of November 21, 1996.
*10.11 - Form of Deed of Trust dated as of November 21, 1996.
*13.1 - Annual Report to Shareholders for the year ended December 31, 1996
*21.1 - List of Subsidiaries of the Registrant
*23.1 - Consent of Coopers & Lybrand
*23.2 - Consent of KPMG Peat Marwick LLP
*27 - Financial Data Schedule (for SEC use only)
</TABLE>
- - ----------------
* Filed herewith
28
<PAGE> 47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant as duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
RFS HOTEL INVESTORS, INC.
By: /s/ Robert M. Solmson
Robert M. Solmson
Chairman of the Board and Chief Executive Officer
Date: March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
/s/ Robert M. Solmson
- - -------------------------------
Robert M. Solmson Chairman of the Board, March 26, 1997
and Chief Executive Officer
/s/ Minor W. Perkins
- - -------------------------------
Minor W. Perkins President March 26, 1997
/s/ Michael J. Pascal
- - -------------------------------
Michael J. Pascal Chief Financial Officer March 26, 1997
Secretary and Treasurer
/s/ H. Lance Forsdick
- - -------------------------------
H. Lance Forsdick, Sr. Director March 26, 1997
/s/ Bruce E. Campbell, Jr.
- - -------------------------------
Bruce E. Campbell, Jr. Director March 26, 1997
- - -------------------------------
Michael E. Starnes Director
/s/ John W. Stokes, Jr.
- - -------------------------------
John W. Stokes, Jr. Director March 26, 1997
/s/ Harry W. Phillips, Sr.
- - -------------------------------
Harry W. Phillips, Sr. Director March 26, 1997
- - -------------------------------
R. Lee Jenkins Director
</TABLE>
29
<PAGE> 48
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of RFS Hotel Investors,
Inc. is included on page _____ of this Form 10-K. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedule in the index on page 31 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Memphis, Tennessee
January 22, 1997
<PAGE> 49
RFS HOTEL INVESTORS, INC.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
(IN THOUSANDS)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
Cost Capitalized Gross Amount at Which Carried
Initial Cost Subsequent to Acquisition at end of Period
-------------------------------------------------------- -----------------------------
Buildings and Buildings and Buildings and
Description Encumbrances Land Improvements Land Improvements Land Improvements
----------- ------------ ---- ------------- ---- ------------- ---- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Holiday Inn
Franklin, TN (2) $ 737 $2,094 $ 227 $ 737 $2,321
Holiday Inn
Clayton, MO (2) 1,599 4,968 1,342 1,599 6,310
Holiday Inn
Columbia, SC (2) 790 3,573 443 790 4,016
Holiday Inn Express
Louisville, KY none 1,328 3,808 454 1,328 4,262
Holiday Inn Express
Tupelo, MS(1) (2) 477 2,449 138 477 1,919
Executive Inn
Tupelo, MS (2) 686 2,603 176 686 2,779
Comfort Inn
Conyers, GA (2) 440 2,866 (36) 27 404 2,893
Comfort Inn
Marietta, GA (3) 989 5,509 108 989 5,617
Holiday Inn
Lafayette, LA (2) 700 8,858 498 700 9,356
Residence Inn
Kansas City, MO (2) 392 5,344 68 392 5,412
Comfort Inn
Ft. Mill, SC (3) 763 6,612 94 763 6,706
Comfort Inn
Clemson, SC (2) 201 4,901 56 201 4,957
Hampton Inn
Ft. Lauderdale, FL (2) 590 4,664 107 590 4,771
Holiday Inn Express
Arlington Heights, IL (2) 350 4,121 369 350 4,490
Hampton Inn
Denver, CO none 500 8,098 334 500 8,432
Holiday Inn Express
Downers Grove, IL (2) 400 5,784 292 400 6,076
Comfort Inn
Farmington Hills, MI (2) 525 4,118 183 525 4,301
Comfort Inn
Grand Rapids, MI (2) 400 3,176 40 400 3,216
Hampton Inn
Indianapolis, IN (2) 475 8,008 250 475 8,258
Hampton Inn
Lansing, MI (2) 500 3,647 268 500 3,915
</TABLE>
<TABLE>
<CAPTION>
Life Upon Which
Accumulated Net Book Depreciation in
Depreciation Value Latest Income
Buildings and Buildings and Date of Statement is
Total Improvements Improvements Acquisition Calculated
----- ------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Holiday Inn
Franklin, TN $3,058 $190 $2,131 1993 40
Holiday Inn
Clayton, MO 7,909 489 5,821 1993 40
Holiday Inn
Columbia, SC 4,806 329 3,687 1993 40
Holiday Inn Express
Louisville, KY 5,590 343 3,919 1993 40
Holiday Inn Express
Tupelo, MS(1) 2,396 209 1,710 1993 40
Executive Inn
Tupelo, MS 3,465 228 2,551 1993 40
Comfort Inn
Conyers, GA 3,297 237 2,656 1993 40
Comfort Inn
Marietta, GA 6,606 424 5,193 1993 40
Holiday Inn
Lafayette, LA 10,056 732 8,624 1993 40
Residence Inn
Kansas City, MO 5,804 387 5,025 1994 40
Comfort Inn
Ft. Mill, SC 7,469 451 6,255 1994 40
Comfort Inn
Clemson, SC 5,158 342 4,615 1994 40
Hampton Inn
Ft. Lauderdale, FL 5,361 321 4,450 1994 40
Holiday Inn Express
Arlington Heights, IL 4,840 271 4,219 1994 40
Hampton Inn
Denver, CO 6,932 516 7,916 1994 40
Holiday Inn Express
Downers Grove, IL 6,476 369 5,707 1994 40
Comfort Inn
Farmington Hills, MI 4,826 263 4,038 1994 40
Comfort Inn
Grand Rapids, MI 3,616 203 3,013 1994 40
Hampton Inn
Indianapolis, IN 8,733 513 7,745 1994 40
Hampton Inn
Lansing, MI 4,415 235 3,680 1994 40
</TABLE>
continued
<PAGE> 50
RFS HOTEL INVESTORS, INC.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION, CONTINUED
(IN THOUSANDS)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
Cost Capitalized Gross Amount at Which Carried
Initial Cost Subsequent to Acquisition at end of Period
-------------------------------------------------------- -----------------------------
Buildings and Buildings and Buildings and
Description Encumbrances Land Improvements Land Improvements Land Improvements
----------- ------------ ---- ------------- ---- ------------- ---- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Hampton Inn
Lincoln, NE (2) $ 350 $4,829 $ 319 $ 350 $5,149
Hampton Inn
Minneapolis, MN (2) 375 8,657 102 375 8,759
Holiday Inn Express
Minneapolis, MN (2) 780 6,910 150 780 7,060
Hampton Inn
Minnetonka, MN (2) 475 5,066 109 475 5,175
Hampton Inn
Oklahoma City, OK (3) 530 6,826 296 530 7,124
Hampton Inn
Omaha, NE (3) 450 6,362 329 450 6,691
Hampton Inn
Tulsa, OK (2) 350 5,715 372 350 6,087
Hampton Inn
Warren, MI (2) 500 2,814 204 500 3,018
Holiday Inn Express
Wauwatosa, WI (2) 700 4,926 398 700 5,324
Residence Inn
Fiskill, NY $2,420 2,280 10,484 77 2,280 10,561
Residence Inn
Providence, RI (3) 1,385 7,742 41 1,385 7,783
Residence Inn
Tyler, TX none 855 6,212 195 855 6,407
Hampton Inn
Memphis, TN (2) 980 6,157 47 980 6,204
Residence Inn
Ft. Worth, TX (3) 985 10,726 39 985 10,765
Residence Inn
Wilmington, DE (2) 1,100 8,488 317 1,100 8,805
Residence Inn
Torrance, CA (2) 2,600 17,789 733 2,600 18,522
Residence Inn
Ann Arbor, MI (3) 525 4,461 119 525 4,580
Holiday Inn
Flint, MI (2) 1,200 11,994 190 1,220 12,184
Resdience Inn
Charlotte, NC (3) 850 3,844 153 850 3,997
Hawthorne Suites
Atlanta, GA none 3,000 12,886 638 3,000 13,524
</TABLE>
<TABLE>
<CAPTION>
Life Upon Which
Accumulated Net Book Depreciation in
Depreciation Value Latest Income
Buildings and Buildings and Date of Statement is
Total Improvements Improvements Acquisition Calculated
----- ------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Hampton Inn
Lincoln, NE $5,498 $312 $4,836 1994 40
Hampton Inn
Minneapolis, MN 9,134 551 8,208 1994 40
Holiday Inn
Minneapolis, MN 7,840 440 6,620 1994 40
Holiday Inn Express
Minnetonka, MN 5,650 323 4,852 1994 40
Hampton Inn
Oklahoma City, OK 7,654 435 6,689 1994 40
Hampton Inn
Omaha, NE 7,141 409 6,282 1994 40
Hampton Inn
Tulsa, OK 6,437 371 5,716 1994 40
Hampton Inn
Warren, MI 3,518 180 2,838 1994 40
Holiday Inn Express
Wauwatosa, WI 6,024 315 5,009 1994 40
Residence Inn
Fiskill, NY 12,841 623 9,938 1994 40
Residence Inn
Providence, RI 9,168 460 7,323 1994 40
Residence Inn
Tyler, TX 7,262 370 6,037 1994 40
Hampton Inn
Memphis, TN 7,184 354 5,850 1994 40
Residence Inn
Ft. Worth, TX 11,750 592 10,173 1994 40
Residence Inn
Wilmington, DE 9,905 474 8,331 1994 40
Residence Inn
Torrance, CA 21,122 997 17,525 1994 40
Residence Inn
Ann Arbor, MI 5,105 247 4,333 1994 40
Holiday Inn
Flint, MI 13,404 665 11,519 1994 40
Resdience Inn
Charlotte, NC 4,847 205 3,792 1994 40
Hawthorne Suites
Atlanta, GA 16,524 665 12,859 1994 40
</TABLE>
continued
<PAGE> 51
RFS HOTEL INVESTORS, INC.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION, CONTINUED
(IN THOUSANDS)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
Gross Amount at Which
Cost Capitalized Carried
Initial Cost Subsequent to Acquisition at end of Period
-------------------------------------------------------- -----------------------------
Buildings and Buildings and Buildings and
Description Encumbrances Land Improvements Land Improvements Land Improvements
----------- ------------ ---- ------------- ---- ------------- ---- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Holiday Inn Express
Austin, TX (3) $ 500 $ 4,737 $ 79 $ 500 $4,816
Hampton Inn
Lakewood, CO (3) 957 6,790 58 957 6,648
Hampton Inn
Hattiesburg, MS (3) 785 4,653 1,501 785 6,154
Hampton Inn
Laredo, TX none 1,037 4,116 (6) 1,037 4,110
Residence Inn
Atlanta, GA $5,875 1,306 10,200 1 1,306 10,201
Holiday Inn
Crystal Lake, IL (3) 1,685 10,932 (11) 1,685 10,921
Residence Inn
Orlando, FL (3) 1,045 8,880 1 1,045 8,881
Residence Inn
Sacramento, CA (3) 1,000 13,122 1,000 13,122
Doubletree Hotel
Del Mar, CA (3) 1,500 13,535 1,500 13,535
Hampton Inn
Plano, TX none 959 5,178 959 5,178
Courtyard by Marriott
Flint, MI none 600 4,852 600 4,852
Homewood Suites
Salt Lake City, UT none 791 5,546 791 5,546
Unimproved Land
Chandler, AZ none 961 961 0
Unimproved Land
Plano, TX none 864 864 0
Unimproved Land
Crystal Lake, IL none 252 252 0
Unimproved Land
Sedona, AZ none 1,386 1,386 0
Unimproved Land
Ann Arbor, MI none 223 223 0
Unimproved Land
Jacksonville, FL none 1,318 1,318 0
------------------------------------------------------------------------------------------------------
Totals $8,255 $50,301 $340,630 ($36) $11,927 $50,265 $351,689
======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Life Upon Which
Accumulated Net Book Depreciation in
Depreciation Value Latest Income
Buildings and Buildings and Date of Statement is
Total Improvements Improvements Acquisition Calculated
----- ------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Holiday Inn Express
Austin, TX $5,316 $237 $4,579 1995 40
Hampton Inn
Lakewood, CO 7,805 304 6,544 1995 40
Hampton Inn
Hattiesburg, MS 6,939 224 5,930 1995 40
Hampton Inn
Laredo, TX 5,147 146 3,964 1995 40
Residence Inn
Atlanta, GA 11,507 319 9,882 1995 40
Holiday Inn
Crystal Lake, IL 12,606 341 10,580 1995 40
Residence Inn
Orlando, FL 9,926 277 8,604 1995 40
Residence Inn
Sacramento, CA 14,122 328 12,794 1996 40
Doubletree Hotel
Del Mar, CA 15,035 224 13,311 1996 40
Hampton Inn
Plano, TX 6,137 65 5,113 1996 40
Courtyard by Marriott
Flint, MI 5,452 10 4,842 1996 40
Homewood Suites
Salt Lake City, UT 6,337 12 5,534 1996 40
Unimproved Land
Chandler, AZ 961 N/A 0 1995 N/A
Unimproved Land
Plano, TX 864 N/A 0 1995 N/A
Unimproved Land
Crystal Lake, IL 252 N/A 0 1995 N/A
Unimproved Land
Sedona, AZ 1,386 N/A 0 1996 N/A
Unimproved Land
Ann Arbor, MI 223 N/A 0 1996 N/A
Unimproved Land
Jacksonville, FL 1,318 N/A 0 1996 N/A
----------------------------------------------------
$402,154 $16,527 $333,362
====================================================
</TABLE>
(1) A write-down under Statement of Financial Accounting Standards #121 of
$668 was recorded in 1996.
(2) Property is collateral for the Credit Line.
(3) Property is collateral for commercial Mortgage Bonds Payable.
31
<PAGE> 1
Exhibit 3.3(b)
FOURTH AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP
OF
RFS PARTNERSHIP, L.P.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINED TERMS..................................................................... 1
ARTICLE II
PARTNERSHIP CONTINUATION AND IDENTIFICATION....................................... 9
2.01 Continuation..................................................... 9
2.02 Name, Office and Registered Agent................................ 9
2.03 Partners......................................................... 9
2.04 Term and Dissolution............................................. 9
2.05 Filing of Certificate and Perfection of Limited Partnership...... 10
ARTICLE III
BUSINESS OF THE PARTNERSHIP....................................................... 10
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ACCOUNTS................................................ 11
4.01 Capital Contributions............................................ 11
4.02 Additional Capital Contributions and Issuances of Additional
Partnership Interests............................................ 11
4.03 General Partner Loans............................................ 14
4.04 Capital Accounts................................................. 15
4.05 PERCENTAGE INTERESTS............................................. 15
4.06 No Interest on Contributions..................................... 15
4.07 Return of Capital Contributions.................................. 16
4.08 No Third Party Beneficiary....................................... 16
ARTICLE V
PROFITS AND LOSSES; DISTRIBUTIONS................................................. 16
5.01 Allocation of Profit and Loss.................................... 16
5.02 Distribution of Cash............................................. 20
5.03 REIT Distribution Requirements................................... 20
5.04 No Right to Distributions in Kind................................ 21
5.05 Limitations on Return of Capital Contributions................... 21
5.06 Distributions Upon Liquidation................................... 21
5.07 Substantial Economic Effect...................................... 22
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VI
RIGHTS, OBLIGATIONS AND
POWERS OF THE GENERAL PARTNER..................................................... 22
6.01 Management of the Partnership.................................... 22
6.02 Delegation of Authority.......................................... 24
6.03 Indemnification and Exculpation of Indemnitees................... 25
6.04 Liability of the General Partner................................. 26
6.05 Expenditures by the Partnership.................................. 27
6.06 Outside Activities............................................... 27
6.07 Optional Conversion of Series A Preferred Shares................. 28
6.08 Redemption Right With Respect To Preferred Partnership Units..... 28
6.09 Employment or Retention of Affiliates............................ 30
6.10 Loans to the Partnership......................................... 30
6.11 Loans to the General Partner..................................... 30
6.12 General Partner Participation.................................... 30
ARTICLE VII
CHANGES IN GENERAL PARTNER........................................................ 31
7.01 Transfer of the General Partner's Partnership Interest........... 31
7.02 Admission of a Substitute or Successor General................... 32
7.03 Effect of Bankruptcy, Withdrawal, Death or Dissolution of a
General Partner.................................................. 33
7.04 Removal of a General Partner..................................... 33
ARTICLE VIII
RIGHTS AND OBLIGATIONS
OF THE LIMITED PARTNERS........................................................... 34
8.01 Management of the Partnership.................................... 34
8.02 Power of Attorney................................................ 35
8.03 Limitation on Liability of Limited Partners...................... 35
8.04 Ownership by Limited Partner of Corporate General Partner or
Affiliate........................................................ 35
8.05 Limited Partner Redemption Right................................. 35
8.06 Registration..................................................... 37
ARTICLE IX
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS........................................ 42
9.01 Purchase for Investment.......................................... 42
9.02 Restrictions on Transfer of Limited Partnership Interests........ 42
9.03 Admission of Substitute Limited Partner.......................... 43
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C>
9.04 Rights of Assignees of Partnership Interests..................... 45
9.05 Effect of Bankruptcy, Death, Incompetence or Termination of a
Limited Partner.................................................. 45
9.06 Joint Ownership of Interests..................................... 45
ARTICLE X
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS........................................ 46
10.01 Books and Records................................................ 46
10.02 Custody of Partnership Funds; Bank Accounts...................... 46
10.03 Fiscal and Taxable Year.......................................... 46
10.04 Annual Tax Information and Report................................ 46
10.05 Tax Matters Partner; Tax Elections; Special Basis Adjustments.... 47
10.06 Reports to Limited Partners...................................... 47
ARTICLE XI
AMENDMENT OF AGREEMENT............................................................ 48
ARTICLE XII
GENERAL PROVISIONS................................................................ 48
12.01 Notices.......................................................... 48
12.02 Survival of Rights............................................... 49
12.03 Additional Documents............................................. 49
12.04 Severability..................................................... 49
12.05 Entire Agreement................................................. 49
12.06 Pronouns and Plurals............................................. 49
12.07 Headings......................................................... 49
12.08 Counterparts..................................................... 49
12.09 Governing Law.................................................... 49
</TABLE>
- iii -
<PAGE> 5
FOURTH AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP
OF
RFS PARTNERSHIP, L.P.
RECITALS
RFS Partnership, L.P. (the "Partnership") was formed as a limited
partnership under the laws of the State of Tennessee by a Certificate of Limited
Partnership filed with the Secretary of State of the State of Tennessee on
August 3, 1993. The Partnership was governed originally by an agreement of
limited partnership maintained at the offices of the Partnership (the "Original
Agreement"). The parties to the Original Agreement were RFS Hotel Investors,
Inc., a Tennessee corporation (the "Company" and in its capacity as the General
Partner, the "General Partner"), and RFS, Inc. (in its capacity as the Original
Limited Partner, the "Original Limited Partner"). The Original Agreement was
amended and restated on August 13, 1993 (the "First Amended and Restated
Agreement") (i) to admit Limited Partners to the Partnership and (ii) to provide
for the withdrawal of the Original Limited Partner. The First Amended and
Restated Agreement was amended on November 19, 1993 (the "First Amendment to the
First Amended and Restated Agreement") to change the cash distribution
provisions. The First Amendment to the First Amended and Restated Agreement was
amended and restated on August 24, 1994 (the "Second Amended and Restated
Agreement") to admit additional Limited Partners (the "Class B Limited
Partners") to the Partnership. The Second Amended and Restated Agreement was
amended and restated on February 27, 1996 (the "Third Amended and Restated
Agreement") to (i) issue to itself a preferred general partnership interest and
(ii) to restate the Second Amended and Restated Agreement in its entirety. The
General Partner now desires to (i) admit additional Class B Limited Partners to
the Partnership, (ii) amend certain provisions relating to allocations of items
of income, gain and loss on liquidation of the Partnership and (iii) to restate
the Third Amended and Restated Agreement in its entirety.
NOW, THEREFORE, in consideration of the foregoing, of mutual covenants
between the parties hereto, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree to amend the Third Amended and Restated Agreement to read in its entirety
as follows:
ARTICLE I
DEFINED TERMS
The following defined terms used in this Agreement shall have the meanings
specified below:
<PAGE> 6
"ACT" means the Tennessee Revised Uniform Limited Partnership Act, as it
may be amended from time to time.
"ADMINISTRATIVE EXPENSES" means (i) all administrative and operating costs
and expenses incurred by the Partnership, (ii) all administrative costs and
expenses of the General Partner, including any salaries or other payments to
directors, officers and/or employees of the General Partner, and any accounting
and legal expenses of the General Partner, which expenses, the Partners have
agreed, are expenses of the Partnership and not the General Partner, and (iii)
to the extent not included in clause (ii) above, REIT Expenses; provided,
however, that Administrative Expenses shall not include any administrative
expenses incurred by the General Partner that are attributable to Properties
owned by the General Partner directly, or to activities of the General Partner
not related to the Partnership, the allocation of such administrative expenses
between the Partnership and the General Partner shall be determined by the
Partnership's independent accounting firm.
"AFFILIATE" means, (i) any Person that, directly or indirectly, controls or
is controlled by or is under common control with such Person, (ii) any other
Person that owns, beneficially, directly or indirectly, 5% or more of the
outstanding capital stock, shares or equity interests of such Person, or (iii)
any officer, director, employee, partner or trustee of such Person or any Person
controlling, controlled by or under common control with such Person (excluding
trustees and persons serving in similar capacities who are not otherwise an
Affiliate of such Person). For the purposes of this definition, "control"
(including the correlative meanings of the terms "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, through the ownership
of voting securities, partnership interests or other equity interests.
"AGREED VALUE" means the fair market value of a Partner's non-cash Capital
Contribution as of the date of its contribution to the Partnership as agreed to
by the contributing Partner and the General Partner. For purposes of this
Agreement, unless the General Partner in its sole discretion determines
otherwise, the Agreed Value of a Partner's non-cash Capital Contribution shall
be equal to the number of Partnership Units received by such Partner in exchange
for such contribution, multiplied by the "Market Price" on the date of
contribution calculated in accordance with the second and third sentences of the
definition of "Cash Amount." The names and addresses of the Partners, the number
of Partnership Units issued to each Partner, and the Agreed Value of non-cash
Capital Contributions is set forth on Exhibit A attached hereto ("Exhibit A").
"AGREEMENT" means this Fourth Amended and Restated Agreement of Limited
Partnership of the Partnership.
"CAPITAL ACCOUNT" has the meaning provided in Section 4.04 hereof.
- 2 -
<PAGE> 7
"CAPITAL CONTRIBUTION" means the total amount of capital initially
contributed or agreed to be contributed, as the context requires, to the
Partnership by each Partner pursuant to the terms of the Agreement. Any
reference to the Capital Contribution of a Partner shall include the Capital
Contribution made by a predecessor holder of the Partnership Interest of such
Partner. The paid-in Capital Contribution shall mean the cash amount or the
Agreed Value of other assets actually contributed by each Partner to the capital
of the Partnership.
"CAPITAL TRANSACTION" means the refinancing, sale, exchange, condemnation,
recovery of a damage award or insurance proceeds (other than business or rental
interruption insurance proceeds not reinvested in the repair or reconstruction
of Properties), or other disposition of any Property (or the Partnership's
interest therein).
"CASH AMOUNT" means an amount of cash per Partnership Unit equal to the
value of the REIT Shares Amount on the date of receipt by the General Partner of
a Notice of Redemption. The value of the REIT Shares Amount shall be based on
the average of the daily market price of REIT Shares for the ten consecutive
trading days immediately preceding the date of such valuation. The market price
for each such trading day shall be: (i) if the REIT Shares are listed or
admitted to trading on any securities exchange or the Nasdaq-Stock Market, the
sale price, regular way, on such day, or if no sale takes place on such day, the
average of the closing bid and asked prices, regular way, on such day, (ii) if
the REIT Shares are not listed or admitted to trading on any securities exchange
or the Nasdaq-National Market, the last reported sale price on such day or, if
no sale takes place on such day, the average of the closing bid and asked prices
on such day, as reported by a reliable quotation source designated by the
General Partner, or (iii) if the REIT Shares are not listed or admitted to
trading on any securities exchange or the Nasdaq-National Market and no such
last reported sale price or closing bid and asked prices are available, the
average of the reported high bid and low asked prices on such day, as reported
by a reliable quotation source designated by the General Partner, or if there
shall be no bid and asked prices on such day, the average of the high bid and
low asked prices, as so reported, on the most recent day (not more than 10 days
prior to the date in question) for which prices have been so reported; provided
that if there are no bid and asked prices reported during the ten days prior to
the date in question, the value of the REIT Shares shall be determined by the
General Partner acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate. In the
event the REIT Shares Amount includes rights that a holder of REIT Shares would
be entitled to receive, then the value of such rights shall be determined by the
General Partner acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate.
"CERTIFICATE" means any instrument or document that is required under the
laws of the State of Tennessee, or any other jurisdiction in which the
Partnership conducts business, to be signed and sworn to by the Partners of the
Partnership (either by themselves or pursuant to the power-of-attorney granted
to the General Partner in Section 8.02 hereof) and filed for recording in the
appropriate public offices within the State of Tennessee or such
- 3 -
<PAGE> 8
other jurisdiction to perfect or maintain the Partnership as a limited
partnership, to effect the admission, withdrawal, or substitution of any Partner
of the Partnership, or to protect the limited liability of the Limited Partners
as limited partners under the laws of the State of Tennessee or such other
jurisdiction.
"CHARTER" means the Charter of the General Partner filed with the Secretary
of State of the State of Tennessee on August 3, 1993, as amended and restated on
August 3, 1993, January 31, 1995, and February 27, 1996, and as further amended
or restated from time to time.
"CLASS A LIMITED PARTNER" means any Person named as a Class A Limited
Partner on Exhibit A, and any Person who becomes a Substitute or additional
Class A Limited Partner, in such Person's capacity as a Class A Limited Partner
in the Partnership.
"CLASS B LIMITED PARTNER" means any Person named as a Class B Limited
Partner on Exhibit A, and any Person who becomes a Substitute or additional
Class B Limited Partner, in such Person's capacity as a Class B Limited Partner
in the Partnership.
"CODE" means the Internal Revenue Code of 1986, as amended, and as
hereafter amended from time to time. Reference to any particular provision of
the Code shall mean that provision in the Code as of the date hereof and any
successor provision of the Code.
"COMMISSION" means the United States Securities and Exchange Commission.
"COMPANY" means RFS Hotel Investors, Inc., a Tennessee corporation.
"CONVERSION FACTOR" means one (1), provided that in the event that the
General Partner (i) declares or pays a dividend on its outstanding REIT Shares
in REIT Shares or makes a distribution to all holders of its outstanding REIT
Shares in REIT Shares, (ii) subdivides its outstanding REIT Shares, or (iii)
combines its outstanding REIT Shares into a smaller number of REIT Shares, the
Conversion Factor shall be adjusted by multiplying the Conversion Factor by a
fraction, the numerator of which shall be the number of REIT Shares issued and
outstanding on the record date for such dividend, distribution, subdivision or
combination (assuming for such purposes that such dividend, distribution,
subdivision or combination has occurred as of such time), and the denominator of
which shall be the actual number of REIT Shares (determined without the above
assumption) issued and outstanding on such date. Any adjustment to the
Conversion Factor shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
"EVENT OF BANKRUPTCY" as to any Person means the filing of a petition for
relief as to such Person as debtor or bankrupt under the Bankruptcy Code of 1978
or similar provision of law of any jurisdiction (except if such petition is
contested by such Person and has been dismissed within 90 days); insolvency or
bankruptcy of such Person as finally determined by a court proceeding; filing by
such Person of a petition or application to accomplish the same
- 4 -
<PAGE> 9
or for the appointment of a receiver or a trustee for such Person or a
substantial part of his assets; commencement of any proceedings relating to such
Person as a debtor under any other reorganization, arrangement, insolvency,
adjustment of debt or liquidation law of any jurisdiction, whether now in
existence or hereinafter in effect, either by such Person or by another,
provided that if such proceeding is commenced by another, such Person indicates
his approval of such proceeding, consents thereto or acquiesces therein, or such
proceeding is contested by such Person and has not been finally dismissed within
90 days.
"GENERAL PARTNER" means RFS Hotel Investors, Inc. and any Person who
becomes a substitute or additional General Partner as provided herein, and any
of their successors as General Partner.
"GENERAL PARTNERSHIP INTEREST" means a Partnership Interest held by a
General Partner that is a general partnership interest.
"HOTELS" means hotel properties owned by the Partnership from time to time.
"INDEMNITEE" means (i) any Person made a party to a proceeding by reason of
his status as the General Partner or a director or officer of the Partnership or
the General Partner, and (ii) such other Persons (including Affiliates of the
General Partner or the Partnership) as the General Partner may designate from
time to time, in its sole and absolute discretion.
"INDEPENDENT DIRECTOR" means a Director of the Company who is not an
officer or employee of the Company or an Affiliate of (i) any advisor to the
Company under an advisory agreement, (ii) any lessee of any Property, (iii) any
subsidiary of the Company, or (iv) any partnership which is an Affiliate of the
Company.
"LIMITED PARTNER" means any Person named as a Class A Limited Partner or a
Class B Limited Partner on Exhibit A, and any Person who becomes a Substitute or
additional Class A Limited Partner or Class B Limited Partner, in such Person's
capacity as a Class A Limited Partner or a Class B Limited Partner in the
Partnership.
"LIMITED PARTNER REDEMPTION RIGHT" has the meaning provided in Section
8.05(a) hereof.
"LIMITED PARTNERSHIP INTEREST" means the ownership interest of a Limited
Partner in the Partnership at any particular time, including the right of such
Limited Partner to any and all benefits to which such Limited Partner may be
entitled as provided in this Agreement and in the Act, together with the
obligations of such Limited Partner to comply with all the provisions of this
Agreement and of such Act.
"LOSS" has the meaning provided in Section 5.01(h) hereof.
- 5 -
<PAGE> 10
"MINIMUM LIMITED PARTNERSHIP INTEREST" means the lesser of (i) 1% or (ii)
if the total Capital Contributions to the Partnership exceed $50 million, 1%
divided by the ratio of the total Capital Contributions to the Partnership to
$50 million; provided, however, that the Minimum Limited Partnership Interest
shall not be less than 0.2% at any time.
"NOTICE OF REDEMPTION" means the Notice of Exercise of Redemption Right
substantially in the form attached as Exhibit B hereto.
"PARTNER" means any General Partner or Limited Partner.
"PARTNER NONRECOURSE DEBT MINIMUM GAIN" has the meaning set forth in
Regulations Section 1.704-2(i). A Partner's share of Partner Nonrecourse Debt
Minimum Gain shall be determined in accordance with Regulations Section
1.704-2(i)(5).
"PARTNERSHIP INTEREST" means an ownership interest in the Partnership held
by either a Limited Partner or the General Partner and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled as
provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement.
"PARTNERSHIP MINIMUM GAIN" has the meaning set forth in Regulations Section
1.704-2(d). In accordance with Regulations Section 1.704-2(d), the amount of
Partnership Minimum Gain is determined by first computing, for each Partnership
nonrecourse liability, any gain the Partnership would realize if it disposed of
the property subject to that liability for no consideration other than full
satisfaction of the liability, and then aggregating the separately computed
gains. A Partner's share of Partnership Minimum Gain shall be determined in
accordance with Regulations Section 1.704-2(g)(1).
"PARTNERSHIP RECORD DATE" means the record date established by the General
Partner for the distribution of cash pursuant to Section 5.02 hereof, which
record date shall be the same as the record date established by the General
Partner for a distribution to its shareholders of some or all of its portion of
such distribution.
"PARTNERSHIP REDEMPTION RIGHT" has the meaning provided in Section 6.08(b)
hereof.
"PARTNERSHIP UNIT" means a fractional, undivided share of the Partnership
Interests of all Partners issued hereunder. The allocation of Partnership Units
among the Partners shall be as set forth on Exhibit A, as may be amended from
time to time.
"PERCENTAGE INTEREST" means the percentage ownership interest in the
Partnership of each Partner, as determined by dividing the Partnership Units
owned by such Partner by the total number of Partnership Units then outstanding.
The Percentage Interest of each Partner shall be as set forth on Exhibit A, as
may be amended from time to time.
- 6 -
<PAGE> 11
"PERSON" means any individual, partnership, corporation, joint venture,
trust or other entity.
"PREFERENCE VALUE PER UNIT" means, with respect to the Preferred
Partnership Units held by the General Partner, the initial preference value of
$19 per Preferred Partnership Unit.
"PREFERRED PARTNERSHIP INTEREST" means an ownership interest in the
Partnership held by the General Partner and includes any and all benefits to
which the holder of such a Preferred Partnership Interest may be entitled as
provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement.
"PREFERRED PARTNERSHIP UNIT" means a fractional, undivided share of the
Preferred Partnership Interests issued hereunder. The allocation of Preferred
Partnership Units among the Partners shall be as set forth on Exhibit A, as may
be amended from time to time.
"PREFERRED RETURN" means a fixed per annum rate of $1.45 per Preferred
Partnership Unit. The General Partner's Preferred Return (i) shall be
cumulative, (ii) if unpaid, shall accrue interest at an annual rate of 7.6%, and
(iii) shall be prorated for any partial calendar quarter.
"PREFERRED SHARE" means a share of preferred stock of the General Partner.
"PROFIT" has the meaning provided in Section 5.01(h) hereof.
"PROPERTY" means any hotel property or other investment in which the
Partnership holds an ownership interest.
"REDEEMING LIMITED PARTNER" has the meaning provided in Section 8.05(a)
hereof.
"REDEMPTION AMOUNT" means either the Cash Amount or the REIT Shares Amount,
as selected by the General Partner in its sole discretion pursuant to Section
8.05(b) hereof.
"REGULATIONS" means the Federal Income Tax Regulations issued under the
Code, as amended and as hereafter amended from time to time. Reference to any
particular provision of the Regulations shall mean that provision of the
Regulations on the date hereof and any successor provision of the Regulations.
"REIT" means a real estate investment trust under Sections 856 through 860
of the Code.
"REIT EXPENSES" means (i) costs and expenses relating to the formation and
continuity of existence of the General Partner and any Subsidiaries thereof
(which Subsidiaries shall, for purposes of this definition, be included within
the definition of General
- 7 -
<PAGE> 12
Partner), including taxes, fees and assessments associated therewith, any and
all costs, expenses or fees payable to any director, officer, or employee of the
General Partner, (ii) costs and expenses relating to the public offering and
registration of securities by the General Partner and all statements, reports,
fees and expenses incidental thereto, including underwriting discounts and
selling commissions applicable to any such offering of securities, (iii) costs
and expenses associated with the preparation and filing of any periodic reports
by the General Partner under federal, state or local laws or regulations,
including filings with the Commission, (iv) costs and expenses associated with
compliance by the General Partner with laws, rules and regulations promulgated
by any regulatory body, including the Commission, and (v) all other operating or
administrative costs of the General Partner incurred in the ordinary course of
its business on behalf of the Partnership.
"REIT SHARE" means a share of the common stock of the General Partner, par
value $.01 per share.
"REIT SHARES AMOUNT" shall mean a number of REIT Shares equal to the
product of the number of Partnership Units offered for redemption by a Redeeming
Limited Partner, multiplied by the Conversion Factor; provided that in the event
the General Partner issues to all holders of REIT Shares rights, options,
warrants or convertible or exchangeable securities entitling the shareholders to
subscribe for or purchase REIT Shares, or any other securities or property
(collectively, the "rights"), then the REIT Shares Amount shall also include
such rights that a holder of that number of REIT Shares would be entitled to
receive.
"SERIES A PREFERRED SHARE" means a share of convertible preferred stock,
Series A, of the General Partner.
"SERVICE" means the Internal Revenue Service.
"SPECIFIED REDEMPTION DATE" means the first business day of the month that
is at least 5 business days after the receipt by the General Partner of the
Notice of Redemption (or any other date agreed to by the General Partner and the
Redeeming Limited Partner).
"SUBSIDIARY" means, with respect to any Person, any corporation or other
entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests is owned, directly or
indirectly, by such Person.
"SUBSTITUTE LIMITED PARTNER" means any Person admitted to the Partnership
as a Limited Partner pursuant to Section 9.03 hereof.
- 8 -
<PAGE> 13
ARTICLE II
PARTNERSHIP CONTINUATION AND IDENTIFICATION
2.01 CONTINUATION. The Partners hereby agree to continue the Partnership
pursuant to the Act and upon the terms and conditions set forth in this
Agreement.
2.02 NAME, OFFICE AND REGISTERED AGENT. The name of the Partnership shall
be RFS Partnership, L.P. The specified office and place of business of the
Partnership shall be 889 Ridge Lake Blvd., Suite 100, Memphis, Shelby County,
Tennessee 38120. The General Partner may at any time change the location of such
office, provided the General Partner gives notice to the Partners of any such
change. The name and address of the Partnership's registered agent is Robert M.
Solmson, 889 Ridge Lake Blvd., Suite 100, Memphis, Shelby County, Tennessee
38120. The sole duty of the registered agent as such is to forward to the
Partnership any notice that is served on him as registered agent.
2.03 PARTNERS.
(a) The General Partner of the Partnership is RFS Hotel Investors,
Inc. Its principal place of business shall be the same as that of the
Partnership.
(b) The Limited Partners shall be those Persons identified as Limited
Partners on Exhibit A, as amended from time to time.
2.04 TERM AND DISSOLUTION.
(a) The term of the Partnership shall continue in full force and
effect until December 31, 2050, except that the Partnership shall be dissolved
upon the happening of any of the following events:
(i) The occurrence of an Event of Bankruptcy as to a General
Partner or the dissolution, death or withdrawal of a General Partner
unless the business of the Partnership is continued pursuant to
Section 7.03(b) hereof; provided that if a General Partner is on the
date of such occurrence a partnership, the dissolution of such General
Partner as a result of the dissolution, death, withdrawal, removal or
Event of Bankruptcy of a partner in such partnership shall not be an
event of dissolution of the Partnership if the business of such
General Partner is continued by the remaining partner or partners,
either alone or with additional partners, and such General Partner and
such partners comply with any other applicable requirements of this
Agreement;
(ii) The passage of 90 days after the sale or other disposition
of all or substantially all the assets of the Partnership (provided
that if the
- 9 -
<PAGE> 14
Partnership receives an installment obligation as consideration for
such sale or other disposition, the Partnership shall continue, unless
sooner dissolved under the provisions of this Agreement, until such
time as such note or notes are paid in full);
(iii) The redemption of all Limited Partnership Interests (other
than any of such interests held by the General Partner); or
(iv) The election by the General Partner that the Partnership
should be dissolved.
(b) Upon dissolution of the Partnership (unless the business of the
Partnership is continued pursuant to Section 7.03(b) hereof), the General
Partner (or its trustee, receiver, successor or legal representative) shall
amend or cancel the Certificate and liquidate the Partnership's assets and apply
and distribute the proceeds thereof in accordance with Section 5.06 hereof.
Notwithstanding the foregoing, the liquidating General Partner may either (i)
defer liquidation of, or withhold from distribution for a reasonable time, any
assets of the Partnership (including those necessary to satisfy the
Partnership's debts and obligations), or (ii) distribute the assets to the
Partners in kind according to the order of priority set forth in Section 5.06
hereof.
2.05 FILING OF CERTIFICATE AND PERFECTION OF LIMITED PARTNERSHIP. The
General Partner shall execute, acknowledge, record and file at the expense of
the Partnership, the Certificate and any and all amendments thereto and all
requisite fictitious name statements and notices in such places and
jurisdictions as may be necessary to cause the Partnership to be treated as a
limited partnership under, and otherwise to comply with, the laws of each state
or other jurisdiction in which the Partnership conducts business.
ARTICLE III
BUSINESS OF THE PARTNERSHIP
The purpose and nature of the business to be conducted by the Partnership
is (i) to conduct any business that may be lawfully conducted by a limited
partnership organized pursuant to the Act; provided, however, that such business
shall be limited and conducted in such a manner as to permit the General Partner
at all times to be classified as a REIT, unless the General Partner otherwise
ceases to qualify as a REIT, (ii) to enter into any partnership, joint venture
or other similar arrangement to engage in any of the foregoing or the ownership
of interests in any entity engaged in any of the foregoing and (iii) to do
anything necessary or incidental to the foregoing. The General Partner shall
also be empowered to do any and all acts and things necessary or prudent to
ensure that the Partnership will not be classified as a "publicly traded
partnership" for purposes of Section 7704 of the Code.
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ARTICLE IV
CAPITAL CONTRIBUTIONS AND ACCOUNTS
4.01 CAPITAL CONTRIBUTIONS. The General Partner has contributed to the
capital of the Partnership cash in the amounts set forth on Exhibit A. The Class
A Limited Partners have contributed the Class A Limited Partners' proportionate
ownership interests in certain Hotels to the capital of the Partnership. The
Class B Limited Partners have contributed the Class B Limited Partners'
proportionate ownership interests in certain Hotels to the capital of the
Partnership. The Agreed Values of the Partners' Capital Contributions are as set
forth opposite their names on Exhibit A.
4.02 ADDITIONAL CAPITAL CONTRIBUTIONS AND ISSUANCES OF ADDITIONAL
PARTNERSHIP INTERESTS. Except as provided in this Section 4.02 or in Section
4.03 hereof, the Partners shall have no right or obligation to make any
additional Capital Contributions or loans to the Partnership. The General
Partner may contribute additional capital to the Partnership, from time to time,
and receive additional Partnership Interests in respect thereof, in the manner
contemplated in this Section 4.02.
(a) Issuances of Additional Partnership Interests.
(i) General. The General Partner is hereby authorized to cause
the Partnership to issue such additional Partnership Interests in the
form of Partnership Units for any Partnership purpose at any time or
from time to time, to the Partners (including the General Partner) or
to other Persons for such consideration and on such terms and
conditions as shall be established by the General Partner in its sole
and absolute discretion, all without the approval of any Limited
Partners. Any additional Partnership Interests issued thereby may be
issued in one or more classes, or one or more series of any of such
classes, with such designations, preferences and relative,
participating, optional or other special rights, powers and duties,
including rights, powers and duties senior to Limited Partnership
Interests, all as shall be determined by the General Partner in its
discretion based upon its good faith determination that the
Partnership will receive adequate consideration therefor and without
the approval of any Limited Partner, subject to Tennessee law,
including, without limitation, (i) the allocation of items of
Partnership income, gain, loss, deduction and credit to each such
class or series of Partnership Interests; (ii) the right of each such
class or series of Partnership Interests to share in Partnership
distributions; and (iii) the rights of each such class or series of
Partnership Interests upon dissolution and liquidation of the
Partnership; provided, however, that no additional Partnership
Interests shall be issued to the General Partner unless either:
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(1)(A) the additional Partnership Interests are issued in
connection with an issuance of shares of or other interests in
the General Partner, which shares or interests have designations,
preferences and other rights, all such that the economic
interests are substantially similar to the designations,
preferences and other rights of the additional Partnership
Interests issued to the General Partner by the Partnership in
accordance with this Section 4.02 and (B) except as provided in
Section 4.02(a)(ii) hereof, the General Partner shall make a
Capital Contribution to the Partnership in an amount equal to the
proceeds raised in connection with the issuance of such shares of
or other interests in the General Partner, or
(2) the additional Partnership Interests are issued to all
Partners in proportion to their respective Percentage Interests.
Without limiting the foregoing, the General Partner is expressly
authorized to cause the Partnership to issue Partnership Units for
less than fair market value, so long as the General Partner concludes
in good faith that such issuance is in the best interests of the
General Partner and the Partnership.
(ii) Upon Issuance of New Securities. The General Partner shall
not issue any additional REIT Shares (other than REIT Shares issued in
connection with a redemption pursuant to Section 8.05 hereof),
Preferred Shares, or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or
purchase REIT Shares (collectively, "New Securities") other than to
all holders of REIT Shares or Preferred Shares, respectively, unless
(A) the General Partner shall cause the Partnership to issue to the
General Partner, Partnership Interests or rights, options, warrants or
convertible or exchangeable securities of the Partnership having
designations, preferences and other rights, all such that the economic
interests are substantially similar to those of the New Securities,
and (B) the General Partner contributes the proceeds from the issuance
of such New Securities and from the exercise of rights contained in
such New Securities to the Partnership; provided, however, that the
General Partner is allowed to issue New Securities in connection with
an acquisition of a property to be held directly by the General
Partner, but if and only if, such direct acquisition and issuance of
New Securities have been approved and determined to be in the best
interests of the General Partner and the Partnership by a majority of
the Independent Directors. Without limiting the foregoing, the General
Partner is expressly authorized to issue New Securities for less than
fair market value, and to cause the Partnership to issue to the
General Partner corresponding Partnership Interests, so long as (x)
the General Partner concludes in good faith that such issuance is in
the best interests of each of the General Partner
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and the Partnership (for example, and not by way of limitation, the
issuance of REIT Shares and corresponding Partnership Units pursuant
to an employee stock purchase plan providing for employee purchases of
REIT Shares at a discount from fair market value or employee stock
options that have an exercise price that is less than the fair market
value of the REIT Shares, either at the time of issuance or at the
time of exercise), and (y) the General Partner contributes all
proceeds from such issuance to the Partnership. By way of example, in
the event the General Partner issues REIT Shares for a cash purchase
price and contributes all of the proceeds of such issuance to the
Partnership as required hereunder, the General Partner shall be issued
a number of additional Partnership Units equal to the product of (A)
the number of such REIT Shares issued by the General Partner the
proceeds of which were so contributed, multiplied by (B) a fraction,
the numerator of which is one, and the denominator of which is the
Conversion Factor in effect on the date of such contribution.
(b) Certain Deemed Contributions of Proceeds of Issuance of Shares. In
connection with any and all issuances of REIT Shares and Preferred Shares, the
General Partner shall make a Capital Contribution to the Partnership of the
proceeds raised in connection with such issuance as required above, provided
that if the proceeds actually received by the General Partner are less than the
gross proceeds of such issuance as a result of any underwriter's discount or
other expenses paid or incurred in connection with such issuance, then the
General Partner shall be deemed to have made a Capital Contribution to the
Partnership in the amount of the gross proceeds of such issuance and the
Partnership shall be deemed simultaneously to have paid such underwriting
discount and offering expenses in connection with the required issuance of
additional Partnership Units to General Partner for such Capital Contribution
pursuant to Section 4.02(a) hereof.
(c) Minimum Limited Partnership Interest. In the event that either a
redemption pursuant to Section 8.05 hereof or an additional Capital Contribution
by the General Partner would result in the Limited Partners, in the aggregate,
owning less than the Minimum Limited Partnership Interest, the General Partner
and the Limited Partners shall form another partnership and contribute
sufficient Limited Partnership Interests together with such other Limited
Partners so that such partnership owns at least the Minimum Limited Partnership
Interest.
(d) 1993 Plan. The General Partner has established the Amended and
Restated 1993 Restricted Stock and Stock Option Plan and may from time to time
establish other compensation or other incentive plans to provide incentives to
directors, executive officers and certain key employees of the General Partner
or its subsidiaries. The following examples are illustrative of the operation of
the provisions of Section 4.02(a)(ii) with respect to issuances of New
Securities to such directors, officers and employees:
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(i) If the General Partner awards REIT Shares to any such
director, officer or other employee (A) the General Partner shall, as
soon as practicable, contribute to the Partnership (to be thereafter
taken into account for the purposes of calculating any cash
distributable to the Partners) an amount equal to the price, if any,
paid to the General Partner by such party for such REIT Shares, and
(B) the General Partner shall be issued by the Partnership a number of
additional Partnership Units equal to the product of (1) the number of
such REIT Shares issued by the General Partner, multiplied by (2) a
fraction, the numerator of which is one hundred percent (100%), and
the denominator of which is the Conversion Factor in effect on the
date of such contribution.
(ii) If the General Partner awards an option or warrant relating
to REIT shares, whether or not qualifying as an incentive stock option
under the Code, to any director, officer or other employee, then the
Partnership shall grant to the General Partner a corresponding option
or warrant to acquire Partnership Units. Upon the exercise of such
option or warrant, (A) the General Partner shall, as soon as
practicable after such exercise, contribute to the capital of the
Partnership (to be thereafter taken into account for the purposes of
calculating distributable cash) an amount equal to the exercise price,
if any, paid to the General Partner by such exercising party in
connection with the exercise of the option or warrant, and (B) the
General Partner shall be issued by the Partnership a number of
additional Partnership Units equal to the product of (1) the number of
REIT Shares issued by the General Partner in satisfaction of such
exercised option or warrant, multiplied by (2) a fraction, the
numerator of which is one hundred percent (100%), and the denominator
of which is the Conversion Factor in effect on the date of such
contribution.
(iii) If the General Partner grants any director, officer or
employee share appreciation rights, performance share awards or other
similar rights ("Incentive Rights"), then simultaneously, the
Partnership shall grant to the General Partner corresponding and
economically equivalent rights. Consequently, upon the cash payment by
General Partner to its directors, officers or employees pursuant to
such Incentive Rights, the Partnership shall make an equal cash
payment to the General Partner.
4.03 GENERAL PARTNER LOANS. The General Partner may from time to time
advance funds to the Partnership for any proper Partnership purpose as a loan
("Funding Loan"), provided that any such funds must first be obtained by the
General Partner from a third party lender, and then all of such funds must be
loaned by the General Partner to the Partnership on the same terms and
conditions, including principal amount, interest rate, repayment schedule and
costs and expenses, as shall be applicable with respect to or incurred in
connection with such loan from such third party lender. Except for Funding
Loans, the
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General Partner shall not incur any indebtedness for borrowed funds; provided,
however, that upon a majority vote of the Independent Directors, any loan
proceeds received by the General Partner may be distributed to its shareholders
or other equity holders if such loan and distribution have been determined by a
majority of the Independent Directors to be necessary to enable the General
Partner to maintain its status as a REIT under Sections 856-860 of the Code.
4.04 CAPITAL ACCOUNTS. A separate capital account (a "Capital Account")
shall be established and maintained for each Partner in accordance with
Regulations Section 1.704-1(b)(2)(iv). If (i) a new or existing Partner acquires
additional Partnership Units in exchange for more than a de minimis Capital
Contribution, (ii) the Partnership distributes to a Partner more than a de
minimis amount of Partnership property in redemption or liquidation of
Partnership Units, or (iii) the Partnership is liquidated within the meaning of
Regulation Section 1.704-1(b)(2)(ii)(g), the General Partner shall revalue the
property of the Partnership to its fair market value (as determined by the
General Partner and taking into account Section 7701(g) of the Code) in
accordance with Regulations Section 1.704-1(b)(2)(iv)(f). When the Partnership's
property is revalued by the General Partner, the Capital Accounts of the
Partners shall be adjusted in accordance with Regulations Sections
1.704-1(b)(2)(iv)(f) and (g), which generally require such Capital Accounts to
be adjusted to reflect the manner in which the unrealized gain or loss inherent
in such property (that has not been reflected in the Capital Accounts
previously) would be allocated among the Partners pursuant to Section 5.01
hereof if there were a taxable disposition of such property for its fair market
value (as determined by the General Partner and taking into account Section
7701(g) of the Code) on the date of the revaluation.
4.05 PERCENTAGE INTERESTS. If the number of outstanding Partnership Units
increases or decreases during a taxable year, each Partner's Percentage Interest
shall be adjusted to a percentage equal to the number of Partnership Units held
by such Partner divided by the aggregate number of outstanding Partnership
Units. If the Partners' Percentage Interests are adjusted pursuant to this
Section 4.05, the Profits and Losses for the taxable year in which the
adjustment occurs shall be allocated between the part of the year ending on the
day when the Partnership's property is revalued by the General Partner and the
part of the year beginning on the following day either (i) as if the taxable
year had ended on the date of the adjustment or (ii) based on the number of days
in each part. The General Partner, in its sole discretion, shall determine which
method shall be used to allocate Profits and Losses for the taxable year in
which the adjustment occurs. The allocation of Profits and Losses for the
earlier part of the year shall be based on the Percentage Interests before
adjustment, and the allocation of Profits and Losses for the later part shall be
based on the adjusted Percentage Interests.
4.06 NO INTEREST ON CONTRIBUTIONS. No Partner shall be entitled to interest
on its Capital Contribution.
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4.07 RETURN OF CAPITAL CONTRIBUTIONS. No Partner shall be entitled to
withdraw any part of its Capital Contribution or its Capital Account or to
receive any distribution from the Partnership, except as specifically provided
in this Agreement. Except as otherwise provided herein, there shall be no
obligation to return to any Partner or withdrawn Partner any part of such
Partner's Capital Contribution for so long as the Partnership continues in
existence.
4.08 NO THIRD PARTY BENEFICIARY. No creditor or other third party having
dealings with the Partnership shall have the right to enforce the right or
obligation of any Partner to make Capital Contributions or loans or to pursue
any other right or remedy hereunder or at law or in equity, it being understood
and agreed that the provisions of this Agreement shall be solely for the benefit
of, and may be enforced solely by, the parties hereto and their respective
successors and assigns. None of the rights or obligations of the Partners herein
set forth to make Capital Contributions or loans to the Partnership shall be
deemed an asset of the Partnership for any purpose by any creditor or other
third party, nor may such rights or obligations be sold, transferred or assigned
by the Partnership or pledged or encumbered by the Partnership to secure any
debt or other obligation of the Partnership or of any of the Partners. In
addition, it is the intent of the parties hereto that no distribution to any
Limited Partner shall be deemed a return of money or other property in violation
of the Act. However, if any court of competent jurisdiction holds that,
notwithstanding the provisions of this Agreement, any Limited Partner is
obligated to return such money or property, such obligation shall be the
obligation of such Limited Partner and not of the General Partner. Without
limiting the generality of the foregoing, a deficit Capital Account of a Partner
shall not be deemed to be a liability of such Partner nor an asset or property
of the Partnership.
ARTICLE V
PROFITS AND LOSSES; DISTRIBUTIONS
5.01 ALLOCATION OF PROFIT AND LOSS.
(a) Profit. Profit of the Partnership for each fiscal year of the
Partnership shall be allocated as follows:
(i) First, if the Partners previously have been allocated Loss
under Section 5.01(b)(v), to the Partners in accordance with their
respective Percentage Interests until the aggregate amount of Profit
allocated under this Section 5.01(a)(i) equals the aggregate amount of
Loss allocated under Section 5.01(b)(v);
(ii) Second, if the General Partner previously has been allocated
Loss under Section 5.01(b)(iv), to the General Partner until the
aggregate amount of
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Profit allocated under this Section 5.01(a)(ii) equals the aggregate
amount of Loss allocated under Section 5.01(b)(iv);
(iii) Third, if the General Partner and the Class B Limited
Partners previously have been allocated Loss under Section
5.01(b)(iii), to the General Partner and the Class B Limited Partners
in proportion to their Percentage Interests until the aggregate amount
of Profit allocated under this Section 5.01(a)(iii) equals the
aggregate amount of Loss allocated under Section 5.01(b)(iii);
(iv) Fourth, if the Class A Limited Partners previously have been
allocated Loss under Section 5.01(b)(ii), to the Class A Limited
Partners in proportion to their Percentage Interests until the
aggregate amount of Profit allocated under this Section 5.01(a)(iv)
equals the aggregate amount of Loss allocated under Section
5.01(b)(ii);
(v) Fifth, to the General Partner until the aggregate amount of
Profit allocated to the General Partner under this Section 5.01(a)(v)
for the current and all prior years equals the aggregate amount of
cash distributed to the General Partner under Section 5.02(a)(i) for
the current and all prior years;
(vi) Sixth, to the General Partner and the Class B Limited
Partners in proportion to their Percentage Interests until the
aggregate amount of Profit allocated to the General Partner and the
Class B Limited Partners under this Section 5.01(a)(vi) for the
current and all prior years equals the aggregate amount of cash
distributed to the General Partner and the Class B Limited Partners
under Section 5.02(a)(ii) for the current and all prior years;
(vii) Seventh, to the Class A Limited Partners in proportion to
their Percentage Interests until the aggregate amount of Profit
allocated to the Class A Limited Partners under this Section
5.01(a)(vii) for the current and all prior years equals the aggregate
amount of cash distributed to the Class A Limited Partners under
Section 5.02(a)(iii) for the current and all prior years; and
(viii) Thereafter, any remaining Profit shall be allocated among
the Partners in accordance with their respective Percentage Interests.
(b) Loss. Loss of the Partnership for each fiscal year of the
Partnership shall be allocated as follows:
(i) First, if the Partners previously have been allocated Profit
under Section 5.01(a)(viii), Loss shall be allocated among the
Partners in accordance with their respective Percentage Interests
until the aggregate amount of Loss
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allocated under this Section 5.01(b)(i) equals the aggregate amount of
Profit allocated under Section 5.01(a)(viii);
(ii) Second, if the Class A Limited Partners previously have been
allocated Profit under Section 5.01(a)(vii), Loss shall be allocated
to the Class A Limited Partners in proportion to their Percentage
Interests until the aggregate amount of Loss allocated under this
Section 5.01(b)(ii) equals the aggregate amount of Profit allocated
under Section 5.01(a)(vii);
(iii) Third, if the General Partner and the Class B Limited
Partners previously have been allocated Profit under Section
5.01(a)(vi), Loss shall be allocated to the General Partner and the
Class B Limited Partners in proportion to their Percentage Interests
until the aggregate amount of Loss allocated under this Section
5.01(b)(iii) equals the aggregate amount of Profit allocated under
Section 5.01(a)(vi);
(iv) Fourth, if the General Partner previously has been allocated
Profit under Section 5.01(a)(v), Loss shall be allocated to the
General Partner until the aggregate amount of Loss allocated under
this Section 5.01(b)(iv) equals the aggregate amount of Profit
allocated under Section 5.01(a)(v); and
(v) Thereafter, any remaining Loss shall be allocated among the
Partners in accordance with their respective Percentage Interests.
(c) Depreciation and Amortization Deductions. Depreciation and
amortization deductions for each fiscal year of the Partnership shall be
allocated among the Partners in accordance with their respective Percentage
Interests.
(d) Minimum Gain Chargeback. Notwithstanding any provision to the
contrary, (i) any expense of the Partnership that is a "nonrecourse deduction"
within the meaning of Regulations Section 1.704-2(b)(1) shall be allocated among
the Partners in accordance with their respective Percentage Interests, (ii) any
expense of the Partnership that is a "partner nonrecourse deduction" within the
meaning of Regulations Section 1.704-2(i)(2) shall be allocated in accordance
with Regulations Section 1.704-2(i)(1), (iii) if there is a net decrease in
Partnership Minimum Gain within the meaning of Regulations Section 1.704-2(f)(1)
for any Partnership taxable year, items of gain and income shall be allocated
among the Partners in accordance with Regulations Section 1.704-2(f) and the
ordering rules contained in Regulations Section 1.704-2(j), and (iv) if there is
a net decrease in Partner Nonrecourse Debt Minimum Gain within the meaning of
Regulations Section 1.704-2(i)(4) for any Partnership taxable year, items of
gain and income shall be allocated among the Partners in accordance with
Regulations Section 1.704-2(i)(4) and the ordering rules contained in
Regulations Section 1.704-2(j). A Partner's "interest in partnership profits"
for purposes of determining its share of the nonrecourse liabilities of the
Partnership within the meaning of Regulations Section 1.752-3(a)(3) shall be
such Partner's Percentage Interest.
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(e) Qualified Income Offset. If a Limited Partner receives in any
taxable year an adjustment, allocation, or distribution described in
subparagraphs (4), (5), or (6) of Regulations Section 1.704-1(b)(2)(ii)(d) that
causes or increases a negative balance in such Partner's Capital Account that
exceeds the sum of such Partner's shares of Partnership Minimum Gain and Partner
Nonrecourse Debt Minimum Gain, as determined in accordance with Regulations
Sections 1.704-2(g) and 1.704-2(i), such Partner shall be allocated specially
for such taxable year (and, if necessary, later taxable years) items of income
and gain in an amount and manner sufficient to eliminate such negative Capital
Account balance as quickly as possible as provided in Regulations Section
1.704-1(b)(2)(ii)(d). After the occurrence of an allocation of income or gain to
a Limited Partner in accordance with this Section 5.01(e), to the extent
permitted by Regulations Section 1.704-1(b) and Section 5.01(f), items of
expense or loss shall be allocated to such Partner in an amount necessary to
offset the income or gain previously allocated to such Partner under this
Section 5.01(e).
(f) Capital Account Deficits. Loss shall not be allocated to a Limited
Partner to the extent that such allocation would cause a deficit in such
Partner's Capital Account (after reduction to reflect the items described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the sum of
such Partner's shares of Partnership Minimum Gain and Partner Nonrecourse Debt
Minimum Gain. Any Loss in excess of that limitation shall be allocated to the
General Partner. After the occurrence of an allocation of Loss to the General
Partner in accordance with this Section 5.01(f), to the extent permitted by
Regulations Section 1.704-1(b), Profit shall be allocated to such Partner in an
amount necessary to offset the Loss previously allocated to such Partner under
this Section 5.01(f).
(g) Allocations Between Transferor and Transferee. If a Partner
transfers any part or all of its Partnership Interest, and the transferee is
admitted as a substitute Partner as provided herein, the distributive shares of
the various items of Profit and Loss allocable among the Partners during such
fiscal year of the Partnership shall be allocated between the transferor and the
substitute Partner either (i) as if the Partnership's fiscal year had ended on
the date of the transfer, or (ii) based on the number of days of such fiscal
year that each was a Partner without regard to the results of Partnership
activities in the respective portions of such fiscal year in which the
transferor and the transferee were Partners. The General Partner, in its sole
discretion, shall determine which method shall be used to allocate the
distributive shares of the various items of Profit and Loss between the
transferor and the substitute Partner.
(h) Definition of Profit and Loss. "Profit" and "Loss" and any items
of income, gain, expense, or loss referred to in this Agreement shall be
determined in accordance with federal income tax accounting principles, as
modified by Regulations Section 1.704-1(b)(2)(iv), except that Profit and Loss
shall not include items of income, gain and expense that are specially allocated
pursuant to Section 5.01(c), 5.01(d), 5.01(e), 5.01(f), or 5.06(a)(ii). All
allocations of income, Profit, gain, Loss, and expense (and all items contained
therein) for federal income tax purposes shall be identical to all allocations
of such items set forth in this Section 5.01, except as otherwise required by
Section 704(c) of the
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Code and Regulations Section 1.704-1(b)(4). The General Partner shall have the
authority to elect the method to be used by the Partnership for allocating items
of income, gain, and expense as required by Section 704(c) of the Code and such
election shall be binding on all Partners.
5.02 DISTRIBUTION OF CASH.
(a) The General Partner shall distribute cash on a quarterly (or, at
the election of the General Partner, more frequent) basis, in an amount
determined by the General Partner in its sole discretion, to the Partners who
are Partners on the Partnership Record Date with respect to such quarter (or
other distribution period), as follows:
(i) First, to the General Partner until the General Partner has
received an amount equal to the excess, if any, of (A) its cumulative
Preferred Return for the current and all prior years over (B) the sum
of all prior distributions to the General Partner pursuant to this
Section 5.02(a)(i);
(ii) Second, to the General Partner and the Class B Limited
Partners in proportion to their Percentage Interests until the General
Partner has received, on a cumulative basis, an amount sufficient to
provide the General Partner with Funds From Operations (net income
(computed in accordance with generally accepted accounting principles)
excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization, and after adjustments
for unconsolidated partnerships and joint ventures) each year equal to
$1.00 per share of common stock of the General Partner, based on the
weighted average number of such shares outstanding during such year;
(iii) Third, to the Class A Limited Partners in proportion to
their Percentage Interests until the Class A Limited Partners have
received, on a cumulative basis, an amount per Partnership Unit equal
to the amount per Partnership Unit received by the General Partner and
Class B Limited Partners under Section 5.02(a)(ii) hereof; and
(iv) Thereafter, to the Partners in accordance with their
respective Percentage Interests.
(b) In no event may a Partner receive a distribution of cash with
respect to a Partnership Unit if such Partner is entitled to receive a dividend
with respect to a REIT Share for which all or part of such Partnership Unit has
been or will be exchanged.
5.03 REIT DISTRIBUTION REQUIREMENTS. The General Partner shall use its
reasonable efforts to cause the Partnership to distribute amounts sufficient to
enable the General Partner (i) to meet its distribution requirement for
qualification as a REIT as set
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forth in Section 857(a)(1) of the Code and (ii) to avoid any federal income or
excise tax liability imposed by the Code.
5.04 NO RIGHT TO DISTRIBUTIONS IN KIND. No Partner shall be entitled to
demand property other than cash in connection with any distributions by the
Partnership.
5.05 LIMITATIONS ON RETURN OF CAPITAL CONTRIBUTIONS. Notwithstanding any of
the provisions of this Article V, no Partner shall have the right to receive and
the General Partner shall not have the right to make, a distribution which
includes a return of all or part of a Partner's Capital Contributions, unless
after giving effect to the return of a Capital Contribution, the sum of all
Partnership liabilities, other than the liabilities to a Partner for the return
of his Capital Contribution, does not exceed the fair market value of the
Partnership's assets.
5.06 DISTRIBUTIONS UPON LIQUIDATION.
(a) Upon liquidation of the Partnership, after payment of, or adequate
provision for, debts and obligations of the Partnership, including any Partner
loans, any remaining assets of the Partnership shall be distributed to all
Partners with positive Capital Accounts in accordance with their respective
positive Capital Account balances. For purposes of this Section 5.06(a), the
Capital Account of each Partner shall be determined (i) after all adjustments
made in accordance with Sections 5.01 and 5.02 hereof resulting from Partnership
operations and from all sales and dispositions of all or any part of the
Partnership's assets and (ii), if the General Partner's cumulative Preferred
Return for the current and all prior years exceeds the sum of all prior
distributions to the General Partner pursuant to Section 5.02(a)(i) hereof,
after the General Partner has been allocated income or gain equal to such
excess. Any distributions pursuant to this Section 5.06 shall be made by the end
of the Partnership's taxable year in which the liquidation occurs (or, if later,
within 90 days after the date of the liquidation). To the extent deemed
advisable by the General Partner, appropriate arrangements (including the use of
a liquidating trust) may be made to assure that adequate funds are available to
pay any contingent debts or obligations of the Partnership.
(b) If the General Partner has a negative balance in its Capital
Account following a liquidation of the Partnership, as determined after taking
into account all Capital Account adjustments in accordance with Sections 5.01
and 5.02 hereof resulting from Partnership operations and from all sales and
dispositions of all or any part of the Partnership's assets, the General Partner
shall contribute to the Partnership an amount of cash equal to the negative
balance in its Capital Account and such cash shall be paid or distributed by the
Partnership to creditors, if any, and then to the Limited Partners in accordance
with Section 5.06(a). Such contribution by the General Partner shall be made by
the end of the Partnership's taxable year in which the liquidation occurs (or,
if later, within 90 days after the date of the liquidation).
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5.07 SUBSTANTIAL ECONOMIC EFFECT. It is the intent of the Partners that the
allocations of Profit and Loss under the Agreement have substantial economic
effect (or be consistent with the Partners' interests in the Partnership in the
case of the allocation of losses attributable to nonrecourse debt) within the
meaning of Section 704(b) of the Code as interpreted by the Regulations
promulgated pursuant thereto. Article V and other relevant provisions of this
Agreement shall be interpreted in a manner consistent with such intent.
ARTICLE VI
RIGHTS, OBLIGATIONS AND
POWERS OF THE GENERAL PARTNER
6.01 MANAGEMENT OF THE PARTNERSHIP.
(a) Except as otherwise expressly provided in this Agreement, the
General Partner shall have full, complete and exclusive discretion to manage and
control the business of the Partnership for the purposes herein stated, and
shall make all decisions affecting the business and assets of the Partnership.
Subject to the restrictions specifically contained in this Agreement, the powers
of the General Partner shall include, without limitation, the authority to take
the following actions on behalf of the Partnership:
(i) to acquire, purchase, own, lease and dispose of any real
property and any other property or assets that the General Partner
determines are necessary or appropriate or in the best interests of
the business of the Partnership;
(ii) to construct buildings and make other improvements on the
properties owned or leased by the Partnership;
(iii) to borrow money for the Partnership, issue evidences of
indebtedness in connection therewith, refinance, guarantee, increase
the amount of, modify, amend or change the terms of, or extend the
time for the payment of, any indebtedness or obligation to the
Partnership, and secure such indebtedness by mortgage, deed of trust,
pledge or other lien on the Partnership's assets;
(iv) to pay, either directly or by reimbursement, for all
operating costs and general administrative expenses of the General
Partner or the Partnership, to third parties or to the General Partner
as set forth in this Agreement;
(v) to lease all or any portion of any of the Partnership's
assets, whether or not the terms of such leases extend beyond the
termination date of
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the Partnership and whether or not any portion of the Partnership's
assets so leased are to be occupied by the lessee, or, in turn,
subleased in whole or in part to others, for such consideration and on
such terms as the General Partner may determine;
(vi) to prosecute, defend, arbitrate, or compromise any and all
claims or liabilities in favor of or against the Partnership, on such
terms and in such manner as the General Partner may reasonably
determine, and similarly to prosecute, settle or defend litigation
with respect to the Partners, the Partnership, or the Partnership's
assets; provided, however, that the General Partner may not, without
the consent of all of the Partners, confess a judgment against the
Partnership;
(vii) to file applications, communicate, and otherwise deal with
any and all governmental agencies having jurisdiction over, or in any
way affecting, the Partnership's assets or any other aspect of the
Partnership business;
(viii) to make or revoke any election permitted or required of
the Partnership by any taxing authority;
(ix) to maintain such insurance coverage for public liability,
fire and casualty, and any and all other insurance for the protection
of the Partnership, for the conservation of Partnership assets, or for
any other purpose convenient or beneficial to the Partnership, in such
amounts and such types, as it shall determine from time to time;
(x) to determine whether or not to apply any insurance proceeds
for any property to the restoration of such property or to distribute
the same;
(xi) to retain legal counsel, accountants, consultants, real
estate brokers, and such other persons, as the General Partner may
deem necessary or appropriate in connection with the Partnership
business and to pay therefor such reasonable remuneration as the
General Partner may deem reasonable and proper;
(xii) to retain other services of any kind or nature in
connection with the Partnership business, and to pay therefor such
remuneration as the General Partner may deem reasonable and proper;
(xiii) to negotiate and conclude agreements on behalf of the
Partnership with respect to any of the rights, powers and authority
conferred upon the General Partner;
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(xiv) to maintain accurate accounting records and to file
promptly all federal, state and local income tax returns on behalf of
the Partnership;
(xv) to distribute Partnership cash or other Partnership assets
in accordance with this Agreement;
(xvi) to form or acquire an interest in, and contribute property
to, any further limited or general partnerships, joint ventures or
other relationships that it deems desirable (including, without
limitation, the acquisition of interests in, and the contributions of
property to, its Subsidiaries and any other Person in which it has an
equity interest from time to time);
(xvii) to establish Partnership reserves for working capital,
capital expenditures, contingent liabilities, or any other valid
Partnership purpose; and
(xviii) to take such other action, execute, acknowledge, swear to
or deliver such other documents and instruments, and perform any and
all other acts the General Partner deems necessary or appropriate for
the formation, continuation and conduct of the business and affairs of
the Partnership and to possess and enjoy all of the rights and powers
of a general partner as provided by the Act.
Except as otherwise provided herein, to the extent the duties of the General
Partner require expenditures of funds to be paid to third parties, the General
Partner shall not have any obligations hereunder except to the extent that
Partnership funds are reasonably available to it for the performance of such
duties, and nothing herein contained shall be deemed to authorize or require the
General Partner, in its capacity as such, to expend its individual funds for
payment to third parties or to undertake any individual liability or obligation
on behalf of the Partnership.
(b) In no event shall the General Partner incur or allow to exist as
of the end of any month Indebtedness (as defined below) in an amount in excess
of thirty percent (30%) of the General Partner's investment in hotel properties,
at cost, after giving effect to the General Partner's use of proceeds from any
Indebtedness. For purposes of the foregoing restrictions, "Indebtedness" of the
General Partner shall mean all obligations of the General Partner, the
Partnership or any other subsidiaries or partnerships in which the General
Partner serves as general partner, for borrowed money (including all notes
payable and drafts accepted representing extensions of credit) and all
obligations evidenced by bonds, debentures, notes or other similar instruments
on which interest charges are customarily paid, including obligations under
capital leases.
6.02 DELEGATION OF AUTHORITY. The General Partner may delegate any or all
of its powers, rights and obligations hereunder, and may appoint, employ,
contract or otherwise deal with any Person for the transaction of the business
of the Partnership, which Person
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may, under supervision of the General Partner, perform any acts or services for
the Partnership as the General Partner may approve.
6.03 INDEMNIFICATION AND EXCULPATION OF INDEMNITEES.
(a) The Partnership shall indemnify an Indemnitee from and against any
and all losses, claims, damages, liabilities (joint or several), expenses
(including reasonable legal fees and expenses), judgments, fines, settlements,
and other amounts arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative, that relate to
the operations of the Partnership as set forth in this Agreement in which any
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, unless it is established that: (i) the act or omission of the
Indemnitee was material to the matter giving rise to the proceeding and either
was committed in bad faith or was the result of active and deliberate
dishonesty; (ii) the Indemnitee actually received an improper personal benefit
in money, property or services; or (iii) in the case of any criminal proceeding,
the Indemnitee had reasonable cause to believe that the act or omission was
unlawful. The termination of any proceeding by judgment, order or settlement
does not create a presumption that the Indemnitee did not meet the requisite
standard of conduct set forth in this Section 6.03(a). The termination of any
proceeding by conviction or upon a plea of nolo contendere or its equivalent, or
an entry of an order of probation prior to judgment, creates a rebuttable
presumption that the Indemnitee acted in a manner contrary to that specified in
this Section 6.03(a). Any indemnification pursuant to this Section 6.03 shall be
made only out of the assets of the Partnership.
(b) The Partnership may reimburse an Indemnitee for reasonable
expenses incurred by an Indemnitee who is a party to a proceeding in advance of
the final disposition of the proceeding upon receipt by the Partnership of (i) a
written affirmation by the Indemnitee of the Indemnitee's good faith belief that
the standard of conduct necessary for indemnification by the Partnership as
authorized in this Section 6.03 has been met, and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
(c) The indemnification provided by this Section 6.03 shall be in
addition to any other rights to which an Indemnitee or any other Person may be
entitled under any agreement, pursuant to any vote of the Partners, as a matter
of law or otherwise, and shall continue as to an Indemnitee who has ceased to
serve in such capacity.
(d) The Partnership may purchase and maintain insurance, on behalf of
the Indemnitees and such other Persons as the General Partner shall determine,
against any liability that may be asserted against or expenses that may be
incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.
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(e) For purposes of this Section 6.03, the Partnership shall be deemed
to have requested an Indemnitee to serve as fiduciary of an employee benefit
plan whenever the performance by it of its duties to the Partnership also
imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute fines within the meaning of this Section 6.03; and actions
taken or omitted by the Indemnitee with respect to an employee benefit plan in
the performance of its duties for a purpose reasonably believed by it to be in
the interest of the participants and beneficiaries of the plan shall be deemed
to be for a purpose which is not opposed to the best interests of the
Partnership.
(f) In no event may an Indemnitee subject the Limited Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 6.03 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 6.03 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
6.04 LIABILITY OF THE GENERAL PARTNER.
(a) Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable for monetary damages to the
Partnership or any Partners for losses sustained or liabilities incurred as a
result of errors in judgment or of any act or omission if the General Partner
acted in good faith.
(b) The Limited Partners expressly acknowledge that the General
Partner is acting on behalf of the Partnership and the General Partner's
shareholders collectively, that the General Partner is under no obligation to
consider the separate interests of the Limited Partners (including, without
limitation, the tax consequences to Limited Partners) in deciding whether to
cause the Partnership to take (or decline to take) any actions, and that the
General Partner shall not be liable for monetary damages for losses sustained,
liabilities incurred, or benefits not derived by Limited Partners in connection
with such decisions, provided that the General Partner has acted in good faith.
(c) Subject to its obligations and duties as General Partner set forth
in Section 6.01 hereof, the General Partner may exercise any of the powers
granted to it under this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through its agents. The General Partner shall
not be responsible for any misconduct or negligence on the part of any such
agent appointed by it in good faith.
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(d) Notwithstanding any other provisions of this Agreement or the Act,
any action of the General Partner on behalf of the Partnership or any decision
of the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the good faith belief that such action or omission is necessary or
advisable in order (i) to protect the ability of the General Partner to continue
to qualify as a REIT or (ii) to prevent the General Partner from incurring any
taxes under Section 857, Section 4981, or any other provision of the Code, is
expressly authorized under this Agreement and is deemed approved by all of the
Limited Partners.
(e) Any amendment, modification or repeal of this Section 6.04 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's liability to the Partnership and the
Limited Partners under this Section 6.04 as in effect immediately prior to such
amendment, modification or repeal with respect to matters occurring, in whole or
in part, prior to such amendment, modification or repeal, regardless of when
claims relating to such matters may arise or be asserted.
6.05 EXPENDITURES BY THE PARTNERSHIP. The General Partner is hereby
authorized to pay compensation for accounting, administrative, legal, technical,
management and other services rendered to the Partnership. All of the aforesaid
expenditures (including Administrative Expenses) shall be made on behalf of the
Partnership, and the General Partner shall be entitled to reimbursement by the
Partnership for any expenditure (including Administrative Expenses) incurred by
it on behalf of the Partnership which shall be made other than out of the funds
of the Partnership. The Partnership shall also assume, and pay when due, all
Administrative Expenses.
6.06 OUTSIDE ACTIVITIES; REDEMPTION/TENDER OFFER OF REIT SHARES.
(a) Subject to Section 6.12 hereof, the Charter and any agreements
entered into by the General Partner or its Affiliates with the Partnership or a
Subsidiary, any officer, director, employee, agent, trustee, Affiliate or
shareholder of the General Partner shall be entitled to and may have business
interests and engage in business activities in addition to those relating to the
Partnership, including business interests and activities substantially similar
or identical to those of the Partnership. Neither the Partnership nor any of the
Limited Partners shall have any rights by virtue of this Agreement in any such
business ventures, interests or activities. None of the Limited Partners nor any
other Person shall have any rights by virtue of this Agreement or the
partnership relationship established hereby in any such business ventures,
interests or activities, and the General Partner shall have no obligation
pursuant to this Agreement to offer any interest in any such business ventures,
interests and activities to the Partnership or any Limited Partner, even if such
opportunity is of a character which, if presented to the Partnership or any
Limited Partner, could be taken by such Person.
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(b) In the event the General Partner redeems any REIT Shares, then the
General Partner shall cause the Partnership to purchase from it a number of
Partnership Units as determined based on the application of the Conversion
Factor on the same terms that the General Partner redeemed such REIT Shares.
Moreover, if the General Partner makes a cash tender offer or other offer to
acquire REIT Shares, then the General Partner shall cause the Partnership to
make a corresponding offer to the General Partner to acquire an equal number of
Partnership Units held by the General Partner. In the event any REIT Shares are
redeemed by the General Partner pursuant to such offer, the Partnership shall
redeem an equivalent number of the General Partner's Partnership Units for an
equivalent purchase price based on the application of the Conversion Factor.
6.07 OPTIONAL CONVERSION OF SERIES A PREFERRED SHARES. In the event any
holder of the Series A Preferred Shares exercises its option to convert its
Series A Preferred Shares into REIT Shares on or after February 27, 2003, then
the General Partner shall cause the Partnership to convert an equivalent number
of the Preferred Partnership Units held by the General Partner into Partnership
Units held by such Partner. The portion of Preferred Partnership Units to be
converted shall be determined based on the same ratio pursuant to which the
Series A Preferred Shares were converted into REIT Shares. Upon the conversion
of all of the Series A Preferred Shares into REIT Shares, the General Partner
shall no longer hold Preferred Partnership Units and, thus, shall no longer be
entitled to distribution under Sections 5.02(a)(i) hereof.
6.08 REDEMPTION RIGHT WITH RESPECT TO PREFERRED PARTNERSHIP UNITS.
(a) Mandatory Redemption. In the event the General Partner redeems all
of the Series A Preferred Shares as a result of the termination of the General
Partner's status as a REIT, the Partnership shall redeem all of the Series A
Preferred Partnership Units held by the General Partner at a redemption price
per Series A Preferred Partnership Unit equal to the greater of (i) the Series A
Preference Value per Unit plus the excess, if any, of (A) the General Partner's
cumulative Preferred Return for the current and all prior years (up to and
including the date of redemption) with respect to the Preferred Partnership Unit
over (B) the sum of all prior distributions to with respect to such Unit
pursuant to Section 5.02(a)(i) hereof, or (ii) the product of (A) the weighted
average of the sales prices for a REIT Share as reported on the NASDAQ-National
Market System, or the principal exchange on which REIT Shares are then traded,
for the ten (10) business days prior to the second business day preceding the
date of repurchase, or if the REIT Shares no longer traded on the Nasdaq-Stock
Market or a recognized exchange, the fair market value thereof as determined by
the General Partner and the holders of the Series A Preferred Shares for
purposes of the redemption of the Series A Preferred Shares, multiplied by (B)
the number of REIT Shares into which a Series A Preferred Share would be
convertible, if converted on the business day preceding the date of redemption.
(b) Optional Redemption. On and after February 27, 2003, the
Partnership may, at its option following notice as described below, redeem at
any time all or a portion of
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the Preferred Partnership Units held by the General Partner (the "Partnership
Redemption Right") at a redemption price per Preferred Partnership Unit, payable
in cash, equal to the sum of (i) the Preference Value per Preferred Partnership
Unit and (ii) the excess, if any, of (A) the General Partner's cumulative
Preferred Return for the current and all prior years (up to and including the
date of redemption) with respect to the Preferred Partnership Unit over (B) the
sum of all prior distributions to the General Partner with respect to such Unit
pursuant to Section 5.02(a)(i) hereof. The Partnership shall exercise the
Partnership Redemption Right by notifying the General Partner of the redemption
not less than 30 nor more than 60 days prior to the redemption date and by
specifying in such notice the redemption date, the redemption price, and the
number of Preferred Partnership Units to be redeemed. The Partnership Redemption
Right may be exercised with respect to any number of Preferred Partnership Units
held by the General Partner. If the General Partner exercises its optional
redemption right with respect to the Series A Preferred Shares, then the
exercise of the Partnership Redemption Right will become mandatory. Similarly,
if the Partnership exercises the Partnership Redemption Right, the General
Partner agrees to redeem a corresponding portion of the Series A Preferred
Shares.
(c) On and after the redemption date, the Preferred Return will no
longer accrue or accumulate with respect to the Preferred Partnership Units
redeemed by the Partnership. In addition, the General Partner shall have no
right, with respect to the Preferred Partnership Units so redeemed, to receive
any distribution payable after the redemption date unless the General Partner
was the holder of record of such Units on the record date of the distribution.
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6.09 EMPLOYMENT OR RETENTION OF AFFILIATES.
(a) Any Affiliate of the General Partner may be employed or retained
by the Partnership and may otherwise deal with the Partnership (whether as a
buyer, lessor, lessee, manager, furnisher of goods or services, broker, agent,
lender or otherwise) and may receive from the Partnership any compensation,
price, or other payment therefor which the General Partner determines to be fair
and reasonable.
(b) The Partnership may lend or contribute to its Subsidiaries or
other Persons in which it has an equity investment, and such Persons may borrow
funds from the Partnership, on terms and conditions established in the sole and
absolute discretion of the General Partner. The foregoing authority shall not
create any right or benefit in favor of any Subsidiary or any other Person.
(c) The Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon such terms and subject to such conditions as the
General Partner deems are consistent with this Agreement and applicable law.
(d) Except as expressly permitted by this Agreement, neither the
General Partner nor any of its Affiliates shall sell, transfer or convey any
property to, or purchase any property from, the Partnership, directly or
indirectly, except pursuant to transactions that are on terms that are fair and
reasonable to the Partnership.
6.10 LOANS TO THE PARTNERSHIP. If additional funds are required by the
Partnership for any purpose relating to the business of the Partnership or for
any of its obligations, expenses, costs, or expenditures, including operating
deficits, the Partnership may borrow such funds as are needed from the General
Partner or any Affiliate of the General Partner for such period of time and on
such terms as the General Partner or its Affiliate may agree, provided that the
terms shall be substantially equivalent to the terms that could be obtained from
a third party on an arm's-length basis.
6.11 LOANS TO THE GENERAL PARTNER. If additional funds are required by the
General Partner for any purpose relating to the business of the General Partner
or for any of its obligations, expenses, costs, or expenditures, including
operating deficits, the General Partner may borrow such funds as are needed from
the Partnership or any Affiliate of the Partnership for such period of time and
on such terms as the Partnership or its Affiliate may agree, provided that the
terms shall be substantially equivalent to the terms that could be obtained from
a third party on an arm's-length basis.
6.12 GENERAL PARTNER PARTICIPATION. The General Partner agrees that all
business activities of the General Partner, including activities pertaining to
the acquisition, development and/or ownership of hotels or other property, shall
be conducted through the Partnership; provided, however, that the General
Partner is allowed to make a direct
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acquisition, but if and only if, such acquisition is made in connection with the
issuance of New Securities, which direct acquisition and issuance have been
approved and determined to be in the best interests of the General Partner and
the Partnership by a majority of the Independent Directors. The General Partner
also agrees that all borrowings shall constitute Funding Loans, subject to the
exception set forth in Section 4.03 hereof.
ARTICLE VII
CHANGES IN GENERAL PARTNER
7.01 TRANSFER OF THE GENERAL PARTNER'S PARTNERSHIP INTEREST.
(a) The General Partner may not transfer any of its General
Partnership Interest or Limited Partnership Interest or withdraw as General
Partner except as provided in Section 7.01(c) or in connection with a
transaction described in Section 7.01(d).
(b) The General Partner agrees that it will at all times own at least
a 20% Partnership Interest.
(c) Except as otherwise provided in Section 6.06(b) or Section 7.01(d)
hereof, the General Partner shall not engage in any merger, consolidation or
other combination with or into another Person or sale of all or substantially
all of its assets, or any reclassification, or any recapitalization or change of
outstanding REIT Shares (other than a change in par value, or from par value to
no par value, or as a result of a subdivision or combination of REIT Shares (a
"Transaction"), unless (i) the Transaction also includes a merger of the
Partnership or sale of substantially all of the assets of the Partnership as a
result of which all Limited Partners will receive for each Partnership Unit an
amount of cash, securities, or other property equal to the product of the
Conversion Factor and the greatest amount of cash, securities or other property
paid in the Transaction to a holder of one REIT Share in consideration of one
REIT Share, provided that if, in connection with the Transaction, a purchase,
tender or exchange offer ("Offer") shall have been made to and accepted by the
holders of more than 50 percent of the outstanding REIT Shares, each holder of
Partnership Units shall be given the option to exchange its Partnership Units
for the greatest amount of cash, securities, or other property which a Limited
Partner would have received had it (A) exercised its Limited Partner Redemption
Right and received REIT shares and (B) sold, tendered or exchanged such REIT
shares pursuant to the Offer the REIT Shares received upon exercise of the
Limited Partner Redemption Right immediately prior to the expiration of the
Offer; and (ii) no more than 75 percent of the equity securities of the
acquiring Person in such Transaction shall be owned, after consummation of such
Transaction, by the General Partner or Persons who were Affiliates of the
Partnership or the General Partner immediately prior to the date on which the
Transaction is consummated.
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(d) Notwithstanding Section 7.01(c), the General Partner may merge
into or consolidate with another entity if immediately after such merger or
consolidation (i) substantially all of the assets of the successor or surviving
entity (the "Surviving General Partner"), other than Partnership Units held by
the General Partner, are contributed to the Partnership as a Capital
Contribution in exchange for Partnership Units with a fair market value equal to
the value of the assets so contributed by the Surviving General Partner in good
faith and (ii) the Surviving General Partner expressly agrees to assume all
obligations of the General Partner hereunder. Upon such contribution and
assumption, the Surviving General Partner shall have the right and duty to amend
this Agreement as set forth in this Section 7.01(d). The Surviving General
Partner shall in good faith arrive at a new method for the calculation of the
Cash Amount and Conversion Factor for a Partnership Unit after any such merger
or consolidation so as to approximate the existing method for such calculation
as closely as reasonably possible. Such calculation shall take into account,
among other things, the kind and amount of securities, cash and other property
that was receivable upon such merger or consolidation by a holder of REIT Shares
and/or options, warrants or other rights relating thereto, and to which a holder
of Partnership Units could have acquired had such Partnership Units been
redeemed immediately prior to such merger or consolidation. Such amendment to
this Agreement shall provide for adjustment to such method of calculation which
shall be as nearly equivalent as may be practicable to the adjustments provided
for with respect to the Conversion Factor. The above provisions of this Section
7.01(d) shall similarly apply to successive mergers or consolidations permitted
hereunder.
7.02 ADMISSION OF A SUBSTITUTE OR SUCCESSOR GENERAL PARTNER. A Person shall
be admitted as a substitute or successor General Partner of the Partnership only
if the following terms and conditions are satisfied:
(a) the Person to be admitted as a substitute or additional General
Partner shall have accepted and agreed to be bound by all the terms and
provisions of this Agreement by executing a counterpart thereof and such other
documents or instruments as may be required or appropriate in order to effect
the admission of such Person as a General Partner, and a certificate evidencing
the admission of such Person as a General Partner shall have been filed for
recordation and all other actions required by Section 2.05 hereof in connection
with such admission shall have been performed;
(b) if the Person to be admitted as a substitute or additional General
Partner is a corporation or a partnership it shall have provided the Partnership
with evidence satisfactory to counsel for the Partnership of such Person's
authority to become a General Partner and to be bound by the terms and
provisions of this Agreement; and
(c) counsel for the Partnership shall have rendered an opinion
(relying on such opinions from other counsel and the state or any other
jurisdiction as may be necessary) that the admission of the person to be
admitted as a substitute or additional General Partner is in conformity with the
Act, that none of the actions taken in connection with the admission of such
Person as a substitute or additional General Partner will cause (i) the
Partnership to
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be classified other than as a partnership for federal income tax purposes or
(ii) the loss of any Limited Partner's limited liability.
7.03 EFFECT OF BANKRUPTCY, WITHDRAWAL, DEATH OR DISSOLUTION OF A GENERAL
PARTNER.
(a) Upon the occurrence of an Event of Bankruptcy as to a General
Partner (and its removal pursuant to Section 7.04(a) hereof) or the withdrawal,
removal or dissolution of a General Partner (except that, if a General Partner
is on the date of such occurrence a partnership, the withdrawal, death,
dissolution, Event of Bankruptcy as to, or removal of a partner in, such
partnership shall be deemed not to be a dissolution of such General Partner if
the business of such General Partner is continued by the remaining partner or
partners), the Partnership shall be dissolved and terminated unless the
Partnership is continued pursuant to Section 7.03(b) hereof.
(b) Following the occurrence of an Event of Bankruptcy as to a General
Partner (and its removal pursuant to Section 7.04(a) hereof) or the withdrawal,
removal or dissolution of a General Partner (except that, if a General Partner
is on the date of such occurrence a partnership, the withdrawal, death,
dissolution, Event of Bankruptcy as to, or removal of a partner in, such
partnership shall be deemed not to be a dissolution of such General Partner if
the business of such General Partner is continued by the remaining partner or
partners), the Limited Partners, within 90 days after such occurrence, may elect
to reconstitute the Partnership and continue the business of the Partnership for
the balance of the term specified in Section 2.04 hereof by selecting, subject
to Section 7.02 hereof and any other provisions of this Agreement, a substitute
General Partner by unanimous consent of the Limited Partners. If the Limited
Partners elect to reconstitute the Partnership and admit a substitute General
Partner, the relationship with the Partners and of any Person who has acquired
an interest of a Partner in the Partnership shall be governed by this Agreement.
7.04 REMOVAL OF A GENERAL PARTNER.
(a) Upon the occurrence of an Event of Bankruptcy as to, or the
dissolution of, a General Partner, such General Partner shall be deemed to be
removed automatically; provided, however, that if a General Partner is on the
date of such occurrence a partnership, the withdrawal, death, dissolution, Event
of Bankruptcy as to or removal of a partner in such partnership shall be deemed
not to be a dissolution of the General Partner if the business of such General
Partner is continued by the remaining partner or partners.
(b) If a General Partner has been removed pursuant to this Section
7.04 and the Partnership is continued pursuant to Section 7.03 hereof, such
General Partner shall promptly transfer and assign its General Partnership
Interest in the Partnership (i) to the substitute General Partner approved by a
majority-in-interest of the Limited Partners in accordance with Section 7.03(b)
hereof and otherwise admitted to the Partnership in accordance with Section 7.02
hereof. At the time of assignment, the removed General
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Partner shall be entitled to receive from the substitute General Partner the
fair market value of the General Partnership Interest of such removed General
Partner as reduced by any damages caused to the Partnership by such General
Partner. Such fair market value shall be determined by an appraiser mutually
agreed upon by the General Partner and a majority-in-interest of the Limited
Partners within 10 days following the removal of the General Partner. In the
event that the parties are unable to agree upon an appraiser, the General
Partner and a majority-in-interest of the Limited Partners each shall select an
appraiser. Each such appraiser shall complete an appraisal of the fair market
value of the General Partner's General Partnership Interest within 30 days of
the General Partner's removal, and the fair market value of the General
Partner's General Partnership Interest shall be the average of the two
appraisals; provided, however, that if the higher appraisal exceeds the lower
appraisal by more than 20% of the amount of the lower appraisal, the two
appraisers, no later than 40 days after the removal of the General Partner,
shall select a third appraiser who shall complete an appraisal of the fair
market value of the General Partner's General Partnership Interest no later than
60 days after the removal of the General Partner. In such case, the fair market
value of the General Partner's General Partnership Interest shall be the average
of the two appraisals closest in value.
(c) The General Partnership Interest of a removed General Partner,
during the time after default until transfer under Section 7.04(b), shall be
converted to that of a special Limited Partner; provided, however, such removed
General Partner shall not have any rights to participate in the management and
affairs of the Partnership, and shall not be entitled to any portion of the
income, expense, profit, gain or loss allocations or cash distributions
allocable or payable, as the case may be, to the Limited Partners. Instead, such
removed General Partner shall receive and be entitled to retain only
distributions or allocations of such items which it would have been entitled to
receive in its capacity as General Partner, until the transfer is effective
pursuant to Section 7.04(b) hereof.
(d) All Partners shall have given and hereby do give such consents,
shall take such actions and shall execute such documents as shall be legally
necessary and sufficient to effect all the foregoing provisions of this Section.
ARTICLE VIII
RIGHTS AND OBLIGATIONS
OF THE LIMITED PARTNERS
8.01 MANAGEMENT OF THE PARTNERSHIP. The Limited Partners shall not
participate in the management or control of Partnership business nor shall they
transact any business for the Partnership, nor shall they have the power to sign
for or bind the Partnership, such powers being vested solely and exclusively in
the General Partner.
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8.02 POWER OF ATTORNEY. Each Limited Partner hereby irrevocably appoints
the General Partner his true and lawful attorney-in-fact, who may act for each
Limited Partner and in his name, place and stead, and for his use and benefit,
to sign, acknowledge, swear to, deliver, file and record, at the appropriate
public offices, any and all documents, certificates, and instruments as may be
deemed necessary or desirable by the General Partner to carry out fully the
provisions of this Agreement and the Act in accordance with their terms, which
power of attorney is coupled with an interest and shall survive the death,
dissolution or legal incapacity of the Limited Partner, or the transfer by the
Limited Partner of any part or all of his Interest in the Partnership.
8.03 LIMITATION ON LIABILITY OF LIMITED PARTNERS. No Limited Partner shall
be liable for any debts, liabilities, contracts or obligations of the
Partnership. A Limited Partner shall be liable to the Partnership only to make
payments of his Capital Contribution, if any, as and when due hereunder. After
his Capital Contribution is fully paid, no Limited Partner shall, except as
otherwise required by the Act, be required to make any further Capital
Contributions or other payments or lend any funds to the Partnership.
8.04 OWNERSHIP BY LIMITED PARTNER OF CORPORATE GENERAL PARTNER OR
AFFILIATE. No Limited Partner shall at any time, either directly or indirectly,
own any stock or other interest in the General Partner or in any Affiliate
thereof, if such ownership by itself or in conjunction with other stock or other
interests owned by other Limited Partners would, in the opinion of counsel for
the Partnership, jeopardize the classification of the Partnership as a
partnership for federal income tax purposes. The General Partner shall be
entitled to make such reasonable inquiry of the Limited Partners as is required
to establish compliance by the Limited Partners with the provisions of this
Section.
8.05 LIMITED PARTNER REDEMPTION RIGHT.
(a) Subject to Section 8.05(c), on or after January 1, 1995, each
Class A Limited Partner shall have the right to require the Partnership to
redeem on a Specified Redemption Date all or a portion of the Partnership Units
held by such Class A Limited Partner at a redemption price equal to and in the
form of the Redemption Amount. Subject to Section 8.05(c), the Class B Limited
Partners shall have the right to require the Partnership to redeem on a
Specified Redemption Date the Partnership Units held by such Class B Limited
Partners, at a redemption price equal to and in the form of the Redemption
Amount subject to any restriction agreed to in writing between the Redeeming
Limited Partner and the General Partner. The redemption right described in this
Section 8.05 shall be referred to as the "Limited Partner Redemption Right." The
Limited Partner Redemption Right shall be exercised pursuant to a Notice of
Redemption delivered to the General Partner by the Limited Partner who is
exercising the Limited Partner Redemption Right (the "Redeeming Limited
Partner"). A Limited Partner may not exercise the Limited Partner Redemption
Right for less than three hundred (300) Partnership Units or, if such Limited
Partner holds less than three hundred (300) Partnership Units, all of the
Partnership Units held by such Partner. The Redeeming Limited Partner shall have
no right, with respect to
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any Partnership Units so redeemed, to receive any distribution paid with respect
to Partnership Units if the record date for such distribution is on or after the
Specified Redemption Date.
(b) Notwithstanding the provisions of Section 8.05(a), the General
Partner may, in its sole and absolute discretion, assume directly and satisfy a
Limited Partner Redemption Right by paying to the Redeeming Limited Partner the
Redemption Amount on the Specified Redemption Date, whereupon the General
Partner shall acquire the Partnership Units offered for redemption by the
Redeeming Limited Partner and shall be treated for all purposes of this
Agreement as the owner of such Partnership Units. In the event the General
Partner shall exercise its right to satisfy the Limited Partner Redemption Right
in the manner described in the preceding sentence, the Partnership shall have no
obligation to pay any amount to the Redeeming Limited Partner with respect to
such Redeeming Limited Partner's exercise of the Limited Partner Redemption
Right, and each of the Redeeming Limited Partner, the Partnership, and the
General Partner shall treat the transaction between the General Partner and the
Redeeming Limited Partner as a sale of the Redeeming Limited Partner's
Partnership Units to the General Partner for federal income tax purposes. Each
Redeeming Limited Partner agrees to execute such documents as the General
Partner may reasonably require in connection with the issuance of REIT Shares
upon exercise of the Limited Partner Redemption Right.
(c) The Partnership or the General Partner, as the case may be, shall
pay the Cash Amount to a Redeeming Limited Partner as the Redemption Amount for
such Partner if (i) the acquisition of REIT Shares by such Partner on the
Specified Redemption Date would (A) result in such Partner or any other person
owning, directly or indirectly, REIT Shares in excess of the "Ownership Limit,"
as defined in the Charter and calculated in accordance therewith, except as
provided in the Charter, (B) result in REIT Shares being owned by fewer than 100
persons (determined without reference to any rules of attribution), except as
provided in the Charter, (C) result in the General Partner being "closely held"
within the meaning of Section 856(h) of the Code, (D) cause the General Partner
to own, directly or constructively, 10% or more of the ownership interests in a
tenant of the General Partner's or the Partnership's real property, within the
meaning of Section 856(d)(2)(B) of the Code, or (E) cause the acquisition of
REIT Shares by such Partner to be "integrated" with any other distribution of
REIT Shares for purposes of complying with the registration provisions of the
Securities Act of 1933, as amended, or (ii) the Partnership or the General
Partner, as the case may be, so elects in its sole discretion. Any Cash Amount
or REIT shares to be paid to a redeeming Limited Partner pursuant to this
Section 8.05 shall be paid within five (5) business days after the initial date
of receipt by the General Partner of the Notice of Redemption relating to the
Partnership Units to be redeemed; provided, however, that such five (5) day
period may be extended for up to an additional one hundred eighty (180) day
period to the extent required for the General Partner to cause additional REIT
Shares to be issued to provide financing to be used to make such payment of the
Cash Amount and provided further, that the Partnership shall pay interest at the
Prime Rate as published in The Wall Street Journal, Eastern Edition, from time
to time on the Cash Amount from the
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expiration of the five day period to the date of payment. Notwithstanding the
foregoing, the General Partner and the Partnership agree to use their best
efforts to cause the closing of the acquisition of redeemed Partnership Units
hereunder to occur as quickly as reasonably possible. If a Class B Limited
Partner exercises its Limited Partner Redemption Right and the Partnership or
the General Partner, as the case may be, elects to pay the REIT Shares Amount
rather than the Cash Amount, the REIT Shares received by such Class B Limited
Partner shall be properly registered under the Securities Act of 1933, as
amended.
(d) Each certificate, if any, evidencing REIT Shares that may be
issued in redemption of Partnership Units under this Section 8.05 (the
"Redemption Shares") shall bear a restrictive legend in substantially the
following form:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended, or any state securities law. No
transfer of the Shares represented by this certificate shall be valid or
effective unless (A) such transfer is made pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Act"), or (B) the holder of the securities proposed to be transferred
shall have delivered to the company either a no-action letter from the
Securities and Exchange Commission or an opinion of counsel (who may be an
employee of such holder) experienced in securities matters to the effect
that such proposed transfer is exempt from the registration requirements of
the act which opinion shall be reasonably satisfactory to the company."
8.06 REGISTRATION.
(a) Shelf Registration. At the request of a Class B Limited Partner,
the General Partner agrees to file with the Commission, no later than November
1, 1995, a shelf registration statement under Rule 415 of the Securities Act, or
any similar rule that may be adopted by the Commission (the "Shelf
Registration"), with respect to all of the REIT Shares that may be issued in
redemption of Partnership Units under Section 8.05 above (the "Redemption
Shares"). The General Partner will use its best efforts to have the Shelf
Registration declared effective under the Securities Act no later than January
1, 1996 (the "Target Effective Date") to permit the disposition of the
Redemption Shares by the holders thereof in accordance with the method or
methods of disposition specified by the holders, and to keep the Shelf
Registration continuously effective until the earlier of (i) January 1, 1998
(the "Shelf Registration Period"), (ii) the date when all of the Redemption
Shares are sold thereunder, or (iii) the date on which all of the holders of
Redemption Shares, pursuant to Rule 144(k) under the Securities Act, may sell
the Redemption Shares without registration under the Securities Act of 1933, as
amended (the "Securities Act"). The General Partner further agrees to supplement
or make amendments to the Shelf Registration, if required by the rules,
regulations or instructions applicable to the registration form utilized by the
Company or by the Securities Act or rules and regulations thereunder for the
Shelf Registration. Notwithstanding the foregoing, if for any reason the
effectiveness of the Shelf
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Registration is delayed or suspended or it ceases to be available for sales of
Redemption Shares thereunder, the Shelf Registration Period shall be extended by
the aggregate number of days of such delay, suspension or unavailability.
(b) Registration and Qualification Procedures. The General Partner is
required by the provisions of Section 8.06(a) hereof to use its best efforts to
have the Shelf Registration declared effective under the Securities Act by
January 1, 1996. Accordingly, the General Partner will:
(i) prepare and file with the Commission a registration statement,
including amendments thereof and supplements relating thereto, with respect to
the Redemption Shares, in connection with which the General Partner will give
each holder of Redemption Shares, their underwriters, if any, and their counsel
and accountants a reasonable opportunity to participate in the preparation
thereof and will give such persons reasonable access to its books, records,
officers and independent public accountants;
(ii) use its best efforts to cause the registration statement to
be declared effective by the Commission;
(iii) keep the registration statement effective and the related
prospectus current throughout the Shelf Registration Period; provided, however,
that the General Partner shall have no obligation to file any amendment or
supplement at its own expense more than ninety (90) days after the effective
date of the registration statement;
(iv) furnish to each holder of Redemption Shares such numbers of
copies of prospectuses, and supplements or amendments thereto, and such other
documents as such holder reasonably requests;
(v) register or qualify the securities covered by the registration
statement under the securities or blue sky laws of such jurisdictions within the
United States as any holder of Redemption Shares shall reasonably request, and
do such other reasonable acts and things as may be required of it to enable such
holders to consummate the sale or other disposition in such jurisdictions of the
Redemption Shares; provided, however, that the General Partner shall not be
required to (i) qualify as a foreign corporation or consent to a general and
unlimited service or process in any jurisdictions in which it would not
otherwise be required to be qualified or so consent or (ii) qualify as a dealer
in securities;
(vi) furnish, at the request of the holders of Redemption Shares,
on the date Redemption Shares are delivered to the underwriters for sale
pursuant to such registration, or, if such Shares are not being sold through
underwriters, on the date the Shelf Registration with respect to such Redemption
Shares becomes effective, (A) a securities opinion of counsel representing the
General Partner for the purposes of such registration covering such legal
matters as are customarily included in such opinions and (B) letters of the firm
of independent public accountants that certified the financial statements
included in
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the registration statement, addressed to the underwriters, covering
substantially the same matters as are customarily covered in accountant's
letters delivered to underwriters in underwritten public offerings of securities
and such other financial matters as such holders (or the underwriters, if any)
may reasonably request;
(vii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its shareholders
as soon as reasonably practicable, but not later than sixteen (16) months after
the effective date of the Shelf Registration, an earnings statement covering a
period of at least twelve (12) months beginning after the effective date of the
Shelf Registration, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act;
(viii) enter into and perform an underwriting agreement with the
managing underwriter, if any, selected as provided herein, containing customary
(A) terms of offer and sale of the securities, payment provisions, underwriting
discounts and commissions and (B) representations, warranties, covenants,
indemnities, terms and conditions; and
(ix) keep the holders of Redemption Shares advised as to the
initiation and progress of the registration.
(c) Allocation of Expenses. The Partnership shall pay all expenses in
connection with the Shelf Registration, including without limitation (i) all
expenses incident to filing with the National Association of Securities Dealers,
Inc., (ii) registration fees, (iii) printing expenses, (iv) accounting and legal
fees and expenses, except to the extent holders of Redemption Shares elect to
engage accountants or attorneys in addition to the accountants and attorneys
engaged by the General Partner, (v) accounting expenses incident to or required
by any such registration or qualification and (vi) expenses of complying with
the securities or blue sky laws of any jurisdictions in connection with such
registration or qualification; provided, however, the Partnership shall not be
liable for (A) any discounts or commissions to any underwriter or broker
attributable to the sale of Redemption Shares, or (B) any fees or expenses
incurred by holders of Redemption Shares in connection with such registration
which, according to the written instructions of any regulatory authority, the
Partnership is not permitted to pay.
(d) Indemnification.
(i) In connection with the Shelf Registration, the General Partner
and the Partnership agree to indemnify holders of Redemption Shares within the
meaning of Section 15 of the Securities Act, against all losses, claims,
damages, liabilities and expenses (including reasonable costs of investigation)
caused by any untrue, or alleged untrue, statement of a material fact contained
in the Shelf Registration, preliminary prospectus or prospectus (as amended or
supplemented if the General Partner shall have furnished any amendments or
supplements thereto) or caused by any omission, or alleged omission, to state
therein a material fact required to be stated therein or necessary to make the
statements
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therein not misleading, except insofar as such losses, claims, damages,
liabilities or expenses are caused by any untrue statement, alleged untrue
statement, omission, or alleged omission based upon information furnished to the
General Partner expressly for use therein. The General Partner and each officer,
director and controlling person of the General Partner shall be indemnified by
each holder of Redemption Shares covered by the Shelf Registration for all such
losses, claims, damages, liabilities and expenses (including reasonable costs of
investigation) caused by any such untrue, or alleged untrue, statement or any
such omission, or alleged omission, based upon information furnished to the
General Partner expressly for use therein in a writing signed by the holder.
(ii) Promptly upon receipt by a party indemnified under this
Section 8.06(d) of notice of the commencement of any action against such
indemnified party in respect of which indemnity or reimbursement may be sought
against any indemnifying party under this Section 8.06(d), such indemnified
party shall notify the General Partner in writing of the commencement of such
action, but the failure to so notify the General Partner shall not relieve it of
any liability which it may have to any indemnified party otherwise than under
this Section 8.06(d) unless such failure shall materially adversely affect the
defense of such action. In case notice of commencement of any such action shall
be given to the General Partner as above provided, the General Partner shall be
entitled to participate in and, to the extent it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense of such
action at its own expense, with counsel chosen by it and reasonably satisfactory
to such indemnified party. The indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel (other than reasonable costs of
investigation) shall be paid by the indemnified party unless (i) the General
Partner or the Partnership agrees to pay the same, (ii) the General Partner
fails to assume the defense of such action with counsel reasonably satisfactory
to the indemnified party or (iii) the named parties to any such action
(including any impleaded parties) have been advised by such counsel that
representation of such indemnified party and the General Partner by the same
counsel would be inappropriate under applicable standards of professional
conduct (in which case the General Partner shall not have the right to assume
the defense of such action on behalf of such indemnified party). No indemnifying
party shall be liable for any settlement entered into without its consent.
(e) Contribution.
(i) If for any reason the indemnification provisions contemplated
by Section 8.06(d) are either unavailable or insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages or liabilities
referred to therein, then the party that would otherwise be required to provide
indemnification or the indemnifying party (in either case, for purposes of this
Section 8.06(e), the "Indemnifying Party") in respect of such losses, claims,
damages or liabilities, shall contribute to the amount paid or payable by the
party that would otherwise be entitled to indemnification or the indemnified
party (in either case, for purposes of this Section 8.06(e), the "Indemnified
Party") as a result of such losses, claims, damages, liabilities or expense, in
such proportion as is appropriate to reflect the
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relative fault of the Indemnifying Party and the Indemnified Party, as well as
any other relevant equitable considerations. The relative fault of the
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact related to
information supplied by the Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable by a
party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include any legal or other fees or expenses
reasonably incurred by such party. In no event shall any holder of Redemption
Shares covered by the Shelf Registration be required to contribute an amount
greater than the dollar amount of the proceeds received by such holder from the
sale of Redemption Shares pursuant to the registration giving rise to the
liability.
(ii) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 8.06(e) were determined by
pro rata allocation (even if the holders or any underwriters or all of them were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. No person or entity determined to have
committed a fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person or entity
who was not guilty of such fraudulent misrepresentation.
(iii) The contribution provided for in this Section 8.06(e) shall
survive the termination of this Agreement and shall remain in full force and
effect regardless of any investigation mae by or on behalf of any Indemnified
Party.
(f) Listing on Securities Exchange. If the General Partner shall list
or maintain the listing of any shares of Common Stock on any securities exchange
or national market system, it will at its expense and as necessary to permit the
registration and sale of the Redemption Shares hereunder, list thereon, maintain
and, when necessary, increase such listing to include such Redemption Shares.
8.07 OTHER AGREEMENTS.
The provisions of Sections 8.05 and 8.06 are applicable only to certain
Limited Partners admitted to the Partnership prior to _____________ 1996. The
rights of certain Limited Partners with respect to the redemption of Units
issued on and after ____________ 1996, the registration of REIT Shares issued
upon redemption of such Units and certain other matters specific to some but not
all Partners, may be included in agreements other than this Agreement. The
existence and operation of such agreements shall not modify or terminate the
rights, benefits or obligations of any Partner who is not a party to such
agreements under this Agreement or applicable law.
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8.08 OUTSIDE ACTIVITIES OF CLASS A LIMITED PARTNERS.
(a) No Class A Limited Partner or director, shareholder or Affiliate
of a Class A Limited Partner may (i) invest in any motel or hotel property or
(ii) manage or agree to manage a motel or hotel property, except for a Property
or any other hotel or motel property in which the General Partner or the
Partnership has an ownership interest, that, at the time such management is
undertaken or agreement to manage is entered into, is located within a 20-mile
radius of a Property or any other motel or hotel property in which the General
Partner has an ownership interest.
(b) The General Partner, in its sole discretion, may waive the
restrictions on Class A Limited Partners set forth in Section 8.08(a) above as
to (i) any particular business venture in which a Limited Partner proposes to
engage or (ii) any particular Class A Limited Partner.
ARTICLE IX
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS
9.01 PURCHASE FOR INVESTMENT.
(a) Each Limited Partner hereby represents and warrants to the General
Partner and to the Partnership that the acquisition of his Partnership Interest
is made as a principal for his account for investment purposes only and not with
a view to the resale or distribution of such Partnership Interest.
(b) Each Limited Partner agrees that he will not sell, assign or
otherwise transfer his Partnership Interest or any fraction thereof, whether
voluntarily or by operation of law or at judicial sale or otherwise, to any
Person who does not make the representations and warranties to the General
Partner set forth in Section 9.01(a) above and similarly agree not to sell,
assign or transfer such Partnership Interest or fraction thereof to any Person
who does not similarly represent, warrant and agree.
9.02 RESTRICTIONS ON TRANSFER OF LIMITED PARTNERSHIP INTERESTS.
(a) Except as otherwise provided in Section 9.02(d) hereof, no Limited
Partner may offer, sell, assign, hypothecate, pledge or otherwise transfer his
Limited Partnership Interest, in whole or in part, whether voluntarily or by
operation of law or at judicial sale or otherwise (collectively, a "Transfer")
without the written consent of the General Partner, which consent may be
withheld in the sole discretion of the General Partner. The General Partner may
require, as a condition of any Transfer, that the transferor assume all costs
incurred by the Partnership in connection therewith.
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(b) No Limited Partner may effect a Transfer of his Limited
Partnership Interest, in whole or in part, if, in the opinion of legal counsel
for the Partnership, such proposed Transfer would require the registration of
the Limited Partnership Interest under the Securities Act of 1933, as amended,
or would otherwise violate any applicable federal or state securities or "Blue
Sky" law (including investment suitability standards).
(c) No transfer by a Limited Partner of his Partnership Units, in
whole or in part, may be made to any Person if (i) in the opinion of legal
counsel for the Partnership, the transfer would result in the Partnership's
being treated as an association taxable as a corporation (other than a qualified
REIT subsidiary within the meaning of Section 856(i) of the Code), or (ii) such
transfer is effectuated through an "established securities market" or a
"secondary market (or the substantial equivalent thereof)" within the meaning of
Section 7704 of the Code.
(d) Section 9.02(a) shall not apply to the following transactions,
except that the General Partner may require that the transferor assume all costs
incurred by the Partnership in connection therewith:
(i) any Transfer by a Limited Partner pursuant to the exercise of
its Limited Partner Redemption Right under Section 8.05 hereof;
(ii) any Transfer by a Limited Partner that is a corporation or
other business entity to any of its Affiliates or subsidiaries or to
any successor in interest of such Limited Partner; or
(iii) any donative Transfer by an individual Limited Partner to
his immediate family members or any trust in which the individual or
his immediate family members own, collectively, 100% of the beneficial
interests. For purposes of this Section 9.02(c)(iii), the term
"immediate family member" shall be deemed to include only an
individual Limited Partner's spouse, children (including step-children
and adopted children) and grandchildren.
(e) Any Transfer in contravention of any of the provisions of this
Article IX shall be void and ineffectual and shall not be binding upon, or
recognized by, the Partnership.
9.03 ADMISSION OF SUBSTITUTE LIMITED PARTNER.
(a) Subject to the other provisions of this Article IX, an assignee of
the Limited Partnership Interest of a Limited Partner (which shall be understood
to include any purchaser, transferee, donee, or other recipient of any
disposition of such Limited Partnership Interest) shall be deemed admitted as a
Limited Partner of the Partnership only upon the satisfactory completion of the
following:
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(i) The assignee shall have accepted and agreed to be bound by
the terms and provisions of this Agreement by executing a counterpart
or an amendment thereof, including a revised Exhibit A, and such other
documents or instruments as the General Partner may require in order
to effect the admission of such Person as a Limited Partner.
(ii) To the extent required, an amended Certificate evidencing
the admission of such Person as a Limited Partner shall have been
signed, acknowledged and filed for record in accordance with the Act.
(iii) The assignee shall have delivered a letter containing the
representation set forth in Section 9.01(a) hereof and the agreement
set forth in Section 9.01(b) hereof.
(iv) If the assignee is a corporation, partnership or trust, the
assignee shall have provided the General Partner with evidence
satisfactory to counsel for the Partnership of the assignee's
authority to become a Limited Partner under the terms and provisions
of this Agreement.
(v) The assignee shall have executed a power of attorney
containing the terms and provisions set forth in Section 8.02 hereof.
(vi) The assignee shall have paid all reasonable legal fees of
the Partnership and the General Partner and filing and publication
costs in connection with his substitution as a Limited Partner.
(vii) The assignee has obtained the prior written consent of
General Partner to its admission as a Substitute Limited Partner,
which consent may be given or denied in the exercise of General
Partner's sole and absolute discretion.
(viii) The assignee shall surrender to the General Partner any
certificate evidencing the Limited Partnership Interest properly
endorsed for transfer.
(b) For the purpose of allocating profits and losses and distributing
cash received by the Partnership, a Substitute Limited Partner shall be treated
as having become, and appearing in the records of the Partnership as, a Partner
upon the filing of the Certificate described in Section 9.03(a)(ii) hereof or,
if no such filing is required, the later of the date specified in the transfer
documents, or the date on which the General Partner has received all necessary
instruments of transfer and substitution.
(c) The General Partner shall cooperate with the Person seeking to
become a Substitute Limited Partner by preparing the documentation required by
this Section and
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making all official filings and publications. The Partnership shall take all
such action as promptly as practicable after the satisfaction of the conditions
in this Article IX to the admission of such Person as a Limited Partner of the
Partnership.
9.04 RIGHTS OF ASSIGNEES OF PARTNERSHIP INTERESTS.
(a) Subject to the provisions of Sections 9.01 and 9.02 hereof, except
as required by operation of law, the Partnership shall not be obligated for any
purposes whatsoever to recognize the assignment by any Limited Partner of his
Partnership Interest until the Partnership has received notice thereof.
(b) Any Person who is the assignee of all or any portion of a Limited
Partner's Limited Partnership Interest, but does not become a Substitute Limited
Partner and desires to make a further assignment of such Limited Partnership
Interest, shall be subject to all the provisions of this Article IX to the same
extent and in the same manner as any Limited Partner desiring to make an
assignment of his Limited Partnership Interest.
9.05 EFFECT OF BANKRUPTCY, DEATH, INCOMPETENCE OR TERMINATION OF A LIMITED
PARTNER. The occurrence of an Event of Bankruptcy as to a Limited Partner, the
death of a Limited Partner or a final adjudication that a Limited Partner is
incompetent (which term shall include, but not be limited to, insanity) shall
not cause the termination or dissolution of the Partnership, and the business of
the Partnership shall continue if an order for relief in a bankruptcy proceeding
is entered against a Limited Partner, the trustee or receiver of his estate or,
if he dies, his executor, administrator or trustee, or, if he is finally
adjudicated incompetent, his committee, guardian or conservator, shall have the
rights of such Limited Partner for the purpose of settling or managing his
estate property and such power as the bankrupt, deceased or incompetent Limited
Partner possessed to assign all or any part of his Partnership Interest and to
join with the assignee in satisfying conditions precedent to the admission of
the assignee as a Substitute Limited Partner.
9.06 JOINT OWNERSHIP OF INTERESTS. A Partnership Interest may be acquired
by two individuals as joint tenants with right of survivorship, provided that
such individuals either are married or are related and share the same home as
tenants in common. The written consent or vote of both owners of any such
jointly held Partnership Interest shall be required to constitute the action of
the owners of such Partnership Interest; provided, however, that the written
consent of only one joint owner will be required if the Partnership has been
provided with evidence satisfactory to the counsel for the Partnership that the
actions of a single joint owner can bind both owners under the applicable laws
of the state of residence of such joint owners. Upon the death of one owner of a
Partnership Interest held in a joint tenancy with a right of survivorship, the
Partnership Interest shall become owned solely by the survivor as a Limited
Partner and not as an assignee. The Partnership need not recognize the death of
one of the owners of a jointly-held Partnership Interest until it shall have
received notice of such death. Upon notice to the General Partner from either
owner, the General Partner shall cause the Partnership Interest to be divided
into two equal
- 45 -
<PAGE> 50
Partnership Interests, which shall thereafter be owned separately by each of the
former owners.
ARTICLE X
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS
10.01 BOOKS AND RECORDS. At all times during the continuance of the
Partnership, the Partners shall keep or cause to be kept at the Partnership's
specified office true and complete books of account in accordance with generally
accepted accounting principles, including: (a) a current list of the full name
and last known business address of each Partner, (b) a copy of the Certificate
of Limited Partnership and all certificates of amendment thereto, (c) copies of
the Partnership's federal, state and local income tax returns and reports, (d)
copies of the Agreement and any financial statements of the Partnership for the
three most recent years and (e) all documents and information required under the
Act. Any Partner or his duly authorized representative, upon paying the costs of
collection, duplication and mailing, shall be entitled to inspect or copy such
records during ordinary business hours. The corporate Secretary of the General
Partner shall serve as the transfer agent for the certificates representing the
Partnership Units.
10.02 CUSTODY OF PARTNERSHIP FUNDS; BANK ACCOUNTS.
(a) All funds of the Partnership not otherwise invested shall be
deposited in one or more accounts maintained in such banking or brokerage
institutions as the General Partner shall determine, and withdrawals shall be
made only on such signature or signatures as the General Partner may, from time
to time, determine.
(b) All deposits and other funds not needed in the operation of the
business of the Partnership may be invested by the General Partner in investment
grade instruments (or investment companies whose portfolio consists primarily
thereof), government obligations, certificates of deposit, bankers' acceptances
and municipal notes and bonds. The funds of the Partnership shall not be
commingled with the funds of any other Person except for such commingling as may
necessarily result from an investment in those investment companies permitted by
this Section 10.02(b).
10.03 FISCAL AND TAXABLE YEAR. The fiscal and taxable year of the
Partnership shall be the calendar year.
10.04 ANNUAL TAX INFORMATION AND REPORT. Within 75 days after the end of
each fiscal year of the Partnership, the General Partner shall furnish to each
person who was a Limited Partner at any time during such year the tax
information necessary to file such Limited Partner's individual tax returns as
shall be reasonably required by law.
- 46 -
<PAGE> 51
10.05 TAX MATTERS PARTNER; TAX ELECTIONS; SPECIAL BASIS ADJUSTMENTS.
(a) The General Partner shall be the Tax Matters Partner of the
Partnership within the meaning of Section 6231(a)(7) of the Code. As Tax Matters
Partner, the General Partner shall have the right and obligation to take all
actions authorized and required, respectively, by the Code for the Tax Matters
Partner. The General Partner shall have the right to retain professional
assistance in respect of any audit of the Partnership by the Service and all
out-of-pocket expenses and fees incurred by the General Partner on behalf of the
Partnership as Tax Matters Partner shall constitute Partnership expenses. In the
event the General Partner receives notice of a final Partnership adjustment
under Section 6223(a)(2) of the Code, the General Partner shall either (i) file
a court petition for judicial review of such final adjustment within the period
provided under Section 6226(a) of the Code, a copy of which petition shall be
mailed to all Limited Partners on the date such petition is filed, or (ii) mail
a written notice to all Limited Partners, within such period, that describes the
General Partner's reasons for determining not to file such a petition.
(b) All elections required or permitted to be made by the Partnership
under the Code shall be made by the General Partner in its sole discretion.
(c) In the event of a transfer of all or any part of the Partnership
Interest of any Partner, the Partnership, at the option of the General Partner,
may elect pursuant to Section 754 of the Code to adjust the basis of the
Properties. Notwithstanding anything contained in Article V of this Agreement,
any adjustments made pursuant to Section 754 shall affect only the successor in
interest to the transferring Partner and in no event shall be taken into account
in establishing, maintaining or computing Capital Accounts for the other
Partners for any purpose under this Agreement. Each Partner will furnish the
Partnership with all information necessary to give effect to such election.
10.06 REPORTS TO LIMITED PARTNERS.
(a) The books of the Partnership shall be audited annually as of the
end of each fiscal year of the Partnership by accountants selected by the
General Partner, who shall be the same accountants responsible for the
examination of the General Partner's books. The General Partner shall determine
and prepare an annual balance sheet, a statement of partners' capital as of the
end of such year, as well as statements of cash flow and income, all in
accordance with generally accepted accounting principles and accompanied by an
independent auditor's report (collectively, the "Financial Statements"),
together with all supplementary schedules and information prepared by the
accountants related thereto. As a note to such Financial Statements, the General
Partner shall prepare a schedule of all loans to the Partnership. Such schedule
shall demonstrate that loans have been made, used, carried on the books of the
Partnership (and repaid, if applicable) in accordance with the provisions of
this Agreement. Within 90 days after the end of each fiscal year, the General
Partner shall transmit the Financial Statements to the Limited Partners. The
General Partner also shall
- 47 -
<PAGE> 52
prepare quarterly unreviewed Financial Statements and shall transmit such
statements to the Limited Partners within 45 days of the end of each fiscal
quarter of the Partnership.
(b) Any Partner shall further have the right to a private audit of the
books and records of the Partnership, provided such audit is made for
Partnership purposes, at the expense of the Partner desiring it and is made
during normal business hours.
ARTICLE XI
AMENDMENT OF AGREEMENT
The General Partner, without the consent of the Limited Partners, may amend
this Agreement in any respect; provided, however, that the following amendments
shall require the consent of each Limited Partner adversely affected thereby:
(a) any amendment affecting the operation of the Conversion Factor or
the Limited Partner Redemption Right;
(b) any amendment that would adversely affect the rights of the
Limited Partners to receive the distributions payable to them hereunder;
(c) any amendment that would adversely affect the rights of the
Limited Partners to receive allocations of Profit and Loss; or
(d) any amendment that would impose on the Limited Partners any
obligation to make additional Capital Contributions to the Partnership.
The foregoing shall not limit the Partnership's or the General Partner's
rights to issue Additional Partnership Interests and New Securities pursuant to
Section 4.02.
ARTICLE XII
GENERAL PROVISIONS
12.01 NOTICES. All communications required or permitted under this
Agreement shall be in writing and shall be deemed to have been given when
delivered personally or upon deposit in the United States mail, registered,
postage prepaid return receipt requested, to the Partners at the addresses set
forth in Exhibit A; provided, however, that any Partner may specify a different
address by notifying the General Partner in writing of such different address.
Notices to the Partnership shall be delivered at or mailed to its specified
office.
- 48 -
<PAGE> 53
12.02 SURVIVAL OF RIGHTS. Subject to the provisions hereof limiting
transfers, this Agreement shall be binding upon and inure to the benefit of the
Partners and the Partnership and their respective legal representatives,
successors, transferees and assigns.
12.03 ADDITIONAL DOCUMENTS. Each Partner agrees to perform all further acts
and execute, swear to, acknowledge and deliver all further documents which may
be reasonable, necessary, appropriate or desirable to carry out the provisions
of this Agreement or the Act.
12.04 SEVERABILITY. If any provision of this Agreement shall be declared
illegal, invalid, or unenforceable in any jurisdiction, then such provision
shall be deemed to be severable from this Agreement (to the extent permitted by
law) and in any event such illegality, invalidity or unenforceability shall not
affect the remainder hereof.
12.05 ENTIRE AGREEMENT. This Agreement and exhibits attached hereto
constitute the entire Agreement of the Partners and supersede all prior written
agreements and prior and contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof.
12.06 PRONOUNS AND PLURALS. When the context in which words are used in the
Agreement indicates that such is the intent, words in the singular number shall
include the plural and the masculine gender shall include the neuter or female
gender as the context may require.
12.07 HEADINGS. The Article headings or sections in this Agreement are for
convenience only and shall not be used in construing the scope of this Agreement
or any particular Article.
12.08 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original copy and all of which together
shall constitute one and the same instrument binding on all parties hereto,
notwithstanding that all parties shall not have signed the same counterpart.
12.09 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee.
- 49 -
<PAGE> 54
IN WITNESS WHEREOF, the parties hereto have hereunder affixed their
signatures to this Fourth Amended and Restated Agreement of Limited Partnership,
all as of January 3, 1997.
GENERAL PARTNER:
RFS HOTEL INVESTORS, INC., a
Tennessee corporation
By: /s/ Michael J. Pascal
--------------------------------
Michael J. Pascal, Secretary,
Treasurer and Chief Financial
Officer
CLASS A LIMITED PARTNERS:
*
------------------------------------
ROBERT M. SOLMSON
*
------------------------------------
H. LANCE FORSDICK
*
------------------------------------
RFS, INC., a Tennessee corporation
THE ROBERT M. SOLMSON TRUST
*
By:
---------------------------------
- 50 -
<PAGE> 55
CLASS B LIMITED PARTNERS:
*
------------------------------------
Michael H. Dubroff
*
------------------------------------
Charles Dubroff
Michel Family Partnership
*
By:
--------------------------------
DubFam, Inc.
*
By: --------------------------------
Dubroff Family Partnership
By: RFS Hotel Investors, Inc.,
an attorney-in-fact for the
named Parties
By: /s/ Michael J. Pascal
--------------------------------
Michael J. Pascal, Secretary,
Treasurer and Chief
Financial Officer
/s/ Gordon Gund by David Prescott
------------------------------------
GORDON GUND
- 51 -
<PAGE> 56
/s/ Grant Gund by David Prescott
-------------------------------------
GRANT GUND
/s/ G. Zachary Gund by David Prescott
-------------------------------------
G. ZACHARY GUND
/s/ Hugh Scott by David Prescott
-------------------------------------
HUGH SCOTT
/s/ Robert Hecker by David Prescott
-------------------------------------
ROBERT HECKER
GIC PARTNERS:
By: /s/ David Prescott
GIC PARTNERS II:
By: /s/ David Prescott
GORDON GUND-GRANT GUND TRUST:
By: /s/ Llura Gund by David Prescott
--------------------------------
Llura Gund, Trustee
- 52 -
<PAGE> 57
GORDON GUND-G. ZACHARY GUND TRUST
By: /s/ Llura Gund by David Prescott
-------------------------------------
Llura Gund, Trustee
- 53 -
<PAGE> 58
EXHIBIT A, dated as of January 2, 1997
<TABLE>
<CAPTION>
===========================================================================================================
Amount or
Agreed Value of Preferred
Partner Capital Partnership Partnership Percentage
and Address Contributions Units Units Interest
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
General Partner:
- - -----------------------------------------------------------------------------------------------------------
RFS Hotel Investors, Inc.
c/o 889 Ridge Lake Blvd.
Suite 100
Memphis, TN 38120 $414,528,000 973,684 24,384,000 90.46655%
- - -----------------------------------------------------------------------------------------------------------
Class A Limited Partners:
- - -----------------------------------------------------------------------------------------------------------
H. Lance Fordsick, Sr.
c/o 889 Ridge Lake Blvd.
Suite 100
Memphis, TN 38120 $ 349,741 -- 20,573 .07633%
- - -----------------------------------------------------------------------------------------------------------
Robert M. Solmson
c/o 889 Ridge Lake Blvd.
Suite 100
Memphis, TN 38120 $ 95,353 -- 5,609 .02081%
- - -----------------------------------------------------------------------------------------------------------
The Robert M. Solmson
Trust
c/o 889 Ridge Lake Blvd.
Suite 100
Memphis, TN 38120 $ 120,462 -- 7,086 .02629%
- - -----------------------------------------------------------------------------------------------------------
RFS, Inc.
c/o 889 Ridge Lake Blvd.
Suite 100
Memphis, TN 38120 $ 1,324,351 -- 77,903 .28903%
- - -----------------------------------------------------------------------------------------------------------
Class B Limited Partners:
- - -----------------------------------------------------------------------------------------------------------
Dubfam Inc.
c/o Residence Inn
Route 9, Interstate 84
Fishkill, NY 12524 $ 24,429 -- 1,437 .00533%
- - -----------------------------------------------------------------------------------------------------------
Michael H. Dubroff
c/o Residence Inn
Route 9, Interstate 84
Fishkill, NY 12524 $ 637,551 -- 37,503 .13914%
- - -----------------------------------------------------------------------------------------------------------
The Dubroff Family
Partnership
c/o Residence Inn
Route 9, Interstate 84
Fishkill, NY 12524 $ 806,089 -- 47,417 .17592%
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 59
<TABLE>
<S> <C> <C> <C> <C>
- - -----------------------------------------------------------------------------------------------------------
The Michel Family
Partnership
c/o Residence Inn
Route 9, Interstate 84
Fishkill, NY 12524 $ 1,534,998 -- 90,294 .33500%
- - -----------------------------------------------------------------------------------------------------------
Charles M. Dubroff
c/o Residence Inn
Route 9, Interstate 84
Fishkill, NY 12524 $ 626,501 -- 36,853 .13673%
- - -----------------------------------------------------------------------------------------------------------
Gordon Gund
14 Nassau Street
Princeton, NJ 08542 $ 17,145,656 -- 1,008,568 3.74187%
- - -----------------------------------------------------------------------------------------------------------
Grant Gund
14 Nassau Street
Princeton, NJ 08542 $ 4,838,948 -- 284,644 1.05605%
- - -----------------------------------------------------------------------------------------------------------
G. Zachary Gund
14 Nassau Street
Princeton, NJ 08542 $ 4,838,948 -- 284,644 1.05605%
- - -----------------------------------------------------------------------------------------------------------
Gordon Gund-Grant Gund
Trust
c/o Llura Gund, Trustee
14 Nassau Street
Princeton, NJ 08542 $ 2,548,980 -- 149,940 .55629%
- - -----------------------------------------------------------------------------------------------------------
Gordon Gund-G. Zachary
Gund Trust
c/o Llura Gund, Trustee
14 Nassau Street --
Princeton, NJ 08542 $ 2,548,980 149,940 .55629%
- - -----------------------------------------------------------------------------------------------------------
G.I.C. Partners
114 Nassau Street
Princeton, NJ 08542 $ 1,362,125 -- 80,125 .29727%
- - -----------------------------------------------------------------------------------------------------------
G.I.C. Partners II
14 Nassau Street
Princeton, NJ 08542 $ 143,446 -- 8,438 .03131%
- - -----------------------------------------------------------------------------------------------------------
Hugh C. Scott
#5 West Shore Road
Belvedere, CA 94920 $ 3,422,032 -- 201,296 .74682%
- - -----------------------------------------------------------------------------------------------------------
Robert M. Hecker
611 Washington Street
Suite 2302
San Francisco, CA 94111 $ 1,314,763 -- 77,339 .28693%
- - -----------------------------------------------------------------------------------------------------------
Total $458,211,353 -- 26,953,609 100%
===========================================================================================================
</TABLE>
- 55 -
<PAGE> 60
EXHIBIT B
NOTICE OF EXERCISE OF REDEMPTION RIGHT
The undersigned hereby irrevocably (i) presents for redemption ______ units
of limited partnership interest ("Units") in RFS Partnership, L.P. (the
"Partnership") in accordance with the terms of the Agreement of Limited
Partnership ("Agreement") of the Partnership and the "Limited Partner Redemption
Right" defined therein, (ii) surrenders such Units and all right, title and
interest therein, (iii) surrenders herewith any certificate or other writing
evidencing the Units (and requests that any Units so evidenced that are not
redeemed be evidenced by the issuance of a new certificate or writing) and (iv)
directs that the "Cash Amount" or "REIT Shares Amount" (as determined by the
General Partner), as defined in the Agreement, deliverable upon exercise of the
Limited Partner Redemption Rights be delivered to the address specified below,
and if REIT Shares are to be delivered, such REIT Shares be registered or placed
in the name(s) and at the address(es) specified below.
Dated:
----------------
Name of Limited Partner:
------------------------------
(Signature of Limited Partner)
------------------------------
(Street Address)
------------------------------
(City) (State) (Zip Code)
Signature Guaranteed by:
------------------------------
If REIT Shares are to be issued, issue to:
- - ----------------------------
- - ----------------------------
- - ----------------------------
Please provide social security or identifying number:
- - ---------------
- 56 -
<PAGE> 61
ACCEPTANCE OF GENERAL PARTNER:
RFS Hotel Investors, Inc., as General Partner of the Partnership, hereby
accepts the Units described above for redemption in accordance with the
Agreement, and by its execution hereof evidences conclusively that the Limited
Partner has satisfied all of the requirements under the Agreement for exercise
of the Limited Partner Redemption Right, or that some or all of such
requirements have been waived, such waiver being in the sole discretion of the
General Partner
RFS Hotel Investors, Inc.
By: _____________________
Robert M. Solmson
Its: President
Dated: ____________________
- 57 -
<PAGE> 1
Exhibit 10.2(a)
RFS HOTEL INVESTORS, INC.
TERMS OF PERCENTAGE LEASES
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Part Year CPI Base 1st Tier
Name City ST Inception Termination Factor Factor Rent Amount
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Holiday Inn Express Tupelo MS 08/13/93 08/13/2008 1.0000 1.0000 245,836 1,014,503
Holiday Inn Express Franklin TN 08/13/93 08/13/2008 1.0000 1.0000 237,642 1,000,000
Holiday Inn Louisville KY 08/13/93 08/13/2008 1.0000 1.0000 409,727 1,537,499
Executive Inn Tupelo MS 08/13/93 08/13/2008 1.0000 1.0000 278,614 1,007,909
Holiday Inn Clayton MO 08/13/93 08/13/2008 1.0000 1.0000 557,228 2,505,320
Holiday Inn Columbia SC 08/13/93 08/13/2008 1.0000 1.0000 368,754 1,475,513
Ramada Inn Lexington KY 08/13/93 03/05/96 0.1776 1.0000 53,847 231,869
Comfort Inn Conyers GA 09/23/93 09/23/2008 1.0000 1.0000 234,500 1,000,000
Holiday Inn Lafayette LA 10/26/93 10/26/2008 1.0000 1.0000 700,000 2,750,000
Comfort Inn Marietta GA 12/17/93 12/17/2008 1.0000 1.0000 472,500 1,400,000
Residence Inn Kansas City MO 02/02/94 02/02/2009 1.0000 1.0000 406,000 1,400,000
Comfort Inn Clemson SC 04/19/94 04/19/2009 1.0000 1.0587 360,500 1,058,704
Comfort Inn Ft. Mill SC 04/29/94 04/29/2009 1.0000 1.0587 518,000 1,323,381
Hampton Inn Ft. Lauderdale FL 04/19/94 04/19/2009 1.0000 1.0587 364,500 1,535,121
Holiday Inn Express Arlington Heights IL 06/07/94 06/07/2009 1.0000 1.0087 289,961 1,164,575
Holiday Inn Express Bloomington MN 06/07/94 06/07/2009 1.0000 1.0587 515,793 1,588,057
Hampton Inn Bloomington MN 06/07/94 06/07/2009 1.0000 1.0587 613,288 1,852,733
Hampton Inn Denver CO 06/07/94 06/07/2009 1.0000 1.0587 568,981 1,508,654
Holiday Inn Express Downers Grove IL 06/07/94 06/07/2009 1.0000 1.0587 409,850 1,164,575
Comfort Inn Farmington Hills MI 06/07/94 06/07/2009 1.0000 1.0587 303,594 1,111,640
Comfort Inn Grand Rapids MI 06/07/94 06/07/2009 1.0000 1.0587 227,080 1,005,769
Hampton Inn Indianapolis IN 06/07/94 06/07/2009 1.0000 1.0587 556,693 1,482,186
Hampton Inn Lansing MI 06/07/94 06/07/2009 1.0000 1.0587 263,325 620,496
Hampton Inn Lincoln NE 06/07/94 06/07/2009 1.0000 1.0587 342,202 1,005,769
Hampton Inn Minnetonka MN 06/07/94 06/07/2009 1.0000 1.0587 348,052 1,164,575
Hampton Inn Oklahoma City OK 06/07/94 06/07/2009 1.0000 1.0587 489,631 1,482,186
Hampton Inn Omaha NE 06/07/94 06/07/2009 1.0000 1.0587 463,545 1,323,381
Hampton Inn Tulsa OK 06/07/94 06/07/2009 1.0000 1.0587 423,390 1,429,251
Hampton Inn Warren MI 06/07/94 06/07/2009 1.0000 1.0587 203,688 1,032,237
Holiday Inn Express Wauwatosa WI 06/07/94 06/07/2009 1.0000 1.0587 373,516 1,270,445
Residence Inn Tyler TX 08/12/94 08/12/2009 1.0000 1.0587 512,750 1,799,798
Residence Inn Fishkill NY 07/29/94 07/29/2009 1.0000 1.0587 888,822 2,329,150
Residence Inn Providence RI 07/29/94 07/29/2009 1.0000 1.0587 651,994 1,985,071
Hampton Inn Memphis TN 09/30/94 09/30/2009 1.0000 1.0587 516,250 1,323,381
Residence Inn Ft. Worth TX 10/01/94 10/01/2009 1.0000 1.0587 812,000 2,435,020
Residence Inn Torrance CA 10/15/94 10/15/2009 1.0000 1.0587 1,365,000 4,234,818
Residence Inn Wilmington DE 10/15/94 10/15/2009 1.0000 1.0587 703,500 2,117,409
Residence Inn Ann Arbor MI 10/15/94 10/15/2009 1.0000 1.0587 308,000 1,217,510
Holiday Inn Flint MI 10/29/94 10/29/2009 1.0000 1.0587 933,100 2,911,437
Residence Inn Charlotte NC 11/15/94 11/15/2009 1.0000 1.0587 315,000 1,217,510
Hawthorn Suites Hotel Atlanta GA 12/21/94 12/21/2009 1.0000 1.0587 1,194,200 3,387,854
Holiday Inn Express Austin TX 01/03/95 01/03/2010 1.0000 1.0295 367,500 1,338,386
Hampton Inn Lakewood CO 03/16/95 03/16/2010 1.0000 1.0295 553,000 1,647,244
Hampton Inn Hattiesburg MS 04/20/95 04/20/2010 1.0000 1.0295 385,000 1,183,957
Hampton Inn Laredo TX 07/05/95 07/05/2010 1.0000 1.0295 409,255 514,764
Residence Inn Atlanta GA 10/02/95 10/02/2010 1.0000 1.0295 815,500 1,544,291
Holiday Inn Crystal Lake IL 10/05/95 10/05/2010 1.0000 1.0295 1,016,000 3,387,854
Residence Inn Orlando FL 10/19/95 10/19/2010 1.0000 1.0295 707,000 2,419,390
Residence Inn Sacramento CA 01/12/96 01/12/2011 0.0328 1.0295 33,049 97,541
Hampton Inn Plano TX 07/15/96 07/15/2011 0.5383 1.0000 263,743 592,077
Hampton Inn Houston TX 11/12/96 11/12/2011 0.8681 1.0000 363,816 1,156,270
Homewood Suites Salt Lake City UT 11/08/96 11/08/2011 0.8552 1.0000 472,996 1,265,683
Courtyard by Marriott Flint MI 12/14/96 12/14/2011 0.9536 1.0000 407,167 1,468,470
Doubletree Hotel San Diego CA 05/30/96 05/30/2011 0.4126 1.0000 479,404 1,155,191
<CAPTION>
- - --------------------------------------------------------------------------------------------------------
1st Tier 2nd Tier 2nd Tier 3rd Tier Food Beverage Phone Other
Percent Amount Percent Percent Percent Percent Percent Percent
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
27.5% 0 50.0% 0.0% 5.0% 20.0% 0.0% 0.0%
20.0% 0 70.0% 0.0% 5.0% 20.0% 0.0% 0.0%
23.0% 1,787,499 45.0% 60.0% 5.0% 20.0% 0.0% 0.0%
34.0% 0 60.0% 0.0% 5.0% 20.0% 0.0% 0.0%
17.0% 2,755,320 30.0% 50.0% 5.0% 20.0% 0.0% 0.0%
17.5% 1,725,513 30.0% 50.0% 5.0% 20.0% 0.0% 0.0%
14.0% 276,268 30.0% 40.0% 5.0% 20.0% 0.0% 0.0%
32.0% 0 75.0% 0.0% 5.0% 20.0% 0.0% 0.0%
24.0% 3,000,000 35.0% 70.0% 5.0% 20.0% 0.0% 0.0%
27.5% 0 60.0% 0.0% 5.0% 20.0% 0.0% 0.0%
24.0% 1,650,000 45.0% 60.0% 5.0% 20.0% 0.0% 0.0%
27.0% 0 75.0% 0.0% 5.0% 20.0% 0.0% 0.0%
32.0% 0 65.0% 0.0% 5.0% 20.0% 0.0% 0.0%
27.5% 0 70.0% 0.0% 5.0% 20.0% 0.0% 0.0%
38.5% 0 70.0% 0.0% 5.0% 20.0% 0.0% 0.0%
27.5% 0 72.0% 0.0% 5.0% 20.0% 0.0% 0.0%
41.5% 0 70.0% 0.0% 5.0% 20.0% 0.0% 0.0%
27.5% 0 76.5% 0.0% 5.0% 20.0% 0.0% 0.0%
34.5% 0 70.0% 0.0% 5.0% 20.0% 0.0% 0.0%
36.0% 0 70.0% 0.0% 5.0% 20.0% 0.0% 0.0%
29.5% 0 72.0% 0.0% 5.0% 20.0% 0.0% 0.0%
40.5% 0 72.0% 0.0% 5.0% 20.0% 0.0% 0.0%
30.5% 0 70.0% 0.0% 5.0% 20.0% 0.0% 0.0%
30.5% 0 70.0% 0.0% 5.0% 20.0% 0.0% 0.0%
38.5% 0 70.0% 0.0% 5.0% 20.0% 0.0% 0.0%
32.5% 0 70.0% 0.0% 5.0% 20.0% 0.0% 0.0%
38.0% 0 70.0% 0.0% 5.0% 20.0% 0.0% 0.0%
33.5% 0 70.0% 0.0% 5.0% 20.0% 0.0% 0.0%
33.5% 0 70.0% 0.0% 5.0% 20.0% 0.0% 0.0%
40.5% 0 70.0% 0.0% 5.0% 20.0% 0.0% 0.0%
26.0% 0 67.5% 0.0% 5.0% 20.0% 0.0% 0.0%
27.5% 0 72.0% 0.0% 5.0% 20.0% 0.0% 0.0%
31.0% 0 70.0% 0.0% 5.0% 20.0% 0.0% 0.0%
33.0% 0 70.0% 0.0% 5.0% 20.0% 0.0% 0.0%
41.0% 0 70.0% 0.0% 5.0% 20.0% 0.0% 0.0%
35.0% 0 69.0% 0.0% 5.0% 20.0% 0.0% 0.0%
36.0% 0 70.0% 0.0% 5.0% 20.0% 0.0% 0.0%
24.0% 0 69.0% 0.0% 5.0% 20.0% 0.0% 0.0%
40.0% 3,176,113 65.0% 70.0% 5.0% 20.0% 0.0% 0.0%
24.0% 0 69.0% 0.0% 5.0% 20.0% 0.0% 0.0%
36.5% 0 70.0% 0.0% 5.0% 20.0% 0.0% 0.0%
36.5% 0 65.0% 0.0% 5.0% 20.0% 0.0% 0.0%
33.5% 0 70.0% 0.0% 5.0% 20.0% 0.0% 0.0%
36.0% 0 65.0% 0.0% 5.0% 20.0% 0.0% 0.0%
21.0% 1,338,385 37.0% 70.0% 5.0% 20.0% 0.0% 0.0%
30.0% 2,059,055 50.0% 70.0% 5.0% 20.0% 0.0% 0.0%
30.0% 2,985,630 50.0% 70.0% 5.0% 20.0% 0.0% 0.0%
25.0% 2,934,154 50.0% 70.0% 5.0% 20.0% 0.0% 0.0%
40.0% 0 70.0% 0.0% 5.0% 20.0% 0.0% 0.0%
33.0% 753,552 50.0% 60.0% 5.0% 20.0% 0.0% 0.0%
35.0% 0 65.0% 0.0% 0.0% 0.0% 0.0% 0.0%
33.7% 0 70.0% 0.0% 0.0% 0.0% 0.0% 0.0%
41.5% 0 70.0% 0.0% 5.0% 20.0% 0.0% 0.0%
26.0% 1,367,664 45.0% 70.0% 5.0% 20.0% 0.0% 0.0%
</TABLE>
<PAGE> 1
EXHIBIT 10.3(a)
RFS HOTEL INVESTORS, INC.
SCHEDULE OF TERMS OF SALE AND
PURCHASE AGREEMENTS
FOR AGREEMENTS IN 1996
<TABLE>
<CAPTION>
Purchase Sale
Price Price
----- -----
<S> <C> <C>
RESIDENCE INN HOTEL - 14,250,000
Sacramento, CA
HAMPTON INN HOTEL - 5,900,000
Houston, TX
DOUBLETREE HOTELS - 16,500,000
Del Mar, CA
COURTYARD BY MARIOTT HOTEL - 6,300,000
Flint, MI
RAMADA INN HOTEL - 3,900,000
Lexington, KY
</TABLE>
<PAGE> 1
Exhibit 10.4
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AGREEMENT effective January 1, 1997, by and between RFS Managers, Inc., a
Tennessee corporation (the "Company"), and Robert M. Solmson (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company provides management services to RFS Hotel Investors,
Inc. (the "Parent") pursuant to a Management Services Agreement dated December
30, 1994 (the "Management Agreement"); and
WHEREAS, the Company desires to employ the Executive to serve as the Chief
Executive Officer of the Company; and
WHEREAS, the Company and the Executive have previously entered into an
employment agreement dated January 1, 1996 (the "Original Agreement"); and
WHEREAS, the parties desire to amend and restate the Original Agreement in
its entirety effective as of January 1, 1997 as set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual obligations
hereinafter set forth the parties agree as follows:
1. EMPLOYMENT. The Company shall employ the Executive, and the Executive
agrees to be so employed, in the capacity of Chief Executive Officer of the
Company to serve for the Term hereof, subject to earlier termination as
hereinafter provided.
2. TERM. The term of the Executive's employment hereunder shall be three
years and shall commence on January 1, 1997 and shall be extended automatically,
for so long as the Executive remains employed by the Company hereunder, each
January 1 beginning January 1, 1998 for an additional twelve-month period (such
period, as it may be extended from time to time, being herein referred to as the
"Term"), unless terminated earlier in accordance with the terms of this
Agreement, to the effect that on each January 1, the remaining term of this
Agreement and the Executive's employment hereunder shall be three years.
3. SERVICES. The Executive shall devote such amount of his time and
attention to the Company's affairs as are necessary to perform his duties to the
Company and to allow the Company to perform its duties specified in the
Management Agreement. Pursuant to the Management Agreement, the Executive shall
have authority and responsibility with respect to the day to day operations and
management of the Parent and RFS Partnership, L.P. (the "Partnership"), for
which the Parent currently serves as sole general partner, as well as
implementation of the long range growth strategy of the Parent and the
Partnership, consistent with direction from the Parent's Board of Directors (the
"Board").
<PAGE> 2
4. COMPENSATION. (a) During the Term, the Company shall pay the Executive
for his services an annual base salary of $225,000 (the "Base Salary"), to be
paid in semi-monthly payments of $9,375.00, such Base Salary being subject to
any increases approved by the Compensation Committee of the Board (the
"Compensation Committee").
(b) In addition to the Base Salary described in Section 4(a) above, the
Executive shall be entitled to a cash bonus ("Base Salary Bonus") for 1996
payable on or before April 1, 1997 determined as follows:
(i) If fully diluted net income per share of common stock of the
Parent, for the year ending December 31, 1996, as reported in the
Parent's audited financial statements for the year ending
December 31, 1996, as adjusted as described in the following
sentence ("1996 Net Income Per Share") is at least $1.35, the
Executive shall be entitled to receive a cash bonus equal to ten
percent (10%) of the Base Salary. For purposes of determining the
cash bonus under this Section 4(b), fully diluted Net Income per
Share of common stock of the Parent shall be exclusive of any
gain or loss on the sale of property, any expenses relating to
the transactions between the Company and Doubletree Corporation
and its affiliates and any expenses which the Compensation
Committee deems appropriate to exclude from the calculation of
fully diluted net income per share for purposes of determining
the cash bonus; and
(ii) For each $.01 increase in Net Income Per Share for 1996 in
excess of $1.35, computed by rounding to the closest cent, the
Executive shall be entitled to receive an additional bonus equal
to three percent (3%) of the Base Salary; and
(iii) Notwithstanding the provisions of Section 4(b)(ii) above,
the maximum cash bonus payable to the Executive pursuant to this
Section 4(b) shall be fifty percent (50%) of the Base Salary.
(c) In addition to the Base Salary Bonus, the Executive may be entitled
to receive other incentive compensation, including but not limited to,
additional grants of stock options or shares of stock of the Parent, which
awards shall be made (if at all) in consideration of and as an incentive for
services performed solely for the Company, in accordance with rules and criteria
established by the Compensation Committee. Such criteria may include, but not be
limited to, the growth in the Parent's Net Income Per Share and/or other
performance goals.
5. BENEFITS. The Company agrees to provide the Executive with the following
benefits:
(a) Vacation. The Executive shall be entitled each calendar year to a
vacation, during which time his compensation shall be paid in full. The time
allotted for such vacation
2
<PAGE> 3
shall be three (3) weeks.
(b) Employee Benefits. This Agreement shall not be in lieu of any
rights, benefits and privileges to which the Executive may be entitled as a
management level employee of the Company, including but not limited to any
retirement, pension, profit-sharing, insurance, hospital or other plans which
may now be in effect or which may hereafter be adopted. The Executive shall have
the same rights and privileges to participate in such plans and benefits as any
other management level employee during the Term.
6. EXPENSES. The Company recognizes that the Executive will have to incur
certain out-of-pocket expenses, including but not limited to travel expenses,
related to his services and the Company's and the Parent's business and the
Company agrees to reimburse the Executive for all reasonable expenses
necessarily incurred by him in the performance of his duties upon presentation
of a voucher or documentation indicating the amount and business purposes of any
such expenses.
7. TERMINATION IN CASE OF DEATH OR DISABILITY. In the event of the
Executive's death or a complete physical or mental inability, confirmed by a
licensed physician, to perform the services described in Section 3 above that
continues for a period of one hundred twenty (120) consecutive days) ("Permanent
Disability"), the Company may elect to terminate this Agreement, subject to
continuation of the payments described in Section 10.
8. DEFINITIONS. For purposes of this Agreement, the following terms shall
have the following definitions:
(a) "Voluntary Termination" means, subject to the provisions of Section
11 hereof, the Executive's voluntary termination of his employment hereunder,
which may be effected by the Executive giving the Board not less than 90 days'
prior written notice of the Executive's desire to terminate his employment or
the Executive's failure to provide substantially all the services described in
Section 3 hereof for a period greater than four consecutive weeks by reason of
the Executive's voluntary refusal to perform such services. Notwithstanding the
foregoing, if the Executive gives notice of Voluntary Termination and, prior to
the expiration of the 90-day notice period, the Executive voluntarily refuses or
fails to provide substantially all the services described in Section 3 hereof
for a period greater than two consecutive weeks, the Voluntary Termination shall
be deemed to be effective as of the date on which the Executive so ceases to
carry out his duties. For purposes of this Section 8, voluntary refusal to
perform services shall not include taking vacation otherwise permitted in
accordance with Section 5(a) hereof, the Executive's failure to perform services
on account of his illness or the illness of a member of his immediate family,
provided such illness is adequately substantiated at the reasonable request of
the Company, or any other absence from service with the written consent of the
Board.
3
<PAGE> 4
(b) "Termination Without Cause" means the termination of the Executive's
employment by the Company for any reason other than Voluntary Termination or
Termination With Cause.
(c) "Termination With Cause" means the termination of the Executive's
employment by act of the Board for any of the following reasons:
(i) the Executive's conviction for a felony;
(ii) the Executive's theft, embezzlement, misappropriation of or
intentional and malicious infliction of damage to the Company's
or the Parent's property or business opportunity;
(iii) the Executive's intentional and material breach of the
noncompetition covenant in Section 11 hereof;
(iv) the Executive's continuous neglect of his duties hereunder
or his continuous failure or refusal to follow any reasonable,
unambiguous duly adopted written direction of the Board or any
duly constituted committee thereof that is not inconsistent with
the description of the Executive's duties set forth in Section 3
above; and
(v) the Executive's abuse of alcohol, drugs or other substances,
or his engaging in other deviant personal activities in a manner
that, in the reasonable judgment of the Board, adversely affects
the reputation, goodwill or business position of the Company.
(d) "Involuntary Termination" means conduct on the part of the Company
that constitutes continuous and material interference by the Company with the
Executive's performance of his duties as set forth in Section 3 hereof or the
intentional or material breach by the Company of this Agreement.
9. VOLUNTARY TERMINATION; TERMINATION WITH CAUSE. If (i) the Executive
shall cease being an employee of the Company on account of a Voluntary
Termination or (ii) there shall be a Termination With Cause, the Executive shall
not be entitled to any compensation after the effective date of such Voluntary
Termination or Termination With Cause (except Base Salary and vacation accrued
but unpaid on the effective date of such event). In the event of a Voluntary
Termination or Termination With Cause, the Executive shall continue to be
subject to the noncompetition covenant contained in Section 11 hereof for the
remainder of the Term.
10. DEATH OR DISABILITY; TERMINATION WITHOUT CAUSE; OR INVOLUNTARY
TERMINATION. Following (i) the death of the Executive, (ii) Permanent Disability
of the Executive, (iii) an Involuntary Termination, or (iv) a Termination
Without Cause, the Company shall continue to pay the Executive or his heirs,
devisees, executors, legatees or personal representatives, as
4
<PAGE> 5
appropriate, the semi-monthly payments of the Base Salary then in effect for
three years from the date of the termination of the Executive's employment.
11. CHANGE OF CONTROL COMPENSATION.
(a) Compensation. In the event of the Company's termination of the
Executive's employment or the Executive's resignation for Good Reason (as
defined below) after a Change of Control (as defined below), the Company shall,
on the date of such termination or resignation, pay the Executive, in addition
to any Base Salary earned but not paid through the date of termination or
resignation for Good Reason, a cash amount equal to three (3) times the Base
Salary for the fiscal year in which Change of Control occurs (the "Termination
Payment"). In addition, the Company shall cause the Executive's insurance
benefits, as in effect immediately prior to the Change of Control, to remain in
effect for at least one year following the date of the termination of
Executive's employment by the Company or the Executive's resignation for Good
Reason.
(b) A "Change of Control", for purposes of this Agreement, shall be
deemed to have occurred if, at any time during the Term, any of the following
events occurs:
(i) any "person", as that term is used in Section 13(d) and
Section 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), becomes, is discovered to be, or files a report
on Schedule 13D or 14D-1 (or any successor schedule, form or report)
disclosing that such person is, a beneficial owner (as defined in Rule
13d-3 under the Exchange Act or any successor rule or regulation),
directly or indirectly, of securities of the Company representing 50%
or more of the combined voting power of the Company's then outstanding
securities entitled to vote generally in the election of directors;
(ii) individuals who, as of the Effective Date, constitute the
Board of Directors of the Company cease for any reason to constitute
at least a majority of the Board of Directors of the Company, unless
any such change is approved by the vote of at least 80% of the members
of the Board of Directors of the Company in office immediately prior
to such cessation;
(iii) the Company is merged, consolidated or reorganized into or
with another corporation or other legal person, or securities of the
Company are exchanged for securities of another corporation or other
legal person, and immediately after such merger, consolidation,
reorganization or exchange less than a majority of the combined voting
power of the then-outstanding securities of such corporation or person
immediately after such transaction are held, directly or indirectly,
in the aggregate by the holders of securities entitled to vote
generally in the election of directors of the Company immediately
prior to such transaction;
5
<PAGE> 6
(iv) the Company in any transaction or series of related
transactions, sells all or substantially all of its assets to any
other corporation or other legal person and less than a majority of
the combined voting power of the then-outstanding securities of such
corporation or person immediately after such sale or sales are held,
directly or indirectly, in the aggregate by the holders of securities
entitled to vote generally in the election of directors of the Company
immediately prior to such sale;
(v) the Company and its affiliates shall sell or transfer of (in
a single transaction or series of related transactions) to a
non-affiliate business operations or assets that generated at least
two-thirds of the consolidated revenues (determined on the basis of
the Company's four most recently completed fiscal quarters for which
reports have been filed under the Exchange Act) of the Company and its
subsidiaries immediately prior thereto;
(vi) the Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange Act
disclosing in response to Form 8-K (or any successor, form or report
or item therein) that a change in control of the Company has occurred;
or
(vii) any other transaction or series of related transactions
occur that have substantially the effect of the transactions specified
in any of the preceding clauses in this sentence.
(c) Certain Transactions. Notwithstanding the provisions of Section
11(b)(i) or 11(b)(vi) hereof, unless otherwise determined in a specific case by
majority vote of the Board of Directors of the Company, a Change in Control
shall not be deemed to have occurred for purposes of this Agreement solely
because (i) the Company, (ii) an entity in which the Company directly or
indirectly beneficially owns 50% or more of the voting securities or (iii) any
Company-sponsored employee stock ownership plan, or any other employee benefit
plan of the Company, either files or becomes obligated to file a report or a
proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K
or Schedule 14A (or any successor schedule, form or report or item thereon)
under the Exchange Act, disclosing beneficial ownership by it of shares of stock
of the Company, or because the Company reports that a Change in Control of the
Company has or any have occurred or will or may occur in the future by reason of
such beneficial ownership.
(d) Good Reason. "Good Reason," for purposes of this Agreement, shall be
deemed to mean any of the following:
(i) a change in the Executive's status, position or
responsibilities (including reporting responsibilities) which, in the
Executive's reasonable judgment, does not represent a promotion from
the Executive's status, position or responsibilities as in effect
immediately prior to a Change in Control; the
6
<PAGE> 7
assignment to the Executive of any duties or responsibilities which,
in the Executive's reasonable judgment, are inconsistent with such
status, position or responsibilities; or any removal of the Executive
from or failure to reappoint or reelect the Executive to any of such
positions, except in connection with a Termination with Cause as
defined in Section 8(c), as a result of the Executive's death or
Permanent Disability, or by Voluntary Termination;
(ii) a reduction in the Executive's Base Salary and Bonus as in
effect on the date hereof or as the same may be increased from time to
time;
(iii) the relocation of the Company's or the Parent's principal
executive offices to a location outside a thirty-mile radius of
Memphis, Tennessee or the Company's or the Parent's requiring the
Executive to be based at any place other than a location within a
thirty-mile radius of Memphis, Tennessee, except for reasonably
required travel on the Company's or the Parent's business which is not
materially greater than such travel requirements prior to the Change
in Control;
(iv) the failure by the Company or the Parent to continue to
provide the Executive with compensation and benefits provided for
under this agreement or benefits substantially similar to those
provided to the Executive under any of the employee benefit plans in
which the Executive is or becomes a participant, or the taking of any
action by the Company or the Parent which would directly or indirectly
materially reduce any of such benefits or deprive the Executive of any
material fringe benefit enjoyed by the Executive at the time of the
Change in Control;
(v) any material breach by the Company of any provision of this
Agreement; and
(vi) the failure of the Company to obtain a satisfactory
agreement from any successor or assign of the Company to assume and
agree to perform this Agreement.
(e) Tax Matters. In the event the Executive's receipt of the Termination
Payment, together with any other payment or compensation which the Executive may
be entitled to receive from the Company or the Parent or any of their affiliates
as a result of the Change in Control, would, in the reasonable opinion of the
Executive's tax advisor, cause the Executive to incur tax liability under
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any successor or similar provision, the Executive may elect to receive either:
(i) the Termination Payment or (ii) the maximum portion of the Termination
Payment which the Executive may receive, which taken together with any other
payment or compensation which the Executive may be entitled to receive from the
Company or the Parent or any of their affiliates as a result of the Change in
7
<PAGE> 8
Control, would not cause the Executive to incur tax liability under Section 4999
of the Code.
12. NONCOMPETITION. During the Term and for a period of two (2) years
thereafter, the Executive shall not, other than through the Parent or affiliates
of the Parent, own more than a 10% interest in any hotel property (other than
hotels owned by the Parent and the Partnership), as partner, shareholder or
otherwise, or directly or indirectly, for his own account or for the account of
others, either as an officer, director, shareholder, owner, partner, promoter,
employee, consultant, advisor, agent, manager, or in any other capacity engage
in the acquisition, development, operation or management of any hotel property
located within 20 miles of any hotel property owned by the Parent or the
Partnership at the time of termination of employment. The foregoing sentence
shall not restrict the Executive from owning up to 10% of the outstanding
securities of any entity, including any entity whose securities are traded in
public securities markets.
The Executive agrees that damages at law for violation of the restrictive
covenant contained herein would not be an adequate or proper remedy to the
Company, and that should the Executive violate or threaten to violate any of the
provisions of such covenant, the Company, its successors or assigns, shall be
entitled to obtain a temporary or permanent injunction against the Executive in
any court having jurisdiction over the person and the subject matter,
prohibiting any further violation of any such covenants. The injunctive relief
provided herein shall be in addition to any award of damages, compensatory,
exemplary or otherwise, payable by reason of such violation.
Furthermore, the Executive acknowledges that this Agreement has been
negotiated at arms' length by the parties, neither being under any compulsion to
enter into this Agreement, and that the foregoing restrictive covenant does not
in any respect inhibit his ability to earn a livelihood in his chosen profession
without violating the restrictive covenant contained herein. The Company by
these presents has attempted to limit the Executive's right to compete only to
the extent necessary to protect the Company from unfair competition. The Company
recognizes, however, that reasonable people may differ in making such a
determination. Consequently, the Company agrees that if the scope or
enforceability of the restricted covenant contained herein is in any way
disputed at any time, a court or other trier of fact may modify and enforce the
covenant to the extent that it believes to be reasonable under the circumstances
existing at the time.
13. NOTICES. All notices or deliveries authorized or required pursuant to
this Agreement shall be deemed to have been given when in writing and personally
delivered or when deposited in the U.S. mail, certified, return receipt
requested, postage prepaid, addressed to the parties at the following addresses
or to such other addresses as either may designate in writing to the other
party:
8
<PAGE> 9
To the Company: RFS Managers, Inc.
850 Ridge Lake Boulevard
Suite 220
Memphis, TN 38120
To the Executive: Robert M. Solmson
850 Ridge Lake Boulevard, Suite 220
Memphis, TN 38120
14. ENTIRE AGREEMENT. This Agreement contains the entire understanding
between the parties hereto with respect to the subject matter hereof and shall
not be modified in any manner except by instrument in writing signed, by or on
behalf of, the parties hereto; provided, however, that any amendment or
termination of the covenant of noncompetition in Section 11 must be approved by
a majority of the Directors of the Parent other than the Executive, if the
Executive is then a director of the Parent. This Agreement shall be binding upon
and inure to the benefit of the heirs, successors and assigns of the parties
hereto.
15. ARBITRATION. Any claim or controversy arising out of, or relating to,
this Agreement or its breach, shall be settled by arbitration in accordance with
the governing rules of the American Arbitration Association. Judgment upon the
award rendered may be entered in any court of competent jurisdiction.
16. APPLICABLE LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Tennessee.
17. ASSIGNMENT. The Executive acknowledges that his services are unique and
personal. Accordingly, the Executive may not assign his rights or delegate his
duties or obligations under this Agreement, except with respect to certain
rights to receive payments as described in Section 10. The Company's rights and
obligations under this Agreement shall inure to the benefit of and shall be
binding upon the Company's successors and assigns.
18. HEADINGS. Headings in this Agreement are for convenience only and shall
not be used to interpret or construe its provisions.
19. ORIGINAL AGREEMENT. This Agreement amends and restates the Original
Agreement in its entirety as of the effective date of this Agreement.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date first above written.
RFS MANAGERS, INC.
By: /s/ Minor W. Perkins
--------------------
Name: ____________________
Title: President
EXECUTIVE:
/s/ Robert M. Solmson
---------------------
Robert M. Solmson
10
<PAGE> 1
Exhibit 10.5
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AGREEMENT effective January 1, 1997, by and between RFS Managers, Inc., a
Tennessee corporation (the "Company"), and Minor W. Perkins (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company provides management services to RFS Hotel Investors,
Inc. (the "Parent") pursuant to a Management Services Agreement dated December
30, 1994 (the "Management Agreement"); and
WHEREAS, the Company desires to employ the Executive to serve as the
President of the Company; and
WHEREAS, the Company and the Executive have previously entered into an
employment agreement dated April 8, 1996 (the "Original Agreement"); and
WHEREAS, the parties desire to amend and restate the Original Agreement in
its entirety effective as of January 1, 1997 as set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual obligations
hereinafter set forth the parties agree as follows:
1. EMPLOYMENT. The Company shall employ the Executive, and the Executive
agrees to be so employed, in the capacity of President of the Company to serve
for the Term hereof, subject to earlier termination as hereinafter provided.
2. TERM. The term of the Executive's employment hereunder shall be three
years and shall commence on January 1, 1997 and shall be extended automatically,
for so long as the Executive remains employed by the Company hereunder, each
January 1 beginning January 1, 1998 for an additional twelve-month period (such
period, as it may be extended from time to time, being herein referred to as the
"Term"), unless terminated earlier in accordance with the terms of this
Agreement, to the effect that on each January 1, the remaining term of this
Agreement and the Executive's employment hereunder shall be three years.
3. SERVICES. The Executive shall devote such amount of his time and
attention to the Company's affairs as are necessary to perform his duties to the
Company and to allow the Company to perform its duties specified in the
Management Agreement. Pursuant to the Management Agreement, the Executive shall
have authority and responsibility with respect to the day to day operations and
management of the Parent and RFS Partnership, L.P. (the "Partnership"), for
which the Parent currently serves as sole general partner, as well as
implementation of the long range growth strategy of the Parent and the
Partnership, consistent with direction from the Parent's Board of Directors (the
"Board").
<PAGE> 2
4. COMPENSATION. (a) During the Term, the Company shall pay the Executive
for his services an annual base salary of $225,000 (the "Base Salary"), to be
paid in semi-monthly payments of $9,375.00, such Base Salary being subject to
any increases approved by the Compensation Committee of the Board (the
"Compensation Committee").
(b) In addition to the Base Salary described in Section 4(a) above, the
Executive shall be entitled to a cash bonus ("Base Salary Bonus") for 1996
payable on or before April 1, 1997 determined as follows:
(i) If fully diluted net income per share of common stock of the
Parent, for the year ending December 31, 1996, as reported in the
Parent's audited financial statements for the year ending
December 31, 1996, as adjusted as described in the following
sentence ("1996 Net Income Per Share") is at least $1.35, the
Executive shall be entitled to receive a cash bonus equal to ten
percent (10%) of the Base Salary. For purposes of determining the
cash bonus under this Section 4(b), fully diluted Net Income per
Share of common stock of the Parent shall be exclusive of any
gain or loss on the sale of property, any expenses relating to
the transactions between the Company and Doubletree Corporation
and its affiliates and any expenses which the Compensation
Committee deems appropriate to exclude from the calculation of
fully diluted net income per share for purposes of determining
the cash bonus; and
(ii) For each $.01 increase in Net Income Per Share for 1996 in
excess of $1.35, computed by rounding to the closest cent, the
Executive shall be entitled to receive an additional bonus equal
to three percent (3%) of the Base Salary; and
(iii) Notwithstanding the provisions of Section 4(b)(ii) above,
the maximum cash bonus payable to the Executive pursuant to this
Section 4(b) shall be fifty percent (50%) of the Base Salary.
(c) In addition to the Base Salary Bonus, the Executive may be entitled
to receive other incentive compensation, including but not limited to,
additional grants of stock options or shares of stock of the Parent, which
awards shall be made (if at all) in consideration of and as an incentive for
services performed solely for the Company, in accordance with rules and criteria
established by the Compensation Committee. Such criteria may include, but not be
limited to, the growth in the Parent's Net Income Per Share and/or other
performance goals.
5. BENEFITS. The Company agrees to provide the Executive with the following
benefits:
(a) Vacation. The Executive shall be entitled each calendar year to a
vacation, during which time his compensation shall be paid in full. The time
allotted for such vacation
2
<PAGE> 3
shall be three (3) weeks.
(b) Employee Benefits. This Agreement shall not be in lieu of any
rights, benefits and privileges to which the Executive may be entitled as a
management level employee of the Company, including but not limited to any
retirement, pension, profit-sharing, insurance, hospital or other plans which
may now be in effect or which may hereafter be adopted. The Executive shall have
the same rights and privileges to participate in such plans and benefits as any
other management level employee during the Term.
6. EXPENSES. The Company recognizes that the Executive will have to incur
certain out-of-pocket expenses, including but not limited to travel expenses,
related to his services and the Company's and the Parent's business and the
Company agrees to reimburse the Executive for all reasonable expenses
necessarily incurred by him in the performance of his duties upon presentation
of a voucher or documentation indicating the amount and business purposes of any
such expenses.
7. TERMINATION IN CASE OF DEATH OR DISABILITY. In the event of the
Executive's death or a complete physical or mental inability, confirmed by a
licensed physician, to perform the services described in Section 3 above that
continues for a period of one hundred twenty (120) consecutive days) ("Permanent
Disability"), the Company may elect to terminate this Agreement, subject to
continuation of the payments described in Section 10.
8. DEFINITIONS. For purposes of this Agreement, the following terms shall
have the following definitions:
(a) "Voluntary Termination" means, subject to the provisions of Section
11 hereof, the Executive's voluntary termination of his employment hereunder,
which may be effected by the Executive giving the Board not less than 90 days'
prior written notice of the Executive's desire to terminate his employment or
the Executive's failure to provide substantially all the services described in
Section 3 hereof for a period greater than four consecutive weeks by reason of
the Executive's voluntary refusal to perform such services. Notwithstanding the
foregoing, if the Executive gives notice of Voluntary Termination and, prior to
the expiration of the 90-day notice period, the Executive voluntarily refuses or
fails to provide substantially all the services described in Section 3 hereof
for a period greater than two consecutive weeks, the Voluntary Termination shall
be deemed to be effective as of the date on which the Executive so ceases to
carry out his duties. For purposes of this Section 8, voluntary refusal to
perform services shall not include taking vacation otherwise permitted in
accordance with Section 5(a) hereof, the Executive's failure to perform services
on account of his illness or the illness of a member of his immediate family,
provided such illness is adequately substantiated at the reasonable request of
the Company, or any other absence from service with the written consent of the
Board.
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(b) "Termination Without Cause" means the termination of the Executive's
employment by the Company for any reason other than Voluntary Termination or
Termination With Cause.
(c) "Termination With Cause" means the termination of the Executive's
employment by act of the Board for any of the following reasons:
(i) the Executive's conviction for a felony;
(ii) the Executive's theft, embezzlement, misappropriation of or
intentional and malicious infliction of damage to the Company's
or the Parent's property or business opportunity;
(iii) the Executive's intentional and material breach of the
noncompetition covenant in Section 11 hereof;
(iv) the Executive's continuous neglect of his duties hereunder
or his continuous failure or refusal to follow any reasonable,
unambiguous duly adopted written direction of the Board or any
duly constituted committee thereof that is not inconsistent with
the description of the Executive's duties set forth in Section 3
above; and
(v) the Executive's abuse of alcohol, drugs or other substances,
or his engaging in other deviant personal activities in a manner
that, in the reasonable judgment of the Board, adversely affects
the reputation, goodwill or business position of the Company.
(d) "Involuntary Termination" means conduct on the part of the Company
that constitutes continuous and material interference by the Company with the
Executive's performance of his duties as set forth in Section 3 hereof or the
intentional or material breach by the Company of this Agreement.
9. VOLUNTARY TERMINATION; TERMINATION WITH CAUSE. If (i) the Executive
shall cease being an employee of the Company on account of a Voluntary
Termination or (ii) there shall be a Termination With Cause, the Executive shall
not be entitled to any compensation after the effective date of such Voluntary
Termination or Termination With Cause (except Base Salary and vacation accrued
but unpaid on the effective date of such event). In the event of a Voluntary
Termination or Termination With Cause, the Executive shall continue to be
subject to the noncompetition covenant contained in Section 11 hereof for the
remainder of the Term.
10. DEATH OR DISABILITY; TERMINATION WITHOUT CAUSE; OR INVOLUNTARY
TERMINATION. Following (i) the death of the Executive, (ii) Permanent Disability
of the Executive, (iii) an Involuntary Termination, or (iv) a Termination
Without Cause, the Company shall continue to pay the Executive or his heirs,
devisees, executors, legatees or personal representatives, as
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appropriate, the semi-monthly payments of the Base Salary then in effect for
three years from the date of the termination of the Executive's employment.
11. CHANGE OF CONTROL COMPENSATION.
(a) Compensation. In the event of the Company's termination of the
Executive's employment or the Executive's resignation for Good Reason (as
defined below) after a Change of Control (as defined below), the Company shall,
on the date of such termination or resignation, pay the Executive, in addition
to any Base Salary earned but not paid through the date of termination or
resignation for Good Reason, a cash amount equal to three (3) times the Base
Salary for the fiscal year in which Change of Control occurs (the "Termination
Payment"). In addition, the Company shall cause the Executive's insurance
benefits, as in effect immediately prior to the Change of Control, to remain in
effect for at least one year following the date of the termination of
Executive's employment by the Company or the Executive's resignation for Good
Reason.
(b) A "Change of Control", for purposes of this Agreement, shall be
deemed to have occurred if, at any time during the Term, any of the following
events occurs:
(i) any "person", as that term is used in Section 13(d) and
Section 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), becomes, is discovered to be, or files a report
on Schedule 13D or 14D-1 (or any successor schedule, form or report)
disclosing that such person is, a beneficial owner (as defined in Rule
13d-3 under the Exchange Act or any successor rule or regulation),
directly or indirectly, of securities of the Company representing 50%
or more of the combined voting power of the Company's then outstanding
securities entitled to vote generally in the election of directors;
(ii) individuals who, as of the Effective Date, constitute the
Board of Directors of the Company cease for any reason to constitute
at least a majority of the Board of Directors of the Company, unless
any such change is approved by the vote of at least 80% of the members
of the Board of Directors of the Company in office immediately prior
to such cessation;
(iii) the Company is merged, consolidated or reorganized into or
with another corporation or other legal person, or securities of the
Company are exchanged for securities of another corporation or other
legal person, and immediately after such merger, consolidation,
reorganization or exchange less than a majority of the combined voting
power of the then-outstanding securities of such corporation or person
immediately after such transaction are held, directly or indirectly,
in the aggregate by the holders of securities entitled to vote
generally in the election of directors of the Company immediately
prior to such transaction;
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(iv) the Company in any transaction or series of related
transactions, sells all or substantially all of its assets to any
other corporation or other legal person and less than a majority of
the combined voting power of the then-outstanding securities of such
corporation or person immediately after such sale or sales are held,
directly or indirectly, in the aggregate by the holders of securities
entitled to vote generally in the election of directors of the Company
immediately prior to such sale;
(v) the Company and its affiliates shall sell or transfer of (in
a single transaction or series of related transactions) to a
non-affiliate business operations or assets that generated at least
two-thirds of the consolidated revenues (determined on the basis of
the Company's four most recently completed fiscal quarters for which
reports have been filed under the Exchange Act) of the Company and its
subsidiaries immediately prior thereto;
(vi) the Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange Act
disclosing in response to Form 8-K (or any successor, form or report
or item therein) that a change in control of the Company has occurred;
or
(vii) any other transaction or series of related transactions
occur that have substantially the effect of the transactions specified
in any of the preceding clauses in this sentence.
(c) Certain Transactions. Notwithstanding the provisions of Section
11(b)(i) or 11(b)(vi) hereof, unless otherwise determined in a specific case by
majority vote of the Board of Directors of the Company, a Change in Control
shall not be deemed to have occurred for purposes of this Agreement solely
because (i) the Company, (ii) an entity in which the Company directly or
indirectly beneficially owns 50% or more of the voting securities or (iii) any
Company-sponsored employee stock ownership plan, or any other employee benefit
plan of the Company, either files or becomes obligated to file a report or a
proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K
or Schedule 14A (or any successor schedule, form or report or item thereon)
under the Exchange Act, disclosing beneficial ownership by it of shares of stock
of the Company, or because the Company reports that a Change in Control of the
Company has or any have occurred or will or may occur in the future by reason of
such beneficial ownership.
(d) Good Reason. "Good Reason," for purposes of this Agreement, shall be
deemed to mean any of the following:
(i) a change in the Executive's status, position or
responsibilities (including reporting responsibilities) which, in the
Executive's reasonable judgment, does not represent a promotion from
the Executive's status, position or responsibilities as in effect
immediately prior to a Change in Control; the
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assignment to the Executive of any duties or responsibilities which,
in the Executive's reasonable judgment, are inconsistent with such
status, position or responsibilities; or any removal of the Executive
from or failure to reappoint or reelect the Executive to any of such
positions, except in connection with a Termination with Cause as
defined in Section 8(c), as a result of the Executive's death or
Permanent Disability, or by Voluntary Termination;
(ii) a reduction in the Executive's Base Salary and Bonus as in
effect on the date hereof or as the same may be increased from time to
time;
(iii) the relocation of the Company's or the Parent's principal
executive offices to a location outside a thirty-mile radius of
Memphis, Tennessee or the Company's or the Parent's requiring the
Executive to be based at any place other than a location within a
thirty-mile radius of Memphis, Tennessee, except for reasonably
required travel on the Company's or the Parent's business which is not
materially greater than such travel requirements prior to the Change
in Control;
(iv) the failure by the Company or the Parent to continue to
provide the Executive with compensation and benefits provided for
under this agreement or benefits substantially similar to those
provided to the Executive under any of the employee benefit plans in
which the Executive is or becomes a participant, or the taking of any
action by the Company or the Parent which would directly or indirectly
materially reduce any of such benefits or deprive the Executive of any
material fringe benefit enjoyed by the Executive at the time of the
Change in Control;
(v) any material breach by the Company of any provision of this
Agreement; and
(vi) the failure of the Company to obtain a satisfactory
agreement from any successor or assign of the Company to assume and
agree to perform this Agreement.
(e) Tax Matters. In the event the Executive's receipt of the Termination
Payment, together with any other payment or compensation which the Executive may
be entitled to receive from the Company or the Parent or any of their affiliates
as a result of the Change in Control, would, in the reasonable opinion of the
Executive's tax advisor, cause the Executive to incur tax liability under
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any successor or similar provision, the Executive may elect to receive either:
(i) the Termination Payment or (ii) the maximum portion of the Termination
Payment which the Executive may receive, which taken together with any other
payment or compensation which the Executive may be entitled to receive from the
Company or the Parent or any of their affiliates as a result of the Change in
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Control, would not cause the Executive to incur tax liability under Section 4999
of the Code.
12. NONCOMPETITION. During the Term and for a period of two (2) years
thereafter, the Executive shall not, other than through the Parent or affiliates
of the Parent, own more than a 10% interest in any hotel property (other than
hotels owned by the Parent and the Partnership), as partner, shareholder or
otherwise, or directly or indirectly, for his own account or for the account of
others, either as an officer, director, shareholder, owner, partner, promoter,
employee, consultant, advisor, agent, manager, or in any other capacity engage
in the acquisition, development, operation or management of any hotel property
located within 20 miles of any hotel property owned by the Parent or the
Partnership at the time of termination of employment. The foregoing sentence
shall not restrict the Executive from owning up to ___% of the outstanding
securities of any entity, including any entity whose securities are traded in
public securities markets.
The Executive agrees that damages at law for violation of the restrictive
covenant contained herein would not be an adequate or proper remedy to the
Company, and that should the Executive violate or threaten to violate any of the
provisions of such covenant, the Company, its successors or assigns, shall be
entitled to obtain a temporary or permanent injunction against the Executive in
any court having jurisdiction over the person and the subject matter,
prohibiting any further violation of any such covenants. The injunctive relief
provided herein shall be in addition to any award of damages, compensatory,
exemplary or otherwise, payable by reason of such violation.
Furthermore, the Executive acknowledges that this Agreement has been
negotiated at arms' length by the parties, neither being under any compulsion to
enter into this Agreement, and that the foregoing restrictive covenant does not
in any respect inhibit his ability to earn a livelihood in his chosen profession
without violating the restrictive covenant contained herein. The Company by
these presents has attempted to limit the Executive's right to compete only to
the extent necessary to protect the Company from unfair competition. The Company
recognizes, however, that reasonable people may differ in making such a
determination. Consequently, the Company agrees that if the scope or
enforceability of the restricted covenant contained herein is in any way
disputed at any time, a court or other trier of fact may modify and enforce the
covenant to the extent that it believes to be reasonable under the circumstances
existing at the time.
13. NOTICES. All notices or deliveries authorized or required pursuant to
this Agreement shall be deemed to have been given when in writing and personally
delivered or when deposited in the U.S. mail, certified, return receipt
requested, postage prepaid, addressed to the parties at the following addresses
or to such other addresses as either may designate in writing to the other
party:
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To the Company: RFS Managers, Inc.
850 Ridge Lake Boulevard
Suite 220
Memphis, TN 38120
To the Executive: Minor W. Perkins
6551 May Hollow
Memphis, TN 38119
14. ENTIRE AGREEMENT. This Agreement contains the entire understanding
between the parties hereto with respect to the subject matter hereof and shall
not be modified in any manner except by instrument in writing signed, by or on
behalf of, the parties hereto; provided, however, that any amendment or
termination of the covenant of noncompetition in Section 11 must be approved by
a majority of the Directors of the Parent other than the Executive, if the
Executive is then a director of the Parent. This Agreement shall be binding upon
and inure to the benefit of the heirs, successors and assigns of the parties
hereto.
15. ARBITRATION. Any claim or controversy arising out of, or relating to,
this Agreement or its breach, shall be settled by arbitration in accordance with
the governing rules of the American Arbitration Association. Judgment upon the
award rendered may be entered in any court of competent jurisdiction.
16. APPLICABLE LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Tennessee.
17. ASSIGNMENT. The Executive acknowledges that his services are unique and
personal. Accordingly, the Executive may not assign his rights or delegate his
duties or obligations under this Agreement, except with respect to certain
rights to receive payments as described in Section 10. The Company's rights and
obligations under this Agreement shall inure to the benefit of and shall be
binding upon the Company's successors and assigns.
18. HEADINGS. Headings in this Agreement are for convenience only and shall
not be used to interpret or construe its provisions.
19. ORIGINAL AGREEMENT. This Agreement amends and restates the Original
Agreement in its entirety as of the effective date of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date first above written.
RFS MANAGERS, INC.
By: /s/ Robert M. Solmson
---------------------
Name: _________________________
Title: Chairman
EXECUTIVE:
/s/ Minor W. Perkins
--------------------
Minor W. Perkins
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Exhibit 10.6
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AGREEMENT effective January 1, 1997, by and between RFS Managers, Inc., a
Tennessee corporation (the "Company"), and J. William Lovelace (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Company provides management services to RFS Hotel Investors,
Inc. (the "Parent") pursuant to a Management Services Agreement dated December
30, 1994 (the "Management Agreement"); and
WHEREAS, the Company desires to employ the Executive to serve as the
Executive Vice President of the Company; and
WHEREAS, the Company and the Executive have previously entered into an
employment agreement dated January 1, 1996 (the "Original Agreement"); and
WHEREAS, the parties desire to amend and restate the Original Agreement in
its entirety effective as of January 1, 1997 as set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual obligations
hereinafter set forth the parties agree as follows:
1. EMPLOYMENT. The Company shall employ the Executive, and the Executive
agrees to be so employed, in the capacity of Executive Vice-President of the
Company to serve for the Term hereof, subject to earlier termination as
hereinafter provided.
2. TERM. The term of the Executive's employment hereunder shall be three
years and shall commence on January 1, 1997 and shall be extended automatically,
for so long as the Executive remains employed by the Company hereunder, each
January 1 beginning January 1, 1998 for an additional twelve-month period (such
period, as it may be extended from time to time, being herein referred to as the
"Term"), unless terminated earlier in accordance with the terms of this
Agreement, to the effect that on each January 1, the remaining term of this
Agreement and the Executive's employment hereunder shall be three years.
3. SERVICES. The Executive shall devote such amount of his time and
attention to the Company's affairs as are necessary to perform his duties to the
Company and to allow the Company to perform its duties specified in the
Management Agreement. Pursuant to the Management Agreement, the Executive shall
have authority and responsibility with respect to the day to day operations and
management of the Parent and RFS Partnership, L.P. (the "Partnership"), for
which the Parent currently serves as sole general partner, as well as
implementation of the long range growth strategy of the Parent and the
Partnership, consistent with direction from the Parent's Board of Directors (the
"Board").
<PAGE> 2
4. COMPENSATION. (a) During the Term, the Company shall pay the Executive
for his services an annual base salary of $190,000 (the "Base Salary"), to be
paid in semi-monthly payments of $7,916.67, such Base Salary being subject to
any increases approved by the Compensation Committee of the Board (the
"Compensation Committee").
(b) In addition to the Base Salary described in Section 4(a) above, the
Executive shall be entitled to a cash bonus ("Base Salary Bonus") for 1996
payable on or before April 1, 1997 determined as follows:
(i) If fully diluted net income per share of common stock of the
Parent, for the year ending December 31, 1996, as reported in the
Parent's audited financial statements for the year ending December 31,
1996, as adjusted as described in the following sentence ("1996 Net
Income Per Share") is at least $1.35, the Executive shall be entitled
to receive a cash bonus equal to ten percent (10%) of the Base Salary.
For purposes of determining the cash bonus under this Section 4(b),
fully diluted Net Income per Share of common stock of the Parent shall
be exclusive of any gain or loss on the sale of property, any expenses
relating to the transactions between the Company and Doubletree
Corporation and its affiliates and any expenses which the Compensation
Committee deems appropriate to exclude from the calculation of fully
diluted net income per share for purposes of determining the cash
bonus; and
(ii) For each $.01 increase in Net Income Per Share for 1996 in excess
of $1.35, computed by rounding to the closest cent, the Executive
shall be entitled to receive an additional bonus equal to three
percent (3%) of the Base Salary; and
(iii) Notwithstanding the provisions of Section 4(b)(ii) above, the
maximum cash bonus payable to the Executive pursuant to this Section
4(b) shall be fifty percent (50%) of the Base Salary.
(c) In addition to the Base Salary Bonus, the Executive may be entitled to
receive other incentive compensation, including but not limited to, additional
grants of stock options or shares of stock of the Parent, which awards shall be
made (if at all) in consideration of and as an incentive for services performed
solely for the Company, in accordance with rules and criteria established by the
Compensation Committee. Such criteria may include, but not be limited to, the
growth in the Parent's Net Income Per Share and/or other performance goals.
5. BENEFITS. The Company agrees to provide the Executive with the following
benefits:
(a) Vacation. The Executive shall be entitled each calendar year to a
vacation, during which time his compensation shall be paid in full. The time
allotted for such vacation
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shall be three (3) weeks.
(b) Employee Benefits. This Agreement shall not be in lieu of any
rights, benefits and privileges to which the Executive may be entitled as a
management level employee of the Company, including but not limited to any
retirement, pension, profit-sharing, insurance, hospital or other plans which
may now be in effect or which may hereafter be adopted. The Executive shall have
the same rights and privileges to participate in such plans and benefits as any
other management level employee during the Term.
6. EXPENSES. The Company recognizes that the Executive will have to incur
certain out-of-pocket expenses, including but not limited to travel expenses,
related to his services and the Company's and the Parent's business and the
Company agrees to reimburse the Executive for all reasonable expenses
necessarily incurred by him in the performance of his duties upon presentation
of a voucher or documentation indicating the amount and business purposes of any
such expenses.
7. TERMINATION IN CASE OF DEATH OR DISABILITY. In the event of the
Executive's death or a complete physical or mental inability, confirmed by a
licensed physician, to perform the services described in Section 3 above that
continues for a period of one hundred twenty (120) consecutive days) ("Permanent
Disability"), the Company may elect to terminate this Agreement, subject to
continuation of the payments described in Section 10.
8. DEFINITIONS. For purposes of this Agreement, the following terms shall
have the following definitions:
(a) "Voluntary Termination" means, subject to the provisions of Section
11 hereof, the Executive's voluntary termination of his employment hereunder,
which may be effected by the Executive giving the Board not less than 90 days'
prior written notice of the Executive's desire to terminate his employment or
the Executive's failure to provide substantially all the services described in
Section 3 hereof for a period greater than four consecutive weeks by reason of
the Executive's voluntary refusal to perform such services. Notwithstanding the
foregoing, if the Executive gives notice of Voluntary Termination and, prior to
the expiration of the 90-day notice period, the Executive voluntarily refuses or
fails to provide substantially all the services described in Section 3 hereof
for a period greater than two consecutive weeks, the Voluntary Termination shall
be deemed to be effective as of the date on which the Executive so ceases to
carry out his duties. For purposes of this Section 8, voluntary refusal to
perform services shall not include taking vacation otherwise permitted in
accordance with Section 5(a) hereof, the Executive's failure to perform services
on account of his illness or the illness of a member of his immediate family,
provided such illness is adequately substantiated at the reasonable request of
the Company, or any other absence from service with the written consent of the
Board.
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(b) "Termination Without Cause" means the termination of the Executive's
employment by the Company for any reason other than Voluntary Termination or
Termination With Cause.
(c) "Termination With Cause" means the termination of the Executive's
employment by act of the Board for any of the following reasons:
(i) the Executive's conviction for a felony;
(ii) the Executive's theft, embezzlement, misappropriation of or
intentional and malicious infliction of damage to the Company's
or the Parent's property or business opportunity;
(iii) the Executive's intentional and material breach of the
noncompetition covenant in Section 11 hereof;
(iv) the Executive's continuous neglect of his duties hereunder
or his continuous failure or refusal to follow any reasonable,
unambiguous duly adopted written direction of the Board or any
duly constituted committee thereof that is not inconsistent with
the description of the Executive's duties set forth in Section 3
above; and
(v) the Executive's abuse of alcohol, drugs or other substances,
or his engaging in other deviant personal activities in a manner
that, in the reasonable judgment of the Board, adversely affects
the reputation, goodwill or business position of the Company.
(d) "Involuntary Termination" means conduct on the part of the Company
that constitutes continuous and material interference by the Company with the
Executive's performance of his duties as set forth in Section 3 hereof or the
intentional or material breach by the Company of this Agreement.
9. VOLUNTARY TERMINATION; TERMINATION WITH CAUSE. If (i) the Executive
shall cease being an employee of the Company on account of a Voluntary
Termination or (ii) there shall be a Termination With Cause, the Executive shall
not be entitled to any compensation after the effective date of such Voluntary
Termination or Termination With Cause (except Base Salary and vacation accrued
but unpaid on the effective date of such event). In the event of a Voluntary
Termination or Termination With Cause, the Executive shall continue to be
subject to the noncompetition covenant contained in Section 11 hereof for the
remainder of the Term.
10. DEATH OR DISABILITY; TERMINATION WITHOUT CAUSE; OR INVOLUNTARY
TERMINATION. Following (i) the death of the Executive, (ii) Permanent Disability
of the Executive, (iii) an Involuntary Termination, or (iv) a Termination
Without Cause, the Company shall continue to pay the Executive or his heirs,
devisees, executors, legatees or personal representatives, as
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appropriate, the semi-monthly payments of the Base Salary then in effect for
three years from the date of the termination of the Executive's employment.
11. CHANGE OF CONTROL COMPENSATION.
(a) Compensation. In the event of the Company's termination of the
Executive's employment or the Executive's resignation for Good Reason (as
defined below) after a Change of Control (as defined below), the Company shall,
on the date of such termination or resignation, pay the Executive, in addition
to any Base Salary earned but not paid through the date of termination or
resignation for Good Reason, a cash amount equal to three (3) times the Base
Salary for the fiscal year in which Change of Control occurs (the "Termination
Payment"). In addition, the Company shall cause the Executive's insurance
benefits, as in effect immediately prior to the Change of Control, to remain in
effect for at least one year following the date of the termination of
Executive's employment by the Company or the Executive's resignation for Good
Reason.
(b) A "Change of Control", for purposes of this Agreement, shall be
deemed to have occurred if, at any time during the Term, any of the following
events occurs:
(i) any "person", as that term is used in Section 13(d) and
Section 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), becomes, is discovered to be, or files a report
on Schedule 13D or 14D-1 (or any successor schedule, form or report)
disclosing that such person is, a beneficial owner (as defined in Rule
13d-3 under the Exchange Act or any successor rule or regulation),
directly or indirectly, of securities of the Company representing 50%
or more of the combined voting power of the Company's then outstanding
securities entitled to vote generally in the election of directors;
(ii) individuals who, as of the Effective Date, constitute the
Board of Directors of the Company cease for any reason to constitute
at least a majority of the Board of Directors of the Company, unless
any such change is approved by the vote of at least 80% of the members
of the Board of Directors of the Company in office immediately prior
to such cessation;
(iii) the Company is merged, consolidated or reorganized into or
with another corporation or other legal person, or securities of the
Company are exchanged for securities of another corporation or other
legal person, and immediately after such merger, consolidation,
reorganization or exchange less than a majority of the combined voting
power of the then-outstanding securities of such corporation or person
immediately after such transaction are held, directly or indirectly,
in the aggregate by the holders of securities entitled to vote
generally in the election of directors of the Company immediately
prior to such transaction;
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(iv) the Company in any transaction or series of related
transactions, sells all or substantially all of its assets to any
other corporation or other legal person and less than a majority of
the combined voting power of the then-outstanding securities of such
corporation or person immediately after such sale or sales are held,
directly or indirectly, in the aggregate by the holders of securities
entitled to vote generally in the election of directors of the Company
immediately prior to such sale;
(v) the Company and its affiliates shall sell or transfer of (in
a single transaction or series of related transactions) to a
non-affiliate business operations or assets that generated at least
two-thirds of the consolidated revenues (determined on the basis of
the Company's four most recently completed fiscal quarters for which
reports have been filed under the Exchange Act) of the Company and its
subsidiaries immediately prior thereto;
(vi) the Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange Act
disclosing in response to Form 8-K (or any successor, form or report
or item therein) that a change in control of the Company has occurred;
or
(vii) any other transaction or series of related transactions
occur that have substantially the effect of the transactions specified
in any of the preceding clauses in this sentence.
(c) Certain Transactions. Notwithstanding the provisions of Section
11(b)(i) or 11(b)(vi) hereof, unless otherwise determined in a specific case by
majority vote of the Board of Directors of the Company, a Change in Control
shall not be deemed to have occurred for purposes of this Agreement solely
because (i) the Company, (ii) an entity in which the Company directly or
indirectly beneficially owns 50% or more of the voting securities or (iii) any
Company-sponsored employee stock ownership plan, or any other employee benefit
plan of the Company, either files or becomes obligated to file a report or a
proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K
or Schedule 14A (or any successor schedule, form or report or item thereon)
under the Exchange Act, disclosing beneficial ownership by it of shares of stock
of the Company, or because the Company reports that a Change in Control of the
Company has or any have occurred or will or may occur in the future by reason of
such beneficial ownership.
(d) Good Reason. "Good Reason," for purposes of this Agreement, shall be
deemed to mean any of the following:
(i) a change in the Executive's status, position or
responsibilities (including reporting responsibilities) which, in the
Executive's reasonable judgment, does not represent a promotion from
the Executive's status, position or responsibilities as in effect
immediately prior to a Change in Control; the
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assignment to the Executive of any duties or responsibilities which,
in the Executive's reasonable judgment, are inconsistent with such
status, position or responsibilities; or any removal of the Executive
from or failure to reappoint or reelect the Executive to any of such
positions, except in connection with a Termination with Cause as
defined in Section 8(c), as a result of the Executive's death or
Permanent Disability, or by Voluntary Termination;
(ii) a reduction in the Executive's Base Salary and Bonus as in
effect on the date hereof or as the same may be increased from time to
time;
(iii) the relocation of the Company's or the Parent's principal
executive offices to a location outside a thirty-mile radius of
Memphis, Tennessee or the Company's or the Parent's requiring the
Executive to be based at any place other than a location within a
thirty-mile radius of Memphis, Tennessee, except for reasonably
required travel on the Company's or the Parent's business which is not
materially greater than such travel requirements prior to the Change
in Control;
(iv) the failure by the Company or the Parent to continue to
provide the Executive with compensation and benefits provided for
under this agreement or benefits substantially similar to those
provided to the Executive under any of the employee benefit plans in
which the Executive is or becomes a participant, or the taking of any
action by the Company or the Parent which would directly or indirectly
materially reduce any of such benefits or deprive the Executive of any
material fringe benefit enjoyed by the Executive at the time of the
Change in Control;
(v) any material breach by the Company of any provision of this
Agreement; and
(vi) the failure of the Company to obtain a satisfactory
agreement from any successor or assign of the Company to assume and
agree to perform this Agreement.
(e) Tax Matters. In the event the Executive's receipt of the Termination
Payment, together with any other payment or compensation which the Executive may
be entitled to receive from the Company or the Parent or any of their affiliates
as a result of the Change in Control, would, in the reasonable opinion of the
Executive's tax advisor, cause the Executive to incur tax liability under
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any successor or similar provision, the Executive may elect to receive either:
(i) the Termination Payment or (ii) the maximum portion of the Termination
Payment which the Executive may receive, which taken together with any other
payment or compensation which the Executive may be entitled to receive from the
Company or the Parent or any of their affiliates as a result of the Change in
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<PAGE> 8
Control, would not cause the Executive to incur tax liability under Section 4999
of the Code.
12. NONCOMPETITION. During the Term and for a period of two (2) years
thereafter, the Executive shall not, other than through the Parent or affiliates
of the Parent, own more than a 10% interest in any hotel property (other than
hotels owned by the Parent and the Partnership), as partner, shareholder or
otherwise, or directly or indirectly, for his own account or for the account of
others, either as an officer, director, shareholder, owner, partner, promoter,
employee, consultant, advisor, agent, manager, or in any other capacity engage
in the acquisition, development, operation or management of any hotel property
located within 20 miles of any hotel property owned by the Parent or the
Partnership at the time of termination of employment. The foregoing sentence
shall not restrict the Executive from owning up to 10% of the outstanding
securities of any entity, including any entity whose securities are traded in
public securities markets.
The Executive agrees that damages at law for violation of the restrictive
covenant contained herein would not be an adequate or proper remedy to the
Company, and that should the Executive violate or threaten to violate any of the
provisions of such covenant, the Company, its successors or assigns, shall be
entitled to obtain a temporary or permanent injunction against the Executive in
any court having jurisdiction over the person and the subject matter,
prohibiting any further violation of any such covenants. The injunctive relief
provided herein shall be in addition to any award of damages, compensatory,
exemplary or otherwise, payable by reason of such violation.
Furthermore, the Executive acknowledges that this Agreement has been
negotiated at arms' length by the parties, neither being under any compulsion to
enter into this Agreement, and that the foregoing restrictive covenant does not
in any respect inhibit his ability to earn a livelihood in his chosen profession
without violating the restrictive covenant contained herein. The Company by
these presents has attempted to limit the Executive's right to compete only to
the extent necessary to protect the Company from unfair competition. The Company
recognizes, however, that reasonable people may differ in making such a
determination. Consequently, the Company agrees that if the scope or
enforceability of the restricted covenant contained herein is in any way
disputed at any time, a court or other trier of fact may modify and enforce the
covenant to the extent that it believes to be reasonable under the circumstances
existing at the time.
13. NOTICES. All notices or deliveries authorized or required pursuant to
this Agreement shall be deemed to have been given when in writing and personally
delivered or when deposited in the U.S. mail, certified, return receipt
requested, postage prepaid, addressed to the parties at the following addresses
or to such other addresses as either may designate in writing to the other
party:
8
<PAGE> 9
To the Company: RFS Managers, Inc.
850 Ridge Lake Boulevard
Suite 220
Memphis, TN 38120
To the Executive: J. William Lovelace
4617 Woodmont Place
Memphis, TN 38119-3253
14. ENTIRE AGREEMENT. This Agreement contains the entire understanding
between the parties hereto with respect to the subject matter hereof and shall
not be modified in any manner except by instrument in writing signed, by or on
behalf of, the parties hereto; provided, however, that any amendment or
termination of the covenant of noncompetition in Section 11 must be approved by
a majority of the Directors of the Parent other than the Executive, if the
Executive is then a director of the Parent. This Agreement shall be binding upon
and inure to the benefit of the heirs, successors and assigns of the parties
hereto.
15. ARBITRATION. Any claim or controversy arising out of, or relating to,
this Agreement or its breach, shall be settled by arbitration in accordance with
the governing rules of the American Arbitration Association. Judgment upon the
award rendered may be entered in any court of competent jurisdiction.
16. APPLICABLE LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Tennessee.
17. ASSIGNMENT. The Executive acknowledges that his services are unique and
personal. Accordingly, the Executive may not assign his rights or delegate his
duties or obligations under this Agreement, except with respect to certain
rights to receive payments as described in Section 10. The Company's rights and
obligations under this Agreement shall inure to the benefit of and shall be
binding upon the Company's successors and assigns.
18. HEADINGS. Headings in this Agreement are for convenience only and shall
not be used to interpret or construe its provisions.
19. ORIGINAL AGREEMENT. This Agreement amends and restates the Original
Agreement in its entirety as of the effective date of this Agreement.
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<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date first above written.
RFS MANAGERS, INC.
By: /s/ Minor W. Perkins
--------------------
Name: _________________________
Title: President
EXECUTIVE:
/s/ J. William Lovelace
-----------------------
J. William Lovelace
10
<PAGE> 1
Exhibit 10.7
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AGREEMENT effective January 1, 1997, by and between RFS Managers, Inc., a
Tennessee corporation (the "Company"), and Michael J. Pascal (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company provides management services to RFS Hotel Investors,
Inc. (the "Parent") pursuant to a Management Services Agreement dated December
30, 1994 (the "Management Agreement"); and
WHEREAS, the Company desires to employ the Executive to serve as the
Secretary and Treasurer of the Company; and
WHEREAS, the Company and the Executive have previously entered into an
employment agreement dated January 1, 1996 (the "Original Agreement"); and
WHEREAS, the parties desire to amend and restate the Original Agreement in
its entirety effective as of January 1, 1997 as set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual obligations
hereinafter set forth the parties agree as follows:
1. EMPLOYMENT. The Company shall employ the Executive, and the Executive
agrees to be so employed, in the capacity of Secretary and Treasurer of the
Company to serve for the Term hereof, subject to earlier termination as
hereinafter provided.
2. TERM. The term of the Executive's employment hereunder shall be three
years and shall commence on January 1, 1997 and shall be extended automatically,
for so long as the Executive remains employed by the Company hereunder, each
January 1 beginning January 1, 1998 for an additional twelve-month period (such
period, as it may be extended from time to time, being herein referred to as the
"Term"), unless terminated earlier in accordance with the terms of this
Agreement, to the effect that on each January 1, the remaining term of this
Agreement and the Executive's employment hereunder shall be three years.
3. SERVICES. The Executive shall devote such amount of his time and
attention to the Company's affairs as are necessary to perform his duties to the
Company and to allow the Company to perform its duties specified in the
Management Agreement. Pursuant to the Management Agreement, the Executive shall
have authority and responsibility with respect to the day to day operations and
management of the Parent and RFS Partnership, L.P. (the "Partnership"), for
which the Parent currently serves as sole general partner, as well as
implementation of the long range growth strategy of the Parent and the
Partnership, consistent with direction from the Parent's Board of Directors (the
"Board").
<PAGE> 2
4. COMPENSATION. (a) During the Term, the Company shall pay the Executive
for his services an annual base salary of $165,000 (the "Base Salary"), to be
paid in semi-monthly payments of $6,875.00, such Base Salary being subject to
any increases approved by the Compensation Committee of the Board (the
"Compensation Committee").
(b) In addition to the Base Salary described in Section 4(a) above, the
Executive shall be entitled to a cash bonus ("Base Salary Bonus") for 1996
payable on or before April 1, 1997 determined as follows:
(i) If fully diluted net income per share of common stock of the
Parent, for the year ending December 31, 1996, as reported in the
Parent's audited financial statements for the year ending
December 31, 1996, as adjusted as described in the following
sentence ("1996 Net Income Per Share") is at least $1.35, the
Executive shall be entitled to receive a cash bonus equal to ten
percent (10%) of the Base Salary. For purposes of determining the
cash bonus under this Section 4(b), fully diluted Net Income per
Share of common stock of the Parent shall be exclusive of any
gain or loss on the sale of property, any expenses relating to
the transactions between the Company and Doubletree Corporation
and its affiliates and any expenses which the Compensation
Committee deems appropriate to exclude from the calculation of
fully diluted net income per share for purposes of determining
the cash bonus; and
(ii) For each $.01 increase in Net Income Per Share for 1996 in
excess of $1.35, computed by rounding to the closest cent, the
Executive shall be entitled to receive an additional bonus equal
to three percent (3%) of the Base Salary; and
(iii) Notwithstanding the provisions of Section 4(b)(ii) above,
the maximum cash bonus payable to the Executive pursuant to this
Section 4(b) shall be fifty percent (50%) of the Base Salary.
(c) In addition to the Base Salary Bonus, the Executive may be entitled
to receive other incentive compensation, including but not limited to,
additional grants of stock options or shares of stock of the Parent, which
awards shall be made (if at all) in consideration of and as an incentive for
services performed solely for the Company, in accordance with rules and criteria
established by the Compensation Committee. Such criteria may include, but not be
limited to, the growth in the Parent's Net Income Per Share and/or other
performance goals.
5. BENEFITS. The Company agrees to provide the Executive with the following
benefits:
(a) Vacation. The Executive shall be entitled each calendar year to a
vacation, during which time his compensation shall be paid in full. The time
allotted for such vacation
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<PAGE> 3
shall be three (3) weeks.
(b) Employee Benefits. This Agreement shall not be in lieu of any
rights, benefits and privileges to which the Executive may be entitled as a
management level employee of the Company, including but not limited to any
retirement, pension, profit-sharing, insurance, hospital or other plans which
may now be in effect or which may hereafter be adopted. The Executive shall have
the same rights and privileges to participate in such plans and benefits as any
other management level employee during the Term.
6. EXPENSES. The Company recognizes that the Executive will have to incur
certain out-of-pocket expenses, including but not limited to travel expenses,
related to his services and the Company's and the Parent's business and the
Company agrees to reimburse the Executive for all reasonable expenses
necessarily incurred by him in the performance of his duties upon presentation
of a voucher or documentation indicating the amount and business purposes of any
such expenses.
7. TERMINATION IN CASE OF DEATH OR DISABILITY. In the event of the
Executive's death or a complete physical or mental inability, confirmed by a
licensed physician, to perform the services described in Section 3 above that
continues for a period of one hundred twenty (120) consecutive days) ("Permanent
Disability"), the Company may elect to terminate this Agreement, subject to
continuation of the payments described in Section 10.
8. DEFINITIONS. For purposes of this Agreement, the following terms shall
have the following definitions:
(a) "Voluntary Termination" means, subject to the provisions of Section
11 hereof, the Executive's voluntary termination of his employment hereunder,
which may be effected by the Executive giving the Board not less than 90 days'
prior written notice of the Executive's desire to terminate his employment or
the Executive's failure to provide substantially all the services described in
Section 3 hereof for a period greater than four consecutive weeks by reason of
the Executive's voluntary refusal to perform such services. Notwithstanding the
foregoing, if the Executive gives notice of Voluntary Termination and, prior to
the expiration of the 90-day notice period, the Executive voluntarily refuses or
fails to provide substantially all the services described in Section 3 hereof
for a period greater than two consecutive weeks, the Voluntary Termination shall
be deemed to be effective as of the date on which the Executive so ceases to
carry out his duties. For purposes of this Section 8, voluntary refusal to
perform services shall not include taking vacation otherwise permitted in
accordance with Section 5(a) hereof, the Executive's failure to perform services
on account of his illness or the illness of a member of his immediate family,
provided such illness is adequately substantiated at the reasonable request of
the Company, or any other absence from service with the written consent of the
Board.
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<PAGE> 4
(b) "Termination Without Cause" means the termination of the Executive's
employment by the Company for any reason other than Voluntary Termination or
Termination With Cause.
(c) "Termination With Cause" means the termination of the Executive's
employment by act of the Board for any of the following reasons:
(i) the Executive's conviction for a felony;
(ii) the Executive's theft, embezzlement, misappropriation of or
intentional and malicious infliction of damage to the Company's
or the Parent's property or business opportunity;
(iii) the Executive's intentional and material breach of the
noncompetition covenant in Section 11 hereof;
(iv) the Executive's continuous neglect of his duties hereunder
or his continuous failure or refusal to follow any reasonable,
unambiguous duly adopted written direction of the Board or any
duly constituted committee thereof that is not inconsistent with
the description of the Executive's duties set forth in Section 3
above; and
(v) the Executive's abuse of alcohol, drugs or other substances,
or his engaging in other deviant personal activities in a manner
that, in the reasonable judgment of the Board, adversely affects
the reputation, goodwill or business position of the Company.
(d) "Involuntary Termination" means conduct on the part of the Company
that constitutes continuous and material interference by the Company with the
Executive's performance of his duties as set forth in Section 3 hereof or the
intentional or material breach by the Company of this Agreement.
9. VOLUNTARY TERMINATION; TERMINATION WITH CAUSE. If (i) the Executive
shall cease being an employee of the Company on account of a Voluntary
Termination or (ii) there shall be a Termination With Cause, the Executive shall
not be entitled to any compensation after the effective date of such Voluntary
Termination or Termination With Cause (except Base Salary and vacation accrued
but unpaid on the effective date of such event). In the event of a Voluntary
Termination or Termination With Cause, the Executive shall continue to be
subject to the noncompetition covenant contained in Section 11 hereof for the
remainder of the Term.
10. DEATH OR DISABILITY; TERMINATION WITHOUT CAUSE; OR INVOLUNTARY
TERMINATION. Following (i) the death of the Executive, (ii) Permanent Disability
of the Executive, (iii) an Involuntary Termination, or (iv) a Termination
Without Cause, the Company shall continue to pay the Executive or his heirs,
devisees, executors, legatees or personal representatives, as
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<PAGE> 5
appropriate, the semi-monthly payments of the Base Salary then in effect for
three years from the date of the termination of the Executive's employment.
11. CHANGE OF CONTROL COMPENSATION.
(a) Compensation. In the event of the Company's termination of the
Executive's employment or the Executive's resignation for Good Reason (as
defined below) after a Change of Control (as defined below), the Company shall,
on the date of such termination or resignation, pay the Executive, in addition
to any Base Salary earned but not paid through the date of termination or
resignation for Good Reason, a cash amount equal to three (3) times the Base
Salary for the fiscal year in which Change of Control occurs (the "Termination
Payment"). In addition, the Company shall cause the Executive's insurance
benefits, as in effect immediately prior to the Change of Control, to remain in
effect for at least one year following the date of the termination of
Executive's employment by the Company or the Executive's resignation for Good
Reason.
(b) A "Change of Control", for purposes of this Agreement, shall be
deemed to have occurred if, at any time during the Term, any of the following
events occurs:
(i) any "person", as that term is used in Section 13(d) and
Section 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), becomes, is discovered to be, or files a report
on Schedule 13D or 14D-1 (or any successor schedule, form or report)
disclosing that such person is, a beneficial owner (as defined in Rule
13d-3 under the Exchange Act or any successor rule or regulation),
directly or indirectly, of securities of the Company representing 50%
or more of the combined voting power of the Company's then outstanding
securities entitled to vote generally in the election of directors;
(ii) individuals who, as of the Effective Date, constitute the
Board of Directors of the Company cease for any reason to constitute
at least a majority of the Board of Directors of the Company, unless
any such change is approved by the vote of at least 80% of the members
of the Board of Directors of the Company in office immediately prior
to such cessation;
(iii) the Company is merged, consolidated or reorganized into or
with another corporation or other legal person, or securities of the
Company are exchanged for securities of another corporation or other
legal person, and immediately after such merger, consolidation,
reorganization or exchange less than a majority of the combined voting
power of the then-outstanding securities of such corporation or person
immediately after such transaction are held, directly or indirectly,
in the aggregate by the holders of securities entitled to vote
generally in the election of directors of the Company immediately
prior to such transaction;
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<PAGE> 6
(iv) the Company in any transaction or series of related
transactions, sells all or substantially all of its assets to any
other corporation or other legal person and less than a majority of
the combined voting power of the then-outstanding securities of such
corporation or person immediately after such sale or sales are held,
directly or indirectly, in the aggregate by the holders of securities
entitled to vote generally in the election of directors of the Company
immediately prior to such sale;
(v) the Company and its affiliates shall sell or transfer of (in
a single transaction or series of related transactions) to a
non-affiliate business operations or assets that generated at least
two-thirds of the consolidated revenues (determined on the basis of
the Company's four most recently completed fiscal quarters for which
reports have been filed under the Exchange Act) of the Company and its
subsidiaries immediately prior thereto;
(vi) the Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange Act
disclosing in response to Form 8-K (or any successor, form or report
or item therein) that a change in control of the Company has occurred;
or
(vii) any other transaction or series of related transactions
occur that have substantially the effect of the transactions specified
in any of the preceding clauses in this sentence.
(c) Certain Transactions. Notwithstanding the provisions of Section
11(b)(i) or 11(b)(vi) hereof, unless otherwise determined in a specific case by
majority vote of the Board of Directors of the Company, a Change in Control
shall not be deemed to have occurred for purposes of this Agreement solely
because (i) the Company, (ii) an entity in which the Company directly or
indirectly beneficially owns 50% or more of the voting securities or (iii) any
Company-sponsored employee stock ownership plan, or any other employee benefit
plan of the Company, either files or becomes obligated to file a report or a
proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K
or Schedule 14A (or any successor schedule, form or report or item thereon)
under the Exchange Act, disclosing beneficial ownership by it of shares of stock
of the Company, or because the Company reports that a Change in Control of the
Company has or any have occurred or will or may occur in the future by reason of
such beneficial ownership.
(d) Good Reason. "Good Reason," for purposes of this Agreement, shall
be deemed to mean any of the following:
(i) a change in the Executive's status, position or
responsibilities (including reporting responsibilities) which, in the
Executive's reasonable judgment, does not represent a promotion from
the Executive's status, position or responsibilities as in effect
immediately prior to a Change in Control; the
6
<PAGE> 7
assignment to the Executive of any duties or responsibilities which,
in the Executive's reasonable judgment, are inconsistent with such
status, position or responsibilities; or any removal of the Executive
from or failure to reappoint or reelect the Executive to any of such
positions, except in connection with a Termination with Cause as
defined in Section 8(c), as a result of the Executive's death or
Permanent Disability, or by Voluntary Termination;
(ii) a reduction in the Executive's Base Salary and Bonus as in
effect on the date hereof or as the same may be increased from time to
time;
(iii) the relocation of the Company's or the Parent's principal
executive offices to a location outside a thirty-mile radius of
Memphis, Tennessee or the Company's or the Parent's requiring the
Executive to be based at any place other than a location within a
thirty-mile radius of Memphis, Tennessee, except for reasonably
required travel on the Company's or the Parent's business which is not
materially greater than such travel requirements prior to the Change
in Control;
(iv) the failure by the Company or the Parent to continue to
provide the Executive with compensation and benefits provided for
under this agreement or benefits substantially similar to those
provided to the Executive under any of the employee benefit plans in
which the Executive is or becomes a participant, or the taking of any
action by the Company or the Parent which would directly or indirectly
materially reduce any of such benefits or deprive the Executive of any
material fringe benefit enjoyed by the Executive at the time of the
Change in Control;
(v) any material breach by the Company of any provision of this
Agreement; and
(vi) the failure of the Company to obtain a satisfactory
agreement from any successor or assign of the Company to assume and
agree to perform this Agreement.
(e) Tax Matters. In the event the Executive's receipt of the
Termination Payment, together with any other payment or compensation which the
Executive may be entitled to receive from the Company or the Parent or any of
their affiliates as a result of the Change in Control, would, in the reasonable
opinion of the Executive's tax advisor, cause the Executive to incur tax
liability under Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), or any successor or similar provision, the Executive may elect to
receive either: (i) the Termination Payment or (ii) the maximum portion of the
Termination Payment which the Executive may receive, which taken together with
any other payment or compensation which the Executive may be entitled to receive
from the Company or the Parent or any of their affiliates as a result of the
Change in
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<PAGE> 8
Control, would not cause the Executive to incur tax liability under Section 4999
of the Code.
12. NONCOMPETITION. During the Term and for a period of two (2) years
thereafter, the Executive shall not, other than through the Parent or affiliates
of the Parent, own more than a 10% interest in any hotel property (other than
hotels owned by the Parent and the Partnership), as partner, shareholder or
otherwise, or directly or indirectly, for his own account or for the account of
others, either as an officer, director, shareholder, owner, partner, promoter,
employee, consultant, advisor, agent, manager, or in any other capacity engage
in the acquisition, development, operation or management of any hotel property
located within 20 miles of any hotel property owned by the Parent or the
Partnership at the time of termination of employment. The foregoing sentence
shall not restrict the Executive from owning up to 10% of the outstanding
securities of any entity, including any entity whose securities are traded in
public securities markets.
The Executive agrees that damages at law for violation of the restrictive
covenant contained herein would not be an adequate or proper remedy to the
Company, and that should the Executive violate or threaten to violate any of the
provisions of such covenant, the Company, its successors or assigns, shall be
entitled to obtain a temporary or permanent injunction against the Executive in
any court having jurisdiction over the person and the subject matter,
prohibiting any further violation of any such covenants. The injunctive relief
provided herein shall be in addition to any award of damages, compensatory,
exemplary or otherwise, payable by reason of such violation.
Furthermore, the Executive acknowledges that this Agreement has been
negotiated at arms' length by the parties, neither being under any compulsion to
enter into this Agreement, and that the foregoing restrictive covenant does not
in any respect inhibit his ability to earn a livelihood in his chosen profession
without violating the restrictive covenant contained herein. The Company by
these presents has attempted to limit the Executive's right to compete only to
the extent necessary to protect the Company from unfair competition. The Company
recognizes, however, that reasonable people may differ in making such a
determination. Consequently, the Company agrees that if the scope or
enforceability of the restricted covenant contained herein is in any way
disputed at any time, a court or other trier of fact may modify and enforce the
covenant to the extent that it believes to be reasonable under the circumstances
existing at the time.
13. NOTICES. All notices or deliveries authorized or required pursuant to
this Agreement shall be deemed to have been given when in writing and personally
delivered or when deposited in the U.S. mail, certified, return receipt
requested, postage prepaid, addressed to the parties at the following addresses
or to such other addresses as either may designate in writing to the other
party:
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<PAGE> 9
To the Company: RFS Managers, Inc.
850 Ridge Lake Boulevard
Suite 220
Memphis, TN 38120
To the Executive: Michael J. Pascal
850 Ridge Lake Boulevard, Suite 220
Memphis, TN 38120
14. ENTIRE AGREEMENT. This Agreement contains the entire understanding
between the parties hereto with respect to the subject matter hereof and shall
not be modified in any manner except by instrument in writing signed, by or on
behalf of, the parties hereto; provided, however, that any amendment or
termination of the covenant of noncompetition in Section 11 must be approved by
a majority of the Directors of the Parent other than the Executive, if the
Executive is then a director of the Parent. This Agreement shall be binding upon
and inure to the benefit of the heirs, successors and assigns of the parties
hereto.
15. ARBITRATION. Any claim or controversy arising out of, or relating to,
this Agreement or its breach, shall be settled by arbitration in accordance with
the governing rules of the American Arbitration Association. Judgment upon the
award rendered may be entered in any court of competent jurisdiction.
16. APPLICABLE LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Tennessee.
17. ASSIGNMENT. The Executive acknowledges that his services are unique and
personal. Accordingly, the Executive may not assign his rights or delegate his
duties or obligations under this Agreement, except with respect to certain
rights to receive payments as described in Section 10. The Company's rights and
obligations under this Agreement shall inure to the benefit of and shall be
binding upon the Company's successors and assigns.
18. HEADINGS. Headings in this Agreement are for convenience only and shall
not be used to interpret or construe its provisions.
19. ORIGINAL AGREEMENT. This Agreement amends and restates the Original
Agreement in its entirety as of the effective date of this Agreement.
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<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date first above written.
RFS MANAGERS, INC.
By: /s/ Minor W. Perkins
--------------------
Name: _________________________
Title: President
EXECUTIVE:
/s/ Michael J. Pascal
---------------------
Michael J. Pascal
10
<PAGE> 1
Exhibit 10.8(a)
FIRST AMENDED REVOLVING CREDIT AND TERM LOAN AGREEMENT
DATED AS OF FEBRUARY 20, 1996
BY AND AMONG
RFS HOTEL INVESTORS, INC.,
RFS PARTNERSHIP, L.P.,
AND
BOATMEN'S BANK OF TENNESSEE
<PAGE> 2
TABLE OF CONTENTS OF FIRST AMENDED REVOLVING CREDIT
AND TERM LOAN AGREEMENT
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I - DEFINITIONS AND ACCOUNTING TERMS......................................................................2
1.01. Defined Terms............................................................................................2
1.02. Accounting Terms.........................................................................................8
ARTICLE II - AMOUNT AND TERMS OF THE LOANS........................................................................8
2.01. Revolving Credit Loan....................................................................................8
2.02. Term Loan Option.........................................................................................8
2.03. Notice and Manner of Borrowing...........................................................................9
2.04. Interest.................................................................................................9
2.05. Note.....................................................................................................9
2.06. Prepayments and Funding Losses; Increased Costs; Unavailability of Dollar Deposits;
Illegality and Risk Based Capital.......................................................................10
(a) Prepayment.....................................................................................10
(b) Increased Costs................................................................................10
(c) Unavailability of Dollar Deposits..............................................................10
(d) Illegality.....................................................................................11
(e) Risk-based Capital.............................................................................12
2.07. Method of Payment.......................................................................................12
2.08. Use of Loan Proceeds....................................................................................13
(a) Working Capital................................................................................13
(b) Acquisition....................................................................................13
(c) Development....................................................................................13
2.09. Collateral Pool.........................................................................................14
(a) Mortgages......................................................................................14
(b) Security Agreements............................................................................14
(c) Evidence of Due Authorization of Security Documents and Corporate or
Partnership Good Standing......................................................................14
(d) Assignments of Rents and Leases................................................................15
(e) Franchise Agreements...........................................................................15
(f) Leases.........................................................................................15
(g) Subordinations.................................................................................15
(h) Management Agreements..........................................................................15
(i) Surveys........................................................................................15
(j) Title Insurance Policies.......................................................................15
(k) Environmental Audits...........................................................................16
(l) Physical Inspections...........................................................................16
(m) Hazard Insurance...............................................................................16
(n) Appraisals.....................................................................................16
(o) Environmental Indemnity........................................................................16
(p) Opinion of Counsel for Borrower and Rfsp.......................................................16
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(q) Independent Market Study.......................................................................16
(r) Other Documents................................................................................16
2.10. Adjustments to Collateral Pool Valuation................................................................17
(a) Appraisals.....................................................................................17
(b) Mandatory Adjustments..........................................................................17
(c) Adjustments for Franchise Cancellations........................................................17
(d) Pre-approvals..................................................................................18
2.11. Sale of Hotel Properties................................................................................18
2.12. Fees....................................................................................................18
(a) Commitment Fee.................................................................................18
(b) Agent's Fee....................................................................................18
ARTICLE III CONDITIONS PRECEDENT ................................................................................18
3.01. Intentionally Omitted...................................................................................18
3.02. Conditions Precedent to Advances under the Revolving Credit Loan.......................................18
3.03. Conditions Precedent to the Term Loan...................................................................19
(a) Note...........................................................................................19
(b) Opinion of Counsel for Borrower and RFSP.......................................................19
(c) Officer's Certificate, Etc.....................................................................19
(d) Modifications of Mortgages/Title Endorsements..................................................19
(e) Additional Documentation ......................................................................19
ARTICLE IV - REPRESENTATIONS AND WARRANTIES .....................................................................20
4.01. Incorporation, Good Standing, and Due Qualification of Borrower.........................................20
4.02. Corporate Power and Authority of Borrower...............................................................20
4.03. Existence and Due Qualification of Rfsp.................................................................20
4.04. Power and Authority of Rfsp.............................................................................20
4.05. Legally Enforceable Agreement...........................................................................21
4.06. Labor Disputes and Acts of God..........................................................................21
4.07. Other Agreements........................................................................................21
4.08. Litigation..............................................................................................21
4.09. No Defaults on Outstanding Judgments or Orders..........................................................21
4.10. Ownership and Liens.....................................................................................22
4.11. Operation of Business...................................................................................22
4.12. Taxes...................................................................................................22
4.13. Debt....................................................................................................22
4.14. Environmental Compliance................................................................................22
4.15. Ada Compliance..........................................................................................22
4.16. Operations; Room Rents..................................................................................23
ARTICLE V - AFFIRMATIVE COVENANTS...............................................................................23
5.01. Maintenance of Existence................................................................................23
5.02. Maintenance of Records..................................................................................23
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5.03. Maintenance of Properties...............................................................................23
5.04. Conduct of Business.....................................................................................23
5.05. Maintenance of Insurance................................................................................23
5.06. Compliance with Laws....................................................................................24
5.07. Right of Inspection.....................................................................................24
5.08. Reporting Requirements..................................................................................24
(a) Quarterly Financial Statements.................................................................24
(b) Annual Financial Statements....................................................................24
(c) Management Letters.............................................................................25
(d) Certificate of No Default......................................................................25
(e) Notice of Litigation...........................................................................25
(f) Notice of Defaults and Events of Default.......................................................25
(g) Reports to Other Creditors.....................................................................25
(h) Proxy Statements, Etc..........................................................................25
(i) Tax Receipts...................................................................................26
(j) General Information............................................................................26
5.09. Debt Coverage Ratios....................................................................................26
(a) Debt Coverage Ratio (NOI)......................................................................26
(b) Debt Coverage Ratio (CF).......................................................................26
(c) Debt Coverage Ratio (CFO)......................................................................26
(d) Quarterly Calculations.........................................................................26
(e) Revolving Credit Loan Calculation..............................................................26
5 10. Reserve for Room Renovations............................................................................27
5.11. Maintenance of Franchises...............................................................................27
5.12. Minimum Net Worth.......................................................................................27
5.13. Operations; Room Rents..................................................................................27
5.14. Minimum Cash Flow.......................................................................................27
ARTICLE VI NEGATIVE COVENANTS....................................................................................27
6.01. Liens...................................................................................................28
6.02. Debt....................................................................................................28
6.03. Mergers, Etc............................................................................................29
6.04. Leases..................................................................................................29
6.05. Sale and Leaseback......................................................................................29
6.06. Guaranties, Etc.........................................................................................29
6.07. Condition of Hotels.....................................................................................29
ARTICLE VII - EVENTS OF DEFAULT..................................................................................30
7.01. Events of Default.......................................................................................30
ARTICLE VIII - MISCELLANEOUS.....................................................................................32
8.01. Amendments, Etc.........................................................................................32
8.02. Notices, Etc............................................................................................32
8.03. No Waiver; Remedies.....................................................................................32
8.04. Successor and Assigns...................................................................................33
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8.05. Costs, Expenses, and Taxes..............................................................................33
8.06. Right of Set-off........................................................................................33
8.07. Waiver of Right to Jury Trial...........................................................................33
8.08. Governing Law...........................................................................................34
8.09. Severability of Provision...............................................................................34
8.10. Headings................................................................................................34
8.11. Joinder by RFSP.........................................................................................34
8.12. Jurisdiction and Venue..................................................................................34
8.13. No Third Party Beneficiaries............................................................................35
8.14. No Agency...............................................................................................35
8.15. Bank Approvals..........................................................................................35
8.16. Lending Limitation; Participation.......................................................................35
</TABLE>
<PAGE> 6
FIRST AMENDED REVOLVING CREDIT AND TERM LOAN AGREEMENT
THIS FIRST AMENDED REVOLVING CREDIT AND TERM LOAN AGREEMENT
("AGREEMENT") dated as of February 20, 1996, between RFS HOTEL INVESTORS, INC.,
a Tennessee corporation ("Borrower"); RFS PARTNERSHIP, L.P., a Tennessee limited
partnership ("RFSP"); and BOATMEN'S BANK OF TENNESSEE, a Tennessee banking
corporation ("Bank"), on behalf of itself as well as all Participants.
RECITALS:
A. Borrower is an equity real estate investment trust ("REIT") and is
the majority owner and general partner of RFSP which owns certain Hotel
Properties, as herein defined, in various states.
B. Bank and the Participants, as herein defined, have heretofore
committed to make advances to Borrower on a revolving credit basis in an amount
not to exceed at any one time outstanding the maximum aggregate principal sum of
Fifty Million and No/100 dollars ($50,000,000.00). Accordingly, Bank, Borrower,
RFSP and RFS Management Co., Inc. ("RFSM") entered into that certain Revolving
Credit and Term Loan Agreement dated as of the 8th day of September, 1994 (the
"First Loan Agreement"), and Bank and the Participants entered into the
Participation Agreement, as herein defined, setting forth the terms and
conditions of Bank's and the Participant's agreement to fund their respective
Percentage Interests of the Revolving Credit Loan, as herein defined.
C. RFSM has been merged into RFS, Inc. ("RFS") which has merged with
Doubletree, Corporation, and has asked to be removed from this Agreement, as
well as for certain changes to the form of lease subordination agreement
executed formerly by RFSM, and to be executed henceforth by RFS, in connection
with each of the Hotel Properties.
D. Bank, Borrower, RFSP and RFS have heretofore entered into that
certain First Modification Agreement dated as of the 31st day of August, 1995,
and that certain Second Modification Agreement dated as of the 31st day of
October, 1995 (collectively the "Modification Agreements").
E. Bank, Borrower and RFSP have all agreed to enter into this Agreement
amending and restating the First Loan Agreement to remove RFS therefrom, include
the changes set forth in the Modification Agreements, and to include certain
other amendments as hereinafter set forth.
NOW, THEREFORE, in consideration of their mutual covenants, the
financial accommodations extended to Borrower herein which will benefit not only
Borrower but RFSP as well, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties do hereby
agree to and affirm the foregoing recitals, and further agree as follows:
<PAGE> 7
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. DEFINED TERMS. As used in this Agreement the following
terms have the following meanings (terms defined in the singular to have the
same meaning when used in the plural and vice versa):
(a) "Additional Hotel Properties" means all Hotel Properties acquired by
Borrower or RFSP subsequent to the date of this Agreement, regardless
of whether the same are included in the Collateral Pool.
(b) "Agreement means this First Amended Revolving Credit and Term Loan
Agreement, as hereinafter amended, supplemented, or modified from time
to time.
(c) "Annual Debt Service" means the annual payments of principal and/or
interest, as the case may be, required to be paid on a particular Debt
of Borrower which, when referring to all of Borrower's Debt shall
include, without limitation, projected annual payments of principal and
interest on the Revolving Credit Loan using the projected debt service
calculation set forth in Section 5.09e herein, as well as payments paid
on the principal indebtedness outstanding under obligations assumed by
Borrower on any Additional Hotel Properties acquired by Borrower.
(d) "Asbestos" shall have the meanings provided under the Environmental
Laws (as hereinafter defined), and shall include, but not be limited
to, asbestos fibers and friable asbestos, as such terms are defined
under the Environmental Laws.
(e) "Assignments of Rents and Leases" means the assignments of rents,
leases, issues and profits covering the Hotel Properties described in
the Mortgages.
(f) "Base Rate" means a variable rate and is a benchmark or reference rate
of interest established by Bank as its corporate base rate to be in
effect from time to time whether or not such rate is otherwise
published, which rate may not be the Bank's lowest or best rate;
provided, that in the event this Agreement is assigned to another
holder of the Revolving Credit Note which is a commercial bank, Base
Rate shall mean the reference rate of interest established by such
subsequent holder from and after the date of such assignment, as its
base rate from time to time.
(g) "Borrowing Base" shall mean a sum equal to thirty three percent (33%)
of the Value of the Collateral Pool, to be determined by Bank, from
time to time, including, without limitation, whenever an advance is
requested by Borrower under the Revolving Credit Loan.
(h) "Business Day" means any Domestic Business Day on which Bank is open
for business.
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(i) "Capital Lease" means all leases which have been or should be
capitalized on the books of the lessee in accordance with GAAP.
(j) "Cash Flow" or "CF" means the gross income received by Borrower and/or
by RFSP, as the case may be, from lease payments received from
Collateral Pool Properties, less real property taxes and insurance
premiums paid in connection therewith, and less a proportionate share
of any and all other expenses of every type and character incurred by
Borrower and/or RFSP (except for depreciation and amortization and
interest expense), such proportion being equal to the ratio of the
total number of hotel rooms contained in the Collateral Pool Properties
divided by the total number of hotel rooms contained in all of the
Hotel Properties.
(k) "Cash Flow Operations" or "CFO" means the gross income received by
Borrower and/or by RFSP, as the case may be, from lease payments
received from all Hotel Properties, less real property taxes and
insurance premiums paid in connection therewith, and less any and all
other expenses of every type and character incurred by Borrower and/or
RFSP (except for depreciation and amortization, and interest expense).
(l) "Collateral" means all property which is subject or is to be subject to
the Liens granted by the Security Agreements.
(m) "Collateral Pool" means such of the Initial Hotels and the Additional
Hotel Properties which Bank has accepted as part of the Collateral Pool
pursuant to the terms of Section 2.09 hereof.
(n) "Collateral Pool Property" means any of the Initial Hotels or the
Additional Hotel Properties which may, at the relevant time, be part of
the Collateral Pool.
(o) "Commitment" means Bank's obligation to make the Loans to Borrower
pursuant to Sections 2.01 and 2.02 in the amount referred to therein.
(p) "Cost Basis" means the original acquisition cost of a Hotel Property or
Properties, as the case may be, plus the actual cost of any permanent
improvements increasing the net useable square footage of the Hotel
Property or Properties in question, determined according to GAAP.
(q) "Debt" means: (a) indebtedness or liability for borrowed money, or for
the deferred purchase price of property or services (excluding trade
obligations incurred in the ordinary course of business); (b)
obligations as lessee under Capital Leases; (c) obligations under
letters of credit issued for the account of any Person; (d) all
guarantees, endorsements (other than for collection or deposit in the
ordinary course of business), and other contingent obligations to
purchase, to provide funds for payment, to supply funds to invest in
any Person, or otherwise to assure a creditor against loss; and (e)
obligations secured by
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<PAGE> 9
any Lien on property owned by the Person, whether or not the
obligations have been assumed.
(r) "Debt Coverage Ratio (CF)," applies to Borrower's Debt relating to the
Revolving Credit Loan only, and shall mean the ratio of Cash Flow from
the Collateral Pool Properties to Annual Debt Service on the Revolving
Credit Loan using the projected debt service calculation set forth in
Section 5.09e hereof.
(s) "Debt Coverage Ratio (CFO)," applies to all Debt and Hotel Properties
of Borrower, and shall mean the ratio of CFO from all Hotel Properties
to Annual Debt Service on the Revolving Credit Loan.
(t) "Debt Coverage Ratio (NOI)," applies to all Debt and Hotel Properties
of Borrower, and shall mean the ratio of Net Operating Income from all
Hotel Properties to Annual Debt Service on all of Borrower's Debt.
(u) "Default" means any of the events specified in Section 7.01, whether or
not any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
(v) "Development" means the construction of "Additional Hotel Properties"
as defined in the Loan Agreement, and all reasonable, normal and
necessary costs incident thereto including, without limitation, costs
incurred for acquisition, engineering, architectural, planning,
rezoning, environmental testing and appraisal.
(w) "Domestic Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in Memphis, Tennessee, are
authorized or required to close under the laws of the state of
Tennessee.
(x) "Easements" means any agreements entered into by Borrower, RFSP or RFS
with any other Persons, which agreements grant to such Person the right
to use any portion of any of the Hotel Properties, including, without
limitation, any reciprocal easement agreement entered into with
adjoining landowners owning property adjacent to any of the Hotel
Properties.
(y) "Environmental Laws" means the Toxic Substances Control Act of 1976,
the Resource Conservation and Recovery Act of 1976, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the
Federal Response, Compensation and Liability Act of 1980, the Federal
Insecticide, Fungicide and Rodenticide Act of 1972, the Clean Air Act
of 1971, as amended, the Clean Water Act of 1977, the Safe Drinking
Water Act of 1977 and the National Environmental Policy Act of 1969,
including all amendments to and regulations under such acts, and all
other applicable federal, state and local laws, rules, regulations,
orders, judicial determinations and decisions or determinations by any
judicial, legislative or executive body of any governmental or quasi-
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<PAGE> 10
governmental entity, whether in the past, the present or the future,
with respect to: (1) the installation, existence, or removal of, or
exposure to, Asbestos at any Hotel Property owned by Borrower or RFSP;
(2) the existence on, discharge from, or removal from any such Hotel
Property of Hazardous Wastes; and (3) the effects on the environment of
any such Hotel Property or of any activity now, previously, or
hereafter conducted on any such Hotel Property.
(z) "Event of Default" means any of the events specified in Section 7.01,
provided that any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
(aa) "GAAP" means generally accepted accounting principles in the United
States.
(bb) "Hazardous Wastes" means any chemical, material or substance to which
exposure is prohibited, limited or regulated by any Environmental Law
or which even if not so regulated, is known to pose a hazard to health
and safety, including, but not limited to, Asbestos and any of the
following as defined by the Environmental Laws: solid wastes; toxic or
hazardous substances, wastes or contaminants (including, without
limitation, polychlorinated biphenyls ["PCB's"], paint containing lead
and urea formaldehyde foam insulation); and discharges of sewage and
effluent.
(cc) "Head Office" means the principal office of Bank at 6060 Poplar Avenue,
Memphis, Tennessee 38119; or the principal office of any subsequent
holder of the Revolving Credit Note.
(dd) "Hotel Properties" means all hotel properties now owned, or hereafter
acquired, by RFSP or Borrower including, without limitation, the
Initial Hotels and the Additional Hotel Properties, regardless of
whether any of the same are included in the Collateral Pool or not.
(ee) "Initial Hotels" means the Hotel Properties presently owned by RFSP.
(ff) "Interest Period" means a period of ninety (90) days commencing on each
date the interest rate payable on the Revolving Credit Loan is adjusted
as provided in Section 2.04 hereof.
(gg) "Leases" means any and all leases of any or all of the Hotel Properties
by RFSP or Borrower, as lessor therein.
(hh) "LIBOR Rate," as used herein, shall mean the average of interbank three
(3) month offered rates for U.S. dollar deposits in the London market
based on quotations at five major banks, as published in The Wall
Street Journal and set forth under its "Money Rates" and described as
"LONDON INTERBANK OFFERED RATES (LIBOR)"; provided that if two or more
three-month LIBOR Rates are published, the LIBOR Rate shall be the
arithmetic mean of such offered rates rounded upwards, if necessary, to
the
5
<PAGE> 11
nearest 1/16th of one percent; provided further, however, that if the
rate adjustment date falls on a Saturday, Sunday or legal holiday, or
if a LIBOR Rate does not appear in The Wall Street Journal on the rate
adjustment date, then the LIBOR Rate shall be the LIBOR Rate as
published in The Wall Street Journal on the next Domestic Business Day
on which a three (3) month LIBOR Rate appears; and provided further,
however, that if at any time hereafter The Wall Street Journal ceases
to publish the LIBOR Rate, then "LIBOR Rate" shall mean the arithmetic
mean rounded upwards, if necessary, to the nearest 1/16th of one
percent of the interest rates per annum at which deposits in an amount
comparable to the aggregate principal amount outstanding under the
Revolving Credit Note in U.S. Dollars are offered by the Reference
Banks, as hereinafter defined, to leading banks in the London Interbank
market for a period of three (3) months as of 11:00 a.m., London time,
on the day which is two Business Days prior to the first day of the
applicable Interest Period.
The term "Reference Banks" means Barclays Bank PLC, Bankers Trust
Company, National Westminster PLC and Bank of Tokyo, and, in the event
data from any such bank is unavailable, in the order of priority,
Credit Suisse, Deutsche Bank, Swiss Bank and/or Citibank, N.A.
(ii) "Lien" means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), or preference, priority, or other security
agreement, or preferential arrangement, charge, or encumbrance of any
kind or nature whatsoever (including without limitation, any
conditional sale or other title retention agreement, any financing
lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction to evidence any
of the foregoing).
(jj) "Loans" means the Revolving Credit Loan or the Term Loan or both as the
context may require.
(kk) "Loan Documents" means this Agreement, the Note, the Mortgages, the
Assignment of Rents and Leases, the Security Agreements, the
Environmental Indemnity Agreement and any additional documents required
to be delivered by Borrower, RFSP or RFS under this Agreement, or
otherwise evidencing, securing and/or relating to the Loans.
(ll) "Loan to Value Ratio" shall mean that percentage that the current
outstanding principal balance of the Loans bears to the aggregate Value
of the Collateral Pool, as such ratio is computed by Bank from time to
time.
(mm) "Mortgages" means the deeds of trust or mortgages covering the Initial
Hotels and any Additional Hotel Properties.
(nn) "Net Operating Income" means the sum of (a) net income after tax
(excluding any net capital gain) for the preceding twelve (12) months,
plus (b) interest expense and/or
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<PAGE> 12
percentage rent payments, as the case may be, for that period, plus (c)
depreciation and amortization expense for that period, all performed on
a consolidated basis.
(oo) "Note" means the Revolving Credit Note and may also mean, if the
context requires and if Borrower does not execute a replacement note
when the Revolving Credit Loan is converted to the Term Loan, the
promissory note evidencing the Term Loan.
(pp) "Operating Income" means the gross revenue derived from the operation
of the Collateral Pool Properties, less all expenses pertaining
thereto, including, without limitation, real and personal property
taxes and insurance premiums, and projected expenses associated with
the replacement of fixed assets of four percent (4%) of gross revenues,
and projected expenses associated with the management of the Collateral
Pool Properties of four percent (4%) of gross revenues.
(qq) "Participants" means those certain lenders who have agreed, or will
agree, from time to time, to fund a portion of the Commitment, and/or
purchase a portion of the Loans.
(rr) "Participation Agreement" means any participation agreement, as
subsequently modified or amended, entered into by and among Bank and
the Participants, pursuant to which each Participant has agreed, or
will agree, to purchase and/or fund its respective Percentage Interest
in the Loans, including all loan advances and other extensions of
credit made or to be made pursuant to the provisions hereof, as said
Participation Agreement may be amended from time to time.
(ss) "Percentage Interest" means, as applicable and as the context would
require, either (i) the proportionate share of Bank or each Participant
of the Revolving Credit Loan, or (ii) the proportionate share of Bank
or each Participant of the principal balance outstanding at any given
time under the Revolving Credit Loan.
(tt) "Person" means any individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture, governmental authority, or other entity of whatever nature.
(uu) "Revolving Credit Loan" shall have the meaning assigned to such term in
Section 2.01.
(vv) "Revolving Credit Note" shall have the meaning assigned to such term in
Section 2.05.
(ww) "Security Agreements" means the Security Agreements to be delivered by
Borrower and RFSP under the terms of this Agreement and may be included
in the Mortgages.
(xx) "Termination Date" means September 8, 1998, and is the date on which
Bank's commitment to make advances under the Revolving Credit Loan
shall terminate, and on which date the outstanding principal balance
under the Revolving Credit Loan, plus all accrued and unpaid interest
shall be due and payable in full.
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<PAGE> 13
(yy) "Term Loan" shall have the meaning assigned to such term in Section
2.02.
(zz) "Value" means the lesser of (i) the actual Cost Basis of the Collateral
Pool, determined according to GAAP, or (ii) the most recent appraised
value of the Collateral Pool.
SECTION 1.02. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP consistent with that
applied in the preparation of the financial statements referred to in Section
5.08, and all financial data submitted pursuant to this Agreement shall be
prepared in accordance with such principles.
ARTICLE II
AMOUNT AND TERMS OF THE LOANS
SECTION 2.01. REVOLVING CREDIT LOAN. Bank agrees, subject to the terms
and conditions hereinafter set forth (including, without limitation, the
restriction on Bank's obligation to disburse any portion the Participants have
failed to fund as provided in Section 8.16 hereof), to make advances to Borrower
from time to time during the period from September 8, 1994, up to but not
including the Termination Date (the "Revolving Credit Loan") in an aggregate
principal amount outstanding not to exceed at any time the lesser of: (a) Fifty
Million and No/100 Dollars ($50,000,000.00), less any sums which the
Participants have failed to fund, as more fully provided in Section 8.16 hereof,
or (b) the Borrowing Base which shall be equal to thirty three percent (33%) of
the Value of the Collateral Pool Properties, subject to adjustment in accordance
with Section 2.10. Within the limits of the Commitment, Borrower may borrow,
prepay pursuant to Section 2.06, and reborrow under this Section 2.01.
SECTION 2.02. TERM LOAN OPTION. Provided that no Default or Event of
Default has occurred and is then existing under the terms of this Agreement, and
Borrower is in material compliance with the provisions of any other agreement
with Bank, at the Termination Date, Borrower shall have the option (the "Term
Loan Option") to convert the principal balance outstanding under the Revolving
Credit Loan (in a principal amount not exceeding the Commitment) to a term loan
(the "Term Loan"), as shall be provided in the Revolving Credit Note, in form
and content prepared by and acceptable to Bank. All accrued and outstanding
interest on the portion of the Revolving Credit Loan converted to the Term Loan
shall be paid on or prior to the date such conversion becomes effective. The
outstanding principal balance of the Term Loan shall accrue and bear interest
throughout its term at the option of Borrower at either (a) a fixed rate of
interest equal to two and one-half percent (2 1/2%)in excess of the five (5)
year U.S. Treasury Bond yield as reported in The Wall Street Journal under its
money rates on the date of conversion or (b) a variable rate equal to Bank's
corporate Base Rate plus one percent (1%) floating, as the same may change from
time to time. Borrower's interest rate option shall be a one-time option only
and must be exercised within ten (10) days prior to the Termination Date.
Interest shall be calculated on the basis of a year of 360 days from the actual
number of days elapsed. The Term Loan shall be payable over five (5) years in
consecutive monthly installments of principal and interest commencing the first
day of the month following conversion and due on
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the first day of each month thereafter for the remainder of the five-year term.
The first fifty-nine (59) monthly payments shall be computed based on a ten (10)
year amortization, with the sixtieth and final such monthly payment to be in the
amount of the entire remaining principal and all accrued and unpaid interest.
SECTION 2.03. NOTICE AND MANNER OF BORROWING. Borrower shall submit to
Bank a request for an advance under the Revolving Credit Loan at least five (5)
Domestic Business Days prior to the requested date for funding. Each such
request for advance shall specify the effective date for funding and the amount
of the advance requested, specify the use to be made of the proceeds of such
advance in such detail as Bank shall require, and be accompanied by (a) a debt
service coverage worksheet depicting the debt service coverage calculation for
the twelve-month period ending with the last day of the most recent fiscal
quarter (the "Debt Coverage Worksheet"), and (b), a borrowing base certificate
("Borrowing Base Certificate"), all of which request for advance, Debt Coverage
Worksheet and Borrowing Base Certificate shall be submitted in form and content
acceptable to Bank , as the same may be modified by Bank from time to time. Not
later than 2:00 p.m. Memphis, Tennessee, applicable central time on the date
such advance under the Revolving Credit Loan is to be effective, provided all of
the applicable conditions set forth in Article III hereof have been fulfilled to
Bank's satisfaction, Bank and/or the Participants, as the case may be, will make
such advance under the Revolving Credit Loan available to Borrower in
immediately available funds by crediting the amount thereof to Borrower's
account with Bank.
SECTION 2.04. INTEREST. Borrower shall pay interest to Bank on the
outstanding and unpaid principal amount of the Revolving Credit Loan at a
floating rate equal to one and three-fourths percent (1 3/4%) in excess of the
LIBOR Rate on the date of the initial advance under the Revolving Credit Loan
hereunder, and on the ninetieth (90th) day of each Interest Period thereafter to
correspond to the LIBOR Rate published or determined on the date of such
adjustment; such rate as adjusted shall be effective for the next succeeding
ninety-day period. The interest rate as so determined shall be applicable to all
advances under the Revolving Credit Loan and shall be subject to adjustment on
the same date for each new Interest Period, regardless of the date of any
particular advance under the Revolving Credit Loan. Interest shall be calculated
on the basis of a year of three hundred sixty (360) days for the actual number
of days elapsed. Interest on the Revolving Credit Loan shall be paid in
immediately available funds on the first day of each month at the Head Office.
Any principal installment or final payment amount under any Note not paid when
due at maturity, by acceleration, or otherwise, shall bear interest thereafter
until paid at a rate which shall be equal to the maximum effective rate of
interest which Bank or the then current holder of the Note is permitted to
contract for and charge from time to time.
SECTION 2.05. NOTE. The Revolving Credit Loan and advances thereunder
shall be evidenced by, and repaid with interest in accordance with, a single
promissory note of Borrower in form and content acceptable to Bank, in the
original principal amount of Fifty Million and No/100 Dollars ($50,000,000.00)
dated September 8, 1994, which Note shall be payable to Bank, and maturing as to
principal on the Termination Date (the "Revolving Credit Note"). In the absence
of manifest error, the amounts reflected on Bank's and the Participants'
internal records
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shall be deemed conclusive as to the outstanding balance of principal and
interest under the Revolving Credit Loan from time to time. The Term Loan, if
Borrower exercises the Term Loan Option, shall also be evidenced by the
Revolving Credit Note, with applicable provisions therein pertaining to the Term
Loan Option as required by Bank. In the event Borrower exercises the Term Loan
Option, if requested by Bank, Borrower shall execute a replacement note, in form
and content acceptable to Bank, evidencing the Term Loan.
SECTION 2.06. PREPAYMENTS AND FUNDING LOSSES; INCREASED COSTS;
UNAVAILABILITY OF DOLLAR DEPOSITS; ILLEGALITY AND RISK BASED CAPITAL.
(a) PREPAYMENT. Borrower may, upon at least five (5) Domestic
Business Days' notice to Bank, prepay the Revolving Credit Loan or the
Term Loan, in whole or in part, without penalty, with accrued interest
to the date of such prepayment on the amount prepaid.
(b) INCREASED COSTS. In the event that any applicable law or
regulation or the interpretation or administration thereof by any
governmental authority charged with the interpretation or
administration thereof (whether or not having the force of law) (i)
shall change the basis of taxation of payments to Bank of any amounts
payable by Borrower hereunder (other than taxes imposed on the overall
net income of Bank), or (ii) shall impose, modify or deem applicable
any reserve, special deposit or similar requirement against assets of,
deposits with or for the account of, or credit extended by Bank, or
(iii) shall impose any other condition with respect to the Loans, and
the result of any of the foregoing is to increase the cost to Bank of
making or maintaining the Loans or to reduce any amount receivable by
Bank, and Bank determines that such increased costs or reduction in
amount receivable was attributable to the LIBOR Rate basis used to
establish the interest rate applicable to the Revolving Credit Loan,
then Borrower shall from time to time, upon demand by Bank, pay to Bank
additional amounts sufficient to compensate Bank for such increased
cost. A detailed statement as to the amount of such increased cost,
prepared in good faith and submitted to Borrower by Bank, shall be
conclusive and binding in the absence of manifest error.
(c) UNAVAILABILITY OF DOLLAR DEPOSITS. If Borrower selects the
LIBOR Rate, if on or prior to the first day of any Interest Period: (i)
Borrower is advised by Bank that deposits in Dollars (in the applicable
amounts) are not being offered to Bank in the Euro-dollar interbank
market for such Interest Period, or (ii) Borrower is advised by Bank
that the Reserve Adjusted LIBOR Rate will not adequately and fairly
reflect the cost to Bank of funding the Loans for such Interest Period,
until the circumstances giving rise to such suspension no longer exist,
the Reserve Adjusted LIBOR Rate shall be suspended as the basis for
establishing the interest rate at which interest will accrue under the
Revolving Credit Loan. Commencing on the day Borrower receives advice
of such suspension, and continuing for a maximum of ten (10) Domestic
Business Days thereafter, Bank and Borrower shall conduct good faith
negotiations to establish a mutually agreeable substitute method of
determining the rate at which interest will accrue under the Revolving
Credit
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Loans during such period of suspension. Bank shall be under no
obligation to make further advances under the Revolving Credit Loan
during such period of suspension. If Bank and Borrower have not reached
an agreement with respect to such substitute method of determining
interest by the end of such negotiation period, Borrower shall, at its
option, (i) prepay the entire unpaid principal balance and all accrued
but unpaid interest then outstanding under the Revolving Credit Loan
within fifteen (15) days after the termination of such negotiations as
evidenced by Bank's written statement delivered to Borrower indicating
the failure of such negotiations, or (ii) elect to convert the entire
outstanding principal balance under the Revolving Credit Loan to the
Term Loan in strict accordance with Section 2.02 and provided the
conditions specified in said Section 2.02 are satisfied and Borrower
gives Bank five (5) days' prior written notice thereof, which
conversion shall be effective the fifteenth (15th) day following the
termination of negotiations. For purposes of such prepayment, interest
shall accrue under the Revolving Credit Loan for any period during
which the LIBOR Rate basis was suspended at the interest rate per annum
required to be paid hereunder on the day immediately prior to the day
such suspension began continuing until agreement is reached as to a
substitute method of determining the interest rate or the principal is
paid in full. The suspension shall not affect the rate applicable to
the Term Loan during the suspension period, which shall remain the rate
set forth in the Note.
(d) ILLEGALITY. Notwithstanding any other provision herein, if
Bank determines that any applicable law, rule, or regulation, or any
change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank, or comparable
agency charged with the interpretation or administration thereof, or
compliance by Bank with any request or directive (whether or not having
the force of law) of any such authority, central bank, or comparable
agency, shall make it unlawful or impossible for Bank to maintain or
fund the Revolving Credit Loan based upon the Reserve Adjusted LIBOR
Rate and Bank so advises Borrower of such fact, until other
circumstances giving rise to such suspension no longer exist, the LIBOR
Rate shall be suspended as the basis for establishing the interest rate
at which interest shall accrue under the Revolving Credit Loan.
Commencing on the day Borrower receives advice of such suspension, and
continuing for a maximum of ten (10) Domestic Business Days thereafter,
Bank and Borrower shall conduct good faith negotiations to establish a
mutually agreeable substitute method of determining the rate at which
interest shall accrue under the Revolving Credit Loan during such
period of suspension. Bank shall be under no obligation to make further
advances of Revolving Credit Loan during such period of suspension. If
Bank and Borrower have not reached an agreement with respect to such
substitute method of determining interest by the end of such
negotiation period, Borrower shall, at its option, (i) prepay the
entire unpaid principal balance and all accrued but unpaid interest
then outstanding under the Revolving Credit Loan within fifteen (15)
days after the termination of such negotiations as evidenced by Bank's
written statement delivered to Borrower indicating the failure of such
negotiations, or (ii) elect to convert the entire outstanding principal
balance under the Revolving Credit Loan to the Term Loan in strict
accordance with Section 2.02 and provided the conditions specified in
said 2.02 are
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satisfied and Borrower gives Bank five (5) days' prior written notice
thereof, which conversion shall be effective the fifteenth (15th) day
following the termination of negotiations. For purposes of such
prepayment, interest shall accrue under the Revolving Credit Loan for
any period during which the LIBOR Rate basis was suspended at the
interest rate per annum required to be paid hereunder on the day
immediately prior to the day such suspension began and continuing until
agreement is reached as to a substitute method of determining the
interest rate or the principal is paid in full.
(e) RISK-BASED CAPITAL. In the event that the (i) introduction
of or any change in the judicial, administrative, or other governmental
interpretation of any law or regulation or (ii) compliance by Bank or
any corporation controlling Bank with any guideline or request from any
central bank or other governmental authority (whether or not having the
force of law), has the effect of requiring an increase in the amount of
capital required or expected to be maintained by Bank or any
corporation controlling Bank, and Bank determines that such increase is
based upon its obligations hereunder, and other similar obligations,
Borrower shall pay to Bank such additional amount as shall be certified
by Bank to be the amount allocable to Bank's obligations to the
Borrower hereunder. Provided, however, with respect to the occurrence
of any increase in premiums payable by Bank to the Federal Deposit
Insurance Corporation which is the direct result of an unsound practice
or procedure of Bank in the opinion of said agency, said increase alone
shall not serve as the basis of the requirement of Bank hereunder that
Borrower pay any additional amounts and Bank must have an independent
basis for assessing such additional amount. Bank will notify Borrower
of any event occurring after the date hereof that will entitle Bank to
compensation pursuant to this subsection as promptly as practicable
after it obtains knowledge thereof and determines to request such
compensation. Determination by Bank for purposes of this subsection of
the effect of any increase in the amount of capital required to be
maintained by Bank and of the amount allocable to Bank's obligations to
Borrower hereunder shall be conclusive, provided that such
determinations are made on a reasonable basis. Notwithstanding anything
to the contrary contained in this Agreement or any other Loan Document,
Borrower's obligations to pay increased interest rates and other fees
and charges under this Section 2.06 are limited to the extent that such
obligations do not arise or are effected due to acts or omissions of
Bank resulting from gross negligence, willful or unlawful conduct.
SECTION 2.07. METHOD OF PAYMENT. Borrower shall make each payment under
this Agreement and under the Note not later than 2:00 p.m., Memphis, Tennessee,
time, on the date when due in lawful money of the United States to Bank at the
Head Office in immediately available funds. Borrower hereby authorizes Bank, if
and to the extent payment is not made when due under this Agreement or under the
Note, to charge from time to time against any account of Borrower with Bank
containing unrestricted funds any amount so due. Whenever any payment to be made
under this Agreement or under the Note shall be stated to be due on a Saturday,
Sunday, or a public holiday, or Banking holiday under the laws of the state in
which the Head Office is located, such payment shall be made on the next
succeeding Domestic Business Day, and such extension of time shall in such case
be included in the computation of the payment of interest.
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SECTION 2.08. USE OF LOAN PROCEEDS. Advances under the Revolving Credit
Loan shall be used by Borrower for the following purposes only:
(a) Working Capital. Working capital needs including, without
limitation, the payment of dividends in the ordinary course of
operations (and advances to RFSP for its working capital
needs), such advances for working capital needs not to exceed
the aggregate sum of Five Million and No/100 Dollars
($5,000,000.00) outstanding at any one time;
(b) Acquisition. Acquisition of Additional Hotel Properties by
RFSP or Borrower (provided however, no portion of the Loans
shall be used for international hotel acquisitions);
(c) Development. Development of Additional Hotel Properties, such
advances for ----------- Development not to exceed the
aggregate sum of Thirty-Five Million and No/100 Dollars
($35,000,000.00) outstanding at any one time, provided
however, that Bank shall be under no obligation to allow
Advances for Development unless and until Bank deems itself
fully secured by enough Hotel Properties which have been
accepted into the Collateral Pool in order to maintain,
including the Advance requested for any such Development
purpose, the proper Loan to Value Ratio required in Section
2.10 of this Agreement.
In the event that the acquisition of any Additional Hotel
Property shall be funded with proceeds from the Revolving
Credit Loan, Bank shall have received at least thirty (30)
days prior notice if such Additional Hotel Property is to be
added to the Collateral Pool upon the acquisition thereof
pursuant to the terms of this Agreement. Borrower shall have
full responsibility to deliver or have delivered to Bank those
items specified in subsections 2.09 (a) - (r) below in the
form required, and to otherwise comply with all other
requirements set forth therein on or before the date of
closing of any acquisition, or the date Borrower shall
otherwise require such proceeds for the acquisition of any
Additional Hotel Properties. Notwithstanding the foregoing, in
the event Borrower shall request an advance under the
Revolving Credit Loan in accordance with Section 2.03 above
and such request is within the limits of the Commitment
pursuant to Section 2.01 above and Borrower otherwise complies
with the provisions of Article III, said advance under the
Revolving Credit Loan may be used by Borrower to acquire an
Additional Hotel Property with respect to which all items
specified in Section 2.09 have not been satisfied at the time
of the advance thereunder in the event that Borrower shall not
at the time of such advance seek to have such Additional Hotel
Property made a part of the Collateral Pool. If Borrower shall
thereafter seek to have such Additional Hotel Property
approved for the Collateral Pool, it shall satisfy in full the
requirements of Section 2.09 with respect thereto, provided,
however, that all Additional Hotel Properties to be added to
the Collateral Pool must be added within sixty (60) days of
acquisition or Bank shall be under no obligation to
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thereafter consider accepting any such Additional Hotel
Properties into the Collateral Pool.
SECTION 2.09. COLLATERAL POOL. Borrower and RFSP shall provide Bank
with enough Hotel Properties acceptable to Bank for inclusion in the Collateral
Pool which are sufficient to maintain, at all times relevant hereto, a Value of
the Collateral Pool Properties equal to or greater than One Hundred Fifty-One
Million, Five Hundred Thousand and No/100 Dollars ($151,500,000.00). All such
Hotel Properties shall be deemed a part of the Collateral Pool for purposes of
Section 2.01 only after Bank has received, with respect to each such Hotel
Property, each of the following documents within the time limits set forth in
Section 2.08 above, which documents shall be in all respects acceptable in form
and content to Bank and its counsel:
(a) Mortgages. A Mortgage in recordable form duly executed by
Borrower and RFSP in form and content acceptable to Bank and its
counsel and giving Bank a first lien on said Hotel Property subject
only to those easements or encumbrances consented to in writing by Bank
("Permitted Exceptions").
(b) Security Agreements. Security Agreements duly executed by
Borrower and RFSP, as applicable, granting to Bank a first security
interest in all furniture, furnishings, equipment, fixtures, supplies,
inventory, accounts, licenses, franchise agreements, general
intangibles and other personal property of every kind and description
used in connection with the ownership, operation and or management of
each such Hotel Property, together with (i) acknowledgment copies of
Financing Statements (UCC-1) duly filed under the Uniform Commercial
Code of all jurisdictions necessary or, in the opinion of Bank,
desirable to perfect the security interest created by the Security
Agreement; and (ii) certified copies of requests for information (Form
UCC-11) identifying all of the financing statements on file with
respect to Borrower, RFSP and RFS, as applicable, indicating that no
party claims an interest in any of the Collateral. At Bank's option,
the Security Agreements may be contained in the Mortgages.
(c) Evidence of Due Authorization of Security Documents and
Corporate or Partnership Good Standing. Certified copies of all
partnership or corporate action, as applicable, taken by each party
executing a Mortgage, Security Agreement, Assignments of Rents and
Leases, Subordinations and/or Assignments of Leases and Management
Agreements, UCC-1 financing statement, and all other instruments,
certificates or agreements required by Bank (the "Security Documents"),
including resolutions of its Board of Directors or appropriate
partnership action, as applicable, authorizing the execution, delivery
and performance of the Security Documents and evidence of the good
standing of each party to each of the Security Documents under their
respective states organization and any other state Bank deems necessary
or appropriate.
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(d) Assignments of Rents and Leases. An Assignment of Rents
and Leases with respect to each such Hotel Property duly executed by
Borrower and RFSP, in form and content acceptable to Bank and its
counsel.
(e) Franchise Agreements. Copies of the franchise agreement
under which each such Hotel Property will be operated, a copy of the
franchisor's most recent inspection report, and, unless waived by Bank,
a letter from franchisor agreeing to give notices to Bank of any
defaults by the franchisee.
(f) Leases. Copies of each lease of each such Hotel Property
(collectively, the "Leases"), which Leases shall be acceptable to Bank,
it being understood that the form of lease used for the Initial Hotels
is acceptable to Bank.
(g) Subordinations. Subordination agreement(s) duly executed
by the lessees under the Leases subordinating the Leases to the
Mortgages.
(h) Management Agreements. Copy of any management agreement
for any Hotel Property subject to a management agreement providing for
management by a company satisfactory to Bank, and an assignment to Bank
of any such management agreement, as well as the subordination thereof
and management fees thereunder to the Mortgage for the subject Hotel
Property, and the consent of the manager thereto, all in form and
content acceptable to Bank and its counsel.
(i) Surveys. An ALTA as-built survey of each such Hotel
Property from a licensed surveyor acceptable to Bank, Bank's counsel
and the title insurance company. The survey must be sufficient in form
and content so that the title insurance company will issue an ALTA
mortgagee's title insurance policy in which the standard boundary,
encroachment and survey exceptions have been deleted. The survey must
be dated within ninety (90) days prior to the issuance of the title
policy and be certified to Bank and the title insurance company in form
acceptable to Bank. The survey must show all easements or restrictions
reflected as exceptions in the title insurance policies and must not
show any matters affecting a particular property which is objectionable
to Bank. The survey shall indicate whether any part of the particular
Hotel Property is located within a flood plan area.
(j) Title Insurance Policies. A mortgagee title insurance
policy with respect to each such Hotel Property in an amount
satisfactory to Bank, naming Bank as the insured party, showing no
indebtedness against such Hotel Property except for the Mortgage and
reflecting fee simple title to the Hotel Property in RFSP, subject to
no exceptions except for Permitted Exceptions. Such policy shall
contain affirmative coverage as to survey matters, and such other
affirmative coverage or endorsements as may be reasonably required by
Bank.
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(k) Environmental Audits. A Phase I environmental audit for
each such Hotel Property, or higher, if reasonably required by Bank,
performed and issued by a nationally recognized environmental audit
firms, or as otherwise mutually agreed upon by Borrower and Bank,
addressed to Bank as a party entitled to rely thereon, dated not more
than six (6) months prior to the date the applicable Hotel Property is
accepted into the Collateral Pool, reflecting no indication of adverse
environmental conditions at the subject Hotel Property.
(l) Physical Inspections. Unless waived by Bank, report of an
independent inspecting engineering firm satisfactory to Bank as to the
physical condition of each such Hotel Property reflecting the condition
of such Hotel Property acceptable to Bank and the independent
satisfaction of Bank with the physical condition of the Hotel Property
pursuant to the on-site inspection of officers to Bank, for which
inspections such officers shall be permitted access to the Hotel
Property during reasonable hours. All out of pocket expenses incurred
by Bank in connection with such inspections shall be payable on demand
by Borrower.
(m) Hazard Insurance. Certificate of insurance coverage for
each such Hotel Property of the type required to be carried as provided
in Section 5.05.
(n) Appraisals. An appraisal of each such Hotel Property in
form and content satisfactory to Bank prepared by an MAI appraiser
familiar with values of Hotel Properties in the area in which the
subject Hotel Property is located, or other appraiser satisfactory to
Bank in its discretion.
(o) Environmental Indemnity. An Environmental Indemnity
Agreement in form and content satisfactory to Bank and its counsel,
executed by Borrower and RFSP, as applicable, with respect to each such
Hotel Property.
(p) Opinion of Counsel for Borrower and RFSP. Favorable
opinions of counsel for Borrower and RFSP as to the existence and
authority of each such entity and the enforceability against such
entity of the Security Documents, as applicable, and all other
documents to be delivered by such entities and, with respect to RFSP,
specifically opining as to the existence and sufficiency of
consideration for the Security Documents to be signed by it, each such
opinion letter to be in form and content acceptable to Bank, and
opining as to such other matters as Bank may request.
(q) Independent Market Study. An independent market study
acceptable to Bank on each such Hotel Property.
(r) Other Documents. Such other approvals, opinions, or
documents as Bank may request.
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If at any time Bank reasonably determines, in its sole discretion, that
a Hotel Property should be removed from the Collateral Pool, whether due to
environmental concerns which have changed or become known since the date of
inclusion in the Collateral Pool, casualty or otherwise, Bank shall so notify
Borrower in writing and such Hotel Property shall thereafter no longer be
considered part of the Collateral Pool, nor included in the calculation of the
Borrowing Base. As promptly as possible thereafter, Borrower or RFSP, as the
case may be, shall pledge to Bank another unencumbered Hotel Property proposed
by Borrower and acceptable to Bank in substitution thereof and in accordance
with this Section 2.09. It is understood and agreed that at any time it becomes
necessary pursuant to the terms hereof to pledge a Hotel Property to Bank for
inclusion in the Collateral Pool, Bank shall initially consider any Hotel
Property proposed by Borrower, but if Borrower does not propose a Hotel Property
acceptable to Bank, Bank shall be allowed to choose from all unencumbered Hotel
Properties not then included in the Collateral Pool, and Borrower and RFSP shall
provide to Bank all such information and documents on such Hotel Properties as
Bank may reasonably request to enable Bank to choose the Hotel Properties
necessary to be pledged to Bank pursuant to the terms hereof.
SECTION 2.10. ADJUSTMENTS TO COLLATERAL POOL VALUATION.
(a) Appraisals. Bank may require Borrower to furnish Bank
updated appraisals of each Collateral Pool Property bi-annually, or
more often as Bank may from time to time require in order to assist
Bank in determining the present Loan to Value Ratio (hereinafter
referred to as "LTV Ratio"). All such appraisals shall comply in all
respects with the requirements of subsection 2.09(n) above.
(b) Mandatory Adjustments. In the event that at any time
during the term hereof the LTV Ratio exceeds The Borrowing Base of
thirty three percent (33%), Borrower shall within thirty (30) days
following notification from Bank: (i) prepay such amount of the Loans
as may be necessary to reduce said ratio on the date of payment to
thirty three percent (33%) or less, or (ii) pledge additional
collateral acceptable to Bank with an appraised value sufficient to
reduce the LTV Ratio to thirty three percent (33%) or less.
(c) Adjustments for Franchise Cancellations. In no event shall
Borrower be entitled hereunder to borrow amounts which will increase
the LTV Ratio to greater than thirty three percent (33%), nor shall the
aggregate sum outstanding at any time under the Loans exceed Fifty
Million and no/100 Dollars ($50,000,000.00). Furthermore, the Value of
any Collateral Pool Property whose operating franchise license is
cancelled shall be immediately deducted from the value of the
Collateral Pool until such time as a national franchise reasonably
acceptable to Bank is obtained with respect to such property and a new
appraisal is obtained reflecting the same. In the interim, Bank shall
have the right to deliver the notice set forth in subsection (b) above,
in which event said subsection (b) shall be applicable in full. For
purposes of the computation of the LTV Ratio, the Value of the
Collateral Pool Property with respect to which such franchise is
canceled shall be deemed $0.
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(d) Pre-Approvals. Borrower may from time to time submit
information to Bank concerning hotels to be purchased by Borrower or
RFSP which are not to be purchased with proceeds of the Revolving
Credit Loan, such submission to be for the purpose of pre-approving
such Hotel Properties for satisfaction of all requirements set forth in
Section 2.09 and inclusion in the Collateral Pool at the option of
Borrower, subject to all requirements and provisions herein relating to
the purchase of Additional Hotel Properties for inclusion in the
Collateral Pool.
SECTION 2.11. SALE OF HOTEL PROPERTIES. Upon the written request of
Borrower, Bank shall release from the liens of any Mortgages such Hotel
Properties as Borrower may sell from time to time, provided that the LTV Ratio
will not exceed thirty three percent (33%) after any requested releases of any
Collateral Pool Properties.
SECTION 2.12. FEES. In consideration of Bank's Commitment to advance
funds under the Revolving Credit Loan, Borrower agrees to pay to Bank the
following annual fees:
(a) Commitment Fee. A commitment fee equal to one-quarter
percent (.25%) of the maximum amount of the Commitment, determined
without regard to the Collateral Pool valuation limitation (the
"Maximum Committed Amount"), such fee to be paid annually upon the
anniversary date of the execution of the First Loan Agreement; and
(b) Agent's Fee. An agent's fee equal to one-quarter percent
(.25%) of the maximum amount of the Commitment, determined without
regard to the Maximum Committed Amount, such fee to be paid annually
upon the anniversary date of the execution of the First Loan Agreement.
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.01. INTENTIONALLY OMITTED.
SECTION 3.02. CONDITIONS PRECEDENT TO ADVANCES UNDER THE REVOLVING
CREDIT LOAN. The obligation of Bank or the Participants to make advances under
the Revolving Credit Loan is subject to the conditions precedent that on the
date of each advance under the Revolving Credit Loan:
(a) The following statements shall be true and Bank shall have
received a certificate signed by a duly authorized officer of Borrower
dated the date of each advance under the Revolving Credit Loan, stating
that:
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(i) The representations and warranties contained in
Article IV of this Agreement are correct on and as of the date
of such advance as though made on and as of such date;
(ii) No Default or Event of Default has occurred and
is continuing, or would result from such advance;
(iii) There has been no material adverse change in
the financial condition of Borrower or RFSP since the date of
the financial statements, if any, delivered to Bank pursuant
to Section 5.08; and
(iv) The principal amount outstanding under the
Revolving Credit Loan, when aggregated with the principal
amount of the advance requested, shall not exceed the limits
of the Commitment pursuant to Section 2.01 above.
(b) Bank shall have received such other approvals, opinions,
or documents as Bank may reasonably request.
SECTION 3.03. CONDITIONS PRECEDENT TO THE TERM LOAN. The obligation of
Bank to make the Term Loan shall be subject to the condition precedent that Bank
shall have received on or before the day of the Term Loan all of the documents
required by Section 3.02 and each of the following, in form and substance
satisfactory to Bank and its counsel:
(a) Note. The Note duly executed by Borrower, or any
replacement note requested by bank;
(b) Opinion of counsel for Borrower and RFSP. A favorable
opinion of counsel for Borrower and RFSP dated the date of the Term
Loan, in form and content acceptable to Bank;
(c) Officer's certificate, etc. The following statements shall
be true and Bank shall have received a certificate signed by a duly
authorized officer of Borrower dated the date of the Term Loan stating
that:
(i) The representations and warranties contained in
Article IV of this Agreement are correct on and as of the date
of the Term Loan as though made on and as of such date; and
(ii) No Default or Event of Default has occurred and
is continuing, or would result from the Term Loan.
(d) Modifications of Mortgages/Title Endorsements. If
reasonably required by Bank, modification agreements with respect to
the Mortgages on the Hotel Properties pledged as collateral for the
Loans and endorsements to the policies of mortgagee title
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insurance reflecting the conversion of the Revolving Credit Loan to the
Term Loan and showing no adverse title matters as to any such Hotel
Property; and
(e) Additional Documentation. Bank shall have received such
other approvals, opinions, or documents as Bank may request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Borrower and/or RFSP, as the case may be or the context would require, represent
and warrant to Bank that:
SECTION 4.01. INCORPORATION, GOOD STANDING, AND DUE QUALIFICATION OF
BORROWER. Borrower is a corporation duly incorporated, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation; has the
corporate power and authority to own its assets and to transact the business in
which it is now engaged or proposed to be engaged; and is duly qualified as a
foreign corporation and in good standing under the laws of each other
jurisdiction in which such qualification is required.
SECTION 4.02. CORPORATE POWER AND AUTHORITY OF BORROWER. The execution,
delivery, and performance by Borrower of the Loan Documents have been duly
authorized by all necessary corporate action and do not and will not (1) require
any consent or approval of the stockholders of Borrower; (2) contravene any
provision of Borrower's charter or bylaws; (3) violate any provision of any law,
rule, regulation (including, without limitation, Regulation U of the Board of
Governors of the Federal Reserve System), order, writ, judgment, injunction,
decree, determination, or award presently in effect having applicability to
Borrower; (4) result in a breach of or constitute a default under (whether with
the giving of notice, passage of time, or both) any indenture or loan or credit
agreement or any other agreement, lease, or instrument to which Borrower is a
party or by which it is or its properties may be bound or affected; (5) result
in, or require, the creation or imposition of any lien, upon or with respect to
any of the properties now owned or hereafter acquired by Borrower; or (6) cause
Borrower to be in default under any such law, rule, regulation, order, writ,
judgment, injunction, decree, determination, or award or any such indenture,
agreement, lease, or instrument.
SECTION 4.03. EXISTENCE AND DUE QUALIFICATION OF RFSP. RFSP is validly
existing and in good standing under the laws of the State of Tennessee; has the
power and authority to own its assets and to transact the business in which it
is now engaged or proposed to be engaged in; and is duly qualified and in good
standing under the laws of each other jurisdiction in which such qualification
is required.
SECTION 4.04. POWER AND AUTHORITY OF RFSP. The execution, delivery and
performance by RFSP of any of the Loan Documents to which it is a party, have
been duly authorized by all necessary partnership action, and do not and will
not (1) require any consent or approval of any
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limited partners; (2) contravene any partnership agreement; (3) violate any
provision of any law, rule, regulation (including, without limitation,
Regulation U of the Board of Governors of the Federal Reserve System) order,
writ, judgment, injunction, decree, determination, or award presently in effect
having applicability to RFSP ; (4) result in a breach of or constitute a default
under (whether with the giving of notice, passage of time, or both) any
indenture or loan or credit agreement or any other agreement, lease, or
instrument to which is a party or by which its properties may be bound or
affected; (5) result in or require the creation of imposition of any Lien upon
or with respect to any of the properties now owned or hereafter acquired by it;
or (6) cause either RFSP to be in default under any such law, rule, regulation,
order, writ, judgment, injunction, decree, determination, or award for any such
indenture, agreement, lease, or instrument.
SECTION 4.05. LEGALLY ENFORCEABLE AGREEMENT. This Agreement is, and
each of the other Loan Documents when delivered under this Agreement will be,
legal, valid, and binding obligations of Borrower, or of RFSP, as applicable,
enforceable in accordance with their respective terms, except to the extent that
such enforcement may be limited by applicable bankruptcy, insolvency, and other
similar laws affecting creditors' rights generally.
SECTION 4.06. LABOR DISPUTES AND ACTS OF GOD. Neither the respective
businesses, nor the respective properties, of Borrower or RFSP are affected by
any fire, explosion, accident, strike, lockout or other labor dispute, drought,
storm, hail, earthquake, embargo, act of God or of the public enemy, or other
casualty (whether or not covered by insurance), materially and adversely
affecting such businesses or properties or the operations of Borrower or RFSP.
SECTION 4.07. OTHER AGREEMENTS. Neither Borrower nor RFSP is a party to
any indenture, loan, or credit agreement, or to any lease, or other agreement or
instrument, or subject to any charter or corporate restriction, or partnership
restriction, which could have a material adverse effect on the business
properties, assets, operations, or conditions, financial or otherwise, of
Borrower or of RFSP, or the ability of Borrower or of RFSP to carry out their
respective obligations under the Loan Documents to which they are a party.
Neither Borrower nor RFSP is in default in any respect in the performance,
observance, or fulfillment of any of the obligations, covenants, or conditions
contained in any agreement or instrument material to its business to which any
of them is a party, including, without limitation, any of the Easements, or the
Leases.
SECTION 4.08. LITIGATION. There is no pending or threatened action or
proceeding against or affecting Borrower or RFSP before any court, governmental
agency, or arbitrator, which may, in any one case or in the aggregate,
materially adversely affect the respective financial conditions, operations,
properties, or businesses of Borrower or RFSP or the ability of Borrower or RFSP
to perform their respective obligations under the Loan Documents to which they
are a party.
SECTION 4.09. NO DEFAULTS ON OUTSTANDING JUDGMENTS OR ORDERS. Borrower
and RFSP have satisfied all judgments, and neither Borrower nor RFSP is in
default with respect to any judgment, writ, injunction, decree, rule, or
regulation of any court, arbitrator, or federal,
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state, municipal, or other government authority, commission, board, bureau,
agency, or instrumentality, domestic or foreign.
SECTION 4.10. OWNERSHIP AND LIENS. Borrower and RFSP have title to all
of their respective properties and assets, real and personal, and none of the
properties and assets owned by Borrower or RFSP is subject to any Lien except as
provided in Section 6.01. RFSP has unencumbered fee simple title to all of the
Initial Hotels.
SECTION 4.11. OPERATION OF BUSINESS. Except as may have been disclosed
in writing to, and approved by, Bank, Borrower and RFSP have made application
for or otherwise possess all licenses, permits, franchises, patents, copyrights,
trademarks, and trade names, or rights thereto, to conduct their respective
businesses substantially as now conducted and as presently proposed to be
conducted, and neither Borrower nor RFSP are in violation of any of the
foregoing or any valid rights of others with respect to any of the foregoing.
SECTION 4.12. TAXES. Borrower and RFSP have filed all tax returns
(federal, state, and local) required to be filed and have paid all taxes,
assessments, and governmental charges and levies shown or required to be shown
thereon to be due, including interest and penalties, and have paid all real
estate and personal property taxes due to date with respect to each Hotel
Property and their other assets.
SECTION 4.13. DEBT. Borrower has provided to Bank a complete and
correct list of all credit agreements, indentures, purchase agreements,
guaranties, Capital Leases, and other investments, agreements, and arrangements
presently in effect providing for or relating to extensions of credit (including
agreements and arrangement for the issuance of letters of credit or for
acceptance financing) in respect of which Borrower or RFSP is in any manner
directly or contingently obligated; and the maximum principal or face amounts of
the credits in question, which are outstanding and which can be outstanding,
have been correctly stated, and all liens of any nature given or agreed to be
given as security therefor have been correctly described or identified to Bank.
SECTION 4.14. ENVIRONMENTAL COMPLIANCE. The Hotel Properties are not
currently used in any manner, and, to the best of the knowledge of Borrower and
RFSP, no prior use by Borrower or RFSP, or any prior owner or tenant has
occurred, which violates applicable Environmental Laws; neither Borrower nor
RFSP, nor any tenant has received any notice from a governmental agency of a
violation of such laws. If any such notice is received, Borrower shall
immediately notify Bank. Borrower will not use or permit to be used any Hotel
Property in a manner which would violate Environmental Laws.
SECTION 4.15. ADA COMPLIANCE. To the best of Borrower's and RFSP's
respective knowledges, the Hotel Properties comply with all applicable
provisions of the Americans With Disabilities Act which would result in material
liability if said Hotel Properties were found to be in non-compliance.
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SECTION 4.16. OPERATIONS; ROOM RENTS. The Hotel Properties have been
operated in a prudent manner consistent with other hotels of similar character
and location, and neither Borrower nor RFSP have diverted or transferred any
motel receipts or room rents for any use inconsistent with such operations
performed in the ordinary course of operating the Hotel Properties.
ARTICLE V
AFFIRMATIVE COVENANTS
So long as any Note shall remain unpaid or Bank shall have any
Commitment under this Agreement, Borrower and RFSP covenant as follows:
SECTION 5.01. MAINTENANCE OF EXISTENCE. Borrower will preserve and
maintain its corporate existence and good standing in the jurisdiction of its
incorporation, qualify and remain qualified as a foreign corporation in each
jurisdiction in which such qualification is required, and retain its
qualification as a REIT under federal income tax regulations; ; and RFSP will
maintain its existence as a limited partnership and will remain qualified in
each jurisdiction in which qualification is required.
SECTION 5.02. MAINTENANCE OF RECORDS. Borrower and RFSP will keep
adequate records and books of account in which complete entries will be made in
accordance with GAAP consistently applied, reflecting all financial
transactions.
SECTION 5.03. MAINTENANCE OF PROPERTIES. Borrower and RFSP will
maintain, keep, and preserve all of their respective properties (tangible and
intangible) necessary or useful in the proper conduct of their respective
businesses in good working order and condition, ordinary wear and tear and
insured casualty damage or taking through the power of eminent domain excepted.
SECTION 5.04. CONDUCT OF BUSINESS. Borrower and RFSP will continue to
engage in an efficient and economical manner in a business of the same general
type as conducted by them on the date of this Agreement.
SECTION 5.05. MAINTENANCE OF INSURANCE. Borrower and RFSP will maintain
insurance with financially sound and reputable insurance companies or
associations in such amounts and covering such risks as are usually carried by
companies engaged in the same or a similar business and similarly situated. RFSP
will maintain with respect to each Hotel Property fire and extended coverage
insurance in form and content acceptable to Bank, including vandalism and
malicious mischief coverage, in an amount not less than the full replacement
cost of the improvements. The policies must contain coverage for damage from
wind and earthquake and be issued by a company which is approved by the
applicable governmental entity overseeing the insurance industry in the state
where the Hotel Property is located, and which is acceptable to Bank. If at any
time during the term hereof it is determined that any Hotel Property is located
in a "special flood hazard area"
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requiring flood insurance under the Flood Disaster Protection Act of 1973, RFSP
shall provide satisfactory flood insurance with respect to such property. All
policies of insurance required to be maintained hereunder shall name Bank as
loss payee under the standard New York mortgagee clause or the equivalent
thereof acceptable to Bank.
SECTION 5.06. COMPLIANCE WITH LAWS. Borrower and RFSP will comply in
all material respects with all applicable laws, rules, regulations, and orders,
such compliance to include, without limitation, paying before the same become
delinquent all taxes, assessments, and governmental charges imposed upon them or
upon their respective properties.
SECTION 5.07. RIGHT OF INSPECTION. At any reasonable time and from time
to time, Borrower and RFSP will permit Bank or any agent or representative
thereof to examine and make copies of and abstracts from their records and books
of account of, and visit their properties and to discuss their affairs,
finances, and accounts with any of their respective officers and directors and
their independent accountants.
SECTION 5.08. REPORTING REQUIREMENTS. Borrower and RFSP shall furnish
to Bank:
(a) Quarterly financial statements. No later than twenty-five
(25) days after the end of each quarter, or more frequently if Bank
shall reasonably request, but in any event, no later than one (1) day
prior to the filing of such information with the Securities and
Exchange Commission, after the end of each of the first three quarters
of each fiscal year, balance sheets as of the end of such quarter,
statements of income and retained earnings for the portion of the
fiscal year ending with the end of such quarter, a statement of change
in cash flow for the portion of the fiscal year ending with the last
day of such quarter, a properly completed Debt Coverage Worksheet, plus
all supporting documentation, covering the twelve-month period ending
with the last day of such quarter, statements of operation for all of
the Hotel Properties and a combined statement of operations for all
Hotel Properties for such quarter, and detailed information regarding
occupancy figures and average daily room rates for all of the Hotel
Properties for such quarter in form and content acceptable to Bank, as
same may be modified by Bank from time to time, all in reasonable
detail and stating in comparative form the respective figures for the
corresponding date and period in the previous fiscal year and all
prepared in accordance with GAAP consistently applied and certified by
their chief financial officers (subject to year-end adjustments);
(b) Annual financial statements. As soon as available and in
any event within ninety (90) days after the end of each fiscal year,
balance sheets as of the end of their respective fiscal years,
statements of income and retained earnings as of the end of such fiscal
years, statements of changes in cash flows for such fiscal years, and,
with respect to each of the foregoing, accompanied by an opinion
thereon acceptable to Bank by Coopers & Lybrand or other independent
certified public accountants acceptable to Bank, a properly completed
Debt Coverage Worksheet, covering such fiscal year, statements of
operation for all of the Hotel Properties and a combined statement of
operations for such
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fiscal year (both including an itemized account of gross income and
expenses), and detailed information regarding occupancy figures and
average daily room rates for all of the Hotel Properties for such
fiscal year, and detailed information regarding occupancy figures and
average daily room rates for all of the Hotel Properties for such
fiscal year, all of the foregoing to be in reasonable detail and
stating in comparative form the respective figures for the
corresponding date and period in the prior fiscal year and all prepared
in accordance with GAAP consistently applied and certified as correct
by their chief financial officers;
(c) Management letters. Promptly upon receipt thereof, copies
of any reports submitted by independent certified public accountants in
connection with any audits of their financial statements made by such
accountants;
(d) Certificate of no Default. Within ninety (90) days after
the end of each of the quarters of each of their respective fiscal
years, certificates of their chief financial officers certifying that
to the best of their knowledge no Default or Event of Default has
occurred and is continuing, or if a Default or Event of Default has
occurred and is continuing, a statement as to the nature thereof and
the action which is proposed to be taken with respect thereto;
(e) Notice of litigation. Promptly after the commencement
thereof, notice of all actions, suits, and proceedings before any court
or governmental department, commission, board, bureau, agency, or
instrumentality, domestic or foreign, affecting Borrower or RFSP,
which, if determined adversely, could have a material adverse effect on
their respective financial conditions, properties, or operations;
(f) Notice of Defaults and Events of Default. As soon as
possible and in any event within ten (10) days after the occurrence of
each Default or Event of Default, a written notice setting forth the
details of such Default or Event of Default and the action which is
proposed to be taken with respect thereto;
(g) Reports to other creditors. Promptly after the furnishing
thereof, copies of any financial statement or report furnished to any
other party pursuant to the terms of any indenture, loan, or credit or
similar agreement and not otherwise required to be furnished to Bank
pursuant to any other clause of this Section 5.08;
(h) Proxy statements, etc. Promptly after the sending or
filing thereof, copies of all proxy statements, financial statements,
and reports which Borrower or RFSP sends to their respective
stockholders or partners, as applicable, and copies of all regular,
periodic, and special reports, and all registration statements which
Borrower or RFSP files with the Securities and Exchange Commission or
any governmental authority which may be substituted therefor, or with
any national securities exchange;
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(i) Tax receipts. Copies of paid real estate ad valorem tax
receipts for all Hotel Properties prior to delinquency; and
(j) General information. Such other information respecting the
condition or operations, financial or otherwise, as Bank may from time
to time request.
SECTION 5.09. DEBT COVERAGE RATIOS.
(a) Debt Coverage Ratio (NOI). Borrower shall maintain a Debt
Coverage Ratio (NOI) on all of Borrower's Debt and Hotel
Properties, whether such Debt was incurred with Bank or any
other creditor, of at least 3.0:1 at all times during the term
hereof.
(b) Debt Coverage Ratio (CF). Borrower shall maintain a Debt
Coverage Ratio (CF) on just the Revolving Credit Loan and
Collateral Pool Properties of at least 2.25:1 at all times
during the term hereof, and must maintain a minimum level of
Operating Income from Collateral Pool Properties at all times
of at least $17,500,000.00.
(c) Debt Coverage Ratio (CFO). Borrower shall maintain a Debt
Coverage Ratio (CFO) on all of Borrower's Debt and Hotel
Properties, whether such Debt was incurred with Bank or any
other creditor, of at least 1.75:1 at all times during the
term hereof.
(d) Quarterly Calculations. The Debt Coverage Ratios shall be
calculated each quarter using a trailing twelve (12) month
rolling average using the NOI, CF, or CFO, as applicable, for
the immediately preceding twelve (12) month period. Borrower
shall prepay a portion of the Loans sufficient to achieve such
of the required Debt Coverage Ratios as are not in compliance
within thirty days following notification from Bank if any
such quarterly calculation shall result in a Debt Coverage
Ratio less than the minimums set forth above. Bank may refuse
any draw request made by Borrower if the result of the making
of the advance requested would be that the calculation of any
of the required Debt Coverage Ratios, using an Annual Debt
Service amount computed on the total principal which would be
outstanding after the advance of the draw requested, would
result in Borrower's failure to maintain any of the required
Debt Coverage Ratios. Borrower shall be allowed to borrow
additional funds at such time as Borrower can demonstrate that
it has sufficient net taxable income for the preceding four
calendar quarters to provide the required coverage for all
Debt Coverage Ratios not in compliance.
(e) Revolving Credit Loan Calculation. With respect to the
calculation of the Debt Coverage Ratio relating to the
Revolving Credit Loan, the Annual Debt Service on Borrower's
outstanding Debt thereunder shall be determined as though
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such Debt was being amortized to arrive at a monthly
installment amount using a ten (10) year term and an assumed
interest rate equal to the greater of (i) 1.75%, in excess of
the Libor Rate, or (ii) the five (5) year U.S. Treasury Note
yield, plus 2.5%.
SECTION 5.10. RESERVE FOR ROOM RENOVATIONS. Borrower shall maintain a
reserve account at Bank, into which Borrower shall deposit, or shall have
deposited, as the case may be, commencing with the calendar quarter beginning
July 1, 1994, the sum of $75.00 per room for all Hotel Properties pledged as
collateral for the Loans followed by deposits on or before the first day of each
calendar quarter thereafter during the term hereof (January 1, April 1, July 1,
and October 1). Borrower or RFSP may withdraw funds from said account at any
time prior to an Event of Default without restriction. Borrower or RFSP shall
furnish Bank an accounting of all sums withdrawn from such account at the end of
each calendar quarter (March 31, June 30, September 30 and December 31).
SECTION 5.11. MAINTENANCE OF FRANCHISES. Borrower and RFSP, as
applicable, shall comply with the requirements imposed on any of them as
franchisee under all franchise agreements held for operation of the Initial
Hotels, and any Additional Hotel Properties acquired with proceeds of the
Revolving Credit Loan. Copies of any notices of default under said franchise
agreements and copies of any other material correspondence received from a
franchisor under such franchise agreements shall be given immediately to Bank.
SECTION 5.12. MINIMUM NET WORTH. Borrower shall maintain at all
applicable times, a minimum net worth in an amount equal to the net worth of
Borrower as reported to, and accepted by, Bank in Borrower's most recent fiscal
year-end audited financing statement, as such net worth may change from year to
year.
SECTION 5.13. OPERATIONS; ROOM RENTS. BORROWER AND RFSP shall ensure
that the operations of the Hotel Properties are conducted in a prudent manner
consistent with other hotels of similar character and location, and shall not
divert or transfer any receipts or room rents for any use inconsistent with such
operations performed in the ordinary course of operating the Hotel Properties.
SECTION 5.14. MINIMUM CASH FLOW. Borrower and RFSP shall maintain at
all times a Cash Flow amount which is equal to or greater than thirty-five
percent (35%) of the committed amount of the Revolving Credit Loan.
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ARTICLE VI
NEGATIVE COVENANTS
So long as any Note shall remain unpaid or Bank shall have any
Commitment under this Agreement, Borrower and RFSP will comply with the
following negative covenants:
SECTION 6.01. LIENS. Borrower and RFSP will not create, incur, assume,
or suffer to exist, any lien upon with respect to any of their respective
properties, now owned or hereafter acquired, except:
(a) Liens in favor of Bank;
(b) Liens for taxes or assessments or other government charges
or levies if not yet due and payable or, if due and payable, if they
are being contested in good faith by appropriate proceedings and for
which appropriate reserves are maintained;
(c) Liens imposed by law, such as mechanics' materialmen's,
landlords', warehousemen's, and carrier's Liens, and other similar
Liens, securing obligations incurred in the ordinary course of business
which are not past due for more than thirty (30) days or which are
being contested in good faith by appropriate proceedings and for which
appropriate reserves have been established;
(d) Liens under workmen's compensation, unemployment
insurance, social security, or similar legislation;
(e) Liens, deposits, or pledges to secure the performance of
bids, tenders, contracts (other than contracts for the payment of
money), leases (permitted under the terms of this Agreement), public or
statutory obligations, surety, stay, appeal, indemnity, performance or
other similar bonds, or other similar obligations arising in the
ordinary course of business;
(f) Judgment and other similar liens arising in connection
with court proceedings, provided the execution or other enforcement of
such liens is effectively stayed and the claims secured thereby are
being actively contested in good faith and by appropriate proceedings;
(g) Easements, rights-of-way, restrictions, and other similar
encumbrances which, in the aggregate, do not materially interfere with
the occupation, use, and enjoyment of their property or assets
encumbered thereby in the normal course of their respective businesses
or materially impair the value of their property subject thereto;
(h) Existing mortgage liens on any Hotel Properties securing
obligations assumed by Borrower or RFSP, provided, however, such Hotel
Properties shall not be
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purchased with proceeds from the Revolving Credit Loan, nor pledged to
Bank as collateral for the Loans, nor be submitted for inclusion in the
Collateral Pool, unless Bank shall consent in its sole discretion after
request from Borrower. 28
SECTION 6.02. DEBT. Neither Borrower nor RFSP will create, incur,
assume, or suffer to exist any Debt, except:
(a) Debt of Borrower under this Agreement or the Note;
(b) Accounts payable to trade creditors, including without
limitation, amounts payable under service contracts, for goods or
services incurred in the ordinary course of business and paid within
the specified time, unless contested in good faith and by appropriate
proceedings;
(c) Debt assumed by Borrower or RFSP secured by any of the
Additional Hotel Properties, provided, however, that (i) such debt
assumed by Borrower or RFSP shall never exceed in the aggregate Twenty
Million and no/100 Dollars ($20,000,000.00), (ii) the total LTV Ratio
may not exceed thirty three percent (33%) after including the debt
assumed, if such Additional Hotel Properties were purchased with
proceeds from the Revolving Credit Loan (iii) such Additional Hotel
Properties shall not be included in the Collateral Pool, unless Bank
shall consent in its sole discretion, and (iv) Borrower will maintain
the required Debt Coverage Ratio after including the debt assumed.
SECTION 6.03. MERGERS, ETC. Neither Borrower nor RFSP will merge or
consolidate with, or sell, assign, lease, or otherwise dispose of (whether in
one transaction or in a series of transactions) all or substantially all of
their assets (whether now owned or hereafter acquired) to any person, or acquire
all or substantially all of the assets or the business of any person, other than
acquisition of Hotel Properties by RFSP in the ordinary course of business.
SECTION 6.04. LEASES. Neither Borrower nor RFSP will create, incur,
assume, or suffer to exist any obligation as lessee for the rental or hire of
any real or personal property, except for non-Capital Leases incurred in the
ordinary course of business and for any Capital Leases of equipment necessary
for the operation of the Hotel Properties.
SECTION 6.05. SALE AND LEASEBACK. Neither Borrower nor RFSP will sell,
transfer, or otherwise dispose of any real or personal property to any Person
and thereafter directly or indirectly lease back the same or similar property.
SECTION 6.06. GUARANTIES, ETC. Neither Borrower nor RFSP will assume,
guarantee, endorse, or otherwise be or become directly or contingently
responsible or liable (including, but not limited to, an agreement to purchase
any obligation, stock, assets, goods, or services, or to supply or advance any
funds, assets, goods, or services, or to maintain or cause such person to
maintain a minimum working capital or net worth, or otherwise to assure the
creditors of any
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person against loss) for obligations of any person, except
guaranties by endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business.
SECTION 6.07. CONDITION OF HOTELS. Neither Borrower nor RFSP will
suffer to occur any material adverse change in the physical condition of any of
the Hotel Properties as determined in the sole but reasonable discretion of Bank
based on an appraisal or engineering report meeting
the requirements of Section 2.09(l) and (n), respectively, delivered to Bank as
required hereunder, other than losses from insured casualty or takings under the
power of eminent domain.
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.01. EVENTS OF DEFAULT. If any of the following events
("Events of Default") shall occur:
(a) Borrower should fail to pay the principal of, or interest
on, the Note, or any amount of a commitment fee, within fifteen (15)
days following the date on which the same becomes due and payable;
(b) Any representation or warranty made or deemed made by
Borrower, RFSP or RFS in this Agreement, the Loan Documents or in any
certificate, document, opinion, or financial or other statement
furnished at any time under or in connection with any Loan Document
shall prove to have been incorrect in any material respect on or as of
the date made or deemed made;
(c) Borrower, RFSP or RFS shall fail to perform or observe any
term, covenant, or agreement contained in any Loan Document (other than
the Note) to which any of them is a party on their part to be performed
or observed, and such failure shall continue for a period of thirty
(30) days after notice to Borrower from Bank describing the nature of
the failure; provided that, if such failure is not susceptible of cure
within thirty (30) days, such party shall be allowed an additional
thirty (30) days to effect such cure provided it promptly begins
efforts to cure and thereafter diligently pursues such cure to
conclusion;
(d) Borrower or RFSP shall (i) fail to pay any indebtedness
for borrowed money (other than the Note), or any interest or premium
thereon, when due (whether by scheduled maturity, required prepayment,
acceleration, demand, or otherwise); (ii) fail to perform or observe
any term, covenant, or condition on their parts to be performed or
observed under any agreement or instrument relating to any such
indebtedness, when required to be performed or observed, if the effect
of such failure to perform or observe is to accelerate, or to permit
the acceleration after the giving of notice or passage of time, or
both, of the maturity of such indebtedness, whether or not such failure
to perform or observe shall be waived by the holder of such
indebtedness; or any such indebtedness shall
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be declared to be due and payable, or required to be prepaid (other
than by a regularly scheduled required prepayment), prior to the stated
maturity thereof; or (iii) suffer a material adverse change in
condition (financial or otherwise);
(e) Each of Borrower or RFSP (i) shall generally not, or shall
be unable to, or shall admit in writing its inability to pay its debts
as such debts become due; or (ii) shall make an assignment for the
benefits of creditors, petition or apply to any tribunal for the
appointment of a custodian, receiver or trustee for it or a substantial
part of its assets; or (iii) shall commence any proceeding under any
Bankruptcy, reorganization, arrangements, readjustment of debt,
dissolution, or liquidation law or statute of any jurisdiction whether
now or hereafter in effect, or (iv) shall have any such petition or
application filed or any such proceeding commenced against it in which
an order for relief is entered or adjudication or appointment is made
and which remains undismissed for a period of sixty (60) days or more;
or (v) by any act or omission shall indicate its consent to, approval
of, or acquiescence in any such petition, application, or proceeding,
or order for relief, or the appointment of a custodian, receiver, or
trustee for all or any substantial part of its properties; or (vi)
shall suffer any such custodianship, receivership, or trusteeship to
continue undischarged for a period of sixty (60) days or more;
(f) One or more judgments, decrees, or orders for the payment
of money in excess of One Million and No/100 Dollars ( 1,000,000.00) in
the aggregate shall be rendered against Borrower or RFSP, and such
judgments, decrees, or orders shall continue unsatisfied and in effect
for a period of twenty (20) consecutive days without being vacated,
discharged, satisfied, or stayed or bonded pending appeal;
(g) Any single Mortgage or Security Agreement shall at any
time after its execution and delivery and for any reason, other than
payment in full of the obligations so secured, cease: (i) to create a
valid and perfected first priority mortgage or security interest in and
to the property purported to be subject thereto; or (ii) to be in full
force and effect or shall be declared null and void, or the validity or
unenforceability thereof shall be contested by RFSP, or RFSP shall deny
it has any further liability or obligation under any such Mortgage or
Security Agreement, or RFSP shall fail to perform any of its
obligations under any such Mortgage or Security Agreement, if the
effect of removing the affected Collateral Pool Property from the
Collateral Pool would result in a violation of the required LTV Ratio;
(h) RFSP shall sell, transfer or convey any interest
whatsoever in any of the Hotel Properties or the personal property held
in connection therewith or the rental income therefrom (except for the
leases to RFS ), or enter into any termination of, or material
amendment to, any of the leases on any of the Collateral Pool
Properties, without the prior written consent of Bank, which consent
shall not be unreasonably withheld;
(i) Borrower ceases to qualify as a REIT under applicable law
entitled to all the benefits thereof, or RFSP ceases to be actively
involved in the ownership of
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Borrower and the Hotel Properties, or if any further encumbrances,
whether by way of mortgage, deed of trust, financing lease, declaration
of trust, or other instrument is placed on any of the Hotel Properties
without the prior written consent of Bank;
(j) Borrower's charter is amended to allow a LTV Ratio higher
than thirty three percent (33%);
(k) Borrower or RFSP defaults under any other agreement to
which any is a party, which affects or relates to any of the Hotel
Properties, such agreements including, without limitation, any of the
Easements or the Leases;
then, and in any such event, Bank may, by notice to Borrower, (1) declare its
obligation to make advances under the Revolving Credit Loan terminated,
whereupon the same shall forthwith terminate, (2) declare the outstanding
principal balance owing under the Loans, all interest thereon, and all other
amounts payable under this Agreement, or otherwise to be forthwith due and
payable, whereupon the Loans, all such interest, and all such amounts shall
become and be forthwith due and payable, without presentment, demand, protest,
or further notice of any kind, all of which are hereby expressly waived by
Borrower and RFSP , provided, however, that occurrence of any event specified in
subsection (e) above shall constitute an immediate and automatic termination of
Bank's obligation to make advances under the Revolving Credit Loan hereunder,
and all sums then outstanding shall become automatically and simultaneously due
and payable in full without any action on the part of Bank, (3) avail itself of
any and all remedies available to it in any of the Loan Documents, including,
without limitation, appointment of receivers for the Hotel Properties, (4) avail
itself of any and all other or additional remedies available by law.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. AMENDMENTS, ETC. No amendment, modification, termination,
or waiver of any provision of any Loan Document, nor consent to any departure by
Borrower, RFSP or RFS from any Loan Document to which any of them is a party,
shall in any event be effective unless the same shall be in writing and signed
by Bank, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 8.02. NOTICES, ETC. All notices and other communications
provided for under this Agreement and under the other Loan Documents shall be in
writing (including telegraphic communication) and mailed or telegraphed or
delivered, if to Borrower or RFSP, at Memphis, Tennessee 38119, and if to Bank,
at its address at 6060 Poplar Avenue, Memphis, Tennessee 38119, Attention:
Metropolitan Department; or, as to each party, at such other address as shall be
designated by such party in a written notice to the other party complying as to
delivery with the terms of this Section 8.02. All such notices and
communications shall, when mailed or telegraphed, be effective when deposited in
the mails or delivered to the telegraph company,
32
<PAGE> 38
respectively, addressed as aforesaid, except that notices to Bank pursuant to
the provisions of Article II shall not be effective until received by Bank.
SECTION 8.03. NO WAIVER; REMEDIES. No failure on the part of Bank to
exercise, and no delay in exercising, any right, power, or remedy under any Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any right under any Loan Documents preclude any other or further
exercise thereof or the exercise of any other right. The remedies provided in
the Loan Documents are cumulative and not exclusive of any remedies provided by
law.
SECTION 8.04. SUCCESSOR AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that neither Borrower, RFSP nor RFS may assign or
transfer, any of their rights under any Loan Document to which they are a party
without the prior written consent of Bank.
SECTION 8.05. COSTS, EXPENSES, AND TAXES. Borrower and RFSP agree to
pay on demand all costs and expenses in connection with the preparation,
execution, delivery, filing, recording, and administration of any of the Loan
Documents, including, without limitation, the reasonable fees and out-of-pocket
expenses of counsel for Bank, and local counsel who may be retained by said
counsel, with respect thereto and with respect to advising Bank as to its rights
and responsibilities under any of the Loan Documents, and all costs and
expenses, if any, in connection and the enforcement of any of the Loan
Documents. In addition, Borrower and RFSP shall pay any and all stamp and other
taxes and fees payable or determined to be payable in connection with the
execution, delivery, filing, and recording of any of the Loan Documents and the
other documents to be delivered under any such Loan Documents, and agrees to
save Bank 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.
Borrower and RFSP shall also pay all costs associated with the appraisals,
engineering inspections, inspections of Hotel Properties by officers or
employees of Bank, surveys and title insurance to be furnished Bank as provided
herein; and all costs, including attorney fees, associated with modification of
the Loan Documents and endorsements to title policies resulting from exercise by
Borrower of the Term Loan Option or substitution of collateral.
SECTION 8.06. RIGHT OF SET-OFF. Upon the occurrence and during the
continuance of any Event of Default, Bank is hereby authorized at any time and
from time to time, without notice to Borrower or RFSP (any such notice being
expressly waived), to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by Bank to or for the credit or the account of
Borrower against any and all of the obligations of Borrower now or hereafter
existing under this Agreement or the Note or any other Loan Document,
irrespective of whether or not Bank shall have made any demand under this
Agreement or the Note or such other Loan Document and although such obligations
may be unmatured. Bank agrees promptly to notify Borrower after any such setoff
and application, provided that the failure to give such notice shall not affect
the validity of such
33
<PAGE> 39
setoff and application. The rights of Bank under this Section 8.06 are in
addition to other rights and remedies (including, without limitation, other
rights or setoff) which Bank may have.
SECTION 8.07. WAIVER OF RIGHT TO JURY TRIAL. BORROWER AND RFSP JOINTLY
AND SEVERALLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED (OR WHICH MAY IN THE FUTURE BE
DELIVERED) IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP
EXISTING IN CONNECTION WITH THIS AGREEMENT. THE UNDERSIGNED AGREE(S) THAT SUCH
ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
SECTION 8.08. GOVERNING LAW. This Agreement and the Note shall be
governed by, and construed in accordance with, the laws of the State of
Tennessee, except with respect to interest which may be governed by applicable
federal law in effect from time to time.
SECTION 8.09. SEVERABILITY OF PROVISION. Any provision of any Loan
Document which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of such Loan
Document or affecting the validity or enforceability of such provision in any
other jurisdiction.
SECTION 8.10. HEADINGS. Article and Section headings in the Loan
Documents are included in such Loan Documents for the convenience of reference
only and shall not constitute a part of the applicable Loan Documents for any
other purpose.
SECTION 8.11. JOINDER BY RFSP. RFSP joins in the execution hereof for
the purpose of consenting to the provisions contained herein applicable to it
and its properties and of agreeing to comply with all such applicable
provisions.
SECTION 8.12. JURISDICTION AND VENUE. The parties agree that the sole
proper venue for the determination of any litigation commenced by Borrower or
RFSP against Bank on any basis shall be in a court of competent jurisdiction
which is located in Shelby County, Tennessee and the parties hereby expressly
declare that any other venue shall be improper and Borrower and RFSP expressly
waive any right to a determination of any such litigation against Bank by a
court in any other venue. Borrower and RFSP further agree that service of
process by any judicial officer or by registered or certified U.S. Mail, as
specified in Section 8.02 on Notices, shall establish personal jurisdiction over
Borrower and RFSP and Borrower and RFSP waive any rights under the laws of any
state to object to jurisdiction within the State of Tennessee. Borrower and RFSP
acknowledge that this Agreement was negotiated, executed and delivered in the
State of Tennessee and shall be governed and construed in accordance with the
laws thereof. Provided, however, nothing contained in this Section 8.12 shall
prevent Bank from bringing any action or
34
<PAGE> 40
exercising any rights against any security or against Borrower or RFSP
personally, and any of their property, within any other state. Initiating such
proceedings or taking such action in any other state shall in no event
constitute a waiver of the agreement contained herein that the laws of the State
of Tennessee shall govern the rights and obligations of the parties hereunder or
of the submission herein made by Borrower and RFSP to personal jurisdiction
within the State of Tennessee. The aforesaid means of obtaining personal
jurisdiction and perfecting service of process are not intended to be exclusive,
but are cumulative and in addition to all other means of
obtaining personal jurisdiction and perfecting service of process now or
hereafter provided by the laws of the State of Tennessee.
SECTION 8.13. NO THIRD PARTY BENEFICIARIES. All conditions of the
obligations of any party hereunder, including the obligation of Bank to make
advances, are imposed solely and exclusively for the benefit of the other
parties and Bank's successors and assigns and any permitted assigns of Borrower
or RFSP. No other person or entity shall have standing to require satisfaction
of such conditions in accordance with the terms or, with respect to Borrower or
RFSP, be entitled to assume that Bank will refuse to make advances in the
absence of strict compliance with any or all thereof, and no other person or
entity shall, under any circumstances, be deemed to be a beneficiary of such
conditions, any and all of which may be freely waived in whole or in part by the
respective party to whom the performance of any such condition shall run at any
time if in the sole discretion of such party it deems it desirable to do so.
SECTION 8.14. NO AGENCY. Bank is not the agent or representative of
Borrower or RFSP, and neither Borrower nor RFSP is the agent or representative
of Bank, and nothing in this Agreement shall be construed to make Bank liable to
anyone for goods delivered to or services performed with respect to the Hotel
Properties or Collateral or for debts or claims accruing against Borrower or
RFSP. Nothing herein nor the acts of the parties hereto shall be construed to
create a partnership or joint venture between Bank, Borrower and RFSP, or any
other relationship except as debtor and creditor.
SECTION 8.15. BANK APPROVALS. Each and every provision of this
Agreement providing for the approval or consent of Bank, permitting inspection
or review by Bank, providing the submission of any items in form or content
acceptable to Bank or otherwise relating to the review and approval by Bank
shall, at the discretion of Bank, include such approval, consent, acceptance or
review, as applicable, of the Participants, all of which shall be conclusively
determined by Bank.
SECTION 8.16. LENDING LIMITATION; PARTICIPATION. Notwithstanding any
other provision to the contrary contained herein, in the Commitment, or in any
other document, Borrower expressly understands and agrees that Bank's obligation
to lend under the Commitment and this Agreement is limited to the maximum amount
under any circumstances of Twenty-five Million and no/100 Dollars
($25,000,000.00), and that pursuant to the Participation Agreement, such
Participants have agreed to fund their respective Percentage Interests of the
Commitment and all Loans made thereunder, which, in the aggregate participation,
may total up to fifty percent (50%) of the Commitment, or Twenty-five Million
and no/100 Dollars ($25,000,000.00), subject to the
35
<PAGE> 41
terms of the Participation Agreement concerning the rights of Bank and the
Participants to fund more than their original Percentage Interests. It is
expressly understood and agreed that if, for any reason, any of said
Participants should fail or refuse to fund its Percentage Interest of the Loan,
neither Bank nor any other Participant shall have any liability or obligation to
Borrower to fund such unfunded portion of the Loan. In such event, Bank and each
of the other Participants shall have the right, but not the obligation, to fund
the Percentage Interest of the defaulting Participant or may cause such
Percentage Interest to be purchased and funded by a substituted participant.
It is also understood and agreed that the Participants may require certain
additional documents and/or amendments to this Agreement and/or any of the other
Loan Documents, including, without limitation, the possible request for Borrower
to execute multiple notes evidencing each Participant's respective Percentage
Interest in the Loans. In such event, Borrower and RFSP agree to execute such
additional documents and/or amendments as Bank and/or the Participants may
reasonably request in order to fully evidence and secure, to Bank's and/or the
Participants' reasonable satisfaction, Bank's and the Participants' Percentage
Interests in the Loans.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
"BORROWER"
RFS HOTEL INVESTORS, INC.
BY: /s/
------------------------------------
TITLE:
---------------------------------
"RFSP"
RFS PARTNERSHIP, L.P.
BY: RFS HOTEL INVESTORS, INC.
ITS GENERAL PARTNER
BY: /s/
------------------------------
TITLE:
---------------------------
"BANK"
BOATMEN'S BANK OF TENNESSEE
BY: /s/
------------------------------------
TITLE:
---------------------------------
36
<PAGE> 1
FIRST MODIFICATION OF FIRST AMENDED REVOLVING
CREDIT AND TERM LOAN AGREEMENT AND
OF RELATED LOAN DOCUMENTS
(Increase from $50 to $75 Million)
THIS FIRST MODIFICATION OF FIRST AMENDED REVOLVING CREDIT
AND TERM LOAN AGREEMENT AND OF RELATED LOAN DOCUMENTS
("Agreement") dated as of the 29th day of May, 1996, entered into by and
between RFS HOTEL INVESTORS, INC., a Tennessee corporation ("Borrower"); RFS
PARTNERSHIP, L.P., a Tennessee limited partnership ("RFSP"); and BOATMEN'S BANK
OF TENNESSEE, a Tennessee banking corporation ("Bank") on behalf of itself as
well as all Participants.
RECITALS
A. Borrower, RFSP and Bank have previously entered into that certain
FIRST AMENDED REVOLVING CREDIT AND TERM LOAN AGREEMENT dated as of February 20,
1996 (the "Loan Agreement") setting forth the terms and conditions of that
certain Revolving Credit Loan, as therein defined, in an amount not to exceed
the maximum principal sum of Fifty Million and No/100 Dollars ($50,000,000.00).
B. The indebtedness of Borrower to Bank is secured by various Hotel
Properties, as defined in the Loan Agreement, by the Collateral, as defined in
the Loan Agreement, by the Assignments of Rents and Leases, as defined in the
Loan Agreement, and by certain other property heretofore, or hereafter, pledged
as collateral security for the indebtedness of Borrower to Bank, all of which
may hereinafter sometimes be collectively referred to as the "Collateral."
C. Borrower has asked Bank to increase the Revolving Credit Loan to
Seventy-Five Million and No/100 Dollars ($75,000,000.00), and Bank has agreed to
do so, contingent on the agreement of the Participants to fund their respective
Percentage Interests (as defined in the Loan Agreement) thereof, it being
understood and agreed that Bank's obligation to lend is limited to the maximum
amount of Twenty Five Million and No/100 Dollars ($25,000,000.00) in the event
any Participants fail to fund to Bank their portions of advances requested by
Borrower under the Revolving Credit Loan.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties do hereby agree as follows:
1. All recitals set forth above are true and correct statements of
fact.
2. All capitalized terms not defined herein shall have the meaning
assigned to such terms in the Loan Agreement.
<PAGE> 2
3. Contingent upon the Participants agreeing to fund their respective
Percentage Interests of the increase in the amount of the Revolving Credit Loan,
the maximum principal amount of the Revolving Credit Loan is hereby increased
from Fifty Million and No/100 Dollars ($50,000,000.00) to Seventy-Five Million
and No/100 Dollars ($75,000,000.00). Wherever in the Loan Agreement reference is
made to the aggregate principal amount or maximum amount of the Revolving Credit
Loan, it is hereby understood and agreed that such terms shall refer to the
increased sum of Seventy-Five Million and No/100 Dollars ($75,000,000.00). All
other Loan Documents are also hereby modified to the extent necessary so that
wherever therein reference is made to the amount of the Revolving Credit Loan,
such amount shall hereafter be Seventy-Five Million and No/100 Dollars
($75,000,000.00).
4. The Revolving Credit Note shall be replaced with a replacement note
in the principal amount of Seventy-Five Million and No/100 Dollars
($75,000,000.00). Thereafter, the Revolving Credit Loan and advances thereunder
shall be evidenced by, and repaid with interest in accordance with, such
replacement note.
5. Borrower shall pay to Bank a prorated commitment fee and agent's fee
on the date hereof, both of which shall be equal to the prorated percentage of
the number of days remaining in the year commencing with such date divided by
Three Hundred Sixty (360), times one-quarter percent (.25%) of the increase in
the maximum amount of the Revolving Credit Loan of Twenty- Five Million and
No/100 Dollars ($25,000,000.00).
6. Section 2.09 of the Loan Agreement is hereby amended to substitute
the sum of Two Hundred Twenty-Seven Million Two Hundred Seventy-Three Thousand
and No/100 Dollars ($227,273,000.00) in the place and stead of One Hundred
Fifty-One Million Five Hundred Thousand and No/100 Dollars ($151,500,000.00).
7. Section 5.09(b) of the Loan Agreement presently requires Borrower to
maintain a minimum level of Operating Income from Collateral Pool Properties at
all times of at least Seventeen Million Five Hundred Thousand and No/100 Dollars
($17,500,000.00). Commencing with the effective date hereof, Borrower must
maintain a minimum level of Operating Income from Collateral Pool Properties at
all times of at least Twenty-Six Million Two Hundred Fifty Thousand and No/100
Dollars ($26,250,000.00).
8. Borrower understands that the Participants must agree to increase
their respective Percentage Interests in the Revolving Credit Loan, and that
Bank must locate another lending institution which will agree to purchase an
undivided interest in the Revolving Credit Loan for such sum as when added to
Bank's and the remaining Participants' Percentage Interests, as amended, will
total one hundred percent (100%) of the Revolving Credit Loan, in order for Bank
to be able to fund Borrower's requested increase therein. Borrower also hereby
acknowledges that Bank shall be entering into certain modifications or
agreements with the Participants to fund to Bank their respective Percentage
Interests of the increase in the Revolving Credit Loan. It is expressly
understood and agreed that if, for any reason, any of said Participants should
fail
<PAGE> 3
or refuse to fund its Percentage Interest of the Revolving Credit Loan, neither
Bank nor any of the other Participants shall have any liability or obligation to
Borrower to fund such unfunded portion of the Loan, all as more fully provided
in Section 8.16 of the Loan Agreement.
9. Borrower and RFSP hereby ratify and affirm all terms and provisions
of the Loan Agreement and other Documents, and their obligations thereunder, as
modified hereby, without any objection or defense to the enforcement thereof by
Bank in accordance with the terms and provisions thereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
"BORROWER":
RFS HOTEL INVESTORS, INC.
BY: /s/
------------------------------------
TITLE:
---------------------------------
"RFSP"
RFS PARTNERSHIP, L.P.
BY: RFS HOTEL INVESTORS, INC.
ITS GENERAL PARTNER
BY: /s/
------------------------------
TITLE:
---------------------------
"BANK"
BOATMEN'S BANK OF TENNESSEE
BY: /s/
------------------------------------
TITLE:
---------------------------------
<PAGE> 1
FIRST AMENDMENT TO MASTER AGREEMENT
THIS FIRST AMENDMENT TO MASTER AGREEMENT ("Agreement") is made as of
the 21st day of November 1996, among Doubletree Corporation, a Delaware
corporation ("Tree"), RFS, Inc., a Tennessee corporation (the "Lessee"), RFS
Hotel Investors, Inc., a Tennessee corporation ("RFSI"), RFS Partnership, L.P.,
a Tennessee limited partnership (the "Lessor"), RFS Leasing, Inc., a Tennessee
corporation and a wholly-owned subsidiary of the Lessee (the "Additional
Lessee"), RFS Financing Partnership, L.P., a Tennessee limited partnership (the
"Additional Lessor") and DTR RFS Lessee, Inc., a California corporation ("DTR
Lessee").
RECITALS
A. The Lessor and the Lessee are parties to that certain Consolidated
Lease Amendment dated as of February 27, 1996 (the "Existing Lease"), which
Existing Lease represents (as of the date hereof) forty-eight (48) separate
leases (the "Existing Leases").
B. The Lessor and DTR Lessee are parties to that certain Lease
Agreement dated as of May 30, 1996 (the "Existing DTR Lease").
C. The Lessor currently owns forty-eight (48) hotel properties
described in Exhibit A that are leased under the Existing Lease to the Lessee
and owns the hotel property described in Exhibit B (the "Del Mar Hotel") that is
leased under the Existing DTR Lease to DTR Lessee.
D. The Lessor is transferring to the Additional Lessor as of the date
hereof its fee interest in 15 of the hotel properties (the "Transfer Hotels"),
identified on Exhibit A and Exhibit B as Transfer Hotels, and in connection with
such transfer the Lessor desires to assign to the Additional Lessor all of its
rights under (1) the 14 leases represented by the Existing Lease
<PAGE> 2
relating to all of the Transfer Hotels other than the Del Mar Hotel (the "14
Existing Leases") and (2) the Existing DTR Lease relating to the Del Mar Hotel.
E. In connection with the transfer of the Transfer Hotels to the
Additional Lessor, at the request of the Lessor and the Additional Lessor, (1)
the Lessee has agreed to assign to the Additional Lessee all of its rights under
the 14 Existing Leases and (2) DTR Lessee has agreed to assign to the Additional
Lessee the Existing DTR Lease relating to the Del Mar Hotel.
F. The Additional Lessor and the Additional Lessee desire to amend
certain provisions of the 14 Existing Leases and the Existing DTR Lease.
G. The Lessor and the Lessee desire to amend certain provisions of the
Existing Lease relating to the 34 hotel properties (the "Remaining Hotels")
identified on Exhibit A as Remaining Hotels.
H. The parties hereto desire to amend the Master Agreement dated as of
February 1, 1996 (the "Original Master Agreement") among Tree, Seedling Merger
Subsidiary, Inc. (which was subsequently merged into the Lessee), the Lessee,
RFSI and the Lessor, to make certain amendments and other agreements with
respect to the foregoing and the Original Master Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. Capitalized terms used but not defined herein
shall have the meanings assigned to them in the Original Master Agreement.
Unless the context otherwise
2
<PAGE> 3
requires, (a) references to the singular shall include the plural and vice
versa, (b) references to gender shall include all genders, (c) references to
designated "Sections" or other subdivisions are references to the designated
Sections or other subdivisions of this Amendment or the Original Master
Agreement, as applicable, (d) all accounting terms not otherwise defined herein
shall have the meanings assigned to them in accordance with GAAP and, if
applicable, the Uniform System of Accounts (as defined in the Existing Lease)
and (e) the words "herein," "hereof," and "hereunder" and other words of similar
import refer to this Amendment or the Original Master Agreement, as applicable,
as a whole and not to any particular Section or other subdivision.
2. ASIGNMENT AND ASSUMPTION THE 14 EXISTING LEASES AND THE
EXISTING
a. By the Lessor and the Additional Lessor:
(i) The Lessor hereby (A) assigns to the Additional
Lessor all of its right, title and interest in and to the 14
Existing Leases and the Existing DTR Lease and (B) conveys,
transfers and assigns to the Additional Lessor all of its
interest in and to any fixtures, equipment and other personal
property used in connection with the Transfer Hotels.
(ii) The Additional Lessor hereby (A) accepts the
assignments, conveyances and transfers in paragraph (i) above
and (B) assumes all of the obligations of the Lessor under the
14 Existing Leases and the Existing DTR Lease accruing from
and after the date hereof.
(iii) The Lessor hereby agrees to hold the Additional
Lessor harmless from the obligations and liabilities of the
"Lessor" under the 14 Existing Leases
3
<PAGE> 4
and the Existing DTR Lease arising from or relating to events
or circumstances occurring prior to the date hereof. The
Additional Lessor hereby agrees to hold the Lessor harmless
from the obligations and liabilities of the "Lessor" under the
14 Existing Leases and the Existing DTR Lease arising from or
relating to events or circumstances occurring on or after the
date hereof.
b. By the Lessee, DTR Lessee and the Additional Lessee:
(i) The Lessee hereby (A) assigns to the Additional
Lessee all of its right, title and interest in and to the 14
Existing Leases and (B) conveys, transfers and assigns to the
Additional Lessee all of its interest in and to any fixtures,
equipment and other personal property used in connection with
the Transfer Hotels other than the Del Mar Hotel.
(ii) DTR Lessee hereby (A) assigns to the Additional
Lessee all of its right, title and interest in and to the
Existing DTR Lease and (B) conveys, transfers and assigns to
the Additional Lessee all of its interest in and to any
fixtures, equipment and other personal property used in
connection with the Del Mar Hotel.
(iii) The Additional Lessee hereby (A) accepts the
assignments, conveyances and transfers in paragraphs (i) and
(ii) above and (B) assumes all of the obligations of the
Lessee under the 14 Existing Leases and of DTR Lessee under
the Existing DTR Lease, in each case accruing from and after
the date hereof.
4
<PAGE> 5
(iv) Each of the Lessee and DTR Lessee hereby agrees
to hold the Additional Lessee harmless from the obligations
and liabilities of the "Lessee" under the 14 Existing Leases
and the Existing DTR Lease, respectively, arising from or
relating to events or circumstances occurring prior to the
date hereof. The Additional Lessee hereby agrees to hold
harmless the Lessee and the DTR Lessee from the obligations
and liabilities of the "Lessee" under the 14 Existing Leases
and the Existing DTR Lease, respectively, arising from or
relating to events or circumstances occurring on or after the
date hereof.
c. The Lessor agrees to look solely to the Lessee with respect
to the obligations of the "Lessee" under the 14 Existing Leases
accruing, or arising from or relating to events or circumstance
occurring, prior to the date hereof and solely to the DTR Lessee with
respect to the obligations of the "Lessee" under the Existing DTR Leas
accruing, or arising from or relating to events or circumstances
occurring, prior to the date hereof; and the Additional Lessor agrees
that it will have no rights or claims with respect thereto. The
Additional Lessor agrees to look solely to the Additional Lessee with
respect to the obligations of the "Lessee" under the 14 Existing Lease
and the Existing DTR Lease accruing, or arising from or relating to
events or circumstances occurring, from and after the date hereof; and
the Lessor agrees that it will have no rights or claims with respect
thereto.
d. The Lessee and the DTR Lessee agree to look solely to the
Lessor with respect to the obligations of the "Lessor" under the 14
Existing Leases and the Existing DTR Lease, respectively, accruing, or
arising from or relating to events or circumstances
5
<PAGE> 6
occurring, prior to the date hereof; and the Additional Lessee agrees
that it will have no rights or claims with respect thereto. The
Additional Lessee agrees to look solely to the Additional Lessor with
respect to the obligations of the "Lessor" under the 14 Existing Leases
and the Existing DTR Lease, respectively, accruing, or arising from or
relating to events or circumstances occurring, from and after the date
hereof; and the Lessee and the DTR Lessee each agrees that it will have
no rights or claims with respect thereto.
3. MODIFICATION AND AMENDMENT OF THE EXISTING LEASE AND THE
EXISTING DTR LEASE.
a. Contemporaneously with the execution of this Agreement, the
Additional Lessor and the Additional Lessee shall execute the Second
Consolidated Lease Amendment pursuant to which the 14 Existing Leases
and the Existing DTR Lease shall be restated and amended, effective as
of the date hereof.
b. Contemporaneously with the execution of this Agreement,
Agreement, the Lessor and the Lessee shall execute the Third
Consolidated Lease Amendment pursuant to which the 34 leases
represented by the Existing Lease relating to the Remaining Hotels
shall be restated and amended, effective as of the date hereof.
4. AMENDMENTS TO THE ORIGINAL MASTER AGREEMENT. The following
amendments to the Original Master Agreement shall be effective as of the date
hereof:
a. Section 1 of the Original Master Agreement shall be
amended hereby as follows:
(i) the definition of "Current Hotels" shall be
deleted in its entirety and the following substituted
therefor:
6
<PAGE> 7
CURRENT HOTELS - shall mean the hotels leased by the
Lessee from the Lessor as of the Closing Date, plus
the Del Mar Hotel. (ii) the definition of "Default by
the Lessee" shall
be deleted in its entirety and the following substituted therefor:
DEFAULT BY THE LESSEE - shall have the meaning set
forth in Section 15a.
(iii) the definition of "Percentage Lease" shall be
deleted in its entirety and the following substituted therefor:
PERCENTAGE LEASE - shall mean, (A) with respect to a
Current Hotel that is a Transfer Hotel, the
percentage lease with respect to such hotel
represented by the Second Consolidated Lease
Amendment between the Additional Lessor and the
Additional Lessee, (B) with respect to a Current
Hotel that is not a Transfer Hotel, the percentage
lease with respect to such hotel represented by the
Third Consolidated Lease Amendment between the Lessor
and the Lessee and (C) with respect to each
Additional Hotel, the percentage lease entered into
between the Lessor and the Lessee with respect to
such hotel.
(iv) the definition of "Percentage Rent" shall be
amended hereby by inserting the clause "or Additional
Lessee's" after the word "Lessee's."
b. Section 4(b) of the Original Master Agreement shall
be amended by inserting the following at the end of Section 4(b):
7
<PAGE> 8
Notwithstanding any provisions of this Section 4(b)
to the contrary, the Additional Lessor and the Additional
Lessee shall have the same rights and obligations as the
Lessor and the Lessee, respectively, under this Section 4(b),
provided, however, that such rights and obligations are and
shall remain subject to the terms of the Consolidated Lease
Estoppel, Subordination, Attornment and Non-Disturbance
Agreement dated as of November 21, 1996 (the "SND Agreement")
among the Additional Lessor, the Additional Lessee and LaSalle
National Bank for so long as the SND Agreement remains in
effect.
c. Section 5(a) of the Original Master Agreement shall
be deleted in its entirety and the following substituted therefor:
a. NET WORTH. At all times during the terms of
the Percentage Leases relating to the Remaining
Hotels and the Additional Hotels, Tree shall cause
the Lessee to maintain and the Lessee shall maintain,
a Net Worth in an amount at least equal to
$11,000,000. At all times during the terms of the
Percentage Leases relating to the Transfer Hotels,
Tree and the Lessee shall cause the Additional Lessee
to maintain and the Additional Lessee shall maintain,
a Net Worth in an amount at least equal to
$4,000,000. The Lessee shall at all times maintain
an adequate amount of Working Capital to operate the
Remaining Hotels and the Additional Hotels. The
8
<PAGE> 9
Additional Lessee shall at all times maintain an
adequate amount of Working Capital to operate the
Transfer Hotels.
d. Section 7(a) of the Original Master Agreement shall
be deleted in its entirety and the following substituted therefor:
a. Changes in Structure. Tree represents that as of
November 21, 1996, the Additional Lessee is a
wholly-owned subsidiary of the Lessee and the Lessee
is a wholly-owned subsidiary of Tree and Tree will
have the sole economic and voting interest in the
Lessee. Until the earlier to occur of (i) the
expiration of ten years following the Closing Date or
(ii) the date of redemption or conversion of the
Preferred Stock, without the prior written consent
following not less than 60 days prior written notice
to the Lessor or the Additional Lessor, as the case
may be, which consent shall not be unreasonably
withheld, Tree, the Lessee and the Additional Lessee
shall not permit any merger, sale of its stock or
sale, transfer or conveyance of all or substantially
all of the assets of the Lessee or the Additional
Lessee if, as a result thereof, the Lessee or the
Additional Lessee, or the surviving entity, would
cease to be controlled, directly or indirectly, by
Tree. After the date described in the preceding
sentence, any merger, sale of stock, transfer or
conveyance of all or substantially all of the assets
of the Lessee or the Additional Lessee which results
in the Lessee
9
<PAGE> 10
or the Additional Lessee ceasing to be controlled,
directly or indirectly, by Tree shall require the
prior written consent of the Lessor or the Additional
Lessor, as the case may be, which consent shall not
be unreasonably withheld and which shall be granted
by the Lessor or the Additional Lessor, as the case
may be, if the party proposed to acquire control of
the Lessee or the Additional Lessee or its assets
obtains the approval of the Franchisors to serve as
franchise licensee for the affected Hotels and, if
applicable, of liquor licensing authorities for the
affected Hotels, and either (x) has substantial
experience in the leasing and/or managing of hotels
of the type then owned by the Lessor or the
Additional Lessor, as the case may be, and in the
operation of hotels licensed by one or more of the
Franchisors, or (y) provides reasonable assurance to
the Lessor or the Additional Lessor, as the case may
be, that such party will maintain the senior
management organization of the Lessee or the
Additional Lessee, as the case may be, materially
intact, or (z) enters into management arrangements
for the operation of the affected Hotels under terms
satisfactory to the Lessor or the Additional Lessor,
as the case may be, during the remainder of the terms
of the Percentage Leases, by an entity that satisfies
either (x) or (y) above. Prior to any transaction
otherwise permissible under the preceding sentence,
10
<PAGE> 11
Tree, the Lessee or the Additional Lessee, as the
case may be, and the proposed transferee shall
acknowledge and agree in writing with the Lessor or
the Additional Lessor, as the case may be, with
respect to the restrictions on change in control set
forth herein and shall agree that no further transfer
of capital stock or assets may be made by such
transferee except pursuant to the provisions of this
Section.
e. Section 7(c) of the Original Master Lease Agreement
shall be amended hereby by inserting the clause "and the Additional
Lessee" after the word "Lessee."
f. Sections 8, 9 and 10 of the Original Master Agreement
shall be deleted in their entirety and the following substituted
therefor:
8. Financial Statements; Indemnification; Due
Diligence; Confidentiality.
a. Financial Disclosure. During the term
of any Percentage Lease, Tree, the Lessee and the
Additional Lessee agree:
(i) to make available to RFSI, the
Lessor and the Additional Lessor,
(A) not more than 30 days
following the end of the first three
calendar quarters of each year,
quarterly unaudited financial
statements, including balance sheet,
statement of operations, statement
of
11
<PAGE> 12
shareholders' equity, statement of
cash flows and schedules for each of
the Lessee and the Additional Lessee
for the most recently ended calendar
quarter and the comparable prior
year period prepared in conformity
with GAAP;
(B) not more than 60 days
after the end of each calendar year,
audited annual financial statements
and schedules for each of the Lessee
and the Additional Lessee for the
most recently ended calendar year
prepared in accordance with GAAP,
audited by a national accounting
firm reasonably acceptable to RFSI,
the Lessor and the Additional
Lessor;
(C) any historical
financial information necessary to
re-state historical financial
information to conform to the
presentation of each of the Lessee's
and the Additional Lessee's audited
and unaudited financial statements
at any future time; and
(D) on a timely basis, any
other information reasonably
requested by RFSI, the Lessor or the
Additional Lessor to permit RFSI,
the
12
<PAGE> 13
Lessor or the Additional Lessor to
meet their filing and reporting
requirements under the 1934 Act and
to file and have declared effective
registration statements under the
1933 Act, including providing
information necessary to complete
the "Management's Discussion and
Analysis of Financial Condition and
Results of Operations" section of
RFSI's 1934 Act reports and 1933 Act
registration statements as it may
relate to the Lessee, the Additional
Lessee or the Hotels.
(ii) to provide to RFSI, the Lessor
and the Additional Lessor operati
and financial reports described on Exhibit E
hereto.
(iii) that the Lessee and the
Additional Lessee shall bear the cost of
obtaining, preparing and providing all
information required to be furnished to the
Lessor, the Additional Lessor and RFSI under
this Section 8(a), including the cost and
related expenses of the annual audit of the
financial statements of the Lessee and the
Additional Lessee, except as provided in
Section 5 of the First Amendment to Master
Agreement.
13
<PAGE> 14
b. Indemnification. RFSI and the Lessor
agree, jointly and severally, to indemnify, defend (with
counsel acceptable to the Lessee), and hold harmless the
Lessee, the Additional Lessee and their respective officers,
directors and controlling persons from and against any losses,
claims, damages, expenses or liabilities (or actions in
respect thereof) to which the Lessee, the Additional Lessee
and their respective officers, directors or controlling
persons may become subject under the 1933 Act, the 1934 Act or
otherwise, insofar as such losses, claims, damages, expenses
or liabilities or actions in respect thereof arise out of or
are based upon the 1934 Act reports or 1933 Act registration
statements of RFSI or the Lessor, except to the extent any
such claims, liabilities, losses, damages, expenses, or
liabilities (or actions in respect thereof) result from any
untrue statement of a material fact or omission of any
material fact in the information provided by the Lessee or the
Additional Lessee to RFSI, the Lessor or the Additional Lessor
pursuant to subsections (i) and (ii) of this Section 8(a). The
Lessee and Tree agree, jointly and severally, to indemnify,
defend (with counsel acceptable to RFSI and the Lessor) and
hold harmless RFSI, the Lessor and the Additional Lessor, and
their respective officers, directors and controlling persons
from and against any losses, claims, damages, expenses or
liabilities (or actions in respect thereof) to which RFSI, the
Lessor or the Additional Lessor or their respective officers,
directors or controlling
14
<PAGE> 15
persons may become subject under the 1933 Act, the 1934 Act or
otherwise, insofar as such losses, claims, damages, expenses
or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement of a material fact or
omissions of any material fact in any information furnished by
the Lessee or the Additional Lessee to RFSI, the Lessor or the
Additional Lessor pursuant to subsections (i)(A), (B) and (C)
of this Section 8(a).
c. DUE DILIGENCE. During the term of
any Percentage Lease, Tree, the Lessee and the
Additional Lessee agree:
(i) to permit the Lessor, the
Additional Lessor and RFSI, together with
their independent public accountants,
counsel, financial advisors, underwriters,
underwriters' counsel, rating agencies,
lenders and others having a legitimate
interest in the Lessee's, the Additional
Lessee's or the Hotels' financial condition
and results of operations, during regular
business hours, upon reasonable notice and
at the sole cost of the Lessor, the
Additional Lessor and RFSI (provided there
shall be no charge by the Lessee or the
Additional Lessee to the Lessor, the
Additional Lessor or RFSI for the time of
the Lessee's or the Additional Lessee's
officers or employees), to interview
15
<PAGE> 16
officers and employees of the Lessee or the
Additional Lessee and to have access to and
review:
(A) the general accounting
records of the Lessee or the
Additional Lessee or any Hotel for
purposes of performing an audit of
the Lessee or the Additional Lessee
or any Hotel in accordance with
generally accepted auditing
standards and to conduct reasonable
due diligence with respect to the
Lessee or the Additional Lessee and
their respective business activities
and the Hotels; and
(B) the Lessee's or the
Additional Lessee's corporate
records, minutebooks, contracts and
other documents, agreements or items
relating to the operation of the
Hotels and the Lessee's or the
Additional Lessee's financial
condition.
(ii) to cooperate promptly and fully with
the Lessor, the Additional Lessor and RFSI,
upon request and at the cost of Lessor and
the Additional Lessor (except with respect
to the cost of obtaining, preparing and
providing the information required to be
furnished to RFSI, the Lessor and the
Additional Lessor under Section 8(a) above
and any costs relating to the time of
employees or officers
16
<PAGE> 17
of the Lessee, the Additional Lessee or
Tree, other than as provided in Section 5 of
the First Amendment to Master Agreement), in
making available such information with
respect to the Lessee, the Additional Lessee
or the Hotels as may be required by any
regulatory agency, including the Commission
and the National Association of Securities
Dealers, Inc., the Nasdaq Stock Market or
any stock exchange on which RFSI's, the
Lessor's or the Additional Lessor's
securities may be registered, listed or
traded.
(iii) to use their best efforts to
cause the independent public accountants
preparing audits of the Lessee or the
Additional Lessee to provide RFSI, the
Lessor or the Additional Lessor, at the sole
cost of the Lessor, the Additional Lessor
and RFSI, with all consents of such
accountants required for RFSI's, the
Lessor's or the Additional Lessor's filings
under the 1933 Act or the 1934 Act or to
have RFSI's, the Lessor's or the Additional
Lessor's registration statements be declared
effective under the 1933 Act.
d. CONFIDENTIALITY. To the extent
Lessor, the Additional Lessor or RFSI on the one
hand, or the Lessee, the Additional Lessee or Tree on
the other, obtains information or
17
<PAGE> 18
becomes aware of material information concerning the
other that is not disclosed in a public announcement
or filing under the 1933 Act or the 1934 Act by Tree
or RFSI, each party agrees that it shall not
improperly disclose or unlawfully utilize such
information or otherwise act unlawfully with respect
thereto.
9. REIT REQUIREMENTS.
a. Tree, the Lessee and the Additional
Lessee understand that, in order for RFSI to qualify as a
REIT, the following requirements (the "REIT Requirements")
must be satisfied:
(i) The average of the adjusted tax
bases of the Lessor's or the Additional
Lessor's personal property that is leased to
the Lessee or the Additional Lessee under a
lease at the beginning and end of a calendar
year cannot exceed 15% of the average of the
aggregate adjusted tax bases of all of the
Lessor's or the Additional Lessor's property
that is leased to the Lessee or the
Additional Lessee under such lease at the
beginning and end of such calendar year.
(ii) Neither the Lessee nor the
Additional Lessee can sublet the property
that is leased to it by the Lessor or the
Additional Lessor, or enter into any similar
arrangement, on any basis such that the
rental or other
18
<PAGE> 19
amounts paid by the sublessee thereunder
would be based, in whole or in part, on
either (i) the net income or profits derived
by the business activities of the sublessee
or (ii) any other formula such that any
portion of the rent paid by the Lessee or
the Additional Lessee to the Lessor or the
Additional Lessor would fail to qualify as
"rents from real property" within the
meaning of Section 856(d) of the Code.
(iii) Neither the Lessee nor the
Additional Lessee can sublease the property
leased to it by the Lessor or the Additional
Lessor to, or enter into any similar
arrangement with, any person in which RFSI
owns, directly or indirectly, a 10% or more
interest, within the meaning of Section
856(d)(2)(B) of the Code.
(iv) RFSI cannot own, directly or
indirectly, a 10% or more interest in the
Lessee or the Additional Lessee, within the
meaning of Section 856(d)(2)(B) of the Code.
(v) No person can own, directly or
directly, capital stock of RFSI that exceeds
the "Limit" (as defined in RFSI's Charter,
as amended and restated).
19
<PAGE> 20
b. Tree, the Lessee and the Additional Lessee agree,
and agree to use reasonable efforts to cause their Affiliates,
to use their best efforts to permit the REIT Requirements to
be satisfied. Tree, the Lessee and the Additional Lessee
agree, and agree to use reasonable efforts to cause their
Affiliates, to cooperate in good faith with RFSI, the Lessor
and the Additional Lessor to ensure that the REIT Requirements
are satisfied, including but not limited to, providing RFSI
with information about the ownership of Tree, the Lessee, the
Additional Lessee and their Affiliates to the extent that such
information is reasonably available. Tree, the Lessee and the
Additional Lessee agree, and agree to use reasonable efforts
to cause their Affiliates, upon request by RFSI, and, where
appropriate, at RFSI's expense, to take reasonable action
necessary to ensure compliance with the REIT Requirements.
Immediately after becoming aware that the REIT Requirements
are not, or will not be, satisfied, Tree, the Lessee or the
Additional Lessee shall notify, or use reasonable efforts to
cause their Affiliates to notify, RFSI of such noncompliance.
10. TERMINATION OF REIT STATUS. Notwithstanding anything
herein or in any Percentage Lease to the contrary, in the event RFSI
terminates its status as a real estate investment trust for federal
income tax purposes, the Lessor and the Additional Lessor may elect to
terminate all then-existing Percentage Leases and terminate the Right
of First Refusal by providing the Lessee or the Additional
20
<PAGE> 21
Lessee, as the case may be, at least 30 days prior written notice, or
such longer notice as may be required by statute or regulation to
comply with the WARN Act or other similar or successor federal or state
laws, and by satisfying the following requirements:
(i) if such terminations occur prior to sale,
redemption or conversion of all of the Preferred Stock, RFSI
shall purchase from the Lessee within twenty (20) business
days after the date of such terminations, all of the
then-outstanding Preferred Stock then owned by the Lessee at a
price per share equal to the greater of (A) the Stated Value
plus all accrued and unpaid dividends at the date of such
redemption or (B) the product of (1) the weighted average of
the sales prices of RFSI's common stock for all transactions
reported on the Nasdaq Stock Market or principal exchange on
which RFSI's common stock is then traded during the ten (10)
business days preceding the second business day preceding the
date of purchase of the Preferred Stock or, if RFSI's common
stock is no longer traded on the Nasdaq Stock Market or a
recognized exchange, the fair market value thereof as mutually
agreed by RFSI and the Lessee, or if RFSI and the Lessee
cannot so agree, by appraisal by an independent third party
designated by RFSI and the Lessee or by their respective
designees multiplied by (2) the number of shares of Common
Stock into which a share of Preferred Stock then held by the
21
<PAGE> 22
Lessee would be convertible, if converted on the business day
preceding the date of the redemption; and
(ii) if such terminations occur prior to the
tenth (10th) anniversary of the Closing Date, the Lessor shall
pay to the Lessee an amount equal to $5,000,000, which amount
shall be reduced by $41,667 for each calendar month which has
expired during the ten (10) year period following the Closing
Date; and
(iii) the Lessor or the Additional Lessor
shall pay the Lessee or the Additional Lessee, as the case may
be, the fair market value of the Percentage Leases based on
the then-remaining terms of the Percentage Leases determined
in the manner set forth in Article XXXVIII of the Form
Percentage Lease. The Lessor and the Additional Lessor must
elect to terminate both the Right of First Refusal and all
then-existing Percentage Leases in exercising their rights
under this Section 10.
g. The first sentence of Section 14 of the Original Master
Agreement shall be deleted in its entirety and the following
substituted therefor:
From and after the date of the First Amendment to Master
Agreement, (i) an Event of Default (as defined in the
Percentage Leases) by the Additional Lessee under a Percentage
Lease with respect to a Transfer Hotel will continue to create
an Event of Default under the Percentage Leases with respect
to all other Transfer Hotels and (ii) an Event of Default by
the Lessee under a Percentage Lease with respect to
22
<PAGE> 23
a Remaining Hotel will continue to create an Event of Default
under the Percentage Leases with respect to all other
Remaining Hotels. From and after the date of the First
Amendment to Master Agreement, (i) a default or an Event of
Default under a Percentage Lease with respect to a Transfer
Hotel shall not constitute a default or an Event of Default
under a Percentage Lease with respect to any Remaining Hotel
and (ii) a default or an Event of Default with respect to a
Remaining Hotel shall not constitute a default or an Event of
Default under a Percentage Lease with respect to a Transfer
Hotel.
h. Section 15a of the Original Master Agreement shall be
deleted in its entirety and the following substituted therefor:
DEFAULT.
a. A "Default by the Lessee" shall exist under
this Agreement if any of the following occur:
(I) MINIMUM NET WORTH. During the term of
any Percentage Lease, (a) the Additional Lessee fails
to maintain a minimum Net Worth as set forth in
Section 5 and does not cure any deficiency within 30
days following written notice thereof from the
Additional Lessor or (b) the Lessee fails to maintain
a minimum Net Worth as set forth in Section 5 and
does not cure any deficiency within 30 days following
written notice thereof from the Lessor.
23
<PAGE> 24
(II) DEFAULT UNDER PERCENTAGE LEASES. An
Event of Default occurs under any of the Percentage
Leases.
(III) OTHER BREACHES. The Lessee or the Additional
Lessee fails to comply with any other
provision of this Agreement for a period of 30 days
after being notified by the Lessor or the Additional
Lessor in writing of the provisions of this Agreement
with which the Lessee or the Additional Lessee, as
the case may be, has failed to comply; provided that
if such default (other than a failure to pay any rent
under any Percentage Lease when due (after any
applicable cure period), which shall be subject to
the provisions set forth in the Percentage Leases,
and any failure to maintain the minimum Net Worth,
which shall be subject to the provisions of
subsection 15a(i) above) cannot with due diligence be
cured within a 30 day period, such period shall be
extended for such reasonable time as the Lessee or
the Additional Lessee, as the case may be, promptly
and with due diligence commences and continues the
cure thereof but in no event for a period of more
than 90 days following the date of notice from the
Lessor or the Additional Lessor, as the case may be.
i. Section 16 of the Original Master Agreement shall be
amended such that notices made to the Additional Lessee shall be made
in the same manner in which notices are required to be made to the
Lessee and notices made to the
24
<PAGE> 25
Additional Lessor shall be made in the same manner in which notices are
required to be made to the Lessor.
5. Certain Expenses Associated with the Additional Lessee.
a. The Additional Lessor and the Lessor jointly and severally
agree that they shall be responsible for the following costs and
expenses related to the organization and on-going maintenance of the
Additional Lessee.
(i) the costs and expenses of incorporating and
organizing the Additional Lessee in Tennessee and qualifying
the Additional Lessee to do business in each of the states in
which a Transfer Property is located, including all filing
fees, reasonable counsel fees and other fees with respect
thereto;
(ii) all costs and expenses incurred in connection
with transferring the 14 Existing Leases and the Existing DTR
Lease to the Additional Lessee, including (A) costs and
expenses incurred in connection with transferring the related
franchise licenses and any other licenses and permits from the
Lessee or DTR Lessee to the Additional Lessee, (B) the
preparation, negotiation and execution of the Second
Consolidated Lease Amendment and Third Consolidated Lease
Amendment, the First Amendment to Master Agreement, the
management agreements between the Additional Lessee and
affiliated managers, the Consolidated Lease Estoppel,
Subordination, Attornment and Non-Disturbance Agreement
relating to the Transfer Hotels and any other
25
<PAGE> 26
documents entered into by the Additional Lessee in connection
with the transfer of the Transfer Properties and (C)
reasonable fees and costs of counsel relating to the
foregoing;
(iii) the ongoing fees, annual business taxes and
similar amounts required to be paid to governmental
authorities by the Additional Lessee in order to maintain its
corporate existence and be qualified to do business and remain
in good standing in each of the states in which the Transfer
Properties are located (net of such amounts, if any, by which
Lessee's or DTR Lessee's obligations have been reduced as a
result of the assignment of the 14 Existing Leases and the DTR
Lease to the Additional Lessee, taking into account the fact
that the Lessee will be required to maintain its qualification
to do business in all of the states in which the Transfer
Hotels covered by the 14 Existing Leases are located because,
incident to the assignment of the 14 Existing Leases by the
Lessor to the Additional Lessor and by the Lessee to the
Additional Lessee, at the request of the Additional Lessor,
the Lessee has been engaged to manage such Hotels); and
(iv) The incremental cost with respect to the ongoing
administration and accounting of the Additional Lessee to the
extent such cost, together with the related costs of the
Lessee, exceed the costs that the Lessee and DTR Lessee would
otherwise have incurred (A) if the 14 Existing Leases and the
Existing DTR Lease had not been transferred to
26
<PAGE> 27
the Additional Lessee and the Additional Lessee had not been
formed, and
(B) if the Lessee had not been engaged to manage the Transfer
Hotels covered by the 14 Existing Leases.
(b) In the event the Lessee or the Additional Lessee pays any
of the costs or fees for which the Additional Lessor and the Lessor are
responsible pursuant to paragraph (a) above, the Lessor and/or the
Additional Lessor shall reimburse the Lessee or the Additional Lessee,
as applicable, for such costs or fees no later than 30 days following
receipt of satisfactory evidence that such amounts were paid.
(c) The Lessee and the Additional Lessee agree to cooperate
with the Additional Lessor in determining what amounts are payable by
the Lessor and the Additional Lessor to the Lessee or the Additional
Lessee pursuant to paragraph (a) above and agree that neither the
Lessor nor the Additional Lessor shall be responsible for any costs or
expenses with respect to the items listed in paragraph (a) above to the
extent the Lessee or DTR Lessee would otherwise have been responsible
for such costs and expenses (A) if the 14 Existing Leases and the
Existing DTR Lease had not been transferred to the Additional Lessee
and the Additional Lessee had not been formed, and (B) if the Lessee
had not been engaged to manage the Transfer Hotels covered by the 14
Existing Leases.
6. TRANSFER OF LICENSES AND PERMITS. The parties acknowledge that in
order to meet the timing requirements of the Lessor and the Additional Lessor
in connection with the transfer of the Transfer Hotels by the Lessor to the
Additional Lessor and, incident thereto, the transfer
27
<PAGE> 28
to the Additional Lessee of the interest of the Lessee and the DTR Lessee in the
14 Existing Leases and the Existing DTR Lease, respectively, there has not been
sufficient time in which to also effect the transfer of certain licenses and
other governmental authorizations (including, in the case of certain of the
Transfer Hotels, liquor licenses) with respect to the operation of the Transfer
Hotels from the Lessee and the DTR Lessee to the Additional Lessee and to obtain
all requisite governmental approvals with respect thereto (collectively, the
"Governmental Transfer Approvals"). Accordingly, the parties agree that (a)
notwithstanding anything to the contrary contained in the Second Consolidated
Lease Amendment (including, without limitation, Sections 8.1 and 8.2 thereof),
the absence of the Governmental Transfer Approvals until such time that such
Governmental Transfer Approvals initially are obtained shall not constitute a
default or an Event of Default under the Second Consolidated Lease Amendment or
a "Default by the Lessee" under the Original Master Agreement, as amended
hereby, except to the extent the Additional Lessee is in breach of its
obligations under paragraph (c) below which breach continues uncured beyond the
expiration of the notice and grace periods provided for in Section 16.1(d) of
the Second Consolidated Lease Amendment and in Section 15a of the Original
Master Agreement, as amended hereby; (b) the Lessor and the Additional Lessor
agree, jointly and severally, to indemnify, defend (with counsel reasonably
acceptable to the Additional Lessee), and hold harmless the Additional Lessee
and its officers, directors and controlling persons from and against any losses,
claims, damages, expenses or liabilities (or actions in respect thereof) to
which the Additional Lessee or its officers, directors or controlling persons
may become subject by reason of the absence of the Governmental Transfer
Approvals; and (c) at the expense of the Lessor and the Additional Lessor as set
forth in Section 5 above, the Additional Lessee shall
28
<PAGE> 29
promptly apply for and diligently seek the Governmental Transfer Approvals and
the Lessor, the Additional Lessor, the Lessee, the DTR Lessee and the Additional
Lessee shall cooperate with each other in order to expeditiously obtain the
Governmental Transfer Approvals.
7. RECORDING THE SND AGREEMENT. The parties acknowledge that the form
in which the SND Agreement has been executed was not appropriate to permit the
recording of the SND Agreement in all jurisdictions in which the Transfer Hotels
are located. Accordingly, contemporaneously with the execution of this
Amendment, counterparts of the SND Agreement are being recorded in some but not
all of the jurisdictions in which the Transfer Hotels are located. The Lessor
and the Additional Lessor agree that, promptly following the execution of this
Amendment, they will have counterparts of the SND Agreement re-executed by all
parties thereto in form sufficient to permit, and shall promptly thereafter
effect, the recording of the SND Agreement in each jurisdiction in which a
Transfer Hotel is located in which the SND Agreement has not previously been
recorded.
* * *
As amended hereby, the Original Master Agreement is ratified, confirmed
and approved.
29
<PAGE> 30
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RFS HOTEL INVESTORS, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
RFS PARTNERSHIP, L.P.
By: RFS Hotel Investors,
Inc., general partner
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
RFS FINANCING PARTNERSHIP
By: RFS Financing Corporation,
general partner
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
DOUBLETREE CORPORATION
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE> 31
RFS, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
DTR RFS LESSEE, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
RFS LEASING, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE> 32
EXHIBIT A
EXISTING LEASE
CURRENT HOTELS
<TABLE>
<CAPTION>
Number
Franchise and City/ of Transfer Remaining
State Location Rooms Hotel? Hotel?
- - ------------------ ------- -------- --------
<S> <C> <C> <C>
HAMPTON INN HOTELS
Denver, CO (Airport) 138 No Yes
Denver, CO (Lakewood) 148 Yes No
Ft. Lauderdale, FL 123 No Yes
Indianapolis, IN (Airport) 131 No Yes
Lansing, MI 108 No Yes
Warren, MI 124 No Yes
Bloomington, MN (Airport) 135 No Yes
Minnetonka, MN 127 No Yes
Hattiesburg, MS 116 Yes No
Lincoln, NE 111 No Yes
Omaha, NE (Westroads Mall) 129 Yes No
Oklahoma City, OK (Airport) 133 Yes No
Tulsa, OK 148 No Yes
Memphis, TN (Walnut Grove) 120 No Yes
Laredo, TX 120 No Yes
RESIDENCE INN HOTELS
Sacramento, CA (Cal Expo) 176 Yes No
Torrance, CA 247 No Yes
Wilmington, DE 120 No Yes
Orlando, FL 176 Yes No
Atlanta, GA (Perimeter-West) 128 No Yes
Ann Arbor, MI 72 Yes No
Kansas City, MO 96 No Yes
Fishkill, NY 136 No Yes
Charlotte, NC 80 Yes No
Providence, RI 96 Yes No
Ft. Worth, TX (River Plaza) 120 Yes No
Tyler, TX 128 No Yes
</TABLE>
<PAGE> 33
<TABLE>
<CAPTION>
Number
Franchise and City/ of Transfer Remaining
State Location Rooms Hotel? Hotel?
- - ------------------ ------- -------- ---------
<S> <C> <C> <C>
HOLIDAY INN EXPRESS HOTELS
Arlington Heights, IL 125 No Yes
Downers Grove, IL 123 No Yes
Bloomington, MN 142 No Yes
Tupelo, MS 115 No Yes
Franklin, TN 120 No Yes
Austin, TX (I-35 Airport) 125 Yes No
Milwaukee, WI (Mayfair Mall) 122 No Yes
HOLIDAY INN HOTELS
Crystal Lake, IL 197 Yes No
Louisville, KY (So. West) 169 No Yes
Lafayette, LA (Central) 242 No Yes
Flint, MI (Gateway Center) 173 No Yes
Clayton, MO (Clayton Plaza) 253 No Yes
Columbia, SC (Coliseum) 175 No Yes
COMFORT INN HOTELS
Atlanta, GA (Conyers) 83 No Yes
Atlanta, GA (Marietta) 186 Yes No
Farmington Hills, MI 135 No Yes
Grand Rapids, MI 109 No Yes
Clemson, SC 122 No Yes
Ft. Mill, SC (Carowinds) 155 Yes No
HAWTHORNE SUITES HOTEL
Atlanta, GA (NW) 200 No Yes
EXECUTIVE INN HOTEL
Tupelo, MS 115 No Yes
</TABLE>
<PAGE> 34
EXHIBIT B
EXISTING DTR LEASE
CURRENT HOTEL
<TABLE>
<CAPTION>
Number
Franchise and City/ of Transfer Remaining
State Location Rooms Hotel? Hotel?
- - ------------------ ------- -------- ---------
<S> <C> <C> <C>
DOUBLETREE HOTEL
Del Mar, CA 220 Yes No
</TABLE>
<PAGE> 1
EXHIBIT 10.10
- - --------------------------------------------------------------------------------
INDENTURE
among
RFS FINANCING PARTNERSHIP, L.P.,
Issuer,
LASALLE NATIONAL BANK,
Indenture Trustee
and
ABN AMRO BANK N.V.,
Fiscal Agent
Dated as of November 21, 1996
- - --------------------------------------------------------------------------------
Relating to
RFS FINANCING PARTNERSHIP, L.P.
COMMERCIAL MORTGAGE BONDS, SERIES 1996-1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PARTIES ............................................................................. 1
PRELIMINARY STATEMENT................................................................. 1
GRANTING CLAUSE....................................................................... 1
</TABLE>
ARTICLE I.
DEFINITIONS
<TABLE>
<S> <C> <C>
SECTION 1.01. General Definitions................................................. 2
</TABLE>
ARTICLE II.
THE BONDS
<TABLE>
<S> <C> <C>
SECTION 2.01. Payments of Principal and Interest on the Bonds...................... 2
SECTION 2.02. Denominations........................................................ 5
SECTION 2.03. Execution, Authentication, Delivery and Dating....................... 5
SECTION 2.04. Registration, Registration of Transfer and Exchange.................. 6
SECTION 2.05. Mutilated, Destroyed, Lost or Stolen Bonds........................... 7
SECTION 2.06. Payments on the Bonds................................................ 8
SECTION 2.07. Persons Deemed Owners................................................ 11
SECTION 2.08. Cancellation......................................................... 11
SECTION 2.09. Authentication and Delivery of Bonds................................. 12
SECTION 2.10. Forms of Bonds....................................................... 13
SECTION 2.11. Termination of Book-Entry System..................................... 14
SECTION 2.12. General Restrictions on Transfers.................................... 15
SECTION 2.13. Transfers of Bonds from One Form to Another.......................... 17
</TABLE>
ARTICLE III.
COVENANTS
<TABLE>
<S> <C> <C>
SECTION 3.01. Payment of Bonds...................................................... 19
SECTION 3.02. Maintenance of Office or Agency....................................... 19
SECTION 3.03. Money for Bond Payments to Be Held in Trust........................... 20
SECTION 3.04. Protection of Trust Estate............................................ 22
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
ARTICLE IV.
SATISFACTION AND DISCHARGE
<S> <C> <C>
SECTION 4.01. Satisfaction and Discharge of Indenture............................... 23
SECTION 4.02. Application of Trust Money............................................ 24
</TABLE>
ARTICLE V.
DEFAULTS AND REMEDIES
<TABLE>
<S> <C> <C>
SECTION 5.01. Events of Default..................................................... 24
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment.................... 24
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement
by Indenture Trustee.................................................. 25
SECTION 5.04. Remedies.............................................................. 26
SECTION 5.05. Optional Preservation of Trust Estate................................. 27
SECTION 5.06. Indenture Trustee May File Proofs of Claim............................ 27
SECTION 5.07. Indenture Trustee May Enforce Claims without
Possession of Bonds................................................... 28
SECTION 5.08. Application of Money Collected........................................ 28
SECTION 5.09. Limitation on Suits................................................... 29
SECTION 5.10. Unconditional Rights of Bondholders to Receive
Principal and Interest................................................ 30
SECTION 5.11. Restoration of Rights and Remedies.................................... 30
SECTION 5.12. Rights and Remedies Cumulative........................................ 31
SECTION 5.13. Delay or Omission Not Waiver.......................................... 31
SECTION 5.14. Control by Bondholders................................................ 31
SECTION 5.15. Waiver of Past Defaults............................................... 31
SECTION 5.16. Undertaking for Costs................................................. 32
SECTION 5.17. Waiver of Stay or Extension Laws...................................... 32
SECTION 5.18. Rights Upon a Nonrecoverable Advance Determination.................... 33
SECTION 5.19. Action on Bonds....................................................... 33
SECTION 5.20. No Recourse to Other Assets of the Issuer............................. 33
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
ARTICLE VI.
THE INDENTURE TRUSTEE
<S> <C> <C>
SECTION 6.01. Duties of Indenture Trustee........................................... 33
SECTION 6.02. Notice of Default..................................................... 35
SECTION 6.03. Rights of Indenture Trustee........................................... 35
SECTION 6.04. Not Responsible for Recitals or Issuance of Bonds..................... 35
SECTION 6.05. May Hold Bonds........................................................ 36
SECTION 6.06. Money Held in Trust................................................... 36
SECTION 6.07. Compensation and Reimbursement........................................ 36
SECTION 6.08. Eligibility: Disqualification......................................... 38
SECTION 6.09. Indenture Trustee's Capital and Surplus............................... 38
SECTION 6.10. Resignation and Removal; Appointment of Successor..................... 38
SECTION 6.11. Acceptance of Appointment by Successor................................ 39
SECTION 6.12. Merger or Consolidation of the Indenture Trustee and the
Fiscal Agent.......................................................... 40
SECTION 6.13. Co-trustees and Separate Indenture Trustees........................... 40
SECTION 6.14. Servicing Agreement and Certain Documents............................. 42
SECTION 6.15 Review of Mortgage Files.............................................. 43
</TABLE>
ARTICLE VII.
BONDHOLDERS' LISTS AND REPORTS
<TABLE>
<S> <C> <C>
SECTION 7.01. Issuer to Furnish Indenture Trustee Names and
Addresses of Bondholders..................................... 43
SECTION 7.02. Preservation of Information: Communications to
Bondholders.................................................. 44
SECTION 7.03. Reports by Indenture Trustee.......................................... 44
SECTION 7.04. Reports by Issuer..................................................... 44
</TABLE>
ARTICLE VIII.
ACCOUNTS, PAYMENTS OF INTEREST AND
PRINCIPAL, AND RELEASES
<TABLE>
<S> <C> <C>
SECTION 8.01. Collection of Moneys.................................................. 45
SECTION 8.02. Collateral Proceeds Account........................................... 45
SECTION 8.03. General Provisions Regarding the Collateral
</TABLE>
(iii)
<PAGE> 5
<TABLE>
Page
----
<S> <C> <C>
Proceeds Account............................................. ........ 47
SECTION 8.04. Central Account....................................................... 48
SECTION 8.05. Reports by Indenture Trustee to Bondholders;
Access to Certain Information......................................... 48
SECTION 8.06. Release of Trust Estate............................................... 49
SECTION 8.07. Amendment to Servicing Agreement...................................... 49
SECTION 8.08. Appointment of Servicer............................................... 49
SECTION 8.09. Termination of Servicer............................................... 50
SECTION 8.10. Appointment of Custodians............................................. 50
SECTION 8.11. The Fiscal Agent...................................................... 50
</TABLE>
ARTICLE IX.
SUPPLEMENTAL INDENTURES AND
MODIFICATIONS OF OTHER LOAN DOCUMENTS
<TABLE>
<S> <C> <C>
SECTION 9.01. Supplemental Indentures without Consent of
Bondholders........................................................... 51
SECTION 9.02. Supplemental Indentures with Consent of Bondholders................... 52
SECTION 9.03. Execution of Supplemental Indentures.................................. 53
SECTION 9.04. Effect of Supplemental Indentures..................................... 53
SECTION 9.05. Reference in Bonds to Supplemental Indentures......................... 54
SECTION 9.06. Amendments to Loan Documents.......................................... 54
SECTION 9.07. Amendments to Governing Documents..................................... 55
</TABLE>
ARTICLE X.
MISCELLANEOUS
<TABLE>
<S> <C> <C>
SECTION 10.01. Compliance Certificates............................................... 55
SECTION 10.02. Form of Documents Delivered to Indenture Trustee...................... 56
SECTION 10.03. Acts of Bondholders................................................... 57
SECTION 10.04. Notices to Indenture Trustee and Issuer............................... 57
SECTION 10.05. Notices and Reports to Bondholders; Waiver of Notices................. 58
SECTION 10.06. Rules by Indenture Trustee............................................ 58
SECTION 10.07. Effect of Headings and Table of Contents.............................. 58
SECTION 10.08. Successors and Assigns................................................ 58
SECTION 10.09. Separability.......................................................... 59
SECTION 10.10. Benefits of Indenture................................................. 59
SECTION 10.11. Legal Holidays........................................................ 59
SECTION 10.12. Governing Law......................................................... 59
</TABLE>
(iv)
<PAGE> 6
<TABLE>
Page
----
<S> <C> <C>
SECTION 10.13. Counterparts.......................................................... 59
SECTION 10.14. Issuer Obligation..................................................... 60
SECTION 10.15. Usury................................................................. 60
SECTION 10.16 Streit Act............................................................ 60
</TABLE>
<TABLE>
<S> <C>
SCHEDULE A Schedule of Mortgaged Properties and Initial Allocated
Loan Amounts
SCHEDULE B Amortization Schedule
EXHIBIT A Form of Class A Bond and Form of Class B Bond
EXHIBIT B Regulation S Exchange Certificate (Bond Owner)
EXHIBIT C Regulation S Exchange Certificate (Euroclear or Cedel)
EXHIBIT D Letter Agreement (to the Depository Trust Company)
EXHIBIT E Transferee Agreement
EXHIBIT F Transfer Certificate
EXHIBIT G Rule 144A Certificate
EXHIBIT H Property Operating Information
ANNEX I Glossary
</TABLE>
(v)
<PAGE> 7
PARTIES
THIS INDENTURE, dated as of November 21, 1996 (as amended or
supplemented from time to time as permitted hereby, this "Indenture"), among RFS
FINANCING PARTNERSHIP, L.P., a Tennessee limited partnership (together with its
permitted successors and assigns, the "Issuer"), LASALLE NATIONAL BANK, a
nationally chartered bank, as trustee (together with its permitted successors in
the trusts hereunder, the "Indenture Trustee"), and ABN AMRO BANK N.V., a
Netherlands banking corporation, as fiscal agent of the Indenture Trustee
(together with its permitted successors and assigns, the "Fiscal Agent").
PRELIMINARY STATEMENT
The Issuer has duly authorized the execution and delivery of this
Indenture to provide for its Commercial Mortgage Bonds, Series 1996-1, Class A
and Class B (the "Bonds"), issuable as provided in this Indenture. All covenants
and agreements made by the Issuer herein are for the benefit and security of the
Holders of the Bonds. The Issuer is entering into this Indenture, and the
Indenture Trustee is accepting the trusts created hereby, for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged.
The Issuer is the owner of the parcels of real property listed on
Schedule A to this Indenture (the "Premises") and the Improvements and Equipment
and various rights related thereto (as more fully described in the granting
clauses of the Mortgages (as defined below), the "Mortgaged Properties"). As of
the date hereof, the Issuer has granted the Indenture Trustee a mortgage, deed
of trust, deed to secure debt or other security instrument (each, a "Mortgage")
on each of the Mortgaged Properties to secure payment of the Bonds. This
Indenture is intended to confirm the granting of those Mortgages and, inter
alia, to provide for the administration of the Bonds.
All things necessary to make this Indenture a valid agreement of the
Issuer in accordance with its terms have been done.
GRANTING CLAUSE
The Issuer hereby confirms the Grants it gave in the Mortgages to the
Indenture Trustee, for the exclusive benefit of the Bondholders, of all of the
Issuer's right, title and interest in and to the Mortgaged Properties relating
to the Premises listed in Schedule A to this Indenture, including the related
Mortgage Files. The Issuer also hereby Grants to the Indenture Trustee, for the
exclusive benefit of the Bondholders, all of the Issuer's right, title and
interest in and to (a) all cash, instruments or other property held or required
to be deposited in the Loss Proceeds Account, the Central Account (including the
related Sub-Accounts) or the Collateral Proceeds Account, including any income
on funds deposited in, or investments made with funds deposited in, the Loss
Proceeds Account, the Central Account and the Collateral Proceeds Account, (b)
all Required Insurance Policies and (c) all proceeds of the conversion,
voluntary or involuntary,
<PAGE> 8
of any of the foregoing into cash or other liquid assets, including, without
limitation, all Insurance Proceeds, Condemnation Proceeds and Liquidation
Proceeds.
Such Grants are made, however, in trust to secure (i) the payment of
all amounts due on the Bonds in accordance with their terms, (ii) the payment of
all other sums payable under this Indenture and (iii) compliance with the
provisions of this Indenture, all as provided in this Indenture.
The Indenture Trustee acknowledges such Grant and the Grants given in
the Mortgages and confirmed herein, accepts the trusts hereunder in accordance
with the provisions of this Indenture and agrees to perform the duties herein
required to the end that the interests of the Bondholders may be adequately and
effectively protected.
ARTICLE I.
DEFINITIONS
SECTION 1.01. GENERAL DEFINITIONS
Except as otherwise specified or as the context may otherwise require,
capitalized terms used herein have the respective meanings set forth in the
Glossary attached hereto as Annex I for all purposes of this Indenture.
ARTICLE II.
THE BONDS
SECTION 2.01. PAYMENTS OF PRINCIPAL AND INTEREST ON THE BONDS.
(a) General Provisions with Respect to Principal and Interest
Provisions
(i) The Bonds shall be designated generally as the "Commercial
Mortgage Bonds, Series 1996-1" of the Issuer.
(ii) The aggregate principal amount of Bonds that may be
authenticated and delivered under the Indenture is limited to
$75,000,000, except for the Bonds authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other
Bonds pursuant to Sections 2.04, 2.05 or 9.05 of this Indenture. The
Bonds shall consist of two Classes, having designations, initial
principal amounts, Bond Interest Rates and Stated Maturities as
follows:
2
<PAGE> 9
<TABLE>
<S> <C> <C> <C>
- - --------------------------------------------------------------------------------------------------
Initial
Principal Bond Interest
Designation Amount Rate Stated Maturity
- - --------------------------------------------------------------------------------------------------
Series 1996-1, Class A $50,000,000 6.83% August 20, 2008
- - --------------------------------------------------------------------------------------------------
Series 1996-1, Class B $25,000,000 7.30% November 21, 2011
- - --------------------------------------------------------------------------------------------------
</TABLE>
(iii) The Bonds shall be issued in the form specified in
Section 2.10.
(iv) Subject to this Section 2.01, Section 3.01 and Section
5.10, the principal of each Class of Bonds shall be payable in
installments as described herein ending no later than the Stated
Maturity for such Class, unless the principal balance of the Bonds
becomes due and payable at an earlier date by declaration of
acceleration or otherwise.
(b) Scheduled Payments. Except as otherwise provided herein, the
aggregate amount of principal and interest on the Bonds due and payable on each
Payment Date shall be equal to the Scheduled Payment for such Payment Date. All
Scheduled Payments made with respect to the Bonds shall be applied on each
Payment Date in accordance with this Section 2.01 first, to the payment of
accrued and unpaid interest on the Class A Bonds on such Payment Date and then
to principal due on the Class A Bonds, and second, to the payment of accrued and
unpaid interest on the Class B Bonds and then to principal due on the Class B
Bonds. The Scheduled Payments reflected on the original Amortization Schedule
shall be adjusted following a partial Prepayment of a Class of Bonds to reflect
the reamortization of such Class of Bonds based on the remaining term and
reduced principal balance of such Class of Bonds, calculated by the Servicer
pursuant to the Servicing Agreement in the same manner as the original
Amortization Schedule.
(c) Interest Payments.
(i) With respect to each Payment Date or Special Payment Date,
interest on each Class of Bonds shall accrue at its respective Bond
Interest Rate from the previous Payment Date (or the Closing Date in
the case of the first Payment Date) to the Accounting Date for the
Payment Date or Special Payment Date on which such interest shall be
payable, such interest to accrue on the principal balance of such Class
of Bonds as of such Accounting Date (or on the prepaid principal to be
paid on such Class of Bonds on the Special Payment Date). Interest on
the Bonds will be computed on the basis of a 360-day year consisting of
twelve 30-day months.
(ii) If any Scheduled Payment is not paid in full by the
Issuer in immediately available funds within five days after the
related Payment Date, then, regardless of whether a P&I Advance is made
with respect to such Scheduled Payment, interest shall accrue at the
applicable Default Rate on such unpaid portion of the Scheduled Payment
3
<PAGE> 10
due on the Class A or Class B Bonds, respectively, during the period
from such Payment Date to the date on which such amount is paid in full
by the Issuer. Holders of the Class A or Class B Bonds are entitled to
interest paid at the Default Rate only if the Scheduled Payment due and
payable on such Class was not paid or advanced within five days after
the related Payment Date. Interest paid at the Default Rate may be
deposited either in the Central Account or the Collateral Proceeds
Account and will be applied with other amounts in such accounts in
accordance with the priorities set forth in the Servicing Agreement or
this Indenture, respectively,
(d) Principal Payments. The principal portion of each Scheduled Payment
shall be payable on the Class A and Class B Bonds on the related Payment Date in
the manner set forth on the Amortization Schedule. Principal payments (including
Prepayments) on the Bonds of each Class shall be made to the Holders of the
Bonds of such Class pro rata in the proportion that the principal balance of
each Outstanding Bond of such Class bears to the aggregate principal balance of
all Bonds of such Class.
(e) Prepayments and Yield Maintenance Premiums.
(i) Subject to Sections 5.08 and 8.02, prepayments (other than
Directed Voluntary Prepayments) on the Bonds, including payment of the
Release Price pursuant to a Mortgage, shall be applied (after payment
of accrued and unpaid interest with respect to such prepaid principal)
first to the Class A Bonds until the Class A Bonds have been paid in
full and then to the Class B Bonds until the Class B Bonds have been
paid in full. Prepayments (other than Directed Voluntary Prepayments
and payments of the Release Price, both of which shall be payable on
the related Payment Date) shall be payable on the related Special
Payment Date.
(ii) On any Payment Date following the Lock-Out Period, the
Issuer may make Directed Voluntary Prepayments to be applied on the
Class A or Class B Bonds, in whole or in part, provided that:
(A) no Event of Default shall have occurred and be
continuing (other than an Event of Default that will be cured
by such Prepayment);
(B) the Issuer shall have given no less than 10 days'
prior written notice to the Indenture Trustee and the
Servicer, such notice to specify the Class or Classes of Bonds
to be prepaid and the amount of such Prepayment;
(C) the Issuer pays with respect to the Bonds being
prepaid the applicable Yield Maintenance Premium, except that
no Yield Maintenance Premium will be required to be paid with
respect to any Directed Voluntary Prepayment to be applied on
a Class of Bonds during the Prepayment Window;
4
<PAGE> 11
(D) such Prepayment is not being made in connection
with a Release of a Mortgaged Property; and
(E) all amounts required to be paid by the Issuer in
connection with a Directed Voluntary Prepayment are received
by the Indenture Trustee no later than the Remittance Date for
the Payment Date on which the Prepayment is to be applied,
together with all other amounts required to be paid by the
Issuer on such Payment Date.
(iii) In connection with a Prepayment resulting from an Event
of Loss, the portion of such Prepayment allocable to interest shall
equal the amount necessary to pay accrued and unpaid interest on the
portion of such Prepayment to be allocable as principal at the
applicable Bond Interest Rate for the Class of Bonds on which the
prepaid principal will be applied.
(iv) The Yield Maintenance Premium, to the extent required to
be paid pursuant hereto or the related Mortgage in connection with a
Directed Voluntary Prepayment or the payment of the Release Price, will
be applied as excess interest for each Class of Bonds to which the
prepaid principal will be applied.
(f) Notwithstanding any of the foregoing provisions with respect to
payments of principal of and interest on the Bonds, if the Bonds have become or
been declared due and payable following an Event of Default and such
acceleration of maturity and its consequences have not been rescinded and
annulled, then payments of principal of and interest on the Bonds shall be made
in accordance with Section 5.08.
SECTION 2.02. DENOMINATIONS.
The Bonds shall be issuable only as registered Bonds in the minimum
denomination of $100,000 and integral multiples of $1,000 in excess thereof.
SECTION 2.03. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
(a) The Bonds shall be executed on behalf of the Issuer by the
President or one of the Vice Presidents of the Issuer's General Partner. The
signature of such officer on the Bonds may be manual or facsimile.
(b) Bonds bearing the manual or facsimile signature of an individual
who was at any time a proper officer of the General Partner shall bind the
Issuer, notwithstanding that such individual has ceased to hold such office
prior to the authentication and delivery of such Bonds or did not hold such
office at the date of such Bonds.
(c) At any time and from time to time after the execution and delivery
of this Indenture, the Issuer may deliver Bonds executed on behalf of the Issuer
to the Indenture Trustee
5
<PAGE> 12
for authentication; and the Indenture Trustee shall authenticate and deliver
such Bonds as in this Indenture provided and not otherwise.
(d) The form of the Indenture Trustee's certificate of
authentication is as follows:
This is one of the Class ___ Bonds referred to in the
within-mentioned Indenture.
LaSalle National Bank,
as Indenture Trustee
By:
--------------------------
Authorized Signatory
(e) Each Bond authenticated on the Closing Date shall be dated the
Closing Date. All other Bonds which are authenticated after the Closing Date for
any other purpose hereunder shall be dated the date of their authentication.
(f) No Bond shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Bond a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized officers or employees, and such certificate upon any Bond shall be
conclusive evidence, and the only evidence, that such Bond has been duly
authenticated and delivered hereunder.
SECTION 2.04. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
(a) The Issuer shall cause to be kept a register (the "Bond Register")
in which, subject to such reasonable regulations as it may prescribe, the Issuer
shall provide for the registration of Bonds and the registration of transfers of
Bonds. The Indenture Trustee is hereby initially appointed "Bond Registrar" for
the purpose of registering Bonds and transfers of Bonds as herein provided. Upon
any resignation of any Bond Registrar appointed by the Issuer, the Issuer shall
promptly appoint a successor or, in the absence of such appointment, shall
assume the duties of Bond Registrar.
(b) At any time the Indenture Trustee is not also the Bond Registrar,
the Indenture Trustee shall be a co-Bond Registrar. The Issuer shall cause each
co-Bond Registrar to furnish the Bond Registrar promptly after each
authentication of a Bond by it appropriate information with respect thereto for
entry by the Bond Registrar into the Bond Register. If the Indenture Trustee
shall at any time not be authorized to keep and maintain the Bond Register, the
Indenture Trustee shall have the right to inspect such Bond Register at all
reasonable times and to rely conclusively upon a certificate of the Person in
charge of the Bond Register as to the
6
<PAGE> 13
names and addresses of the Holders of the Bonds and the principal amounts and
numbers of such Bonds as held.
(c) Upon surrender for registration of transfer of any Bond at the
office or agency of the Issuer to be maintained as provided in Section 3.02, the
Issuer shall execute, and the Indenture Trustee shall authenticate and deliver,
in the name of the designated transferee or transferees, one or more new Bonds
of any authorized denominations and of a like aggregate principal amount.
(d) At the option of the Holder, Bonds may be exchanged for other Bonds
of any authorized denominations, and of a like aggregate initial principal
amount, upon surrender of the Bonds to be exchanged at such office or agency.
Whenever any Bonds are so surrendered for exchange, the Issuer shall execute,
and the Indenture Trustee shall authenticate and deliver, the Bonds that the
Bondholder making the exchange is entitled to receive.
(e) All Bonds issued upon any registration of transfer or exchange of
Bonds shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Bonds surrendered
upon such registration of transfer or exchange.
(f) Every Bond presented or surrendered for registration of transfer or
exchange shall be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Indenture Trustee duly executed by the
Holder thereof or his attorney duly authorized in writing.
(g) No service charge shall be made for any registration of transfer or
exchange of Bonds, but the Issuer or the Indenture Trustee may require payment
of a sum sufficient to cover any tax or other governmental charge as may be
imposed in connection with any registration of transfer or exchange of Bonds,
other than exchanges pursuant to Section 2.05 not involving any transfer.
SECTION 2.05. MUTILATED, DESTROYED, LOST OR STOLEN BONDS.
(a) If (1) any mutilated Bond is surrendered to the Indenture Trustee
or the Indenture Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Bond, and (2) there is delivered to the
Indenture Trustee such security or indemnity as may be required by the Indenture
Trustee to save each of the Issuer and the Indenture Trustee harmless, then, in
the absence of notice to the Issuer or the Indenture Trustee that such Bond has
been acquired by a bona fide purchaser, the Issuer shall execute and upon its
request the Indenture Trustee shall authenticate and deliver, in exchange for or
in lieu of any such mutilated, destroyed, lost or stolen Bond, a new Bond or
Bonds of the same tenor and aggregate initial principal amount bearing a number
not contemporaneously outstanding. If, after the delivery of such new Bond, a
bona fide purchaser of the original Bond in lieu of which such new Bond was
issued presents for payment such original Bond, the Issuer and the Indenture
Trustee shall be entitled to recover such new Bond from the person to whom it
was delivered or any person taking therefrom,
7
<PAGE> 14
except a bona fide purchaser, and shall be entitled to recover upon the security
or indemnity, provided therefor to the extent of any loss, damage, cost or
expenses incurred by the Issuer or the Indenture Trustee in connection
therewith. If any such mutilated, destroyed, lost or stolen Bond shall have
become or shall be about to become due and payable, instead of issuing a new
Bond, the Issuer may pay such Bond without surrender thereof, except that any
mutilated Bond shall be surrendered.
(b) Upon the issuance of any new Bond under this Section, the Issuer,
the Indenture Trustee or the Bond Registrar may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other reasonable expenses (including the fees and
expenses of the Indenture Trustee or the Bond Registrar) connected therewith.
(c) Every new Bond issued pursuant to this Section in lieu of any
destroyed, lost or stolen Bond shall constitute an original additional
contractual obligation of the Issuer, whether or not the destroyed, lost or
stolen Bond shall be at any time enforceable by anyone, and shall be entitled to
all the benefits of this Indenture equally and proportionately with any and all
other Bonds duly issued hereunder.
(d) The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Bonds.
SECTION 2.06. PAYMENTS ON THE BONDS.
(a) Payments on Bonds issued as Global Bonds will be made by or on
behalf of the Indenture Trustee to DTC or its nominee. Payments on any IAI Bonds
or Definitive Bonds that are punctually paid or duly provided for by the Issuer
on the applicable Payment Date (or Special Payment Date) shall be paid to the
Person in whose name such Bond (or one or more Predecessor Bonds) is registered
at the close of business on the Record Date for such Payment Date (or Special
Payment Date) by wire transfer of immediately available funds to the account of
a Bondholder, unless such Bondholder has not either provided the Indenture
Trustee with wiring instructions in writing by five days prior to the related
Record Date or provided the Indenture Trustee with such instructions for any
previous Payment Date, in which case, payments on the Bonds will be made by
check mailed to such Person's address as it appears in the Bond Register on such
Record Date. Notwithstanding the above, the final installment of principal
payable with respect to such Bond shall be payable as provided in subsection (c)
below of this Section 2.06. A fee may be charged by the Indenture Trustee to a
Bondholder of Definitive Bonds (or IAI Bonds) for any payment made by wire
transfer. Any required payments on the Bonds not punctually paid or duly
provided for shall be payable as soon as funds are available to the Indenture
Trustee for payment thereof, or if Section 5.08 applies, pursuant to Section
5.08.
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(b) All reductions in the principal amount of a Bond (or one or more
Predecessor Bonds) effected by payments of installments of principal made on any
Payment Date (or Special Payment Date) shall be binding upon all Holders of such
Bond and of any Bond issued upon the registration of transfer thereof or in
exchange therefor or in lieu thereof, whether or not such payment is noted on
such Bond.
(c) The final installment of principal of each Bond shall be payable
only upon presentation and surrender thereof on or after the Payment Date (or
Special Payment Date) therefor at the Indenture Trustee's Corporate Trust Office
or New York Presenting Office pursuant to Section 3.02. Whenever the Indenture
Trustee expects that the entire remaining unpaid principal balance of any Bond
will become due and payable on the next Payment Date (or Special Payment Date),
it shall, no later than one Business Day prior to such Payment Date (or Special
Payment Date), telecopy or hand deliver to each Person in whose name a Bond to
be so retired is registered at the close of business on such otherwise
applicable Record Date a notice to the effect that:
(i) the Indenture Trustee expects that funds sufficient to
pay such final installment will be available in the Collateral Proceeds
Account on such Payment Date (or Special Payment Date); and
(ii) if such funds are available, (A) such final installment
will be payable on such Payment Date (or Special Payment Date), but
only upon presentation and surrender of such Bond at the office or
agency of the Indenture Trustee maintained for such purpose pursuant to
Section 3.02 (the address of which shall be set forth in such notice)
and (B) no interest shall accrue on such Bond after such Payment Date
(or Special Payment Date).
(d) Subject to the foregoing provisions of this Section, each Bond
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Bond shall carry the rights to unpaid principal and
interest and other amounts that were carried by such other Bond. Any checks
mailed pursuant to subsection (a) of this Section 2.06 and returned undelivered
shall be held in accordance with Section 3.03.
(e) Not later than each Payment Date, the Indenture Trustee shall
prepare a statement (a "Payment Date Statement") with respect to such Payment
Date setting forth:
(i) the amount of Scheduled Payments allocable as interest and
principal to the Class A Bonds and Class B Bonds on such Payment Date;
(ii) the amount of interest actually paid to Class A Bondholders
and Class B Bondholders on such Payment Date;
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<PAGE> 16
(iii) the amount of principal actually paid to Class A
Bondholders and Class B Bondholders on such Payment Date and the
principal balance of the Outstanding Class A Bonds and Class B Bonds
after giving effect to such payments;
(iv) the aggregate amount of P&I Advances included in such
payments described in clauses (ii) and (iii) and the aggregate amount
of unreimbursed P&I Advances and Property Protection Advances at the
close of business on the related Determination Date (as reported by the
Servicer to the Indenture Trustee);
(v) the amount of Indenture Trustee Fees (including
co-trustee fees payable hereunder) and Servicing Fees (as reported by
the Servicer) payable with respect to such Payment Date and any such
fees accrued but unpaid as of the related Determination Date;
(vi) the amount, if any, withdrawn from the Central Account
(as reported by the Servicer) or the Collateral Proceeds Account and
paid to the Indenture Trustee, the Fiscal Agent or the Servicer as
reimbursement for Advances, plus Advance Interest paid thereon on or
prior to the related Determination Date, to the extent not previously
reported;
(vii) the aggregate amount of Directed Voluntary Prepayments
and Release Price payments made on such Payment Date and any other
Prepayments made on a Special Payment Date (and any interest thereon)
to the extent not previously reported;
(viii) the amount of any Yield Maintenance Premiums paid to the
Class A Bonds and Class B Bonds with respect to such Payment Date;
(ix) as reported by the Servicer to the Indenture Trustee, the
amount of (A) any withdrawals from the FF&E Reserve Sub-Account on or
prior to the related Determination Date, to the extent not previously
reported, (B) any costs for FF&E Replacements submitted to the Servicer
for reimbursement by the Issuer but unreimbursed as of the related
Determination Date, and (C) funds remaining in the FF&E Reserve
Sub-Account as of the related Determination Date;
(x) as reported by the Servicer to the Indenture Trustee, the
amount of (A) any funds released from the Loss Proceeds Account to the
Issuer on or prior to the related Determination Date for the purpose of
Restorations or otherwise (as indicated therein), to the extent not
previously reported, (B) funds remitted to the Collateral Proceeds
Account from the Loss Proceeds Account on or prior to the related
Determination Date, to the extent not previously reported, and (C)
funds, if any, in the Loss Proceeds Account as of the related
Determination Date; and
(xi) the amount, if any, released to the Issuer from the
Central Account on such Payment Date on or prior to the related
Determination Date, as reported by the Servicer to the Indenture
Trustee, to the extent not previously reported.
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In the case of information furnished pursuant to clauses (i),
(ii) and (iii) above, the amounts may be expressed as a dollar amount per $1,000
denomination of Bonds.
(f) On each Payment Date, the related Payment Date Statement will be
delivered by the Indenture Trustee only in the event it receives the related
Servicer report in the form and by the time required under Section 3.06 of the
Servicing Agreement. On each Payment Date, the related Payment Date Statement
shall be delivered by the Indenture Trustee to the Issuer, DTC, and the Rating
Agency and shall also be delivered to each Bondholder as the statement required
pursuant to Section 8.05. The Indenture Trustee shall have no responsibility to
recalculate, verify or recompute information contained in any such Servicer's
report.
(g) No later than the second Business Day preceding each Payment Date
occurring in the second month of each calendar quarter, the Issuer shall deliver
to the Servicer and the Indenture Trustee an unaudited report substantially in
the form of Exhibit H completed to reflect the information required thereon for
the twelve months ended at the end of the immediately preceding calendar
quarter. On each such Payment Date, such report will be delivered by the
Indenture Trustee to each Bondholder and the Rating Agency; provided, however,
that such report shall only be delivered by the Indenture Trustee in the event
it receives such report in the form and by the time required under this Section
2.06(g). The Indenture Trustee shall have no responsibility to recalculate,
verify or recompute information contained in any such report.
(h) Within a reasonable period of time after the end of each calendar
year, the Indenture Trustee will be required to furnish to each person who at
any time during the calendar year was a Bondholder a statement containing the
information set forth in paragraph (e) above, aggregated for such calendar year
or the applicable portion thereof during which such person was a Bondholder.
Such obligation will be deemed to have been satisfied to the extent that
substantially comparable information is provided pursuant to any requirements of
the Code as are from time to time in force.
SECTION 2.07. PERSONS DEEMED OWNERS.
Prior to due presentment for registration of transfer of any Bond, the
Issuer, the Indenture Trustee, any Agent and any other agent of the Issuer or
the Indenture Trustee may treat the Person in whose name any Bond is registered
as the owner of such Bond (a) on the applicable Record Date for the purpose of
receiving required payments on such Bond and (b) on any other date for all other
purposes whatsoever, and neither the Issuer, the Indenture Trustee, any Agent
nor any other agent of the Issuer or the Indenture Trustee shall be affected by
notice to the contrary.
SECTION 2.08. CANCELLATION.
All Bonds surrendered for payment, registration of transfer or exchange
shall, if surrendered to any Person other than the Indenture Trustee, be
delivered to the Indenture Trustee and shall be promptly canceled by it. The
Issuer may at any time deliver to the Indenture
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Trustee for cancellation any Bond previously authenticated and delivered
hereunder which the Issuer may have acquired in any manner whatsoever, and all
Bonds so delivered shall be promptly canceled by the Indenture Trustee. No Bonds
shall be authenticated in lieu of or in exchange for any Bonds canceled as
provided in this Section, except as expressly permitted by this Indenture. All
canceled Bonds held by the Indenture Trustee shall be held by the Indenture
Trustee in accordance with its standard retention policy, unless the Issuer
shall direct by an Issuer Order that they be destroyed or returned to it.
SECTION 2.09. AUTHENTICATION AND DELIVERY OF BONDS.
The Bonds may be executed by the Issuer and delivered to the Indenture
Trustee for authentication, and thereupon the same shall be authenticated and
delivered by the Indenture Trustee, upon Issuer Request and upon receipt by the
Indenture Trustee of the following:
(a) an Officer's Certificate evidencing the authorization of
the execution and delivery of this Indenture and the execution,
authentication and delivery of the Bonds, and specifying the Stated
Maturity, the principal amount and the Bond Interest Rate of each Class
of Bonds to be authenticated and delivered; and
(b) one or more Opinions of Counsel (upon which the Indenture
Trustee may rely) regarding conditions precedent relating to the
authentication and delivery of the Bonds, which Opinions of Counsel
shall be reasonably satisfactory in form and substance to the Indenture
Trustee.
In rendering the opinions set forth above, such counsel may
rely upon officer's certificates of the General Partner, the Issuer,
the Servicer, and the Indenture Trustee, without independent
confirmation or verification with respect to factual matters relevant
to such opinions.
(c) an Officers' Certificate complying with the requirements
of Section 10.01 and stating that:
(i) the Issuer is not in Default under this Indenture
and the issuance of the Bonds will not result in any breach
of any of the terms, conditions or provisions of, or
constitute a default under, the Issuer's Certificate of
Limited Partnership or Partnership Agreement or any
indenture, mortgage, deed of trust or other agreement or
instrument to which the Issuer is a party or by which it is
bound, or any order of any court or administrative agency
entered in any proceeding to which the Issuer is a party or
by which it may be bound or to which it may be subject, and
that all conditions precedent provided in this Indenture
relating to the authentication and delivery of the Bonds have
been complied with;
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(ii) the information set forth in the schedule
attached as Schedule A to this Indenture is correct; and
(iii) attached thereto is a true and correct copy of
a letter signed by the Rating Agency confirming that the Class
A Bonds have been rated "AA" and the Class B Bonds have been
rated "A" by such Rating Agency.
SECTION 2.10. FORMS OF BONDS.
(a) The Bonds shall be in substantially the form set forth on Exhibit A
attached hereto with such insertions, omissions, substitutions and other
variations as are required or permitted hereunder, and may have such letters,
numbers or other marks of identification and such legends or endorsements placed
thereon as may be necessary or desirable as determined by the officers executing
such Bonds, as evidenced by their execution thereof. Only the Global Bonds will
contain the first paragraph of Exhibit A.
(b) Bonds sold within the United States to investors that are
Institutional Accredited Investors, but that are not QIBs, will be issued and
registered in certificated form as IAI Bonds. Upon the written request of a QIB
that is purchasing a Bond on the Closing Date, such purchaser may obtain a Bond
in definitive, certificated form (a "Definitive Bond") rather than through the
facilities of DTC. The Definitive Bonds and the IAI Bonds may be produced in any
manner determined by the officers executing such Bonds, as evidenced by their
execution thereof.
(c) Except as set forth in paragraph (b) above, Bonds of each Class
sold within the United States to QIBs will be represented initially by a single
Global Bond in definitive, fully registered form without interest coupons (a
"Rule 144A Global Bond") and will be registered in the name of DTC or its
nominee, and deposited with the Indenture Trustee as custodian for DTC. The
aggregate principal amount of the Rule 144A Global Bond may be increased or
decreased from time to time by adjustments made on the books and records of the
Indenture Trustee and DTC or its nominee, as hereinafter provided.
(d) Bonds of each Class sold in offshore transactions in reliance on
Regulation S initially will be represented by a single Global Bond in
definitive, fully registered form without interest coupons (each, a "Regulation
S Temporary Global Bond") and will be deposited on behalf of the subscribers
therefor with the Indenture Trustee as custodian for DTC. The Regulation S
Temporary Global Bond will be registered in the name of DTC or its nominee, for
credit to the subscribers' respective accounts at Euroclear or CEDEL. Beneficial
interests in the Regulation S Temporary Global Bond may be held only through
Euroclear or CEDEL. The aggregate principal amount of the Regulation S Temporary
Global Bond may be increased or decreased from time to time by adjustments made
on the books and records of the Indenture Trustee and DTC or its nominee, as
hereinafter provided.
Within a reasonable period of time after the expiration of the 40-day
restricted period referred to in Rule 903(c)(3) of Regulation S (the "40-day
restricted period"), the Regulation S
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Temporary Global Bond will be exchanged for another Global Bond registered in
the name of DTC or its nominee, and deposited with the Indenture Trustee as
custodian for DTC (the "Regulation S Permanent Global Bond"), but only upon
delivery of certifications of compliance in the form of Exhibit B and Exhibit C
(the "Regulation S Exchange Certificates"). Investors that hold beneficial
interests in the Regulation S Permanent Global Bond may hold such interests
through CEDEL, Euroclear or other organizations that are participants in the DTC
system. The aggregate principal amount of the Regulation S Permanent Global Bond
may be increased or decreased from time to time by adjustments made on the books
and records of the Indenture Trustee and DTC or its nominee, as hereinafter
provided.
(e) The Indenture Trustee shall deal with DTC and Participants as
representatives of the Bond Owners of such Bonds for purposes of exercising the
rights of Bondholders hereunder. Each required payment on a Global Bond shall be
paid to DTC, which shall credit the amount of such payments to the account of
its Participants in accordance with its normal procedures. Each Participant
shall be responsible for disbursing such payments to the Bond Owners of the
Global Bonds that it represents and to each indirect participating brokerage
firm (a "brokerage firm" or "indirect participating firm") for which it acts as
agent. Each brokerage firm shall be responsible for disbursing funds to the Bond
Owners of the Global Bonds that it represents. All such credits and
disbursements are to be made by DTC and the Participants in accordance with the
provisions of the Bonds. None of the Indenture Trustee, the Bond Registrar, if
any, the Issuer, or any Agents shall have any responsibility therefore except as
otherwise provided by applicable law. Requests and directions from, and votes
of, such representatives shall not be deemed to be inconsistent if they are made
with respect to different Bond Owners.
SECTION 2.11. TERMINATION OF BOOK-ENTRY SYSTEM.
(a) The book-entry system through DTC with respect to the Global Bonds
may be terminated upon the happening of any of the following:
(i) DTC or the Issuer advises the Indenture Trustee that DTC
is no longer willing or able properly to discharge its responsibilities
under the Letter Agreement (attached as Exhibit D) and the Issuer is
unable to locate a qualified successor clearing agency satisfactory to
the Indenture Trustee and the Issuer;
(ii) The Issuer, in its sole discretion but with the consent
of the Indenture Trustee, elects to terminate the book-entry system by
notice to DTC and the Indenture Trustee; or
(iii) After the occurrence of an Event of Default (at which
time the Indenture Trustee shall use all reasonable efforts to promptly
notify each Bond Owner through DTC of such Event of Default) when such
notice shall be given pursuant to Section 6.02, the Bond Owners of a
majority in principal balance of the Outstanding Global Bonds advise
the Indenture Trustee in writing, through the related Participants and
DTC, that the continuation of a book-entry system through DTC to the
exclusion of any Definitive
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Bonds being issued to any person other than DTC or its nominee is no
longer in the best interests of the Bond Owners.
(b) Upon the occurrence of any event described in subsection (a) above,
the Indenture Trustee shall use all reasonable efforts to notify all Bond
Owners, through DTC, of the occurrence of such event and of the availability of
Definitive Bonds to Bond Owners requesting the same, in an aggregate current
principal balance of the Outstanding Bonds representing the interest of each,
making such adjustments and allowances as it may find necessary or appropriate
as to accrued interest. Definitive Bonds shall be issued only upon surrender to
the Indenture Trustee of the Global Bond(s) by DTC, accompanied by registration
instructions for the Definitive Bonds. Neither the Issuer nor the Indenture
Trustee shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon issuance of the Definitive Bonds, all references herein to obligations
imposed upon or to be performed by DTC shall cease to be applicable and the
provisions relating to Definitive Bonds shall be applicable.
SECTION 2.12. GENERAL RESTRICTIONS ON TRANSFERS.
(a) The Bonds will not be registered under the 1933 Act, or any state
securities or "blue sky" laws, and none of the Indenture Trustee, the Issuer,
the Placement Agent nor the Servicer are under any obligation to register or
qualify the Bonds under the 1933 Act or any state securities laws or to provide
registration rights to any purchaser. No sale, pledge or other transfer of any
Bond or any beneficial interest therein may be made by any person unless such
sale, pledge or other transfer is made (i) pursuant to an effective registration
statement under the 1933 Act and effective registration or qualification under
applicable state securities laws, or (ii) (A) to QIBs in transactions complying
with the requirements of Rule 144A, (B) to Institutional Accredited Investors
who sign an agreement substantially in the form of Exhibit E hereto (a
"Transferee Agreement"), or (C) in transactions outside the United States
complying with the provisions of Regulation S.
(b) Each Person who becomes a Bondholder or a Bond Owner will be deemed
to have agreed to indemnify the Issuer, the Placement Agent, the Indenture
Trustee, the Fiscal Agent and the Servicer against any liability that may result
if such holder transfers such Bond or interest in a manner that is not exempt or
in accordance with applicable federal, state and foreign securities laws. In
addition, each Bondholder and Bond Owner that does not execute a Transferee
Agreement shall be deemed to have represented and warranted as follows:
(i) It is purchasing the Bonds for its own account or an
account with respect to which it exercises sole investment discretion,
and (A) it or such account is (1) a QIB, and, except with respect to
the initial purchaser, is aware that the sale to it is being made in
reliance on Rule 144A; (2) an Institutional Accredited Investor, or (3)
not a U.S. Person for purposes of the 1933 Act and is acquiring the
Bond pursuant to Regulation S, and (B) in the case of each of (1)
through (3), it is acquiring such Bonds for investment and not with a
view to, or for offer and sale in connection with, any
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distribution (within the meaning of the 1933 Act) or fractionalization
thereof or with any intention of reselling the Bonds or any part
thereof, subject to any requirement of law that the disposition of its
property or the property of such investor account or accounts be at all
times within its or their control and subject to its or their ability
to resell such Bonds pursuant to Rule 144A, Regulation S, or any other
exemption from registration available under the 1933 Act.
(ii) It acknowledges that the Bonds have not been and will not
be registered under the 1933 Act or any state securities law and may
not be sold except as permitted below.
(iii) It agrees that (i) if it should transfer the Bonds within
three years after the later of the original issuance of the Bonds or
the sale thereof by an affiliate of the Issuer (computed in accordance
with paragraph (d) of Rule 144 under the 1933 Act) or if it was at the
date of such transfer or during the three months preceding such date of
transfer an affiliate of the Issuer, it will do so in compliance with
any applicable state securities or "Blue Sky" laws and only (a) to the
Issuer, (b) in accordance with Rule 144A, (c) outside the United States
in compliance with Rule 904 of Regulation S under the 1933 Act, or (d)
to an Institutional Accredited Investor, but only if, in connection
with any transfer pursuant to clause (d), a certificate in the form
attached as an exhibit to the Indenture is delivered by the transferee
to the Indenture Trustee, and (ii) it will give the transferee notice
of these restrictions on resale of the Bonds.
(iv) It understands that each Bond, unless otherwise agreed to
by the Issuer and the holder thereof, will bear a legend to the
following effect:
THIS BOND HAS NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT"). THE HOLDER HEREOF, BY PURCHASING THIS BOND, AGREES
FOR THE BENEFIT OF THE ISSUER AND THE INDENTURE TRUSTEE
THAT THIS BOND MAY NOT BE RESOLD, PLEDGED, OR OTHERWISE
TRANSFERRED (X) PRIOR TO THE THIRD ANNIVERSARY OF THE
LATER OF THE ISSUANCE HEREOF (OR ANY PREDECESSOR BOND
HERETO) OR THE SALE HEREOF (OR ANY PREDECESSOR BOND) BY
THE ISSUER OR ANY AFFILIATE OF THE ISSUER (COMPUTED IN
ACCORDANCE WITH PARAGRAPH (D) OF RULE 144 UNDER THE 1933
ACT) OR (Y) BY AN AFFILIATE OF THE ISSUER OR BY ANY HOLDER
THAT WAS AN AFFILIATE OF THE ISSUER AT ANY TIME DURING THE
THREE MONTHS PRECEDING THE DATE OF SUCH TRANSFER, IN
EITHER CASE, OTHER THAN (1) TO THE ISSUER, (2) TO A PERSON
WHO THE ISSUER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER
THE 1933 ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED
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INSTITUTIONAL BUYER OVER WHICH IT EXERCISES SOLE
INVESTMENT DISCRETION THAT IS AWARE THAT THE RESALE,
PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION IN
ACCORDANCE WITH REGULATION S UNDER THE 1933 ACT AND (4) TO
AN INSTITUTIONAL INVESTOR THAT IS AN "ACCREDITED INVESTOR"
WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7)
UNDER THE 1933 ACT, AND IN CONNECTION WITH ANY TRANSFER
PURSUANT TO CLAUSE (3) OR (4), A TRANSFEREE AGREEMENT IN
THE FORM ATTACHED TO THE INDENTURE IS DELIVERED TO THE
INDENTURE TRUSTEE.
(v) It has received the information, if any, requested by it,
has had full opportunity to review such information, and has received
all additional information necessary to verify such information.
(vi) It (i) is able to fend for itself in the transactions
contemplated by the Memorandum; (ii) has such knowledge and experience
in financial and business matters as to be capable of evaluating the
merits and risks of its prospective investment in the Bonds; and (iii)
has the ability to bear the economic risks of its prospective
investment and can afford the complete loss of such investment.
(vii) It understands that the Issuer, the Indenture Trustee,
the Fiscal Agent, the Servicer, the Placement Agent and others will
rely upon the truth and accuracy of the foregoing acknowledgments,
representations and agreements and agrees that if any of the
acknowledgments, representations, or warranties deemed to have been
made by it by its purchase of the Bonds are no longer accurate, it
shall promptly notify the Issuer. If it is acquiring any Bonds as
fiduciary or agent for one or more investor accounts, it represents
that it has sole investment discretion with respect to each such
account and that it has full power to make the foregoing
acknowledgments, representations and agreements on behalf of such
account.
SECTION 2.13. TRANSFERS OF BONDS FROM ONE FORM TO ANOTHER.
(a) Global to Definitive or IAI Bonds. If a Bond Owner who holds a
beneficial interest in a Rule 144A Global Bond or Regulation S Permanent Global
Bond proposes to transfer a Bond (i) within the United States otherwise than
pursuant to Rule 144A and the date of such proposed transfer is prior to three
years after the later of the date of original issuance of the Bonds (or any
predecessor of such Bond) or the sale of such Bond (or any predecessor of such
Bond) by the Issuer or an Affiliate of the Issuer, or (ii) the proposed
transferee wishes to hold such Bond in definitive, certificated form, then such
Bond Owner must obtain the consent of the Indenture Trustee to the transfer. The
Indenture Trustee shall consent to such transfer if the proposed transferor
provides a transfer certificate substantially in the form of Exhibit F hereto
and the transferee delivers an executed Transferee Agreement to the Indenture
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Trustee no later than 30 days prior to the date on which the transfer is to be
effectuated and reflected in the Bond Register. After approval of the transfer,
the Issuer will cause the requested IAI Bonds (in the case of clause (i) above)
or Definitive Bonds (in the case of clause (ii) above), to be prepared for
execution and delivery, and the Indenture Trustee shall authenticate such Bond
in accordance with this Indenture. Subject to DTC's customary procedures, the
Indenture Trustee shall cause the Bond Owner's interest in the Bonds held by DTC
to be reduced in an amount equal to the aggregate principal amount of the Bond
being transferred (and shall cause the Rule 144A Global Bond or the Regulation S
Permanent Global Bond, as applicable, held by DTC to be modified or substituted
for accordingly) and a Definitive Bond or IAI Bond in an equal aggregate
principal amount registered in the name of the transferee shall be delivered to
such transferee. Thereafter, such transferee shall be recognized as a Bondholder
under the Indenture. In all cases, Definitive Bonds or IAI Bonds delivered in
exchange for any beneficial interests therein will be registered in the names,
and issued in any approved denominations, requested by DTC.
Regulation S Temporary Global Bonds may not be exchanged for, or
transferred to a Person who takes delivery in the form of, IAI Bonds or
Definitive Bonds.
(b) Definitive or IAI to Global Bonds. If a Bondholder that holds a
Definitive Bond or an IAI Bond wishes to transfer such Bond pursuant to Rule
144A and the proposed transferee is a QIB that wishes to hold such Bond through
DTC, then, upon written request of such Bondholder 30 days in advance,
accompanied by a certificate in the form of Exhibit G hereto (the "Rule 144A
Certificate"), and subject to the rules and procedures of DTC and, if
applicable, Euroclear or CEDEL, the Indenture Trustee shall arrange for such
Bond to be represented by a Rule 144A Global Bond registered to DTC. If a
Bondholder that holds a Definitive Bond or IAI Bond wishes to transfer such Bond
pursuant to Regulation S and the proposed transferee is a Person other than a
U.S. Person that wishes to hold such Bond through DTC, then, upon written
request (by presentation of a transfer certificate in the form of Exhibit F) of
such Bondholder 30 days in advance, subject to the rules and procedures of DTC
and, if applicable, Euroclear or CEDEL, the Indenture Trustee shall arrange for
such Bond to be represented by a Regulation S Permanent Global Bond (or, if the
Regulation S Temporary Global Bond has not been exchanged for the Regulation S
Permanent Global Bond, a Regulation S Temporary Global Bond) registered to DTC.
(c) Global to Another Global. A beneficial interest in a Regulation S
Permanent Global Bond may be transferred to a person who takes delivery in the
form of an interest in a Rule 144A Global Bond, subject to the rules and
procedures of DTC and Euroclear or CEDEL and upon receipt by the Indenture
Trustee of a transfer certificate in the form of Exhibit F from the transferor.
A beneficial interest in a Rule 144A Global Bond may be transferred to a person
who takes delivery in the form of an interest in a Regulation S Temporary Global
Bond or, after the 40-day restricted period described in 903(c)(3) of Regulation
S, Regulation S Permanent Global Bond, subject to the rules and procedures of
DTC and upon receipt by the Indenture Trustee of a transfer certificate in the
form of Exhibit F.
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A beneficial interest in a Regulation S Temporary Global Bond may not
be transferred to a person who takes delivery in the form of an interest in a
Rule 144A Global Bond. A Regulation S Temporary Global Bond may be exchanged for
a Regulation S Permanent Bond in accordance with Section 2.10(d).
Any beneficial interest in one of the Global Bonds that is transferred
to a person who takes delivery in the form of an interest in another Global Bond
will, upon transfer, cease to be an interest in such Global Bond and become an
interest in the other Global Bond and, accordingly, will thereafter be subject
to all transfer restrictions and other procedures applicable to beneficial
interests in such other Global Bond for as long as it remains such an interest.
ARTICLE III.
COVENANTS
SECTION 3.01. PAYMENT OF BONDS.
The Issuer will pay or cause to be duly and punctually paid the
principal of, and interest and other amounts on, the Bonds in accordance with
the terms of the Bonds and this Indenture. The Bonds shall be non-recourse
obligations of the Issuer and shall be limited in right of payment to amounts
available from the Trust Estate as provided in this Indenture and neither the
Issuer nor any other Person shall otherwise be liable for payments on the Bonds
except as expressly provided under the Loan Documents. If any other provision of
this Indenture conflicts or is deemed to conflict with the provisions of this
Section 3.01, the provisions of this Section 3.01 shall control.
SECTION 3.02. MAINTENANCE OF OFFICE OR AGENCY.
The Issuer will cause the Indenture Trustee to maintain an office or
agency as a location where Bonds may be surrendered for registration of transfer
or exchange, and where notices and demands to or upon the Issuer in respect of
the Bonds and this Indenture may be served. The Indenture Trustee has appointed
its Corporate Trust Office, or in the alternative, its New York Presenting
Office as the presenting agent for such purpose and for the purpose of
presentment or surrender for payment of the Bonds and such agency shall be
maintained at the Indenture Trustee's expense.
The Issuer may also from time to time at its own expense designate one
or more other offices or agencies (in or outside the City of New York) where the
Bonds may be presented or surrendered for any or all such purposes and may from
time to time rescind such designations; provided, however, that (i) no such
designation or rescission shall in any manner relieve the Issuer of its
obligation to maintain an office or agency in the Borough of Manhattan, the City
of New York, the State of New York, for the purposes set forth in the preceding
paragraph, (ii) presentations or surrenders of Bonds for payment may be made
only in the City of New
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York, the State of New York and (iii) any designation of an office or agency for
payment of Bonds shall be subject to Section 3.03. The Issuer will give prompt
written notice to the Indenture Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
SECTION 3.03. MONEY FOR BOND PAYMENTS TO BE HELD IN TRUST.
(a) All payments of amounts due and payable with respect to any Bonds
which are to be made from amounts withdrawn from the Collateral Proceeds Account
pursuant to Section 8.02(c) or 8.02(d) or Section 5.08 shall be made on behalf
of the Issuer by the Indenture Trustee or by a Paying Agent, and no amounts so
withdrawn from the Collateral Proceeds Account for payments of Bonds shall be
paid over to the Issuer under any circumstances except as provided in this
Section 3.03 or in Section 5.08 or 8.02(e).
(b) If the Issuer shall have a Paying Agent that is not also the Bond
Registrar, it shall furnish, or cause the Bond Registrar to furnish, no later
than one Business Day after each Record Date, a list, in such form as such
Paying Agent may reasonably require, of the names and addresses of the Holders
of Bonds and of the Class and principal balance of the Bonds held by each such
Holder.
(c) Whenever the Issuer shall have a Paying Agent other than the
Indenture Trustee, it will, on or before the Business Day next preceding each
Payment Date (or Special Payment Date) direct the Indenture Trustee to deposit
with such Paying Agent an aggregate sum sufficient to pay the amounts then
becoming due (to the extent funds are then available for such purpose in the
Collateral Proceeds Account), such sum to be held in trust for the benefit of
the Persons entitled thereto. Any moneys deposited with a Paying Agent in excess
of an amount sufficient to pay the amounts then becoming due on the Bonds with
respect to which such deposit was made shall, upon Issuer Order, be paid over by
such Paying Agent to the Indenture Trustee for application in accordance with
Article VIII.
(d) Any Paying Agent other than the Indenture Trustee shall be
appointed by Issuer Order and at the expense of the Issuer. The Issuer shall not
appoint any Paying Agent (other than the Indenture Trustee) which is not, at the
time of such appointment, a depository institution or trust company whose
obligations would be Permitted Investments pursuant to clause (b) of the
definition of the term "Permitted Investments." The Issuer will cause each
Paying Agent other than the Indenture Trustee to execute and deliver to the
Indenture Trustee an instrument in which such Paying Agent shall agree with the
Indenture Trustee (and if the Indenture Trustee acts as Paying Agent, it hereby
so agrees), subject to the provisions of this Section, that such Paying Agent
will:
(i) allocate all sums received for payment to the Holders of
Bonds on each Payment Date (and Special Payment Date) among such
Holders in the proportion specified in the applicable Payment Date
Statement, in each case to the extent permitted by applicable law;
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(ii) hold all sums held by it for the payment of amounts due
with respect to the Bonds in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided;
(iii) if such Paying Agent is not the Indenture Trustee,
immediately resign as a Paying Agent and forthwith pay to the Indenture
Trustee all sums held by it in trust for the payment of the Bonds if at
any time it ceases to meet the standards set forth above required to be
met by a Paying Agent at the time of its appointment;
(iv) if such Paying Agent is not the Indenture Trustee, give
the Indenture Trustee notice of any Default by the Issuer (or any other
obligor upon the Bonds) in the making of any payment required to be
made with respect to any Bonds for which it is acting as Paying Agent;
(v) if such Paying Agent is not the Indenture Trustee, at any
time during the continuance of any such Default, upon the written
request of the Indenture Trustee, forthwith pay to the Indenture
Trustee all sums so held in trust by such Paying Agent; and
(vi) comply with all requirements of the Code, and all
regulations thereunder, with respect to the withholding taxes from any
payments made by it on any Bonds of any applicable withholding taxes
imposed thereon and with respect to any applicable reporting
requirements in connection therewith; provided, however, that with
respect to withholding and reporting requirements applicable to
original issue discount (if any) on any of the Bonds, the Issuer has
provided the calculations pertaining thereto to the Indenture Trustee.
(e) The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or any other purpose, by Issuer
Order direct any Paying Agent, if other than the Indenture Trustee, to pay to
the Indenture Trustee all sums held in trust by such Paying Agent, such sums to
be held by the Indenture Trustee upon the same trusts as those upon which such
sums were held by such Paying Agent; and upon such payment by any Paying Agent
to the Indenture Trustee, such Paying Agent shall be released from all further
liability with respect to such money.
(f) Any money held by the Indenture Trustee or any Paying Agent in
trust for the payment of any amount due with respect to any Bond and remaining
unclaimed for two and one-half years after such amount has become due and
payable to the Holder of such Bond (or if earlier, three months before the date
on which such amount would escheat to a governmental entity under applicable
law) shall be discharged from such trust and paid to the Issuer; and the Holder
of such Bond shall thereafter, as an unsecured general creditor, look only to
the Issuer for payment thereof (but only to the extent of the amounts so paid to
the Issuer), and all liability of the Indenture Trustee or such Paying Agent
with respect to such trust money shall thereupon
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cease. The Indenture Trustee may adopt and employ, at the expense of the Issuer,
any reasonable means of notification of such repayment (including, but not
limited to, mailing notice of such repayment to Holders whose right to interest
in moneys due and payable but not claimed is determinable from the records of
the Indenture Trustee or any Agent, at the last address of record for each such
Holder).
SECTION 3.04. PROTECTION OF TRUST ESTATE.
(a) The Issuer will from time to time execute and deliver all such
supplements and amendments hereto and all such financing statements,
continuation statements, instruments of further assurance and other instruments,
and will take such other action as may be necessary or advisable to:
(i) Grant more effectively all or any portion of the Trust
Estate;
(ii) maintain or preserve the lien of this Indenture or carry
out more effectively the purposes hereof;
(iii) perfect, publish notice of or protect the validity of
any Grant made or to be made by this Indenture; or
(iv) preserve and defend title to the Trust Estate and the
rights of the Indenture Trustee, and of the Bondholders, in the
Mortgages and the other property held as part of the Trust Estate
against the claims of all Persons and parties.
The Issuer hereby designates the Indenture Trustee its agent
and attorney-in-fact to execute any financing statement, continuation statement
or other instrument required pursuant to this Section 3.04; provided, however,
that such designation shall not be deemed to create a duty in the Indenture
Trustee to monitor the compliance of the Issuer with the foregoing covenants;
and provided further, however, that the duty of the Indenture Trustee to execute
any instrument required pursuant to this Section 3.04 shall arise only if the
Indenture Trustee has knowledge pursuant to Section 6.01(d) of the occurrence of
a failure of the Issuer to comply with the provisions of this Section 3.04.
(b) The Indenture Trustee shall not remove any portion of the Trust
Estate that consists of money or is evidenced by an instrument, certificate or
other writing from the jurisdiction in which it was held, or to which it is
intended to be removed, as described in the Opinion of Counsel delivered at the
Closing Date pursuant to Section 2.09(b), or cause or permit ownership or the
pledge of any portion of the Trust Estate that consists of book-entry securities
to be recorded on the books of a Person located in a different jurisdiction from
the jurisdiction in which such ownership or pledge was recorded at such time
unless the Indenture Trustee shall have first received an Opinion of Counsel (at
the Issuer's expense) to the effect that the lien and security interest created
by this Indenture with respect to such property will continue to be maintained
after giving effect to such action or actions.
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ARTICLE IV.
SATISFACTION AND DISCHARGE
SECTION 4.01. SATISFACTION AND DISCHARGE OF INDENTURE.
(a) This Indenture shall cease to be of further effect except as to (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Bonds, (iii) the rights of Bondholders to receive
payments of principal thereof and interest thereon, (iv) the rights, obligations
and immunities of the Indenture Trustee hereunder and (v) the rights of
Bondholders as beneficiaries hereof with respect to the property so deposited
with the Indenture Trustee and payable to all or any of them, and the Indenture
Trustee, on demand of and at the expense of the Issuer, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture whenever
the following conditions shall have been satisfied:
(i) either
(1) all Bonds theretofore authenticated and delivered
(other than (i) Bonds which have been destroyed, lost or
stolen and which have been replaced or paid as provided in
Section 2.05, and (ii) Bonds for whose payment money has
theretofore been deposited in trust and thereafter repaid to
the Issuer, as provided in Section 3.03) have been delivered
to the Indenture Trustee for cancellation; or
(2) all Bonds not theretofore delivered to the
Indenture Trustee for cancellation
(A) have become due and payable, or
(B) will become due and payable at the
Stated Maturity within one year,
and the Issuer, in the case of clauses (2)(A) or (2)(B) above, has
deposited or caused to be deposited with the Indenture Trustee, in
trust for such purpose, cash or government securities (as such term is
defined under Section 2(16) of the Investment Company Act of 1940, as
amended) sufficient to pay and discharge the entire indebtedness on
such Bonds not theretofore delivered to the Indenture Trustee for
cancellation, for principal and interest to the Maturity of the Bonds
and in the case of Bonds that were not paid at their Stated Maturity,
for all overdue principal and all interest payable on such Bonds to the
next succeeding Payment Date therefor; and
(ii) the Issuer has paid or caused to be paid all other sums
payable hereunder by the Issuer; and
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(iii) the Issuer has delivered to the Indenture Trustee an
Officers' Certificate and an Opinion of Counsel satisfactory in form
and substance to the Indenture Trustee each stating that all conditions
precedent herein providing for the satisfaction and discharge of this
Indenture have been complied with;
then this Indenture and the lien, rights and interests created hereby and
thereby shall cease to be of further effect, and the Indenture Trustee and each
co-trustee and Class B Trustee, if any, then acting as such hereunder shall, at
the expense of the Issuer, execute and deliver all such instruments as may be
necessary to acknowledge the satisfaction and discharge of this Indenture and
shall pay, or assign or transfer and deliver, to the Issuer or upon Issuer Order
all cash, securities and other property held by it as part of the Trust Estate
remaining after satisfaction of the conditions set forth in clauses (i) and (ii)
above.
(b) Notwithstanding the satisfaction and discharge of this Indenture,
the obligations of the Issuer under Section 6.07 and the obligations of the
Indenture Trustee to the Holders of Bonds under Section 4.02 shall survive.
SECTION 4.02. APPLICATION OF TRUST MONEY.
All cash or government securities and proceeds therefrom deposited with
the Indenture Trustee pursuant to Sections 3.03 and 4.01 shall be held in trust
and applied by it, in accordance with the provisions of the Bonds and this
Indenture, to the payment, either directly or through any Paying Agent, as the
Indenture Trustee may determine, to the Persons entitled thereto, of the
principal and interest for whose payment such cash or government securities and
proceeds therefrom has been deposited with the Indenture Trustee.
ARTICLE V.
DEFAULTS AND REMEDIES
SECTION 5.01. EVENTS OF DEFAULT.
"Event of Default", wherever used herein with respect to Bonds issued
hereunder, shall have the meaning ascribed to the term in the Glossary attached
hereto as Annex I.
SECTION 5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
(a) If an Event of Default occurs and is continuing, then and in every
such case the Indenture Trustee or the Holders of Bonds representing not less
than 25% of the principal balance of the Outstanding Bonds may declare the Bonds
to be immediately due and payable by a notice in writing to the Issuer (and to
the Indenture Trustee if given by Bondholders), and upon any such declaration,
the Bonds, in an amount equal to the principal balance of the
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Outstanding Bonds, together with accrued and unpaid interest and any other
amounts due thereon to the date of such acceleration, shall become immediately
due and payable.
(b) At any time after such a declaration of acceleration of Maturity of
the Bonds pursuant to paragraph (a) of this Section 5.02 has been made and
before a judgment or decree for payment of the money due has been obtained by
the Indenture Trustee as hereinafter in this Article provided, the Holders of
Bonds representing more than 50% of the principal balance of the Outstanding
Bonds, by written notice to the Issuer and the Indenture Trustee, may rescind
and annul such declaration and its consequences if:
(i) (A) the Issuer has paid or deposited with the Indenture
Trustee a sum sufficient to pay:
(1) all payments of principal of, and interest on,
all Bonds and all other amounts that would then be due
hereunder or upon all Bonds if the Event of Default giving
rise to such acceleration had not occurred; and
(2) all unreimbursed Advances by the Fiscal Agent,
the Indenture Trustee and the Servicer under the Servicing
Agreement (together with Advance Interest thereon) and all
amounts due the Indenture Trustee pursuant to Section 6.07(a)
and all amounts due the Servicer under the Servicing
Agreement; and
(B) all Events of Default, other than the nonpayment of the
principal of Bonds that have become due solely by such acceleration,
have been cured or waived as provided in Section 5.15; or
(ii) an election is made to act in accordance with the
provisions of Section 5.05 with respect to the Event of Default that
gave rise to such declaration.
No such rescission shall affect any subsequent Default or impair any right
consequent thereon.
SECTION 5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT
BY INDENTURE TRUSTEE.
Subject to the provisions of Section 3.01 and the following sentence,
if an Event of Default occurs and is continuing, the Indenture Trustee (or the
Servicer on its behalf) may in its discretion, subject to Section 5.05, proceed
to protect and enforce its rights and the rights of the Bondholders by any
Proceedings the Indenture Trustee (or the Servicer on its behalf) deems
appropriate to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or enforce any other proper remedy. Any
Proceedings brought by the Indenture Trustee (or the Servicer on its behalf) on
behalf of the Bondholders or any Bondholder against the Issuer shall
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be limited to the preservation, enforcement and foreclosure of the liens,
assignments, rights and security interests under the Indenture and the Mortgages
and the other Loan Documents and no attachment, execution or other unit or
process shall be sought, issued or levied upon any assets, properties or funds
of the Issuer, other than the Trust Estate, except as otherwise expressly
provided in the Loan Documents. If there is a foreclosure of any such liens,
assignments, rights and security interests, by private power of sale or
otherwise, no judgment for any deficiency upon the indebtedness represented by
the Bonds may be sought or obtained by the Indenture Trustee or any Bondholder
against the Issuer, except as otherwise expressly provided in the Loan
Documents. The Indenture Trustee shall be entitled to recover the costs and
expenses expended by it pursuant to this Section 5.03, including reasonable
compensation, expenses, disbursements and advances of the Indenture Trustee and
the Servicer and their respective agents and counsel.
In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Holders of the Bonds, and it shall not be necessary to
make any Holders of the Bonds parties to any such Proceedings.
SECTION 5.04. REMEDIES.
If an Event of Default shall have occurred and be continuing and the
Bonds have been declared due and payable and such declaration and its
consequences have not been rescinded and annulled, the Indenture Trustee (or the
Servicer on its behalf) may do one or more of the following:
(a) institute Proceedings for the collection of all amounts
then payable on the Bonds, or under this Indenture, whether by
declaration or otherwise, enforce any judgment obtained, and collect
from the Issuer moneys adjudged due, subject in all cases to the
provisions of Sections 3.01 and 5.03;
(b) subject to the rights of the Bondholders under this
Indenture, exercise such remedies under Section 6 of the Mortgages as
the Indenture Trustee deems advisable to protect and enforce its rights
against the Borrower and in and to the Mortgaged Property;
(c) take any actions pursuant to the Mortgages to cause the
foreclosure of one or more of the Mortgaged Properties, and effect the
sales of the related Foreclosed Properties called and conducted in any
manner permitted by law; and
(d) exercise any remedies of a secured party under the Uniform
Commercial Code and take any other appropriate action to protect and
enforce the rights and remedies of the Indenture Trustee or the Holders
of the Bonds hereunder.
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SECTION 5.05. OPTIONAL PRESERVATION OF TRUST ESTATE.
If (i) an Event of Default shall have occurred and be continuing and
(ii) no Bonds have been declared due and payable or such declaration and its
consequences are annulled and rescinded, the Indenture Trustee may in conclusive
reliance on the Servicer's determination that it is in the best interests of
such Holders, and upon request from the Holders of more than 50% of the
principal balance of the Outstanding Bonds shall, elect (by giving written
notice of such election to the Issuer) to refrain from commencing foreclosure or
other Proceedings to sell or liquidate the Mortgaged Properties and retain the
Trust Estate securing the Bonds intact, collect or cause the collection of the
proceeds thereof and make and apply all payments and deposits and maintain all
accounts in respect of such Bonds in accordance with the provisions of Articles
Two, Three and Eight. If the Indenture Trustee is unable to give or is stayed
from giving such notice to the Issuer for any reason whatsoever, such election
shall be effective as of the time of such determination or request, as the case
may be, notwithstanding any failure to give such notice, and the Indenture
Trustee shall give such notice upon the removal or cure of such inability or
stay (but shall have no obligation to effect such removal or cure). Any such
election may be rescinded with respect to any portion of the Trust Estate
securing the Bonds remaining at the time of such rescission by written notice to
the Indenture Trustee and the Issuer from the Holders of more than 50% of the
principal balance of the Outstanding Bonds.
SECTION 5.06. INDENTURE TRUSTEE MAY FILE PROOFS OF CLAIM.
(a) In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, composition or other
judicial Proceeding relative to the Issuer or any other obligor upon any of the
Bonds or the property of the Issuer or of such other obligor or their creditors,
the Indenture Trustee (irrespective of whether the Bonds shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Indenture Trustee shall have made any demand on the Issuer for the
payment of any overdue principal or interest) shall be entitled and empowered,
by intervention in such Proceeding or otherwise to:
(i) file and prove a claim for the whole amount of principal
and interest owing and unpaid in respect of the Bonds and file such
other papers or documents as may be necessary or advisable in order to
have the claims of the Indenture Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Indenture Trustee, the Fiscal Agent and the Servicer, and their
respective agents and counsel, in each case to the extent such amounts
are otherwise payable under this Indenture or the Servicing Agreement)
and of the Bondholders allowed in such Proceeding, and
(ii) collect and receive any moneys or other property payable
or deliverable on any such claims and to distribute the same; and any
receiver, assignee, trustee, liquidator, or sequestrator (or other
similar official) in any such Proceeding is hereby authorized by each
Bondholder to make such payments to the Indenture Trustee and, in
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the event that the Indenture Trustee shall consent to the making of
such payments directly to the Bondholders, to pay to the Indenture
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee, the Fiscal Agent
and the Servicer, and their respective agents and counsel, in each case
to the extent such amounts are otherwise payable under this Indenture
or the Servicing Agreement, and any other amounts due the Indenture
Trustee under Section 6.07 and due the Servicer under Section 2.02 of
the Servicing Agreement.
(b) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or accept or adopt on behalf of any
Bondholder any plan of reorganization, arrangement, adjustment or composition
affecting any of the Bonds or the rights of any Holder thereof, or to authorize
the Indenture Trustee to vote in respect of the claim of any Bondholder in any
such Proceeding.
SECTION 5.07. INDENTURE TRUSTEE MAY ENFORCE CLAIMS WITHOUT
POSSESSION OF BONDS.
All rights of action and claims under this Indenture or any of the
Bonds may be prosecuted and enforced by the Indenture Trustee without the
possession of any of the Bonds or the production thereof in any Proceeding
relating thereto, and any such Proceeding instituted by the Indenture Trustee or
its designee shall be brought in the name of the Indenture Trustee as trustee of
an express trust, and any recovery of judgment shall, after provision for the
payment of reasonable compensation, expenses, disbursements or advances of the
Indenture Trustee, the Fiscal Agent and the Servicer and their respective agents
and counsel, in each case to the extent such amounts are otherwise payable under
this Indenture or the Servicing Agreement, be for the benefit of the Holders of
the Bonds in accordance with their rights under this Indenture.
SECTION 5.08. APPLICATION OF MONEY COLLECTED.
If the Bonds have been declared due and payable following an Event of
Default and such declaration and its consequences have not been rescinded and
annulled, any Liquidation Proceeds (net of Liquidation Expenses) or other money
collected by the Indenture Trustee with respect to such Bonds pursuant to this
Article or otherwise and any other monies that may then be held or thereafter
received by the Indenture Trustee as security for such Bonds shall be applied in
the following order, at the date or dates fixed by the Indenture Trustee and, in
case of the distribution of the entire amount due on account of principal of,
and interest on, such Bonds, plus any Yield Maintenance Premium due thereon,
upon presentation and surrender thereof:
First: To pay the Indenture Trustee, all accrued but unpaid
Indenture Trustee Fees (and fees payable to the Class B Trustee or
other co-trustee, if any), and to the Servicer, all accrued but unpaid
Servicing Fees (in that order of priority), and to the extent of any
remaining Liquidation Proceeds (which proceeds shall be applied to pay
the foregoing fees only after any other amounts collected by the
Indenture Trustee have been applied), any accrued and unpaid Default
Servicing Fees with interest thereon at the
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the event that the Indenture Trustee shall consent to the Making of
such payments to the Bondholders, to pay to the Indenture Trustee any
amount due to it for the, reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee,, the Fiscal
Agent and the Servicer, and their respective agents arid counsel, in
each cm to the extent such amounts am otherwise payable under this
Indenture or the Servicing Agreement, and any other amounts due the
Indenture Trustee under Section 6.07 and due the Servicer under
Section 2.02 of the Servicing Agreement.
(b) Nothing herein contained shall be deemed to authorize the
Indenture Trustee to authorize or consent to or accept or adopt on behalf of
any Bondholder any plan of reorganization, arrangement, adjustment or
composition affecting any of the Bonds or the rights of any Holder thereof, or
to authorize the Indenture Trustee to vote in respect of the claim of any
Bondholder in any such Proceeding.
SECTION 5.07. Indenture Trustee May Enforce Claims without Posession of
Bonds.
All rights of action and claims under this Indenture or any of the
Bonds may be prosecuted and enforced by the Indcnture Trustee without the
possession of any of the Bonds or the production thereof in any Proceeding
relating thereto, and any such Proceeding instituted by the Indenture Trustee
or its designee shall be brought in the name of the Indenture Trustee as
trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of reasonable compensation, expenses,, disbursements
or advances of the Indenture Trustee, the Fiscal Agent and the Servicer and
their respective agents and counsel,, in each cast to the extent such amounts
are otherwise payable under this Indenture or the Servicing Agreement, be for
the benefit of the Holders of the Bonds in accordance with their rights under
this Indenture.
SECTION 5.08. Application of Money collected
If the Bonds have been declared due and payable following an Event of
Default and such declaration and its consequences have not been rescinded and
annulled, any Liquidation Proceeds (net of Liquidation Expenses) or other money
collected by the Indenture Trustee with respect to such Bonds pursuant to this
Article or otherwise and any other monies that may then be held or thereafter
received by the Indenture Trustee as security for such Bonds shall be applied
in the following order, at the date or dates fixed by the Indenture Trustee
and, in case,of the distribution of the entire amount due on account of
principal of, and interest on, such Bonds, plus any Yield Maintenance Premium
due thereon, upon presentation and surrender thereof:
First: To pay the Indenture Trustee, all accrued but unpaid
Indenture Trustee Fees (and fees payable to the Class B Trustee or other
co-trustee, if any), and to the Servicer, all accrued but unpaid Servicing Fees
(in that order of priority), and to the extent of any remaining Liquidation
Proceeds (which proceeds shall be applied to Pay the foregoing fees only after
any other amounts collected by the Indenture Trustee have ban applied), any
accrued and unpaid Default Servicing Fees with interest thereon at the
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Advance Rate and Disposition Fees payable therefrom to the Servicer
pursuant to the Servicing Agreement;
Second: To pay (or reimburse the Indenture Trustee or
the Servicer, in that order of priority) any Trust Estate Expenses;
Third: To pay the amount necessary to reimburse the
Fiscal Agent, the Indenture Trustee and the Servicer (in that order of
priority) first, for any Property Protection Advances (and Advance
Interest thereon) and second, any P&I Advances (and Advance Interest
thereon), to the extent not previously reimbursed;
Fourth: To the payment of amounts then due and unpaid
upon the Class A Bonds for interest on the principal balance of the
Outstanding Class A Bonds to the date
on which payment is made at the Class A Interest Rate;
Fifth: To the payment of the Class A Bonds, the
principal balance of the Outstanding Class A Bonds;
Sixth: To the payment of amounts then due and unpaid
upon the Class B Bonds for interest on the principal balance of the
Outstanding Class B Bonds to the date on which payment is made at the
Class B Interest Rate;
Seventh: To the payment of the Class B Bonds, the
principal balance of the Outstanding Class B Bonds;
Eighth: To pay an amount equal to the Yield Maintenance
Premium (unless such Event of Default shall have been declared during
the Prepayment Window) first with respect to the Class A Bonds and then
with respect to the Class B Bonds based on the amount of principal
being applied on such Class of Bonds to the extent such principal is
received prior to the date such principal otherwise was scheduled to be
received;
Ninth: To the payment of any unpaid Default Servicing
Fees (with interest thereon at the Advance Rate) due the Servicer; and
Tenth: To the payment of the remainder, if any, to the
Issuer.
SECTION 5.09. LIMITATION ON SUITS.
(a) No Holder of a Bond shall have any right to institute any
Proceedings, judicial or otherwise, with respect to this Indenture or the
Servicing Agreement, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless:
(i) such Holder has previously given written notice to the
Indenture Trustee of a continuing Event of Default;
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(ii) the Holders of Bonds representing not less than 25% of the
principal balance of the Outstanding Bonds shall have made written
request to the Indenture Trustee to institute Proceedings in respect of
such Event of Default in its own name as Indenture Trustee hereunder;
(iii) such Holder or Holders have offered to the Indenture
Trustee indemnity acceptable to the Indenture Trustee in full against
the costs, expenses and liabilities to be incurred in compliance with
such request;
(iv) the Indenture Trustee for 60 days after its receipt of
such notice, request and offer of indemnity has failed to institute any
such Proceeding; and
(v) no direction inconsistent with such written request has
been given to the Indenture Trustee during such 60-day period by the
Holders of Bonds representing more than 50% of the principal balance of
the Outstanding Bonds;
it being understood and intended that no one or more Holders of Bonds shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Bonds or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided and for the equal and ratable benefit of all the Holders
of Bonds.
(b) In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of Bonds,
each representing less than 50% of the principal balance of the Outstanding
Bonds, the Indenture Trustee in its sole discretion may take such action, if
any, as otherwise permitted under this Indenture. In taking or refraining from
taking such action, the Indenture Trustee shall not be required to take into
account any such requests.
SECTION 5.10. UNCONDITIONAL RIGHTS OF BONDHOLDERS TO RECEIVE
PRINCIPAL AND INTEREST.
Subject to the provisions in this Indenture (including Sections 3.01
and 5.03) limiting the right to recover amounts due on a Bond to recovery from
amounts in the Trust Estate, and subject to Section 5.09, the Holder of any Bond
shall have the right, to the extent permitted by applicable law, which right is
absolute and unconditional, to receive payment of principal of and interest on
such Bond as such principal and interest becomes due and payable and to
institute suit for the enforcement of any such payment, and such right shall not
be impaired without the consent of such Holder.
SECTION 5.11. RESTORATION OF RIGHTS AND REMEDIES.
If the Indenture Trustee or any Bondholder has instituted any
Proceeding to enforce any right or remedy under this Indenture and such
Proceeding has been discontinued or abandoned
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for any reason, or has been determined adversely to the Indenture Trustee or to
such Bondholder, then and in every such case the Issuer, the Indenture Trustee
and the Bondholders shall, subject to any determination in such Proceeding, be
restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Indenture Trustee and the Bondholders
shall continue as though no such Proceeding had been instituted.
SECTION 5.12. RIGHTS AND REMEDIES CUMULATIVE.
No right or remedy herein conferred upon or reserved to the Indenture
Trustee or to the Bondholders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 5.13. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Indenture Trustee or of any Holder of any
Bond to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or an acquiescence therein. Every right and remedy given by this Article
or by law to the Indenture Trustee or to the Bondholders may be exercised from
time to time, and as often as may be deemed expedient, by the Indenture Trustee
or by the Bondholders, as the case may be.
SECTION 5.14. CONTROL BY BONDHOLDERS.
The Holders of Bonds representing more than 50% of the principal
balance of the Outstanding Bonds on the applicable Record Date shall have the
right to direct the time, method and place of conducting any Proceeding for any
remedy available to the Indenture Trustee or exercising any trust or power
conferred on the Indenture Trustee under this Indenture or any of the Loan
Documents; provided that:
(a) such direction shall not be in conflict with any rule of
law or with this Indenture; and
(b) the Indenture Trustee may take any other action deemed
proper by the Indenture Trustee which is not inconsistent with such
direction; provided, however, that, subject to Section 6.01, the
Indenture Trustee need not take any action which it determines might
involve it in liability or be unjustly prejudicial to the Bondholders
not consenting.
SECTION 5.15. WAIVER OF PAST DEFAULTS.
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(a) Subject to Section 5.02(b), the Holders of Bonds representing more
than 50% of the principal balance of the Outstanding Bonds on the applicable
Record Date may on behalf of the Holders of all the Bonds waive any past Default
hereunder and its consequences, except a Default:
(i) in the payment of any installment of principal of, or
interest on, any Bonds; or
(ii) in respect of a covenant or provision hereof which under
Section 9.02 cannot be modified or amended without the consent of the
Holder of each Outstanding Bond affected.
(b) Upon any such waiver, such Default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
SECTION 5.16. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Bond by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Indenture Trustee for any action
taken, suffered or omitted by it as Indenture Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party litigant;
but the provisions of this Section shall not apply to any suit instituted by the
Indenture Trustee (or the Servicer on its behalf), to any suit instituted by any
Bondholder, or group of Bondholders, holding in the aggregate Bonds representing
more than 10% of the principal balance of the Outstanding Bonds, or to any suit
instituted by any Bondholder for the enforcement of the payment of the principal
of or the interest due on any Bond on or after the Stated Maturity thereof.
SECTION 5.17. WAIVER OF STAY OR EXTENSION LAWS.
The Issuer covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension of law wherever enacted,
now or at any time hereafter in force, which may affect the covenants in, or the
performance of, this Indenture; and the Issuer (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Indenture Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
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SECTION 5.18. RIGHTS UPON A NONRECOVERABLE ADVANCE DETERMINATION.
Notwithstanding anything herein to the contrary, if in connection with
any Event of Default the Servicer has recommended the commencement of
foreclosure or any Proceedings or actions which relate to the realization
against the Mortgaged Properties, or the Servicer has recommended the sale or
liquidation of any Foreclosed Property, and, in either case, the requisite
Bondholders have not approved such action pursuant to this Indenture, the
Servicer shall be entitled to commence such foreclosure, Proceedings or actions
and sell or liquidate such Foreclosed Property, as the case may be, in
accordance with Accepted Servicing Practices, upon any determination by the
Servicer or the Indenture Trustee that any previously made and unreimbursed
Advances with Advance Interest thereon constitute Nonrecoverable Advances.
SECTION 5.19. ACTION ON BONDS.
The Indenture Trustee's right to seek and recover judgment under this
Indenture shall not be affected by the seeking, obtaining or application of any
other relief under or with respect to this Indenture. Neither the lien of this
Indenture nor any rights or remedies of the Indenture Trustee or the Holders of
Bonds shall be impaired by the recovery of any judgment by the Indenture Trustee
against the Issuer or by the levy of any execution under such judgment upon any
portion of the Trust Estate.
SECTION 5.20. NO RECOURSE TO OTHER ASSETS OF THE ISSUER.
The Trust Estate Granted to the Indenture Trustee as security for the
Bonds serves as security only for the Bonds. Except as expressly provided in the
Loan Documents, Holders of the Bonds shall have no recourse against any other
assets of the Issuer and no judgment against the Issuer for any amount due with
respect to the Bonds may be enforced against any other assets of the Issuer, nor
may any prejudgment lien or other attachment be sought against any other assets
of the Issuer.
ARTICLE VI.
THE INDENTURE TRUSTEE
SECTION 6.01. DUTIES OF INDENTURE TRUSTEE.
(a) Upon any Default, the Indenture Trustee shall exercise such of the
rights and powers vested in it by this Indenture, and use the same degree of
care and skill in their exercise, as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs.
(b) Subject to Section 6.01(a):
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(i) The Indenture Trustee need perform only those duties that
are specifically set forth in this Indenture and no others and no
implied covenants or obligations shall be read into this Indenture
against the Indenture Trustee; and
(ii) In the absence of bad faith on its part, the Indenture
Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Indenture Trustee and conforming to the
requirements of this Indenture. The Indenture Trustee shall, however,
examine such certificates and opinions to determine whether they
conform to the requirements of this Indenture.
(c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) This paragraph does not limit the effect of subsection (b)
of this Section 6.01;
(ii) The Indenture Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is
proved that the Indenture Trustee was negligent in ascertaining the
pertinent facts; and
(iii) The Indenture Trustee shall not be liable with respect to
any action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 5.14 or exercising any
trust or power conferred upon the Indenture Trustee under this
Indenture.
(d) For all purposes under this Indenture, the Indenture Trustee shall
not be deemed to have notice or knowledge of any Default (other than an Issuer
Payment Default) unless a Responsible Officer assigned to and working in the
Indenture Trustee's corporate trust department has actual knowledge thereof or
unless written notice of any event which is in fact such an Event of Default or
Default is received by the Indenture Trustee at the Corporate Trust Office, and
such notice references the Bonds generally, the Issuer, the Trust Estate or this
Indenture.
(e) No provision of this Indenture shall require the Indenture Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it. In determining that such repayment or indemnity is
not reasonably assured to it, the Indenture Trustee must consider not only the
likelihood of repayment or indemnity by or on behalf of the Issuer but also the
likelihood of repayment or indemnity from amounts payable to it from the Trust
Estate pursuant to Sections 6.07 and 8.02(e).
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(f) Every provision of this Indenture that in any way relates to
the Indenture Trustee is subject to the provisions of this Section.
(g) Notwithstanding any extinguishment of all right, title and interest
of the Issuer in and to the Trust Estate following an Event of Default and a
consequent declaration of acceleration of the Maturity of the Bonds, whether
such extinguishment occurs through foreclosures of the Mortgages, the
acquisition of the Mortgaged Properties by the Indenture Trustee or otherwise,
the rights, powers and duties of the Indenture Trustee with respect to the Trust
Estate (or the proceeds thereof) and the Bondholders and the rights of
Bondholders shall continue to be governed by the terms of this Indenture.
SECTION 6.02. NOTICE OF DEFAULT.
Within 90 days after the occurrence of any Default known to the
Indenture Trustee, the Indenture Trustee shall transmit by mail to all Holders
of Bonds notice of each such Default, unless such Default shall have been cured
or waived; provided, however, that, except in the case of an Issuer Payment
Default, the Indenture Trustee shall be protected in withholding such notice if
and so long as the Responsible Officers of the Indenture Trustee in good faith
determine that the withholding of such notice is in the interests of the Holders
of the Bonds. Concurrently with the mailing of any such notice to the Holders of
the Bonds, the Indenture Trustee shall transmit by mail a copy of such notice to
the Rating Agency.
SECTION 6.03. RIGHTS OF INDENTURE TRUSTEE.
(a) The Indenture Trustee may rely on any document believed by it
to be genuine and to have been signed or presented by the proper Person. The
Indenture Trustee need not investigate any fact or matter stated in any such
document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel (at the Issuer's
expense) reasonably satisfactory in form and substance to the Indenture Trustee.
The Indenture Trustee shall not be liable for any action it takes or omits to
take in good faith in reliance on any such Certificate or Opinion.
(c) The Indenture Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Indenture Trustee shall not be liable for any action it takes
or omits to take in good faith which it believes to be authorized or within its
rights or powers.
SECTION 6.04. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF BONDS.
The recitals contained herein and in the Bonds, except the certificates
of authentication on the Bonds, shall be taken as the statements of the Issuer,
and the Indenture Trustee assumes no responsibility for their correctness. The
Indenture Trustee makes no representations with
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respect to the Trust Estate or as to the validity or sufficiency of this
Indenture or of the Bonds. The Indenture Trustee shall not be accountable for
the use or application by the Issuer of the Bonds or the proceeds thereof or any
money paid to the Issuer or upon Issuer Order pursuant to the provisions hereof.
SECTION 6.05. MAY HOLD BONDS.
The Indenture Trustee, the Fiscal Agent, any Agent, or any other agent
of the Issuer, in its individual or any other capacity, may become the owner or
pledgee of Bonds and, subject to Sections 6.08 and 6.13, may otherwise deal with
the Issuer or any Affiliate of the Issuer with the same rights it would have if
it were not Indenture Trustee, the Fiscal Agent, any Agent or such other agent.
SECTION 6.06. MONEY HELD IN TRUST.
Money held by the Indenture Trustee in trust hereunder need not be
segregated from other funds except to the extent required by this Indenture or
by law. The Indenture Trustee shall be under no liability for interest on any
money received by it hereunder except as otherwise agreed with the Issuer or
provided herein and except to the extent of income or other gain on investments
that are obligations of the Indenture Trustee, in its commercial capacity, and
income or other gain actually received by the Indenture Trustee on investments
that are obligations of others.
SECTION 6.07. COMPENSATION AND REIMBURSEMENT.
(a) The Issuer agrees:
(i) to pay to the Indenture Trustee the Indenture Trustee Fee
on a monthly basis, which Indenture Trustee Fee shall be payable from
amounts deposited in the Central Account pursuant to the Servicing
Agreement, for all services rendered by the Indenture Trustee
hereunder;
(ii) to pay to the Class B Trustee or co-trustee, if any, its
reasonable and customary fee not to exceed the Indenture Trustee Fee,
which fee shall be payable from amounts deposited in the Central
Account pursuant to the Servicing Agreement;
(iii) except as otherwise expressly provided herein, to
reimburse the Indenture Trustee upon its request for all reasonable
expenses and disbursements incurred or made by the Indenture Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
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(iv) to indemnify the Indenture Trustee and its agents for, and
to hold them harmless against, any loss, liability or expense incurred
without negligence or bad faith on their part, arising out of, or in
connection with, the acceptance or administration of this trust
(including action taken by the Indenture Trustee at the direction of
any Bondholders pursuant to this Indenture or at the direction of the
Servicer pursuant to Section 2.05(a) of the serving Agreement)
including the costs and expenses of defending themselves against any
claim in connection with the exercise or performance of any of their
powers or duties hereunder, provided that:
(1) with respect to any such claim, the Indenture
Trustee shall have given the Issuer written notice thereof
promptly after the Indenture Trustee shall have knowledge
thereof;
(2) while maintaining absolute control over its own
defense, the Indenture Trustee shall cooperate and consult
fully with the Issuer in preparing such defense; and
(3) notwithstanding anything to the contrary in this
Section 6.07(a)(iv), the Issuer shall not be liable for
settlement of any such claim by the Indenture Trustee entered
into without the prior consent of the Issuer.
(b) To the extent the fees and expenses itemized in Section
6.07(a) hereof are not otherwise paid, the Indenture Trustee
may pay such fees and expenses pursuant to Section 8.02(c) hereof from moneys
on deposit in the Collateral Proceeds Account.
(c) As security for the payment obligations of the Issuer pursuant to
the foregoing provisions of this Section 6.07, the Issuer hereby Grants to the
Indenture Trustee a lien ranking at all times senior to the lien of the Bonds
with respect to which any claim of the Indenture Trustee under this Section
arose and senior to all other liens, if any, upon all property and funds held or
collected as part of the Trust Estate for such Bonds by the Indenture Trustee in
its capacity as such. The Indenture Trustee shall not (i) exercise or enforce
such senior lien in any manner, or (ii) institute any Proceeding against the
Issuer for any payments, reimbursements, or indemnifications to the Indenture
Trustee or to enforce such lien, in either case unless (i) the Bonds have been
declared due and payable following an Event of Default pursuant to Section 5.02,
(ii) such acceleration of Maturity and its consequences have not been rescinded
and annulled, and (iii) moneys collected by the Indenture Trustee are being
applied in accordance with Section 5.08.
(d) Subject to the last sentence of Section 6.07(c), nothing in this
Section 6.07 shall be construed to limit (except as otherwise expressly provided
in subsection (c) of this Section 6.07) the exercise by the Indenture Trustee of
any right or remedy permitted under the Indenture or otherwise in the event of
the Issuer's failure to pay the amounts due the Indenture Trustee pursuant to
this Section 6.07.
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SECTION 6.08. ELIGIBILITY: DISQUALIFICATION.
This Indenture shall always have an Indenture Trustee who (i) shall be
a corporation, national bank or national banking association organized and doing
business under the laws of the United States or of any state or territory or the
District of Columbia which (A) is authorized under such law to exercise
corporate trust powers and (B) is subject to supervision or examination by
federal, state, territorial or District of Columbia authority and (ii) shall not
be an affiliate of the Issuer. The Indenture Trustee shall always have a
combined capital and surplus as stated in Section 6.09.
SECTION 6.09. INDENTURE TRUSTEE'S CAPITAL AND SURPLUS.
The Indenture Trustee shall at all times have a combined capital and
surplus of at least $50,000,000 or shall be a member of a bank holding company
system, the aggregate combined capital and surplus of which is at least
$50,000,000; provided, however, that the Indenture Trustee's separate capital
and surplus shall at all times be at least $150,000. If at any time the
Indenture Trustee shall cease to be eligible in accordance with the provisions
of this Section 6.09, it shall resign immediately in the manner and with the
effect hereinafter specified in this Article.
SECTION 6.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Indenture Trustee and no
appointment of a successor Indenture Trustee pursuant to this Article shall
become effective until the acceptance of appointment by the successor Indenture
Trustee under Section 6.11.
(b) The Indenture Trustee may resign at any time by giving written
notice thereof to the Issuer and the Servicer. If an instrument of acceptance by
a successor Indenture Trustee shall not have been delivered to the Indenture
Trustee within 30 days after the giving of such notice of resignation, the
resigning Indenture Trustee may petition any court of competent jurisdiction for
the appointment of a successor Indenture Trustee.
(c) The Indenture Trustee may be removed at any time by Act of the
Holders representing more than 50% of the principal balance of the Outstanding
Bonds delivered to the Indenture Trustee and to the Issuer.
(d) If at any time the Indenture Trustee shall cease to be eligible
under Section 6.09 or shall become incapable of acting or shall be adjudged a
bankrupt or insolvent, or a receiver of the Indenture Trustee or of its property
shall be appointed, or any public officer shall take charge or control of the
Indenture Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then, in any such case, the Issuer
by an Issuer Order may remove the Indenture Trustee, and the Issuer shall join
with the Indenture Trustee in the execution, delivery and performance of all
instruments and agreements necessary or proper to appoint a successor Indenture
Trustee and to vest in such successor Indenture Trustee any
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property, title, right or power deemed necessary or desirable, subject to the
other provisions of this Indenture; provided, however, if the Issuer does not
join in such appointment within fifteen (15) days after the receipt by it of a
request to do so, or in case an event of default has occurred and is continuing,
the Indenture Trustee may petition a court of competent jurisdiction to make
such appointment.
(e) If the Indenture Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of the Indenture
Trustee for any cause, the Issuer, by an Issuer Order shall promptly appoint a
successor Indenture Trustee. If within one year after such resignation, removal
or incapability or the occurrence of such vacancy a successor Indenture Trustee
shall be appointed by Act of the Holders of Bonds representing more than 50% of
the principal balance of the Outstanding Bonds delivered to the Issuer and the
retiring Indenture Trustee, the successor Indenture Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor
Indenture Trustee and supersede the successor Indenture Trustee appointed by the
Issuer. If no successor Indenture Trustee shall have been so appointed by the
Issuer or Bondholders and shall have accepted appointment in the matter
hereinafter provided, any Bondholder who has been a bona fide Holder of a Bond
for at least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the appointment of a
successor Indenture Trustee.
(f) The Issuer shall give notice of each resignation and each removal
of the Indenture Trustee and each appointment of a successor Indenture Trustee
to the Holders of Bonds and the Servicer. Each notice shall include the name of
the successor Indenture Trustee and the address of its Corporate Trust Office.
SECTION 6.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) Every successor Indenture Trustee and successor Fiscal Agent
appointed hereunder shall execute, acknowledge and deliver to the Issuer and the
retiring Indenture Trustee and retiring Fiscal Agent, respectively, an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Indenture Trustee and retiring Fiscal Agent, respectively, shall
become effective and such successor Indenture Trustee and successor Fiscal
Agent, without any further act, deed or conveyance, shall become vested with all
the rights, powers, trusts and duties of the retiring Indenture Trustee and
retiring Fiscal Agent, respectively. Notwithstanding the foregoing, on request
of the Issuer or the successor Indenture Trustee, such retiring Indenture
Trustee shall, upon payment of its charges, execute and deliver an instrument
transferring to such successor Indenture Trustee all the rights, powers and
trusts of the retiring Indenture Trustee, and shall duly assign, transfer and
deliver to such successor Indenture Trustee all property and money held by such
retiring Indenture Trustee hereunder subject nevertheless to its lien, if any,
provided for in Section 6.07. Upon request of any such successor Indenture
Trustee, the Issuer shall execute and deliver any and all instruments for more
fully and certainly vesting in and confirming to such successor Indenture
Trustee all such rights, powers and trusts.
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(b) No successor Indenture Trustee shall accept its appointment unless
at the time of such acceptance such successor Indenture Trustee shall be
qualified and eligible under this Article.
SECTION 6.12. MERGER OR CONSOLIDATION OF THE INDENTURE TRUSTEE AND
THE FISCAL AGENT.
Any Person into which the Indenture Trustee or the Fiscal Agent, as the
case may be, may be merged or converted or with which it may be consolidated, or
any Person resulting from any merger, conversion or consolidation to which the
Indenture Trustee or the Fiscal Agent shall be a party, or any Person succeeding
to the business of the Indenture Trustee or the Fiscal Agent, shall be the
successor of the Indenture Trustee or the Fiscal Agent, respectively, hereunder,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, anything herein to the contrary notwithstanding;
provided that with respect to the Indenture Trustee such Person shall be
eligible under the provisions of Section 6.08 and Section 6.09.
SECTION 6.13. CO-TRUSTEES AND SEPARATE INDENTURE TRUSTEES.
(a) At any time or times, (i) for the purpose of meeting the legal
requirements of any jurisdiction in which any of the Trust Estate may at the
time be located, the Issuer and the Indenture Trustee shall have power to
appoint, and (ii) if the Holders of Bonds representing more than 50% of the
principal balance of the Outstanding Class B Bonds determine that there is a
conflict between the Holders of Class A Bonds and the Holders of the Class B
Bonds, then such Holders of more than 50% of the principal balance of the
Outstanding Class B Bonds may notify the Issuer and Indenture Trustee of the
conflict, the Indenture Trustee shall appoint one or more Persons either to act
as co-trustee (such co-trustee, if appointed pursuant to clause (ii), the "Class
B Trustee"), jointly with the Indenture Trustee, of all or any part of the Trust
Estate, or to act as Class B Trustee of any such property, in either case with
such powers as may be provided in the instrument of appointment, and to vest in
such Person or Persons in the capacity aforesaid, any property, title, right or
power deemed necessary or desirable, subject to the other provisions of this
Section; provided, however, that in cases of appointment of a Class B Trustee,
the Indenture Trustee (in the event a Class B Trustee is appointed, the "Class A
Trustee") shall have sole possession of the Trust Estate in accordance with this
Indenture and shall continue to be solely responsible for maintaining the
Collateral Proceeds Account and receiving remittances from the Servicer for
deposit therein. In the event a Class B Trustee is appointed, the Servicer shall
only be required to act in accordance with the instructions of the trustee
acting on behalf of the Class of Bonds representing a majority of the aggregate
principal balance of all of the Bonds.
(b) The Issuer shall for such purpose join with the Indenture Trustee
in the execution, delivery and performance of all instruments and agreements
necessary or proper to appoint such co-trustee. If the Issuer does not join in
such appointment within 15 days after the receipt by it of a request to do so,
or in case an Event of Default has occurred and is continuing, the
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Indenture Trustee alone shall have power to make such appointment. All fees and
expenses of any Class B Trustee, co-trustee or separate trustee shall be payable
by the Issuer.
(c) Should any written instrument from the Issuer be required by any
Class B Trustee, co-trustee or separate trustee so appointed for more fully
confirming to such Class B Trustee, co-trustee or separate trustee such
property, title, right or power, any and all such instruments shall, on request,
be executed, acknowledged and delivered by the Issuer.
(d) Every co-trustee or Class B Trustee shall, to the extent permitted
by law, but to such extent only, be appointed subject to the following terms:
(i) The Bonds shall be authenticated and delivered and all
rights, powers, duties and obligations hereunder in respect of the
custody of securities, cash and other personal property held by, or
required to be deposited or pledged with, the Indenture Trustee
hereunder, shall be exercised, solely by the Indenture Trustee or Class
A Trustee, as the case may be.
(ii) The rights, powers, duties and obligations hereby
conferred or imposed upon the Indenture Trustee in respect of any
property covered by such appointment shall be conferred or imposed upon
and exercised or performed by the Indenture Trustee or by the Class A
Trustee and such co-trustee or Class B Trustee jointly, as shall be
provided in the instrument appointing such co-trustee or Class B
Trustee, except to the extent that under any law of any jurisdiction in
which any particular act is to be performed, the Indenture Trustee or
Class A Trustee shall be incompetent or unqualified to perform such
act, in which event such rights, powers, duties and obligations shall
be exercised and performed by such co-trustee or Class B Trustee.
(iii) The Indenture Trustee at any time, by an instrument in
writing executed by it, with the concurrence of the Issuer evidenced by
an Issuer Order, may accept the resignation of or remove any co-trustee
(except a Class B Trustee) appointed under this Section, and, in case
an Event of Default has occurred and is continuing, the Indenture
Trustee shall have power to accept the resignation of, or remove, any
such co-trustee (except a Class B Trustee) without the concurrence of
the Issuer. In the case of a Class B Trustee, Holders of more than 50%
of the principal balance of the Outstanding Class B Bonds shall have
the power to accept the resignation of or remove such Class B Trustee.
Upon the written request of the Indenture Trustee or, in the case of a
resignation or removal of a Class B Trustee, upon the written request
of the Holders of more than 50% of the principal balance of the
Outstanding Class B Bonds, the Issuer shall join with the Indenture
Trustee in the execution, delivery and performance of all instruments
and agreements necessary or proper to effectuate such resignation or
removal. A successor to any co-trustee or Class B Trustee so resigned
or removed may be appointed in the manner provided in this Section.
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(iv) No co-trustee or Class B Trustee hereunder shall be
personally liable by reason of any act or omission of the Indenture
Trustee, or any other such trustee hereunder. The Indenture Trustee
shall not be liable by reason of any act or omission of a co-trustee or
Class B Trustee to the extent such co-trustee or Class B Trustee is
appointed in good faith and with due care.
(v) Except in the case of any conflicts between Classes, any
Act of Bondholders delivered to the Indenture Trustee shall be deemed
to have been delivered to each such co-trustee and Class B Trustee; in
the case of conflicts between Classes, the Class A Trustee promptly
shall send a copy thereof to the Class B Trustee.
(vi) Any co-trustee or Class B Trustee must meet the
eligibility requirements of Section 6.08 hereof.
SECTION 6.14. SERVICING AGREEMENT AND CERTAIN DOCUMENTS.
(a) Each of the Indenture Trustee and the Fiscal Agent is hereby
authorized to execute and shall execute (i) the Servicing Agreement to provide
for the servicing of the Secured Obligations and such other matters provided for
therein and (ii) such other documents or agreements contemplated hereby and by
the Servicing Agreement; and the Indenture Trustee is hereby authorized to
execute and shall execute (i) the Subordination Agreement to provide for certain
matters relating to the Leases and the Lessee and such other matters provided
for therein and (ii) such other documents or agreements contemplated by the
Subordination Agreement. Each of the Indenture Trustee and Fiscal Agent shall
perform its duties and satisfy its obligations under the Servicing Agreement,
the Subordination Agreement (if applicable) and such other documents, including
its obligations to make Advances in certain circumstances pursuant to Section
4.03 of the Servicing Agreement. The Indenture Trustee shall take or cause to be
taken such action as may be appropriate to enforce its rights under the
Servicing Agreement, the Subordination Agreement and such other documents or
agreements referred to above.
(b) Upon any termination of the Servicer's rights and powers pursuant
to the Servicing Agreement, the rights and powers of the Servicer with respect
thereto shall vest in the Indenture Trustee, and the Indenture Trustee shall be
the successor in all respects to the Servicer in its capacity as Servicer under
the Servicing Agreement until the Indenture Trustee shall have appointed, with
the consent of the Rating Agency, a new servicer to serve as successor to the
Servicer under the Servicing Agreement. Upon appointment of a successor
Servicer, the Indenture Trustee, the Fiscal Agent and such Servicer shall enter
into a new servicing agreement in a form substantially similar to the Servicing
Agreement. In connection with any such appointment, the Indenture Trustee may
make such arrangements for the compensation of such successor as it and such
successor shall agree, but in no event shall such compensation of the successor
Servicer (including the Indenture Trustee) be in excess of that payable to the
original Servicer under the Servicing Agreement without confirmation from the
Rating Agency that such compensation will not adversely affect the then current
ratings of the Rating Agency on the Bonds.
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(c) Upon any termination of the Servicer's rights and powers pursuant
to the Servicing Agreement, the Indenture Trustee shall promptly notify the
Rating Agency. As soon as any successor Servicer is appointed, the Indenture
Trustee shall notify the Rating Agency, specifying in such notice the name and
address of such successor Servicer.
SECTION 6.15 REVIEW OF MORTGAGE FILES.
By execution and delivery of this Indenture, the Indenture Trustee
acknowledges receipt of the Mortgage Files in good faith and without actual
notice or knowledge of any adverse claim pertaining to the Mortgaged Properties.
The Indenture Trustee agrees, for the benefit of the Holders of the Bonds, to
review the Mortgage Files within 90 days after the Closing Date. The Indenture
Trustee's review shall be limited to a determination that all documents referred
to in the definition of the term Mortgage Files have been delivered with respect
to each such Mortgaged Property, that all such documents have been executed, and
that all such documents relate to the Mortgaged Properties. In performing such
review the Indenture Trustee may rely upon the purported genuineness and due
execution of any such document and on the purported genuineness of any signature
thereon. If the Indenture Trustee discovers any defect or omission in the
Mortgage Files or that any document required to be delivered to it has not been
delivered or that any document so delivered does not relate to any of the
Mortgaged Properties, it shall promptly notify in writing the Issuer and the
Servicer of such defect, omission or error, and the Issuer shall cure or correct
such defect, omission or error within 90 days of receipt of such written notice.
ARTICLE VII.
BONDHOLDERS' LISTS AND REPORTS
SECTION 7.01. ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND
ADDRESSES OF BONDHOLDERS.
(a) Upon the reasonable request of the Indenture Trustee, the Issuer
shall furnish or cause to be furnished to the Indenture Trustee a list, in such
form as the Indenture Trustee may reasonably require, of the names and addresses
of the Holders of Bonds as of a date not more than 10 days prior to the time
such list is furnished; provided, however, that so long as the Indenture Trustee
is the Bond Registrar, no such list shall be required to be furnished.
(b) In addition to furnishing to the Indenture Trustee the Bondholder
lists, if any, required under subsection (a), the Issuer shall also furnish all
Bondholder lists, if any, required under Section 3.03 at the times required by
said Section 3.03.
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SECTION 7.02. PRESERVATION OF INFORMATION: COMMUNICATIONS TO
BONDHOLDERS.
(a) The Indenture Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Holders of Bonds
contained in the most recent list, if any, furnished to the Indenture Trustee as
provided in Section 7.01 and the names and addresses of the Holders of Bonds
received by the Indenture Trustee in its capacity as Bond Registrar. The
Indenture Trustee may destroy any list furnished to it as provided in Section
7.01 upon receipt of a new list so furnished.
(b) Three or more Bondholders (each of whom has owned a Bond for at
least six months) may, by written request to the Indenture Trustee, obtain
access to the list of all Bondholders maintained by the Indenture Trustee for
the purpose of communicating with other Bondholders with respect to their rights
under the Indenture. The Indenture Trustee may elect not to afford the
requesting Bondholders access to the list of Bondholders if it agrees to mail
the desired communication or proxy, on behalf of the requesting Bondholders, to
all Bondholders.
SECTION 7.03. REPORTS BY INDENTURE TRUSTEE.
Within a reasonable time after the first of each year after the
issuance of the Bonds the Indenture Trustee shall mail to all Holders a brief
report dated as of such date that, to the extent not set forth in the Payment
Date Statement pursuant to Section 2.06(e), sets forth any information necessary
to enable the Bondholders to report any information required to be reported by
such Bondholders to the Internal Revenue Service by statute, regulation or
administrative ruling. In addition, the Indenture Trustee shall report in
writing to any Bondholder any other information reasonably requested by
Bondholder to enable it to prepare its federal tax returns.
SECTION 7.04. REPORTS BY ISSUER.
The Issuer, upon the request of any Bondholder, shall provide, or cause
to be provided to, such Bondholder such information as is necessary or
appropriate in the Issuer's sole discretion, to satisfy the reporting
requirements under Rule 144A.
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ARTICLE VIII.
ACCOUNTS, PAYMENTS OF INTEREST AND
PRINCIPAL, AND RELEASES
SECTION 8.01. COLLECTION OF MONEYS.
(a) Except as otherwise expressly provided herein, the Indenture
Trustee may demand payment or delivery of, and shall receive and collect,
directly and without intervention or assistance of any intermediary, all money
and other property payable to or receivable by the Indenture Trustee pursuant to
this Indenture. The Indenture Trustee shall hold all such money and property
received by it as part of the Trust Estate and shall apply it as provided in
this Indenture. Except as otherwise expressly provided in this Indenture, if a
default occurs in the making of any payment or performance required under the
Servicing Agreement, any Required Insurance Policy or any Loan Document, the
Indenture Trustee may, and upon the request of the Holders of Bonds representing
more than 50% of the principal balance of the Outstanding Bonds shall, take such
action as may be appropriate to enforce such payment or performance including
the institution and prosecution of appropriate Proceedings. Any such action
shall be without prejudice to any right to claim a Default or Event of Default
under this Indenture and to proceed thereafter as provided in Article V.
SECTION 8.02. COLLATERAL PROCEEDS ACCOUNT.
(a) On or before the Closing Date, the Indenture Trustee shall open at
the Corporate Trust Office one or more segregated accounts, each of which must
be an Eligible Account, and must be maintained in the name of "LaSalle National
Bank, as Indenture Trustee for Holders of RFS Financing Partnership, L.P.,
Commercial Mortgage Bonds, Series 1996-1 - Collateral Proceeds Account." The
Indenture Trustee shall promptly deposit in the Collateral Proceeds Account (i)
all Remittances received by it from the Servicer pursuant to the Servicing
Agreement, (ii) any P&I Advances paid pursuant to the Servicing Agreement, (iii)
all Prepayments and any related Yield Maintenance Premiums thereon received from
or on behalf of the Issuer, and (iv) all other amounts received for deposit in
the Collateral Proceeds Account. All amounts that are deposited from time to
time in the Collateral Proceeds Account, and all Permitted Investments, if any,
made with such moneys shall be held by the Indenture Trustee in the Collateral
Proceeds Account as part of the Trust Estate as herein provided, subject to
withdrawal by the Indenture Trustee for the purposes set forth in subsections
(c) and (d) of this Section 8.02. All funds withdrawn from the Collateral
Proceeds Account pursuant to subsection (c) of this Section 8.02 for the purpose
of making payments to the Holders of Bonds shall be applied in accordance with
Section 3.03.
(b) Amounts in the Collateral Proceeds Account may be invested and
reinvested by the Indenture Trustee in one or more Permitted Investments as the
Indenture Trustee may determine. Any and all income or other gain from such
investments shall be retained by the Indenture Trustee as additional
compensation. The Indenture Trustee shall not in any way be
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held liable by reason of any insufficiency in the Collateral Proceeds Account
resulting from any loss on any Permitted Investments other than any loss
resulting from the negligence or intentional misconduct by the Indenture
Trustee.
(c) Unless the Bonds have been declared due and payable pursuant to
Section 5.02 and moneys collected by the Indenture Trustee are being applied in
accordance with Section 5.08, on each Payment Date the Indenture Trustee shall
withdraw from the Collateral Proceeds Account, in the amounts required, for
application as follows:
(i) first, the amount necessary to pay, all accrued but unpaid
Indenture Trustee Fees (and any fees payable to the Class B Trustee or
other co-trustee, if any) and any accrued but unpaid Servicing Fees (in
that order of priority);
(ii) second, the amount necessary to pay (or reimburse the
Indenture Trustee or the Servicer, in that order of priority) any Trust
Estate Expenses;
(iii) third, the amount necessary to reimburse the Fiscal
Agent, the Indenture Trustee and the Servicer (in that order of
priority) for first, any Property Protection Advances (and Advance
Interest thereon) and second, any P&I Advances (and Advance Interest
thereon), previously made, to the extent not previously reimbursed, and
either shall retain or remit to the Fiscal Agent or the Servicer such
amounts as appropriate;
(iv) fourth, the amount necessary to pay Required Debt Service
Payments on the Bonds, to be paid as provided in Section 2.01;
(v) fifth, the amount necessary to pay Yield Maintenance
Premiums payable with respect to such Payment Date, to be paid on the
Bonds as provided in Section 2.01(e);
(vi) sixth, the amount necessary to pay any Prepayments made
with respect to such Payment Date, to be paid as provided in Section
2.01; and
(vii) seventh, the amount necessary to pay accrued but unpaid
Default Servicing Fees (with interest thereon at the Advance Rate).
Each of the foregoing amounts shall be the amount set forth in the applicable
Payment Date Statement.
(d) On each Special Payment Date, the Indenture Trustee shall withdraw
from the Collateral Proceeds Account all amounts deposited in the Collateral
Proceeds Account in connection with any Prepayments to be made on such Special
Payment Date and shall apply such amounts (i) first, to pay all items set forth
in clauses (i) through (iii) of Section 8.02(c); (ii) second, to pay all accrued
and unpaid interest with respect to the Prepayment, to be paid as
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provided in Section 2.01; and (iii) third, to pay the Prepayment made with
respect to such Special Payment Date, to be paid as provided in Section 2.01(e).
(e) On or after each Payment Date, so long as the Indenture Trustee
shall have prepared a Payment Date Statement in respect of such Payment Date and
shall have made the payments required pursuant to Section 8.02(c) and (d) and
required to be made as indicated in such Payment Date Statement, any amounts
remaining in the Collateral Proceeds Account (other than Prepayments (and
related accrued interest) deposited therein and payable on a subsequent Payment
Date and any income or other gain from amounts in the Collateral Proceeds
Account invested in Permitted Investments) shall be withdrawn from the
Collateral Proceeds Account by the Indenture Trustee and remitted to the
Servicer for deposit in the Central Account for application in accordance with
the Servicing Agreement.
SECTION 8.03. GENERAL PROVISIONS REGARDING THE COLLATERAL
PROCEEDS ACCOUNT.
(a) The Collateral Proceeds Account shall relate solely to the Bonds
and to the Mortgaged Properties, Permitted Investments and other property
securing the Bonds. Funds and other property in the Collateral Proceeds Account
shall not be commingled with any other moneys or property of the Issuer or any
Affiliate thereof. Notwithstanding the foregoing, the Indenture Trustee may hold
any funds or other property received or held by it as part of the Collateral
Proceeds Account in collective accounts maintained by it in the normal course of
its business and containing funds or property held by it for other Persons
(which may include the Issuer or an Affiliate), provided that such accounts are
under the sole control of the Indenture Trustee and the Indenture Trustee
maintains adequate records indicating the ownership of all such funds or
property and the portions thereof held for credit to the Collateral Proceeds
Account.
(b) If any amounts are needed for disbursement from the Collateral
Proceeds Account and sufficient uninvested funds are not available therein to
make such disbursement, the Indenture Trustee shall cause to be sold or
otherwise converted to cash a sufficient amount of the investments in the
Collateral Proceeds Account.
(c) The Indenture Trustee shall, at all times while any Bonds are
Outstanding, maintain in its possession, or in the possession of an agent whose
actions with respect to such items are under the sole control of the Indenture
Trustee, all certificates or other instruments, if any, evidencing any
investment of funds in the Collateral Proceeds Account. The Indenture Trustee
shall relinquish possession of such items, or direct its agent to do so, only
for purposes of collecting the final payment receivable on such investment or
certificate or, in connection with the sale of any investment held in the
Collateral Proceeds Account, against delivery of the amount receivable in
connection with any sale.
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SECTION 8.04. CENTRAL ACCOUNT
(a) On or before each Payment Date occurring in a month in which
Percentage Rent is due under the Leases, the Issuer shall deposit, or cause to
be deposited, an amount equal to the FF&E Quarterly Installment into the Central
Account for allocation by the Servicer pursuant to the Servicing Agreement to
the FF&E Reserve Sub-Account.
(b) The Issuer shall cause the Lessee to deposit all Rents due and
owing after the Closing Date into the Central Account, for allocation by the
Servicer of an amount with respect to each Payment Date equal to the Required
Debt Service Payment (less amounts required to reimburse the Servicer, Indenture
Trustee or Fiscal Agent for any previous P&I Advances) to the Debt Service
Payment Sub-Account in accordance with the Servicing Agreement (and allocation
of any excess to another Sub-Account or release to the Issuer, as provided in
the Servicing Agreement). If, on any Payment Date, the amounts on deposit in the
Debt Service Payment Sub-Account (plus amounts allocated to reimburse the
Servicer, Indenture Trustee, any co-trustee and Fiscal Agent for any accrued and
unpaid Servicing Fees, Indenture Trustee Fees (and fees of any co-trustees) and
Trust Estate Expenses and unreimbursed Advances with Advance Interest thereon)
are less than an amount equal to Required Debt Service Payments for such Payment
Date and such other amounts, then the Issuer shall deposit, or cause to be
deposited, into the Collateral Proceeds Account the amount of any such
shortfall, so that payments can be made in accordance with Sections 2.01 and
8.02 hereof.
(c) The Issuer may direct the Servicer to invest and reinvest the funds
in the Central Account in one or more Permitted Investments in such manner as
the Issuer shall direct in writing from time to time, or if the Issuer fails to
give any such directions or upon an Event of Default that is continuing, as the
Servicer may determine pursuant to the Servicing Agreement.
SECTION 8.05. REPORTS BY INDENTURE TRUSTEE TO BONDHOLDERS;
ACCESS TO CERTAIN INFORMATION.
(a) On each Payment Date the Indenture Trustee shall deliver the
written report required by Section 2.06(e). Any Bondholder that does not receive
information through DTC or a Participant may request that Indenture Trustee
reports required to be delivered under this Indenture be mailed directly to it
by written request to the Indenture Trustee (accompanied by verification of such
Bondholder's ownership interest) at the Indenture Trustee's Corporate Trust
Office.
(b) The Indenture Trustee shall make available at its Corporate Trust
Office, during normal business hours, for review by any Bondholder or any person
identified by the Issuer or a Bondholder to the Indenture Trustee as a
prospective Bondholder, originals or copies of the following items: (a) the
Indenture and any amendments thereto, (b) all Payment Date Statements delivered
to the Issuer since the Closing Date, (c) any Officers' Certificates and any
Officers' Certificate of the Servicer delivered to the Indenture Trustee since
the Closing Date as described in the Indenture, (d) any Accountants' reports
delivered to the Indenture Trustee since the
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Closing Date as required under the Servicing Agreement, (e) the most recent
property inspection report prepared by or on behalf of the Servicer in respect
of each Mortgaged Property and delivered to the Indenture Trustee, (f) the most
recent annual operating statement and rent roll, if any, collected by or on
behalf of the Servicer and delivered to the Indenture Trustee with respect to
each Mortgaged Property, (g) any and all modifications, waivers and amendments
of the terms of a Mortgage Loan entered into by the Servicer and delivered to
the Indenture Trustee, and (h) any and all Officers' Certificates of the
Servicer and other evidence delivered to the Indenture Trustee to support the
Servicer's determination that any Advance was not or, if made, would not be
recoverable. Copies of any and all of the foregoing items will be available from
the Indenture Trustee upon request; however, the Indenture Trustee will be
permitted to require payment of a sum sufficient to cover the reasonable costs
and expenses of providing such copies.
SECTION 8.06. RELEASE OF TRUST ESTATE.
(a) The Indenture Trustee may, and when required by the provisions of
this Indenture shall, execute such instruments or powers of attorney as are
prepared and delivered to it by the Servicer to release property from the lien
of this Indenture and the other Loan Documents, or convey the Indenture
Trustee's interest in the same, in a manner and under circumstances which are
not inconsistent with the provisions of this Indenture. No party relying upon an
instrument executed by the Indenture Trustee as provided in this Article VIII
shall be bound to ascertain the Indenture Trustee's authority, inquire into the
satisfaction of any conditions precedent or see to the application of any
moneys.
(b) The Indenture Trustee shall, at such time as there are no Bonds
Outstanding, release all of the Trust Estate to the Issuer (other than any cash
held for the payment of the Bonds pursuant to Section 3.03 or 4.02), subject,
however, to the payment and reimbursement of any unpaid or unreimbursed
Servicing Fees, Indenture Trustee Fees, Disposition Fees, Default Servicing Fees
(with interest thereon at the Advance Rate) and Advances with Advance Interest
thereon owed to the Servicer, the Indenture Trustee or the Fiscal Agent.
SECTION 8.07. AMENDMENT TO SERVICING AGREEMENT.
The Indenture Trustee may, without the consent of any Holder, enter
into or consent to any amendment or supplement to the Servicing Agreement,
subject to the requirements therein.
SECTION 8.08. APPOINTMENT OF SERVICER.
In order to facilitate the servicing of the Bonds and the Collateral
therefor, the Servicer has been appointed by the Indenture Trustee to, among
other things, retain, in accordance with the provisions of the Servicing
Agreement and this Indenture, all Remittances prior to the time they are
deposited into the Collateral Proceeds Account.
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SECTION 8.09. TERMINATION OF SERVICER.
If the Servicer materially breaches or fails to perform or observe any
obligations or conditions in the Servicing Agreement, the Indenture Trustee may
terminate the Servicer in accordance with the Servicing Agreement. If the
Indenture Trustee terminates the Servicer, the Indenture Trustee shall pursuant
to Section 5.03 of the Servicing Agreement assume the duties of the Servicer or
appoint a successor servicer acceptable to the Issuer and the Rating Agency and
meeting the requirements set forth in the Servicing Agreement.
SECTION 8.10. APPOINTMENT OF CUSTODIANS.
The Indenture Trustee may, at no additional cost to the Issuer, with
the consent of the Issuer, appoint one or more Custodians to hold all or a
portion of the Mortgage Files as agent for the Indenture Trustee. Each Custodian
shall (i) be a financial institution supervised and regulated by the Comptroller
of the Currency, the Board of Governors of the Federal Reserve System, the
Office of Thrift Supervision, or the Federal Deposit Insurance Corporation; (ii)
have combined capital and surplus of at least $10,000,000; (iii) be equipped
with secure, fireproof storage facilities, and, have adequate controls on access
to assure the safety and security of the Mortgage Files; (iv) utilize in its
custodial function employees who are knowledgeable in the handling of mortgage
documents and of the functions of a mortgage document custodian; and (v) satisfy
any other reasonable requirements that the Indenture Trustee may from time to
time deem necessary to protect the interests of Bondholders in the Mortgage
Files. Each Custodian shall be subject to the same obligations and standard of
care as would be imposed on the Indenture Trustee hereunder assuming the
Indenture Trustee retained the Mortgage Files directly. The appointment of one
or more Custodians shall not relieve the Indenture Trustee from any of its
obligations hereunder, and the Indenture Trustee shall remain responsible for
all acts and omissions of any Custodian. If the Servicer is appointed as a
Custodian in accordance with this Section 8.11, it shall fulfill its servicing
and custodial duties and obligations through separate departments and, if it
maintains a trust department, shall fulfill its custodial duties and obligations
through such trust department.
SECTION 8.11. THE FISCAL AGENT.
(a) All fees and expenses of the Fiscal Agent (other than interest owed
to the Fiscal Agent in respect of unreimbursed Advances or deposits) incurred by
the Fiscal Agent in connection with the transactions contemplated by this
Indenture or the Servicing Agreement shall be borne by the Indenture Trustee and
neither the Indenture Trustee nor the Fiscal Agent shall be entitled to
reimbursement therefor from any of the Trust Estate or the Issuer.
(b) The obligations of the Fiscal Agent set forth herein and in the
Servicing Agreement shall exist for so long as the initial Indenture Trustee
shall act as Indenture Trustee hereunder. The obligations of the Fiscal Agent
set forth herein and in the Servicing Agreement shall cease to exist to the
extent that the initial Indenture Trustee is no longer acting as Indenture
Trustee hereunder.
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(c) Any notice to the Indenture Trustee shall be deemed a notice
to the Fiscal Agent.
(d) The Fiscal Agent shall be entitled to be indemnified to the same
extent provided herein with respect to the Indenture Trustee.
ARTICLE IX.
SUPPLEMENTAL INDENTURES AND
MODIFICATIONS OF OTHER LOAN DOCUMENTS
SECTION 9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
BONDHOLDERS.
Without the consent of the Holders of any Bonds, the Issuer and the
Indenture Trustee, at any time and from time to time, may enter into one or more
indentures supplemental hereto, or modification or amendment to any other Loan
Document, in form satisfactory to the Indenture Trustee, for any of the
following purposes:
(a) to correct or amplify the description of any property at
any time subject to the lien of this Indenture and the related
Mortgage, or better to assure, convey and confirm unto the Indenture
Trustee any property subject or required to be subjected to the lien of
this Indenture and the related Mortgage, or to subject to the lien of
this Indenture additional property;
(b) to add to the conditions, limitations and restrictions on
the authorized amount, terms and purposes of the issuance,
authentication and delivery of any Bonds, as herein set forth,
additional conditions, limitations and restrictions thereafter to be
observed;
(c) to evidence the succession of another Person to the Issuer
to the extent expressly permitted under the Loan Documents and the
Partnership Agreement or Certificate of Limited Partnership of the
Issuer, and the assumption by any such successor of the covenants of
the Issuer herein and in the Bonds contained;
(d) to add to the covenants of the Issuer, for the benefit of
the Holders of all Bonds or to surrender any right or power herein
conferred upon the Issuer; and
(e) to cure any ambiguity, to correct or supplement any
provision herein which may be defective or inconsistent with any other
provision herein, or to amend any other provisions with respect to
matters or questions arising under this Indenture, which shall not be
inconsistent with the provisions of this Indenture provided that such
action shall not adversely affect in any material respect the interests
of the Holders of the Bonds, as evidenced by a letter from the Rating
Agency that the amendment would not
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result in the qualification, downgrading or withdrawal of the ratings
then assigned to the Bonds.
SECTION 9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF BONDHOLDERS.
(a) With the consent of the Holders of Bonds representing not less than
67% of the principal balance of the Outstanding Bonds by Act of said Holders
delivered to the Issuer and the Indenture Trustee, the Issuer and the Indenture
Trustee may enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to, or changing in any manner or eliminating
any of the provisions of, this Indenture or of modifying in any manner the
rights of the Holders of the Bonds under this Indenture; provided, however, that
no such supplemental indenture shall, without the consent of the Holder of each
Outstanding Bond affected thereby:
(i) change the Stated Maturity of the Bonds or the installment
of interest on the Bonds, reduce the principal amount of the Bonds, the
Bond Interest Rate on the Bonds or the Yield Maintenance Premium
payable with respect to principal Prepayments on the Bonds or the terms
under which such Yield Maintenance Premiums are required to be paid, or
change any place of payment where, or the coin or currency in which,
any Bond or any interest thereon is payable, or impair the right to
institute suit for the enforcement of the payment of the principal of
or interest on any Bond on or after the Stated Maturity thereof;
(ii) reduce the percentage of the principal balance of the
Outstanding Bonds, the consent of the Holders of which is required for
any such supplemental indenture, or the consent of the Holders of which
is required for any waiver of compliance with provisions of this
Indenture or Defaults hereunder and their consequences provided for in
this Indenture;
(iii) modify any of the provisions of this Section or Section
5.14, except to increase any percentage specified therein or to provide
that certain other provisions of this Indenture cannot be modified or
waived without the consent of the Holder of each Outstanding Bond
affected thereby;
(iv) modify or alter the provisions of the proviso to the
definition of the term "Outstanding";
(v) permit the creation of any lien other than the lien of
this Indenture with respect to any part of the Trust Estate (except for
Permitted Liens) or terminate the lien of this Indenture on any
property at any time subject hereto or deprive the Holder of any Bond
of the security afforded by the lien of this Indenture; or
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(vi) modify any of the provisions of this Indenture in such
manner as to affect the calculation of the Scheduled Payment for any
Payment Date (including the calculation of any of the individual
components of such Scheduled Payment).
(b) The Indenture Trustee may determine whether or not any Bonds would
be affected by any supplemental indenture in reliance upon an Opinion of Counsel
or confirmation from the Rating Agency that the then current ratings of the
Bonds would not be adversely affected by such supplemental indenture and any
such determination shall be conclusive upon the Holders of all Bonds, whether
theretofore or thereafter authenticated and delivered hereunder. The Indenture
Trustee shall not be liable for any such determination made in good faith.
(c) It shall not be necessary for any Act of Bondholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
(d) Promptly after the execution by the Issuer and the Indenture
Trustee of any supplemental indenture pursuant to this Section, the Indenture
Trustee shall mail to the Holders of the Bonds to which such supplemental
indenture relates a notice prepared by the Issuer setting forth in general terms
the substance of such supplemental indenture. Any failure of the Indenture
Trustee to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture.
SECTION 9.03. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Indenture Trustee shall be entitled to
receive, and (subject to Section 6.01) shall be fully protected in relying upon,
an Opinion of Counsel stating that the execution of such supplemental indenture
is authorized or permitted by this Indenture. The Indenture Trustee may, but
shall not be obligated to, enter into any such supplemental indenture that
affects the Indenture Trustee's own rights, duties or immunities under this
Indenture or otherwise.
SECTION 9.04. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture far all purposes; and every Holder
of Bonds to which such supplemental indenture relates which have theretofore
been or thereafter are authenticated and delivered hereunder shall be bound
thereby.
Notwithstanding any provision of this Article IX to the contrary, any
modification, amendment or supplement to this Indenture that is adverse to the
interests of the Servicer in any material respect shall not be binding upon the
Servicer without the Servicer's prior written consent.
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SECTION 9.05. REFERENCE IN BONDS TO SUPPLEMENTAL INDENTURES .
Bonds authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and if required by the
Indenture Trustee shall, bear a notation in form approved by the Indenture
Trustee as to any matter provided for in such supplemental indenture. If the
Issuer shall so determine, new Bonds so modified as to conform, in the opinion
of Indenture Trustee and the Issuer, to any such supplemental indenture may be
prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Outstanding Bonds.
SECTION 9.06. AMENDMENTS TO LOAN DOCUMENTS.
(a) With the consent of the Issuer and the Holders of Bonds
representing at least 66 2/3% of the principal balance of the Outstanding Bonds
by Act of said Holders delivered to the Issuer and the Indenture Trustee, the
Issuer and the Indenture Trustee may enter into a modification of any Loan
Document (other than the Indenture or the Bonds) for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, such Loan Document or of modifying in any manner the rights of the Holders
of the Bonds under such Loan Document; provided, however, that no such
modification shall, without the consent of the Holder of each Outstanding Bond
affected thereby, have any of the results enumerated in Section 9.02(a) (i)
through (vi).
(b) The Indenture Trustee may determine whether or not any Bonds would
be affected by any modification of a Loan Document in reliance upon an Opinion
of Counsel or confirmation from the Rating Agency that the then current ratings
of the Bonds would not be adversely affected by such modification, and any such
determination shall be conclusive upon the Holders of all Bonds, whether
theretofore or thereafter authenticated and delivered hereunder. The Indenture
Trustee shall not be liable for any such determination made in good faith. The
Indenture Trustee may, but shall not be obligated to, enter into any such
modification of a Loan Document that affects the Indenture Trustee's own rights,
duties or immunities under this Indenture or otherwise.
(c) It shall not be necessary for any Act of Bondholders under this
Section to approve the particular form of any proposed modification, but it
shall be sufficient if such Act shall approve the substance thereof.
(d) The Indenture Trustee shall deposit in the related Mortgage File an
original counterpart of the agreement relating to such modification, waiver or
amendment promptly following the execution thereof, except to the extent such
documents have been submitted to the applicable recording office, in which event
the Indenture Trustee shall place a copy of such document in the related
Mortgage File and shall place an original counterpart therein when the original
is returned from the recording office.
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SECTION 9.07. AMENDMENTS TO GOVERNING DOCUMENTS.
(a) The Indenture Trustee shall, upon Issuer Request, consent
to any proposed amendment to the Issuer's or the General Partner's governing
documents, or an amendment to or waiver of any provision of any other document
relating to the Issuer's or General Partner's governing documents, such consent
to be given without the necessity of obtaining the consent of the Holders of any
Bonds upon receipt by the Indenture Trustee of:
(i) an Opinion of Counsel to the effect that such amendment or
waiver will not adversely affect the interests of the Holders of the
Bonds and that all conditions precedent to such consent specified in
this Section 9.07 have been satisfied;
(ii) an Officers' Certificate, to which such proposed amendment
or waiver shall be attached, stating that such attached copy is a true
copy of the proposed amendment or waiver and that all conditions
precedent to such consent specified in this Section 9.07 have been
satisfied; and
(iii) written confirmation from the Rating Agency that the
implementation of the proposed amendment or waiver would not result in
the downgrading or withdrawal of the ratings then assigned to the
Bonds.
(b) Notwithstanding the foregoing, the Indenture Trustee may decline to
consent to a proposed waiver or amendment that adversely affects its own rights,
duties or immunities under this Indenture or otherwise.
(c) Nothing in this Section 9.07 shall be construed to require that any
Person obtain the consent of the Indenture Trustee to any amendment or waiver or
any provision of any document where the making of such amendment or the giving
of such waiver without obtaining the consent of the Indenture Trustee is not
prohibited by this Indenture or by the terms of the document that is the subject
of the proposed amendment or waiver.
ARTICLE X.
MISCELLANEOUS
SECTION 10.01. COMPLIANCE CERTIFICATES.
Upon any application or request by the Issuer to the Indenture Trustee
to take any action under any provision of this Indenture, the Issuer shall
furnish to the Indenture Trustee an Officers' Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, except that in the case of any such
application or request as to which the furnishing of such documents is
specifically required by
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any provision of this Indenture relating to such particular application or
request, no additional certificate need be furnished.
SECTION 10.02. FORM OF DOCUMENTS DELIVERED TO INDENTURE TRUSTEE.
(a) In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
(b) Any certificate or opinion of the Issuer may be based, insofar as
it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any Opinion of Counsel may be based on the written opinion of other
counsel, in which event such Opinion of Counsel shall be accompanied by a copy
of such other counsel's opinion and shall include a statement to the effect that
such counsel believes that such counsel and the Indenture Trustee may reasonably
rely upon the opinion of such other counsel.
(c) Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
(d) Wherever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Section 6.01(b)(2).
(e) Whenever in this Indenture it is provided that the absence of the
occurrence and continuation of a Default or Event of Default is a condition
precedent to the taking of any action by the Indenture Trustee at the request or
direction of the Issuer, then, notwithstanding that the satisfaction of such
condition is a condition precedent to the Issuer's right to make such request or
direction, the Indenture Trustee shall be protected in acting in accordance with
such request or direction if it does not have knowledge of the occurrence and
continuation of such Default or Event of Default as provided in Section 6.01(d).
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SECTION 10.03. ACTS OF BONDHOLDERS.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Bondholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Bondholders in person or by an agent
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Indenture Trustee, and, where it is hereby expressly required,
to the Issuer. Such instrument or instruments (and the action embodied therein
and evidenced thereby) are herein sometimes referred to as the "Act" of the
Bondholders signing such instrument or instruments. Proof of execution of any
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose of this Indenture and (subject to Section 6.01) conclusive in
favor of the Indenture Trustee and the Issuer, if made in the manner provided in
this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Whenever
such execution is by an officer of a corporation or a member of a partnership on
behalf of such corporation or partnership, such certificate or affidavit shall
also constitute sufficient proof of his authority.
(c) The ownership of Bonds shall be proved by the Bond Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Bonds shall bind the Holder of every
Bond issued upon the registration of transfer thereof or in exchange therefor or
in lieu thereof, in respect of anything done, omitted or suffered to be done by
the Indenture Trustee or the Issuer in reliance thereon, whether or not,
notation of such action is made upon such Bonds.
SECTION 10.04. NOTICES TO INDENTURE TRUSTEE AND ISSUER.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Bondholders or other documents provided or permitted by this Indenture
to be made upon, given or furnished to, or filed with:
(a) the Indenture Trustee by any Bondholder or by the Issuer
shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with and received by the Indenture
Trustee at its Corporate Trust Office; or
(b) the Issuer by the Indenture Trustee or by any Bondholder
shall be sufficient for every purpose hereunder (except for certain
Events of Default as provided in the definition of Event of Default) if
in writing and mailed, first-class postage prepaid, to the Issuer
addressed to it at 889 Ridge Lake Boulevard, Suite 100, Memphis, Shelby
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County, Tennessee 38120, or at any other address previously furnished
in writing to the Indenture Trustee by the Issuer.
SECTION 10.05. NOTICES AND REPORTS TO BONDHOLDERS; WAIVER OF NOTICES.
(a) Where this Indenture provides for notice to Bondholders of any
event or the mailing of any report to Bondholders, such notice or report shall
be sufficiently given (unless otherwise herein expressly provided) if mailed,
first-class postage prepaid, to each Bondholder affected by such event or to
whom such report is required to be mailed, at the address of such Bondholder as
it appears on the Bond Register, not later than the latest date, and not earlier
than the earliest date, prescribed for the giving of such notice or the mailing
of such report. In any case where a notice or report to Bondholders is mailed in
the manner provided above, neither the failure to mail such notice or report,
nor any defect in any notice or report so mailed, to any particular Bondholder
shall affect the sufficiency of such notice or report with respect to other
Bondholders, and any notice or report which is mailed in the manner herein
provided shall be conclusively presumed to have been duly given or provided.
(b) Where this Indenture provides for notice in any manner, such notice
may be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Bondholders shall be filed with the Indenture
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
(c) In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Bondholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed to
be a sufficient giving of such notice.
SECTION 10.06. RULES BY INDENTURE TRUSTEE.
The Indenture Trustee may make reasonable rules for any meeting of
Bondholders.
SECTION 10.07. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 10.08. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Issuer shall bind
its successors and assigns, whether so expressed or not.
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SECTION 10.09. SEPARABILITY.
In case any provision in this Indenture or in the Bonds shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 10.10. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Bonds, expressed or implied, shall
give to any Person, other than the parties hereto and their successors
hereunder, any Class B Trustee, separate trustee or co-trustee appointed under
Section 6.14, the Servicer and the Bondholders, any benefit or any legal or
equitable right, remedy or claim under this Indenture.
SECTION 10.11. LEGAL HOLIDAYS.
Except as otherwise provided herein or in the Glossary, in any case
where the date of any Payment Date, Special Payment Date or any other date on
which principal of or interest on any Bond is proposed to be paid shall not be a
Business Day, then (notwithstanding any other provision of the Bonds or this
Indenture) payment need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the nominal
date of any such Payment Date, Special Payment Date or other date for the
payment of principal of or interest on any Bond and no interest shall accrue for
the period from and after any such nominal date, provided such payment is made
in full on such next succeeding Business Day.
SECTION 10.12. GOVERNING LAW.
IN VIEW OF THE FACT THAT BONDHOLDERS MAY RESIDE IN MANY STATES AND
OUTSIDE THE UNITED STATES AND THE DESIRE TO ESTABLISH WITH CERTAINTY THAT THIS
INDENTURE WILL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH
THE LAW OF A STATE HAVING A WELL-DEVELOPED BODY OF COMMERCIAL AND FINANCIAL LAW
RELEVANT TO TRANSACTIONS OF THE TYPE CONTEMPLATED HEREIN, THIS INDENTURE AND
EACH BOND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED THEREIN.
SECTION 10.13. COUNTERPARTS.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
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SECTION 10.14. ISSUER OBLIGATION.
Except as expressly provided in the Loan Documents, no recourse may be
taken, directly or indirectly, against any organizer, General Partner or the
Indenture Trustee or of any predecessor or successor of the Issuer or the
Indenture Trustee with respect to the Issuer's obligations with respect to the
Bonds or the obligations of the Issuer or the Indenture Trustee under this
Indenture or any certificate or other writing delivered in connection herewith
or therewith.
SECTION 10.15. USURY.
The amount of interest payable or paid on any Bond under the terms of
this Indenture shall be limited to the Highest Lawful Rate. In the event any
payment of interest on any Bond exceeds the Highest Lawful Rate, the Issuer
stipulates that such excess amount will be deemed to have been paid as a result
of an error on the part of both the Indenture Trustee, acting on behalf of the
Holder of such Bond, and the Issuer, and the Holder receiving such excess
payment shall promptly, upon discovery of such error or upon notice thereof from
the Issuer or the Indenture Trustee, refund the amount of such excess or, at the
option of the Indenture Trustee, apply the excess to the payment of principal of
such Bond, if any, remaining unpaid. In addition, all sums paid or agreed to be
paid to the Indenture Trustee for the benefit of Holders of Bonds for the use,
forbearance or detention of money shall, to the extent permitted by applicable
law, be amortized, prorated, allocated and spread throughout the full term of
such Bonds.
SECTION 10.16 STREIT ACT.
Any provisions required to be contained in this Indenture by Section
126 and Section 130- k of Article 4-A of the New York Real Property Law are
hereby incorporated, and such provisions shall be in addition to those conferred
or imposed by this Indenture, provided, however, that to the extent that such
Section 126 or Section 130-k shall not apply to this Indenture, said Section 126
or Section 130-k should at any time be repealed or cease to apply to this
Indenture, or be construed by judicial decision to be inapplicable, said Section
126 or Section 130-k as the case may be shall cease to have any further effect
upon the provisions of this Indenture. In case of a conflict between the
provisions of this Indenture and any mandatory provisions of Article 4-A of the
New York Real Property Law, such mandatory provisions of said Article 4-A shall
prevail, provided that if said Article 4-A shall not apply to this Indenture,
should at any time be repealed, or cease to apply to this Indenture, or be
construed by judicial decision to be inapplicable, such mandatory provisions of
such Article 4-A shall cease to have any further effect upon the provisions of
this Indenture.
*****
[SIGNATURES TO FOLLOW]
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IN WITNESS WHEREOF, the Issuer, acting through its duly authorized
general partner, the Indenture Trustee and the Fiscal Agent have caused this
Indenture to be duly executed by officers thereunto duly authorized, all as of
the day and year first above written.
RFS FINANCING PARTNERSHIP, L.P.,
a Tennessee limited partnership
By: RFS FINANCING CORPORATION,
a Tennessee corporation,
its duly authorized general partner
By:
LASALLE NATIONAL BANK,
as Indenture Trustee
By:
ABN AMRO BANK N.V.,
as Fiscal Agent
By:
<PAGE> 1
EXHIBIT 10.11
Prepared by, recording RECORDER'S STAMP
requested by, and
when recorded return to:
Hunton & Williams
One NationsBank Plaza, Suite 2650
101 South Tryon Street
Charlotte, North Carolina 28280
Attention: Michael Nedzbala, Esq.
DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FIXTURE FINANCING STATEMENT
FROM
RFS FINANCING PARTNERSHIP, L.P.,
the Borrower,
TO
__________________
Trustee
FOR THE BENEFIT OF
LASALLE NATIONAL BANK,
as Indenture Trustee,
the Beneficiary
Relating to Premises in:
City/Town:
County:
State:
Dated as of: November 21, 1996
- - ------------------------------------------------------------------------------
[THE INDEBTEDNESS SECURED BY THIS DEED OF TRUST IS ALSO SECURED BY OTHER
MORTGAGES AND DEEDS OF TRUST ENCUMBERING OTHER PROPERTY LYING OUTSIDE OF THE
STATE OF ________________. PURSUANT TO SECTION __________ OF THE CODE OF
_____________, AS AMENDED, RECORDATION TAX SHALL BE BASED UPON $_____________,
BEING THE ALLOCATED LOAN AMOUNT, THAT IS, THE PROPORTION THAT THE VALUE OF THE
REAL PROPERTY ENCUMBERED BY THIS DEED OF TRUST BEARS TO THE ENTIRE AMOUNT
CONVEYED BY ALL SUCH MORTGAGES AND DEEDS OF TRUST.]
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
Page No.
<S> <C>
RECITALs .............................................................................................. 1
GRANTING CLAUSES....................................................................................... 2
SECTION 1. GENERAL TERMS........................................................................ 6
Section 1.01. The Borrower's Bonds........................................................ 6
Section 1.02. Prepayment.................................................................. 6
Section 1.03. Release of the Mortgaged Property........................................... 6
SECTION 2. PAYMENTS............................................................................. 8
Section 2.01. Payments.................................................................... 8
Section 2.02. Setoff...................................................................... 8
SECTION 3. REPRESENTATIONS AND WARRANTIES CONCERNING THE
BORROWER............................................................................................... 8
Section 3.01. Partnership Existence....................................................... 8
Section 3.02. No Litigation............................................................... 8
Section 3.03. No Breach................................................................... 8
Section 3.04. Partnership Action.......................................................... 9
Section 3.05. Approvals................................................................... 9
Section 3.06. ERISA....................................................................... 9
Section 3.07. Impositions................................................................. 9
Section 3.08. Investment Company Act...................................................... 10
Section 3.09. General Partner............................................................. 10
Section 3.10. Restricted Activities of Borrower and General Partner....................... 10
Section 3.11. Other Activities............................................................ 10
Section 3.12. Employees................................................................... 13
Section 3.13. Solvency.................................................................... 13
Section 3.14. No Foreign Person........................................................... 13
SECTION 4. THE BORROWER'S REPRESENTATIONS AND WARRANTIES CON-
CERNING MORTGAGED PROPERTY........................................................... 13
Section 4.01. Improvements................................................................ 13
Section 4.02. Casualty; Condemnation...................................................... 13
Section 4.03. Zoning and Other Laws....................................................... 13
Section 4.04. Lease....................................................................... 14
Section 4.05. Permits..................................................................... 14
Section 4.06. Utilities................................................................... 14
Section 4.07. [Reserved].................................................................. 14
</TABLE>
(i)
<PAGE> 3
<TABLE>
Page No.
<S> <C>
Section 4.08. Hazardous Materials......................................................... 14
Section 4.09. Warranty of Title........................................................... 15
Section 4.10 Flood Insurance............................................................. 15
Section 4.11 Condition of Mortgaged Property............................................. 15
SECTION 5. COVENANTS OF THE BORROWER............................................................ 15
Section 5.01. Financial Statements........................................................ 15
Section 5.02. Litigation, Etc............................................................. 16
Section 5.03. Partnership Existence, Etc.................................................. 16
Section 5.04. Prohibition of Fundamental Changes.......................................... 17
Section 5.05. Neither a Foreign Person nor an Investment Company.......................... 17
Section 5.06. ERISA....................................................................... 17
Section 5.07. Limitation on Liens......................................................... 18
Section 5.08. Indebtedness................................................................ 18
Section 5.09. Investments................................................................. 18
Section 5.10. Dividend Payments........................................................... 18
Section 5.11. Partnership Activities; Books and Records................................... 19
Section 5.12. Payment for Labor and Materials............................................. 19
Section 5.13. Modifications of Lease...................................................... 19
Section 5.14. [Reserved].................................................................. 19
Section 5.15. Performance of Other Agreements............................................. 19
Section 5.16. Operation of the Mortgaged Properties....................................... 20
Section 5.17. Environmental Matters....................................................... 20
Section 5.18. Insurance; Casualty......................................................... 21
Section 5.19. Payment of Impositions, Liens and Utilities................................. 26
Section 5.20. Condemnation................................................................ 27
Section 5.21. Leases and Rents............................................................ 28
Section 5.22. Maintenance of Mortgaged Property; Waste.................................... 30
Section 5.23. Alterations................................................................. 30
Section 5.24. Compliance with Applicable Law.............................................. 30
Section 5.25. Transfer or Encumbrance of the Mortgaged Property........................... 31
Section 5.26. Estoppel Certificates....................................................... 31
Section 5.27. Operating of Hotel.......................................................... 31
Section 5.28. Changes in the Laws Regarding Taxation...................................... 31
Section 5.29. No Credits on Account of the Secured Obligation............................. 32
Section 5.30. Documentary Stamps.......................................................... 32
Section 5.31. Right of Entry.............................................................. 32
Section 5.32. Performance of Other Agreements............................................. 32
</TABLE>
(ii)
<PAGE> 4
<TABLE>
Page No.
<S> <C>
SECTION 6. RIGHTS AND REMEDIES.................................................................. 32
Section 6.01. Appraisals.................................................................... 32
Section 6.02. Events of Default............................................................. 32
Section 6.03. Remedies...................................................................... 33
Section 6.04. Right to Cure Defaults........................................................ 37
Section 6.05. Appointment of Receiver....................................................... 38
SECTION 7. WAIVER............................................................................... 38
Section 7.01. Waiver of Counterclaim........................................................ 38
Section 7.02. Sole Discretion of the Beneficiary............................................ 38
Section 7.03. Waiver of Notice.............................................................. 38
Section 7.04. Other Mortgages; No Election of Remedies...................................... 39
Section 7.05. Notices....................................................................... 40
Section 7.06. Non-Waiver.................................................................... 41
SECTION 8. SECURITY AGREEMENT RECORDATION....................................................... 41
Section 8.01. Security Agreement............................................................ 41
Section 8.02. Recording of Deed of Trust, etc............................................... 42
SECTION 9. RIGHTS OF THE BENEFICIARY............................................................ 43
Section 9.01. Further Acts, etc............................................................. 43
Section 9.02. Recovery of Sums Required To Be Paid.......................................... 43
Section 9.03. Costs of Defending and Upholding the Lien..................................... 44
Section 9.04. Additional Actions............................................................ 44
Section 9.05. Additional Security........................................................... 44
SECTION 10. APPLICABLE LAWS........................................................................... 44
Section 10.01. Usury Laws.................................................................... 44
Section 10.02. Governing Law; Jurisdiction; Waiver of Trial by Jury.......................... 45
SECTION 11. MISCELLANEOUS............................................................................. 46
Section 11.01. Exculpation................................................................... 46
Section 11.02. Duplicate Originals........................................................... 46
Section 11.03. Indemnity and the Beneficiary's Costs......................................... 46
Section 11.04. Incorporation by Reference.................................................... 47
Section 11.05. Amendments.................................................................... 48
Section 11.06. Headings, etc................................................................. 48
Section 11.07. Addresses of Mortgaged Properties............................................. 48
Section 11.08. Wire Transfer................................................................. 48
Section 11.09. Severability.................................................................. 48
</TABLE>
(iii)
<PAGE> 5
<TABLE>
Page No.
<S> <C> <C>
Section 11.10. Covenants To Run with the Land................................................ 49
Section 11.11. Trustee's Duties.............................................................. 49
Section 11.12. Business Days................................................................. 50
Section 11.13. Relationship.................................................................. 50
Section 11.14. No Merger..................................................................... 50
</TABLE>
LIST OF SCHEDULES AND EXHIBITS
<TABLE>
<S> <C>
Schedule A Description of Premises
Schedule B Exceptions to Good Condition
Schedule C Environmental Reports
Schedule D Street Address of Mortgaged Property and Other Mortgaged Property
Annex I Local Law Provisions
</TABLE>
(iv)
<PAGE> 6
DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY
AGREEMENT AND FIXTURE FINANCING STATEMENT
DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND
FIXTURE FINANCING STATEMENT ("Deed of Trust") dated as of November 21, 1996,
made by RFS Financing Partnership, L.P. (the "Borrower"), a Tennessee limited
partnership, having an address 889 Ridge Lake Boulevard, Suite 100, Memphis,
Shelby County, Tennessee 38120, as borrower, assignor and debtor, in favor of
________________________, as trustee, and his or its successors in trust hereby
created (the "Trustee") as trustee for the benefit of , as
indenture trustee under an indenture (the "Indenture") dated of even date
herewith, between the Borrower and such trustee, (together with its successors
and assigns, the "Beneficiary"), having an address at 135 South LaSalle Street,
17th Floor, Chicago, Illinois 60674-4107, as beneficiary, assignee and secured
party.
RECITALS:
A. Except as otherwise specified or as the context may otherwise
require, capitalized terms used herein shall have the meanings assigned to those
terms in the "Glossary" attached as Annex I to the Indenture.
B. The Borrower and the Beneficiary are executing the Indenture,
pursuant to which certain bonds, dated as of the date hereof in the aggregate
principal amount of SEVENTY-FIVE MILLION Dollars ($75,000,000) (the "Bonds")
will be issued.
C. The Borrower is the owner of the real property described on Schedule
A annexed hereto, together with all buildings, structures and improvements
located thereon.
D. A condition to the issuance of the Bonds is that the Borrower
execute and deliver this Deed of Trust and the Other Mortgages.
E. The Stated Maturity of the Class A Bonds is August 20, 2008 and of
the Class B Bonds is November 21, 2011.
F. The Beneficiary will hold its interest in and to, inter alia, this
Deed of Trust as indenture trustee for the benefit of all Bondholders who hold
Bonds issued pursuant to the Indenture.
G. This Deed of Trust is given by the Borrower in favor of the
Beneficiary to secure the payment and performance in full when due, whether at
Stated Maturity, by acceleration or otherwise (including, without limitation,
the payment of interest and other amounts which would accrue and become due but
for the filing of a petition in bankruptcy (whether or not a claim is allowed
against the Borrower for such interest or other amounts in any such bankruptcy
proceeding) or the operation of the automatic stay under Section 362(a) of the
Bankruptcy Code, 11 U.S.C. ss. 362(a)), of (i) all payment, performance and
other obligations of the Borrower now existing or hereafter arising under or in
respect of the Indenture, the Bonds and the other Loan
<PAGE> 7
Documents (including, without limitation, the obligation to pay principal,
interest and all other charges, fees, expenses, indemnities and other payments
related to or in respect of the obligations contained in the Bonds and the other
Loan Documents), and (ii) without duplication of the obligations described in
clause (i), all payment, performance and other obligations of the Borrower now
existing or hereafter arising under or in respect of this Deed of Trust,
including, without limitation, with respect to all charges, fees, expenses,
indemnities and other payments related to or in respect of the obligations
contained in this Deed of Trust (the obligations described in clauses (i) and
(ii), collectively, the "Secured Obligations").
H. The obligations of the Borrower are limited recourse obligations as
more particularly described in Section 11.01 hereof.
GRANTING CLAUSES:
For and in consideration of the sum of Ten Dollars ($10.00) and other
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrower hereby grants, transfers, bargains, sells, assigns
and conveys to Trustee in trust, with power of sale and right of entry and
possession, and hereby grants to the Beneficiary, a security interest in and
upon, in and to the following property and rights, whether now owned or held or
hereafter acquired (collectively, the "Mortgaged Property"):
GRANTING CLAUSE ONE
All right, title and interest in and to the real property described on
Schedule A hereto (the "Premises").
GRANTING CLAUSE TWO
TOGETHER WITH any and all buildings, structures, fixtures, additions,
enlargements, extensions, modifications, repairs, replacements and improvements
now or hereafter located on the Premises or any part thereof (collectively, the
"Improvements").
GRANTING CLAUSE THREE
TOGETHER WITH all easements, rights-of-way, strips and gores of land,
streets, ways, alleys, sidewalks, passages, sewer rights, water, water courses,
water rights and powers, air rights and development rights, zoning rights and
all estates, rights, titles, interests, privileges, liberties, tenements,
hereditaments and appurtenances of any nature whatsoever in any way belonging,
relating or pertaining to the Premises or any part thereof, and the reversion
and reversions, remainder and remainders, and all land lying in the bed of any
street, road or avenue, opened or proposed, in front of or adjoining the
Premises or any part thereof to the center line thereof and all the estates,
rights, titles, interests, dower and rights of dower, courtesy and rights of
courtesy, property, possession, claim and demand whatsoever, both in law
<PAGE> 8
2
and in equity, of the Borrower of, in and to the Mortgaged Property and every
part and parcel thereof, with the appurtenances thereto.
GRANTING CLAUSE FOUR
TOGETHER WITH all machinery, equipment, fixtures (including but not
limited to all heating, ventilating, air conditioning, plumbing, lighting,
communications and elevator fixtures), appliances, machinery and other property
of every kind and nature whatsoever owned by the Borrower, or in which the
Borrower has or shall have an interest (to the extent of such interest), now or
hereafter located upon the Mortgaged Property, or appurtenant thereto, and
usable in connection with the present or future operation and occupancy of the
Mortgaged Property and all building equipment, materials and supplies of any
nature whatsoever owned by the Borrower, or in which the Borrower has or shall
have an interest (to the extent of such interest), now or hereafter located upon
the Mortgaged Property, or appurtenant thereto, or usable in connection with the
present or future operation and occupancy of the Mortgaged Property (hereinafter
collectively called the "Equipment"), and the right, title and interest of the
Borrower in and to any of the Equipment which may be subject to any security
agreements (as defined in the Uniform Commercial Code) superior in lien to the
lien of this Deed of Trust. In connection with Equipment which is leased to the
Borrower or which is subject to a lien or security interest which is superior to
the lien of this Deed of Trust, this Deed of Trust shall also cover all right,
title and interest of the Borrower in and to all deposits, and the benefit of
all payments now or hereafter made, with respect to such Equipment.
GRANTING CLAUSE FIVE
TOGETHER WITH all awards or payments, including interest thereon, which
may heretofore and hereafter be made with respect to the Mortgaged Property, or
any part thereof, whether from the exercise of the right of eminent domain
(including but not limited to any transfer made in lieu of or in anticipation of
the exercise of said right), or for a change of grade, or for any other injury
to or decrease in the value of the Mortgaged Property.
GRANTING CLAUSE SIX
TOGETHER WITH all leases and subleases (including, without limitation,
all guarantees thereof) and other agreements affecting the use, enjoyment and/or
occupancy of the Mortgaged Property, or any part thereof, now or hereafter
entered into, including, without limitation, the Lease (collectively, the
"Leases") and all oil and gas or other mineral royalties, bonuses and rents,
fees, charges, accounts, credit card slips and other payments for the use or
occupancy of rooms and other public facilities in the Mortgaged Property
(including, without limitation, all guaranties, letters of credit, bonds or cash
security deposited thereunder to secure performance by the tenants or subtenants
thereunder to the extent not prohibited by law), profits and proceeds from the
Mortgaged Property (collectively, the "Rents") and all proceeds from the sale or
other disposition of the Leases and the right to receive and apply the Rents to
the payment of the Secured Obligations.
3
<PAGE> 9
GRANTING CLAUSE SEVEN
TOGETHER WITH all proceeds of and any unearned premiums on any
insurance policies covering the Mortgaged Property, or any part thereof,
including, without limitation, the right to receive and apply the proceeds of
any insurance, judgments, or settlements made in lieu thereof, for damage to the
Mortgaged Property, or any part thereof.
GRANTING CLAUSE EIGHT
TOGETHER WITH the right, in the name and on behalf of the Borrower to
appear in and defend any action or proceeding brought with respect to the
Mortgaged Property or any part thereof and, while an Event of Default remains
uncured, to commence any action or proceeding to protect the interest of the
Beneficiary in the Mortgaged Property or any part thereof.
GRANTING CLAUSE NINE
TOGETHER WITH all accounts and accounts receivable, contract rights,
interests, estate or other claims, both in law and in equity, which the Borrower
now has or may hereafter acquire in the Mortgaged Property or any part thereof.
GRANTING CLAUSE TEN
TOGETHER WITH all rights which the Borrower now has or may hereafter
acquire, to be indemnified and/or held harmless from any liability, loss,
damage, cost or expense (including, without limitation, attorneys' fees and
disbursements) relating specifically to the Mortgaged Property or any part
thereof.
GRANTING CLAUSE ELEVEN
TOGETHER WITH all right, title and interest of the Borrower in and to
all extensions, improvements, betterments, renewals, substitutes and
replacements of, and all additions and appurtenances to, the Mortgaged Property,
hereafter acquired by, or released to the Borrower or constructed, assembled or
placed by the Borrower on the Mortgaged Property, and all conversions of the
security constituted thereby, immediately upon such acquisition, release,
construction, assembling, placement or conversion, as the case may be, and in
each such case, without any further mortgage, grant, conveyance, assignment or
other act by the Borrower, shall become subject to the lien of this Deed of
Trust as fully and completely and with the same effect, as though now owned by
the Borrower and specifically described herein.
GRANTING CLAUSE TWELVE
TOGETHER WITH all transferable occupancy certificates, plans and
specifications, franchise agreements, license agreements, consents, management
agreements, service contracts and other licenses (including liquor licenses that
the Borrower presently holds, if any, or may
4
<PAGE> 10
hold at any time in the future), certificates, permits, authorizations,
agreements and contracts necessary or desirable for the use, occupation,
development, construction and operation of the Premises or other portions of the
Mortgaged Property or any part thereof, including all renewals, extensions and
replacements thereof, whether issued in the name of the Borrower or in the name
of any predecessor in title.
GRANTING CLAUSE THIRTEEN
TOGETHER WITH all of the Borrower's right, title and interest, if any,
in all surveys, title insurance policies, drawings, plans, specifications, file
materials, operating and maintenance records, catalogues, tenant lists,
correspondence, advertising materials, operating manuals, warranties,
guaranties, appraisals, studies, trade names, good will, books and records and
data relating to the Premises or the Equipment.
GRANTING CLAUSE FOURTEEN
TOGETHER WITH all refunds, rebates or credits in connection with a
reduction in real estate taxes and assessments charged against the Mortgaged
Property as a result of tax certiorari or any applications or proceedings for
reduction.
GRANTING CLAUSE FIFTEEN
TOGETHER WITH all right, title and interest in and to all tangible
personal property owned by Mortgagor (the "Personal Property"), and now or at
any time hereafter located on or at the Premises or used in connection
therewith, including, but not limited to: all goods, machinery, tools, insurance
proceeds and refunds of insurance premiums, equipment (including fire sprinklers
and alarm systems; office air conditioning; hearing; refrigerating; electronic
monitoring; entertainment; recreational; window or structural cleaning rigs;
maintenance equipment; equipment for the exclusion of vermin or insects; removal
of dust; refuse or garbage and all other equipment of every kind), lobby and all
other indoor and outdoor furniture (including tables, chairs, planters, desks,
sofas, shelves, lockers and cabinets), wall beds, wall safes, furnishings,
appliances (including ice boxes, freezers, refrigerators, fans, heaters, stoves,
water heaters and incinerators), inventory, rugs, carpets and other floor
coverings, draperies and drapery rods and brackets, awnings, window shades,
venetian blinds, curtains, lamps, chandeliers and other lighting fixtures and
office maintenance and other supplies;
TO HAVE AND TO HOLD the above granted and described Mortgaged Property
unto and to the use and benefit of Trustee, and its successors in trust,
forever.
PROVIDED, HOWEVER, these presents are upon the express condition, if
the Borrower shall well and truly pay to the Beneficiary the Secured Obligations
at the time and in the manner provided in the Bonds, the other Loan Documents
and this Deed of Trust and shall well and truly abide by and comply with each
and every covenant and condition set forth herein and in the Bonds and the other
Loan Documents, the Beneficiary shall reconvey the Mortgaged
5
<PAGE> 11
Property to the person or persons legally entitled thereto and shall, if
requested by the Borrower, duly execute and deliver to the Borrower a
satisfaction of this Deed of Trust in recordable form.
AND the Borrower represents to, covenants with and warrants to the
Beneficiary that:
SECTION 1. GENERAL TERMS.
Section 1.01. THE BORROWER'S BONDS. Two classes of Bonds shall be
executed and delivered by the Borrower pursuant to the Indenture, and each class
shall be payable as to principal and interest as specified in the Indenture,
with a final maturity for each class on the applicable Stated Maturity.
Section 1.02. PREPAYMENT.
The Bonds may be prepaid in whole or in part in accordance with, and
subject to the terms of, Section 2.01 of the Indenture.
Section 1.03. RELEASE OF THE MORTGAGED PROPERTY.
(a) The Borrower may obtain a release of the Mortgaged Property from
the lien of this Deed of Trust (and the Indenture) by giving not less than 30
nor more than 90 days' prior written notice thereof to the Servicer, upon which
the Beneficiary shall promptly execute, acknowledge and deliver to the Borrower
a release from the lien of this Deed of Trust (a "Release") in recordable form
with respect to the Mortgaged Property, provided that all of the following terms
and conditions are satisfied:
(i) no Event of Default has occurred and is continuing or
would not be cured upon release of the Mortgaged Property in accordance
with this Section 1.03;
(ii) such Release, other than a Release to be made in
connection with a Permitted Prepayment Event, shall occur on a Payment
Date following the Lock-Out Period;
(iii) the Borrower shall pay to the Beneficiary no later than
the Remittance Date (A) an amount (the "Release Price") equal to 125%
of the current Allocated Loan Amount for such Mortgaged Property, plus
accrued interest thereon through the related Accounting Date, which
Release Price will be applied to the repayment of the Bonds in
accordance with the Indenture and (B) the Yield Maintenance Premium
payable with respect to such Release Price, which will be paid on the
Bonds in accordance with the Indenture, except that no Yield
Maintenance Premium will be required for a Release made during the
Prepayment Window or in connection with a Permitted Prepayment Event;
and
6
<PAGE> 12
(iv) either (x) the Lease Debt Service Coverage Ratio for the
13 full 4-week accounting periods immediately preceding such Release
with respect to the Mortgaged Properties that would remain after such
Release is not less than the Lease Debt Service Coverage Ratio for such
periods with respect to all the Mortgaged Properties immediately prior
to such Release, or (y) the Lease Debt Service Coverage Ratio with
respect to the Mortgaged Properties that would remain after such
release is not less than the Initial Lease Debt Service Coverage Ratio
as of the Closing Date with respect to all of the Mortgaged Properties.
(b) Notwithstanding Section 1.03(a), if a Release is being obtained in
connection with the Lessee's purchase of the Mortgaged Property pursuant to the
related Lease as a result of the Borrower's default under the Lease, then the
conditions set forth in clauses (i), (ii) and (iv) of Section 1.03(a) need not
be satisfied, and with respect to the condition set forth in clause (iii) of
Section 1.03(a), the Release shall be made regardless of whether the Borrower
satisfies its obligation (a) to pay the required Yield Maintenance Premium
payable with respect to the principal portion of the Release Price or (b) to pay
any accrued interest with respect to such Release Price in excess of 30 days of
accrued interest.
(c) Notwithstanding Section 1.03(a), in connection with the sale of the
Mortgaged Property following a Permitted Prepayment Event, the Release Price
shall equal the greater of (i) the sum of (A) all Insurance Proceeds and
Condemnation Proceeds with respect to the Mortgaged Property (to the extent not
previously applied in accordance with this Deed of Trust) and (B) the sales
proceeds of any sale of the Mortgaged Property) and (ii) an amount equal to the
Allocated Loan Amount for such Mortgaged Property, plus accrued and unpaid
interest thereon through the related Accounting Date; provided, however, (1)
such Permitted Prepayment Event was not caused by the Borrower, and (2) such
event was not known to the Borrower on or prior to the Closing Date, and (3) any
related sale of the Mortgaged Property is to a bona fide third party or on bona
fide third party terms. Satisfactory evidence of these requirements contained in
the foregoing clauses (1)-(3) shall be delivered to the Rating Agency, the
Beneficiary and the Servicer or its designated nominee. Moreover, in connection
with a sale of a Mortgaged Property following a Permitted Prepayment Event, the
condition set forth in Section 1.03(a)(iv) need not be satisfied and no Yield
Maintenance Premium shall be due. Notwithstanding any of the foregoing, in no
event shall the Release Price for a Mortgaged Property exceed 125% of the
current Allocated Loan Amount for such Mortgaged Property, plus accrued interest
thereon through the related Accounting Date.
(d) Upon repayment of the Bonds and all other amounts due hereunder and
under the Loan Documents in full in accordance with the terms hereof and
thereof, the Beneficiary shall, promptly after such payment, release its Liens
with respect to all Mortgaged Properties.
7
<PAGE> 13
SECTION 2. PAYMENTS.
SECTION 2.01. PAYMENTS.
(a) The Borrower will pay the Secured Obligations at the time and in
the manner provided in the Bonds, the Indenture, this Deed of Trust and the
other Loan Document. This Deed of Trust shall be subject to the covenants,
conditions and agreements contained in the Bonds and the Indenture.
(b) All payments made by the Borrower under this Agreement shall be
made free and clear of, and without deduction or withholding for or on account
of, any present or future income, stamp or other taxes, levies, imposts, duties,
charges, fees, deductions or withholdings, now or hereafter imposed, levied,
collected, withheld or assessed by any Governmental Authority (other than taxes
imposed on the income of the Beneficiary).
SECTION 2.02. SETOFF. The Borrower agrees that, in addition to (and
without limitation of) any right of set-off or counterclaim the Beneficiary may
otherwise have, the Beneficiary shall be entitled, at its option, to offset
balances held by it or any of its Affiliates for account of the Borrower (or
amounts due from it to the Borrower) at any of its offices, in Dollars or in any
other currency, against any principal of or interest on the Bonds, or any other
amount payable to the Beneficiary hereunder, which is not paid when due
(regardless of whether such balances are then due to the Borrower), in which
case it shall promptly notify the Borrower thereof, provided that the
Beneficiary's failure to give such notice shall not affect the validity thereof.
SECTION 3. REPRESENTATIONS AND WARRANTIES CONCERNING THE BORROWER. The
Borrower represents and warrants to the Beneficiary that:
SECTION 3.01. PARTNERSHIP EXISTENCE. The Borrower: (a) is a limited
partnership duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization; (b) has all requisite power, and has
all material governmental licenses, authorizations, consents and approvals
necessary to own its assets and carry on its business as now being or as
proposed to be conducted; and (c) is qualified to do business and in good
standing in the state in which the Mortgaged Property is located.
SECTION 3.02. NO LITIGATION. Except as disclosed to the Beneficiary in
writing prior to the date of this Deed of Trust, there are no legal or arbitral
proceedings or any proceedings by or before any governmental or regulatory
authority or agency, now pending or (to the knowledge of the Borrower)
threatened against the Borrower which, if adversely determined, could have a
Material Adverse Effect.
SECTION 3.03. NO BREACH. None of the execution and delivery of this
Deed of Trust or any other Loan Document to which the Borrower is a party, the
consummation of the transactions herein and therein contemplated and compliance
with the terms and provisions hereof and thereof will conflict with or result in
a breach of, or require any consent (except such
8
<PAGE> 14
consents as have been obtained) under, the charter or by-laws, the Partnership
Agreement or the organizational documents of the Borrower or the General
Partner, or any applicable law or regulation, or any order, writ, injunction or
decree of any court or governmental authority or agency, or any agreement or
instrument to which the Borrower or the General Partner is a party or by which
any of them is bound or to which any of them is subject, or constitute a default
under any such agreement or instrument, or (except for the Lien arising under
the Loan Documents or any Permitted Liens) result in the creation or imposition
of any Lien upon any of the revenues or assets of the Borrower or the General
Partner pursuant to the terms of any such agreement or instrument.
SECTION 3.04. PARTNERSHIP ACTION. The Borrower has all necessary
partnership power and authority to execute, deliver and perform its obligations
under this Deed of Trust and the other Loan Documents to which it is a party and
to mortgage, give, grant, bargain, sell, alien, enfeoff, convey, confirm,
pledge, assign and hypothecate, and grant a security interest in, the Mortgaged
Property pursuant to the terms hereof and to keep and observe all of the terms
of this Deed of Trust on the Borrower's part to be performed; the execution,
delivery and performance by the Borrower of this Deed of Trust and the other
Loan Documents to which it is a party have been duly authorized by all necessary
partnership action on its part; and each of this Deed of Trust and the other
Loan Documents to which the Borrower is a party has been duly and validly
executed and delivered by the Borrower and constitutes, and the Bonds when
executed and delivered for value will constitute, its legal, valid and binding
obligation, enforceable in accordance with its terms.
SECTION 3.05. APPROVALS. No authorizations, approvals or consents of,
and no filings or registrations with, any governmental or regulatory authority
or agency are necessary for the execution, delivery or performance by the
Borrower of this Deed of Trust and the other Loan Documents to which it is a
party or for the validity or enforceability thereof.
SECTION 3.06. ERISA.
(a) As of the date hereof and throughout the term of this Deed of
Trust, (i) the Borrower is not and will not be an "employee benefit plan" as
defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, and (ii)
the assets of the Borrower do not and will not constitute "plan assets" of one
or more such plans for purposes of Title I of ERISA; and
(b) As of the date hereof and throughout the term of this Deed of
Trust, (i) the Borrower is not and will not be a "government plan" within the
meaning of Section 3(3) of ERISA, and (ii) transactions by or with the Borrower
are not and will not be subject to state statutes applicable to the Borrower
regulating investments of and fiduciary obligations with respect to governmental
plans.
SECTION 3.07. IMPOSITIONS. The Borrower has filed all United States
Federal income tax returns and all other material tax returns which are required
to be filed by the Borrower and has paid all taxes due pursuant to such returns
or pursuant to any assessment received by the
9
<PAGE> 15
Borrower; except such taxes which are being contested in good faith and by
proper proceedings and against which adequate reserves are being maintained in
accordance with Section 5.19 herein. The charges, accruals and reserves on the
books of the Borrower in respect of Impositions are, in the opinion of the
Borrower, adequate.
SECTION 3.08. INVESTMENT COMPANY ACT. The Borrower is not an
"investment company," or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended (the
"Investment Company Act").
SECTION 3.09. GENERAL PARTNER. The sole general partner of the Borrower
is the General Partner. RFS Hotels is the owner of all of the issued and
outstanding capital stock of the General Partner, all of which capital stock has
been validly issued, is fully paid and nonassessable and is owned by RFS Hotels
free and clear of all mortgages, assignments, pledges and security interests and
free and clear of all warrants, options and rights to purchase. The Borrower has
no obligation to any Person to purchase, repurchase or issue any ownership
interest in it.
SECTION 3.10. RESTRICTED ACTIVITIES OF BORROWER AND GENERAL PARTNER.
Each of the Certificate of Limited Partnership and the Partnership Agreement of
the Borrower provides that the Borrower may not engage in any business activity
unrelated to the Mortgaged Properties. The charter of the General Partner
provides that the General Partner may not engage in any activity other than
acting as general partner of the Borrower and activities incidental to that
purpose.
SECTION 3.11. OTHER ACTIVITIES.
(a) The charter of the General Partner requires, until the Bonds are
paid in full and the Mortgaged Properties released from the lien of the
Indenture and the Mortgages, the General Partner shall not, without (a) the
affirmative vote of 100% of the members of its board of directors, and (b)
except with respect to subparagraph (vii), the consent of the Indenture Trustee,
do any of the following:
(i) take, or cause the Borrower to take, any action or suffer
to exist any circumstance that would constitute an "Event of Default"
under any Loan Document evidencing or securing the obligations secured
by the Mortgages;
(ii) amend, alter, change or repeal (A) the provision in the
charter relating to the need for a unanimous vote of the board of
directors, (B) the provision in the charter relating to the
subordination of the Borrower's indemnification obligations to its
officers and directors or (C) the Partnership Agreement or the
Certificate of Limited Partnership of the Borrower;
(iii) dissolve, wind up or liquidate, in whole or in part,
consolidate or merge with or into any other entity, or convey, sell or
transfer its properties and assets
10
<PAGE> 16
substantially as an entirety to any entity, or cause the Borrower to
dissolve or liquidate, in whole or in part, or merge with or into any
other entity, or convey, sell or transfer its properties and assets
substantially as an entirety to any entity except as otherwise may be
permitted by the Mortgages;
(iv) engage in any business or activity other than as
permitted by the General Partner's charter, or cause the Borrower to
engage in any business or activity other than as set forth in the
Partnership Agreement (or any successor provision thereto, however
designated);
(v) own any assets other than those related to, or derived
from, the Mortgaged Properties;
(vi) incur, assume or guaranty any indebtedness other than (A)
indebtedness not secured by the Mortgaged Properties consisting of
trade accounts payable (other than for borrowed money) incurred in the
ordinary course of business and (B) debt expressly permitted by the
Loan Documents;
(vii) file, or cause the Borrower to file, a voluntary or
involuntary petition or otherwise initiate, or cause the Borrower to
initiate, proceedings for the General Partner or the Borrower to be
adjudicated insolvent or seeking an order for relief as a debtor under
any chapter of the United States Bankruptcy Code, as amended (11 U.S.C.
ss. ss. 101 et. seq.), or file or cause the filing of, or cause the
Borrower to file or cause the filing of, any petition seeking any
composition, reorganization, readjustment, liquidation, dissolution or
similar relief for the General Partner or the Borrower under the
present or any future federal bankruptcy laws or any other present or
future applicable federal, state or other statute or law relative to
bankruptcy, insolvency or other relief for debtors; or seek or cause
the Borrower to seek, the appointment of any trustee, receiver,
conservator, assignee, sequestrator, custodian, liquidator (or other
similar official) of the General Partner or the Borrower or of all or
any substantial part of the properties and assets of the General
Partner or the Borrower, or make or cause the Borrower to make, any
general assignment for the benefit of its creditors, or admit in
writing its inability to pay its debts generally as they become due, or
declare or effect a moratorium on its debt or take any corporate action
in furtherance of any such action, or consent to or acquiesce in any of
the foregoing actions; or
(viii) sell, transfer, exchange, convey, encumber or otherwise
dispose of any or all of the General Partner's right, title or interest
as a general partner of the Borrower, except that the General Partner
may withdraw as the general partner if it finds a replacement general
partner that is a special purpose corporation, the charter of which
contains substantially the same provisions as the General Partner's
charter.
(b) The charter of the General Partner also contains provisions that,
until the Bonds are paid in full and the Mortgaged Properties released from the
lien of the Indenture and the
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Mortgages, requires the General Partner to take, and cause the Borrower to take,
the following actions:
(i) maintain its own books, records and accounts separate from
any other Person (as defined herein);
(ii) cause its financial statements to be prepared in
accordance with generally accepted accounting principles in a manner
that shows its assets and liabilities separate and apart from those of
any other Person;
(iii) pay all its liabilities and expenses only out of its own
funds;
(iv) pay the salaries of its own employees, if any, and
maintain a sufficient number of employees in light of its contemplated
business operations, but no more than necessary to perform authorized
activities;
(v) allocate fairly and reasonably any overhead for expenses
that are shared with an affiliate, including paying for the office
space and services performed by any employee of any affiliate;
(vi) maintain adequate capital for the normal obligations
reasonably foreseeable in a business of its size and character in light
of its contemplated business operations;
(vii) maintain arm's length relationships with all affiliates
and enter into transactions with affiliates only on commercially
reasonable bases;
(viii) in all dealings with the public, identify itself under
its own name and as a separate and distinct entity;
(ix) independently make decisions with respect to its business
and daily operations;
(x) not commingle its funds or other assets with those of any
other Person and hold all of its assets in its own name;
(xi) not assume or guarantee the liabilities of any other
Person or hold out its credit as being available to satisfy the
obligations of any other Person;
(xii) not acquire obligations or securities of, pledge it
assets for the benefit of, or make loans or advances to, any
affiliates;
(xiii) observe all applicable or customary organizational
formalities;
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(xiv) promptly correct any known misunderstanding regarding
its separate identity;
(xv) not identify itself as a division of any other Person;
(xvi) use separate stationery, invoices and checks bearing its
own name;
(xvii) not own any property, real or personal, other than (a)
the Mortgaged Properties (in the case of the Borrower) and General
Partner's interest in the Borrower (in the case of the General Partner)
and (b) the minimum amount of property necessary to perform authorized
activities; and
(xviii) not acquire the direct obligations of, or securities
issued by, any affiliate.
SECTION 3.12. EMPLOYEES. The Borrower has no employees.
Section 3.13. Solvency. None of the transactions contemplated by the
Loan Documents will be or have been made with an actual intent to hinder, delay
or defraud any present or future creditors of the Borrower, and the Borrower is
not and will not be rendered insolvent by such transactions or will have
received fair and reasonably equivalent value in good faith for the grant of the
Liens created by the Loan Documents. The Borrower is able to pay its debts as
they become due, including contingent obligations reasonably likely to become
due.
SECTION 3.14. NO FOREIGN PERSON. The Borrower is not a "foreign person"
within the meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986,
as amended, and the related Treasury Department regulations, including temporary
regulations.
SECTION 4. THE BORROWER'S REPRESENTATIONS AND WARRANTIES CONCERNING
MORTGAGED PROPERTY.
Section 4.01. Improvements. Except as disclosed in the surveys or title
policies delivered to the Beneficiary hereunder, all Improvements comprising a
portion of the Mortgaged Property lie wholly within the boundary and building
restriction lines of the Mortgaged Property, and no Improvements on adjoining
properties encroach upon the Mortgaged Property in any material respect.
SECTION 4.02. CASUALTY; CONDEMNATION. The Mortgaged Property is free of
material damage and waste and there is no proceeding pending or, to the best of
the Borrower's knowledge, threatened, for the total or partial taking by
condemnation or eminent domain of the Mortgaged Property and no Event of Loss
has occurred with respect to the Mortgaged Property.
SECTION 4.03. ZONING AND OTHER LAWS. The Mortgaged Property and the use
and operation thereof, separate and apart from any other properties, constitutes
a legal use under applicable zoning regulations and complies in all material
respects with all building codes, land
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use and environmental laws and other applicable requirements of law and all
applicable insurance requirements.
SECTION 4.04. LEASE. The Borrower has made available to the Beneficiary
a correct and complete copy of the Lease and all amendments thereto. As of the
Closing Date the Lease is unmodified and in full force and effect and the
Borrower is not, and, to the Borrower's knowledge, the Lessee is not in default
under the Lease.
SECTION 4.05. PERMITS. There has been issued in respect of the
Mortgaged Property all certificates, licenses, permits and governmental
approvals necessary or required to own, operate, use and occupy the Mortgaged
Property in the manner currently operated, including any required permits
relating to zoning, building code, land use and Hazardous Materials. Each such
permit is in full force and effect and the Borrower has not received any notice
of violation or revocation thereof.
SECTION 4.06. UTILITIES. The Mortgaged Property is served by all
utilities required for the current or contemplated use thereof. All public roads
and streets necessary for service of and access to the Mortgaged Property for
the current use thereof have been completed and are open for use. The Mortgaged
Property is served by public water and sewer systems. The Borrower has not
received any notice of actual or threatened reduction or curtailment of any
utility service now supplied to the Mortgaged Property.
SECTION 4.07. [RESERVED]
SECTION 4.08. HAZARDOUS MATERIALS. The Borrower and the Lessee have
obtained all permits, licenses and other authorizations which it is required to
obtain with respect to the Mortgaged Properties under all Environmental Laws,
except to the extent failure to have any such permit, license or authorization
would not have a Material Adverse Effect. The Borrower and the Lessee are in
compliance with the terms and conditions of all such permits, licenses and
authorizations, and are also in compliance in all material respects with all
other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables applicable to the Mortgaged
Properties contained in any applicable Environmental Law or in any regulation,
code, plan, order, decree, judgment, injunction, notice or demand letter issued,
entered, promulgated or approved thereunder, except to the extent failure to
comply would not have a Material Adverse Effect.
In addition, except as set forth in the reports and other materials
described in Schedule C hereto:
(a) No notice, notification, demand, request for information, citation,
summons or order has been issued, no complaint has been filed, no penalty has
been assessed and no investigation or review is pending or, to the best of the
Borrower's knowledge, threatened by any governmental or other entity with
respect to any alleged failure by the Borrower or the Lessee to have any permit,
license or authorization required in connection with the conduct of
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the business of the Borrower or the Lessee relating to the Mortgaged Properties
with respect to any generation, treatment, storage, recycling, transportation,
release or disposal, or any release as defined in 42 U.S.C. ss. 9601(22), of any
substance regulated under Environmental Laws ("Hazardous Materials") generated
by the Borrower or the Lessee.
(b) No Hazardous Materials have been released at, on or under the
Mortgaged Property to an extent that it has, or may reasonably be expected to
have, a Material Adverse Effect.
(c) There are no Liens arising under or pursuant to any Environmental
Laws on any of the Mortgaged Properties or properties, and no government actions
have been taken or, to the Borrower's knowledge, are in process which could
subject any of such properties to such Liens and the Borrower would not be
required to place any notice or restriction relating to the presence of
Hazardous Materials at any Mortgaged Property in any deed to such property.
SECTION 4.09. WARRANTY OF TITLE. The Borrower has good and marketable
fee title to the Mortgaged Property subject only to the Permitted Liens; the
Borrower has the right to grant, bargain, sell, convey and grant a security
interest in, the Mortgaged Property; and the Borrower owns the Mortgaged
Property free and clear of all liens, encumbrances and charges whatsoever except
the lien of this Deed of Trust and Permitted Liens. The Borrower shall forever
warrant, defend and preserve such title, subject to the Permitted Liens, and the
validity and priority of the lien of this Deed of Trust and shall forever
warrant and defend the same to the Beneficiary against the claims of all persons
whomsoever.
SECTION 4.10 FLOOD INSURANCE. No portion of the Improvements is located
in an area identified by the Secretary of Housing and Urban Development or any
successor thereto as an area having special flood hazards pursuant to the
National Flood Insurance Act of 1968 or the Flood Disaster Protection Act of
1973, or the National Flood Insurance Reform Act of 1994, as each may be
amended, or any successor law, or, if any portion of the Improvements is now or
at any time in the future located within any such area, the Borrower has
obtained and will maintain the insurance prescribed in Section 5.18 hereof.
SECTION 4.11 CONDITION OF MORTGAGED PROPERTY. Except as set forth on
Schedule B, the buildings, structures and improvements included on or within the
Mortgaged Property are structurally sound and in good repair, and all
mechanical, electrical, heating, air conditioning, drainage, sewer, water and
plumbing systems are in proper working order.
SECTION 5. COVENANTS OF THE BORROWER. The Borrower agrees that until
payment in full of the Bonds, all interest thereon and all other amounts payable
by the Borrower hereunder:
SECTION 5.01. FINANCIAL STATEMENTS. The Borrower shall deliver or cause
to be delivered to the Beneficiary, the Servicer and the Rating Agency:
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(a) as soon as available and in any event within 120 days after the end
of each fiscal year of the Borrower (commencing with the first full Fiscal Year
following the Closing Date), consolidated statements of income and expenses of
the Borrower for such year and the related consolidated balance sheets as at the
end of such year, accompanied by a certificate of a senior financial officer of
the General Partner, which certificate shall state (i) that such consolidated
financial statements fairly present the consolidated financial condition and
results of operations of the Borrower as at the end of, and for, such Fiscal
Year and (ii) that no Default has occurred and is continuing (or, if any Default
has occurred and is continuing, describing the same in reasonable detail and
describing the action that the Borrower has taken and proposes to take with
respect thereto);
(b) promptly upon receipt thereof, copies of all written reports,
financial statements, budgets or plans delivered by the Lessee under the Lease;
(c) copies of all written reports, budgets or plans delivered by the
Borrower under the Lease; and
(d) promptly after the Borrower knows or has reason to know that any
Default has occurred, a written notice of such Default describing the same in
reasonable detail and, together with such notice or as soon thereafter as
possible, a description of the action that the Borrower has taken and proposes
to take with respect thereto.
SECTION 5.02. LITIGATION, Etc. The Borrower will promptly give to the
Beneficiary notice of (a) all legal or arbitral proceedings, and of all
proceedings by or before any governmental or regulatory authority or agency, and
any material development in respect to such legal or other proceeding affecting
the Borrower, except proceedings which if adversely determined, would not have a
Material Adverse Effect and (b) of any proposal by any public authority to
acquire any Mortgaged Property of the Borrower or any portion thereof.
SECTION 5.03. PARTNERSHIP EXISTENCE, ETC. The Borrower will preserve
and maintain its partnership existence and all of its material rights,
privileges and franchises; comply with the requirements of all applicable laws,
rules, regulations and orders of governmental or regulatory authorities if
failure to comply with such requirements would have a Material Adverse Effect;
pay and discharge all taxes, assessments and governmental charges or levies
imposed on it or on its income or profits or on any of its property prior to the
date on which penalties attach thereto, except for any such tax, assessment,
charge or levy the payment of which is being contested in good faith and by
proper proceedings and against which adequate reserves are being maintained;
maintain all of its properties used or useful in its business in good working
order and condition, ordinary wear and tear excepted; and permit representatives
of the Beneficiary (including its agents and contractors), during normal
business hours and upon reasonable prior notice, to examine, copy and make
extracts from its books and records, to inspect its properties, and to discuss
its business and affairs with its officers, all to the extent reasonably
requested by the Beneficiary.
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SECTION 5.04. PROHIBITION OF FUNDAMENTAL CHANGES. Except as expressly
provided in the Partnership Agreement, the Borrower will not (i) enter into any
transaction of merger or consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution) or (ii) acquire any
business or assets from, or capital stock of, or be a party to any acquisition
of, any Person except for (a) the purchases of FF&E, inventory and other assets
to be sold or used in the ordinary course of business, (b) purchase of the
Mortgaged Property, and (c) Investments permitted under Section 5.09. Except as
permitted hereunder or under the other Loan Documents in connection with a
Release or otherwise, the Borrower will not convey, sell, transfer or otherwise
dispose of the Mortgaged Property without the prior written consent of the
Beneficiary (which consent shall be given upon written confirmation from the
Rating Agency that such action would not result in a qualification, downgrading
or withdrawal of the then current ratings on the Bonds). Except as expressly
provided in the Partnership Agreement, the Borrower will not convey, sell,
lease, transfer or otherwise dispose of, in one transaction or a series of
transactions, all or a substantial part of its business or assets, whether now
owned or hereafter acquired (including receivables and leasehold interests, but
excluding (i) any inventory or other assets sold or disposed of in the ordinary
course of business, or (ii) obsolete or worn-out FF&E or other property no
longer used or useful in its business). The Borrower will not replace or permit
the replacement of the General Partner without the prior written consent of the
Beneficiary; provided, that transfers aggregating more than 49% of the
partnership interests in the Borrower shall require written confirmation from
the Rating Agency that such transfers will not cause a qualification, withdrawal
or downgrading of the ratings then maintained by the Rating Agency with respect
to the Bonds. The Borrower shall not become a Person other than a limited
partnership and shall not become a general or limited partner in any general or
limited partnership. The Borrower shall not permit the General Partner to pledge
or encumber its partnership interest in the Borrower without the prior written
consent of the Beneficiary.
SECTION 5.05. NEITHER A FOREIGN PERSON NOR AN INVESTMENT COMPANY. The
Borrower will not, throughout the term of the Bonds, become a "foreign person"
within the meaning of Sections 1445 and 7701 of the Code (26 USC ss.ss. 1445,
7701) and the related Treasury Department regulations, including, without
limitation, temporary regulations. The Borrower will conduct its operations at
all times so as not to be subject to, or shall comply with, the Investment
Company Act.
SECTION 5.06. ERISA.
(a) The Borrower shall not engage in any transaction which would cause
any obligation, or action taken or to be taken, hereunder (or the exercise by
the Beneficiary of any of its rights under the Bonds, this Deed of Trust and the
other Loan Documents) to be a non-exempt (under a statutory or administrative
class exemption) prohibited transaction under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
(b) The Borrower further covenants and agrees to deliver to the
Beneficiary such certifications or other evidence from time to time throughout
the term of the Deed of Trust, as
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requested by the Beneficiary in its sole discretion, that (i) the Borrower is
not an "employee benefit plan" as defined in Section 3(3) of ERISA, which is
subject to Title I of ERISA, or a "governmental plan" within the meaning of
Section 3(3) of ERISA; and (ii) the Borrower is not subject to state statutes
regulating investments and fiduciary obligations with respect to governmental
plans.
SECTION 5.07. LIMITATION ON LIENS. The Borrower will not create, incur,
assume or suffer to exist any Lien upon any of its property, assets or revenues,
whether now owned or hereafter acquired, except Permitted Liens. The Borrower
shall discharge, by payment, by procurement of a surety bond or otherwise as
approved by the Servicer, any Lien that is not a Permitted Lien within 30 days
after the Borrower receives written notice of the filing of such Lien (subject
to the Borrower's right to contest certain Liens as provided in Section 5.19(b)
hereof).
SECTION 5.08. INDEBTEDNESS. The Borrower will not create, incur or
suffer to exist any Indebtedness except:
(a) Indebtedness to the Beneficiary under the Loan Documents;
(b) Indebtedness not secured by the Mortgaged Properties consisting of
trade accounts payable (other than for borrowed money) incurred in the ordinary
course of business, including purchase money Indebtedness and capitalized lease
obligations for the purchase of FF&E Replacements;
(c) Indebtedness secured by Permitted Liens;
(d) the pledge or assignment of funds released to the Issuer from the
lien of the Indenture; and
(e) other Indebtedness, with the written consent of the Beneficiary,
which consent shall not be withheld if (i) such Indebtedness is expressly
subordinated to the Bonds, (ii) the term of such Indebtedness exceeds the latest
Stated Maturity of the Bonds, (iii) such Indebtedness provides that no remedies
for defaults with respect to such Indebtedness may be exercised until the Bonds
are no longer outstanding, (iv) no Event of Default has occurred and is
continuing and (v) written confirmation is received from the Rating Agency that
such Indebtedness will not cause a qualification, withdrawal or downgrading of
the ratings then maintained by the Rating Agency with respect to the Bonds.
SECTION 5.09. INVESTMENTS. The Borrower will not make or permit to
remain outstanding any Investments other than operating deposit accounts with
banks and Permitted Investments.
SECTION 5.10. DIVIDEND PAYMENTS. The Borrower will not declare or make
any Dividend Payment at any time that an Event of Default shall have occurred
and be continuing.
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SECTION 5.11. PARTNERSHIP ACTIVITIES; BOOKS AND RECORDS.
(a) The Borrower shall not purchase any real properties other than the
Mortgaged Properties, conduct any business other than that permitted under the
Partnership Agreement or charter and by-laws of the General Partner, have any
assets or liabilities other than assets or liabilities derived from or related
to the Mortgaged Properties or otherwise related to a business that is permitted
under the Partnership Agreement, violate any of the provisions of the
Partnership Agreement, nor shall the Borrower amend the Partnership Agreement
without confirmation from the Rating Agency that such amendment will not cause a
qualification, withdrawal or downgrading of the ratings then maintained by the
Rating Agency with respect to the Bonds.
(b) The Borrower shall comply with the "separateness provisions" of the
Partnership Agreement, which provisions are described in Section 3.11(b).
Section 5.12. Payment for Labor and Materials. The Borrower will pay
promptly or cause to be paid when due all bills and costs for labor, materials,
and specifically fabricated materials incurred in connection with the Mortgaged
Property and never permit to exist beyond the due date thereof in respect of the
Mortgaged Property or any part thereof any lien or security interest, even
though inferior to the liens and the security interests hereof, and in any event
never permit to be created or exist in respect of the Mortgaged Property or any
part thereof any other or additional lien or security interest other than the
liens or security interests hereof, except for the Permitted Liens.
SECTION 5.13. MODIFICATIONS OF LEASE. The Borrower will not consent to
any modification, supplement or waiver of the provisions of the Lease or
terminate the Lease (except a termination in connection with a Lease Event of
Default or a termination otherwise permitted under the Lease) without the prior
written consent of the Beneficiary, which consent shall be granted if the Rating
Agency confirms in writing that such action will not cause a qualification,
withdrawal or downgrading of the ratings then maintained by the Rating Agency
with respect to the Bonds. The Borrower will not consent to any modification,
supplement or waiver of any provision of a service contract that would have a
Material Adverse Effect on the value, utility, operation or legality of any
Mortgaged Property or terminate any service contract if such termination would
have a Material Adverse Effect on the value, utility, operation or legality of
any Mortgaged Property, without the consent of the Beneficiary, which consent
shall be granted if the Rating Agency confirms in writing that such action will
not cause a qualification, withdrawal or downgrading of the ratings then
maintained by the Rating Agency with respect to the Bonds.
SECTION 5.14. [RESERVED].
SECTION 5.15. PERFORMANCE OF OTHER AGREEMENTS. The Borrower shall
observe and perform each and every term to be observed or performed by the
Borrower pursuant to the terms of any agreement or recorded instrument affecting
or pertaining to the Mortgaged Property.
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SECTION 5.16. OPERATION OF THE MORTGAGED PROPERTIES. The Borrower shall
comply in all material respects with the terms of the Lease. The Lessee shall be
permitted to employ a manager for each of the Mortgaged Properties pursuant to
the terms of the related Lease. Notwithstanding the foregoing, in the event that
a Lease Event of Default shall have occurred under a Lease, the Beneficiary or
the Servicer may instruct the Borrower to (i) terminate the Lease with respect
to any or all of the Mortgaged Properties and/or (ii) cause the Lessee to
terminate the management agreement (to the extent permitted thereunder) with
respect to any or all of the Mortgaged Properties, and may designate either a
replacement lessee or a property manager, as the case may be, reasonably
acceptable to the Beneficiary and willing to operate the Mortgaged Properties
pursuant to terms and conditions and pursuant to a Lease or property management
agreement approved by the Beneficiary, and the Borrower shall so terminate the
Lease(s) and/or cause the Lessee to terminate the management agreement(s) and
appoint or cause the appointment of such replacement lessee or property manager.
After the Closing Date, the Borrower shall not enter into any lease or property
management agreement in respect of any Mortgaged Property unless the following
conditions are met:
(a) except in connection with hiring an Affiliate of the Lessee to act
as property Manager, the Borrower obtains the Beneficiary's prior written
consent, which consent shall be granted if the Rating Agency confirms in writing
that such action will not cause a qualification, withdrawal or downgrading of
the ratings then maintained by the Rating Agency with respect to the Bonds; and
(b) such replacement lessee or manager executes an agreement
substantially similar to the Subordination Agreement.
SECTION 5.17. ENVIRONMENTAL MATTERS.
(a) The Borrower shall, at its sole cost and expense, comply in all
material respects with and shall cause the Lessee of the Mortgaged Property to
comply in all material respects with all Environmental Laws applicable to the
Mortgaged Property and shall ensure that all operations, businesses and
activities conducted thereon are in material compliance with all Environmental
Laws.
(b) If the Borrower shall receive any notice or other communication
relating to the Mortgaged Property from any governmental authority concerning
any actual, alleged, suspected or threatened violation of or liability under any
Environmental Laws or any Environmental Condition, or that any representation or
warranty herein relating to Hazardous Materials is not or is no longer accurate
in any material respect, including any notice or other communication from any
governmental authority concerning any actual or threatened Environmental Claim,
then the Borrower shall deliver to the Beneficiary, within ten (10) days after
receipt of such notice or communication, a written description of such
violation, liability, or actual or threatened event or condition. Receipt of
such notice shall not be deemed to create any obligation on the part of the
Beneficiary to defend or otherwise respond to such notification. The Borrower
shall
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promptly take all actions necessary to defend such notification of Environmental
Claim or clean up or remedy such Environmental Condition in compliance with all
Environmental Laws.
(c) Upon the Beneficiary's or the Servicer's reasonable request, the
Borrower shall, at its sole cost and expense, take all actions or cause the
Lessee to take all actions necessary to ensure that there is no Hazardous
Material at, on or under the Mortgaged Property in quantities or concentrations
other than those permitted by applicable Environmental Laws; provided that the
Borrower shall not be required to obtain environmental site assessments or audit
reports or updates thereto more often than once per year. The Borrower shall
reasonably promptly provide to the Beneficiary copies of all environmental site
assessments or environmental audit reports, or updates of such assessments or
reports that are generated in connection with the above activities.
(d) Following and during the continuance of an Event of Default, the
Borrower shall permit the Beneficiary to enter upon the Mortgaged Property at
any reasonable time to conduct, at the Borrower's sole cost and expense, a
reasonable inspection of Mortgaged Property, to determine compliance with all
applicable Environmental Laws and to take any and all other actions required by
any governmental agency, including the removal or cleanup of any Hazardous
Materials in quantities or concentrations which violate applicable Environmental
Laws at, on or under the Mortgaged Property. During the continuance of an Event
of Default, the Borrower grants the Beneficiary and its employees, contractors
and agents an irrevocable and nonexclusive license to enter upon the Mortgaged
Property and to perform such tests on the Mortgaged Property necessary to
conduct such reviews and investigations in accordance with the preceding
sentence. All reasonable costs and expenses incurred by the Beneficiary
(including the costs of its agents and contractors) under this subsection shall
be due and payable by the Borrower on demand.
SECTION 5.18. INSURANCE; CASUALTY.
(a) The Borrower, at its sole cost and expense, will keep the Mortgaged
Property insured during the entire term of this Deed of Trust for the mutual
benefit of the Borrower, the Beneficiary and the Servicer against loss or damage
by fire and against loss or damage by other risks embraced by coverage of the
type known as "fire and extended coverage," in an amount sufficient to prevent
the Borrower or the Beneficiary from becoming a co-insurer, but in any case in
an amount not less than the then full replacement value of the Improvements and
Equipment, covering physical loss or damage to such Improvements and Equipment,
without considering depreciation and exclusive of excavations and foundations.
The policy of insurance carried in accordance with this Section shall contain a
"Replacement Cost Endorsement."
(b) The Borrower, at its sole cost and expense, for the mutual benefit
of the Borrower and the Beneficiary, shall also obtain and maintain during the
entire term of this Deed of Trust the following policies of insurance:
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(1) Flood insurance if any part of the Mortgaged Property is
located in an area identified by the Secretary of Housing and Urban
Development as an area having special flood hazards and in which flood
insurance has been made available under the National Flood Insurance
Act of 1968 or the Flood Disaster Protection Act of 1973, or the
National Flood Insurance Reform Act of 1994, as each may be amended
(and any successor act thereto), in an amount at least equal to the
value of the Mortgaged Property as reasonably determined by the
Beneficiary from time to time or the maximum limit of coverage
available with respect to the Improvements and Equipment under said
Act, whichever is less.
(2) Comprehensive public liability insurance with the
coverages and in the amounts required under the Lease (as in effect on
the date hereof).
(3) Loss of income insurance with the coverages and in the
amounts required under the Lease (as in effect on the date hereof).
(4) Insurance against loss or damage (and loss of occupancy or
use) from explosion or breakdown of steam boilers, air conditioning
equipment, high pressure piping, machinery and equipment, pressure
vessels or similar apparatus and elevator and escalator equipment now
or hereafter installed in the Improvements with the coverages and in
the amounts required under the Lease (as in effect on the date hereof).
(5) During the course of any construction or repair of
Improvements on the Mortgaged Property, builder's completed value risk
insurance against "all risks of physical loss," during such
construction with a deductible not to exceed $10,000, in non-reporting
form, covering the total value of work performed and equipment,
supplies and materials furnished.
(6) Worker's compensation and other statutory coverages, as
applicable.
(7) Such other insurance as may from time to time be
reasonably required by the Beneficiary or the Servicer in order to
protect the Beneficiary's interests, to the extent that such insurance
is generally available on commercial reasonable terms and is generally
required by institutional lenders on loans secured by similar
properties.
(c) All policies of insurance (the "Required Insurance Policies")
required pursuant to this Section 5.18 (i) shall be issued by an insurer that is
then rated "A-" or better in claims-paying ability by the Rating Agency, if
rated by the Rating Agency, or, if not rated by the Rating Agency, an equivalent
rating from any other nationally recognized statistical rating organization or
A. M. Best, or is otherwise acceptable to the Rating Agency, (ii) shall contain
the standard New York (or local equivalent) non-contribution clause naming the
Beneficiary as the person to which all payments over $100,000 made by such
insurance company shall be paid, (iii) shall be maintained throughout the term
of this Deed of Trust without cost to the Beneficiary, (iv) shall contain such
provisions as the Beneficiary or the Servicer deems
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reasonably necessary or desirable to protect the Beneficiary's interest
including, without limitation, endorsements providing that neither the Borrower,
the Beneficiary nor any other party shall be a co-insurer under said Policies
and that the Beneficiary shall receive at least thirty (30) days prior written
notice of any modification or cancellation and (v) shall list the Beneficiary
and the Servicer, where applicable, as loss payees or additional insureds.
Notwithstanding the foregoing, workers' compensation insurance may be provided
by any state approved and regulated employer's self-insurance fund and need not
name the Beneficiary or the Servicer as additional insureds or loss payees. The
Borrower shall deliver duplicate counterparts of each of the Required Insurance
Policies to the Servicer. Not later than fifteen (15) days prior to the
expiration date of each of the Required Insurance Policies, the Borrower will
deliver to the Servicer satisfactory evidence of the renewal of each of the
Required Insurance Policies.
(d) The Required Insurance Policies with respect to the Mortgaged
Property may, at the option of the Borrower, be effected by blanket or umbrella
policies issued to the Borrower and its affiliates (including, without
limitation, the direct and indirect partners in the Borrower) covering the
Mortgaged Properties and properties owned by such affiliates, provided that the
policies otherwise comply with the provisions of this Deed of Trust and
specifically allocate to the Mortgaged Property the coverages required hereby,
without possibility of reduction or coinsurance by reason of, or damage to,
another premises named therein, and if the insurance required by this Deed of
Trust shall be effected by any such blanket or umbrella policies, the Borrower
shall furnish to the Servicer copies of such policies in place of the originals,
and in addition, within thirty (30) days after the filing thereof with any
insurance ratemaking body, copies of the schedule of all improvements affected
by any such blanket or umbrella policy of insurance.
(e) If the Mortgaged Property shall be damaged or destroyed, in whole
or in part, by fire or other casualty, the Borrower shall give prompt written
notice thereof to the Beneficiary and the Servicer prior to the making of any
repairs thereto; provided, however, that if the loss or damage is $100,000 or
less and no Event of Default shall have occurred and be continuing, the Borrower
shall have no obligation to provide notice. Following the occurrence of fire or
other casualty, the Borrower, regardless of whether insurance proceeds are
payable under the Required Insurance Policies, shall proceed promptly with the
repair, alteration, restoration, replacement or rebuilding of the same as near
as possible to their value, utility, condition and character prior to such
damage or destruction (the "Restoration"), provided that if the Borrower and the
Servicer determine that (i) the Mortgaged Property cannot be restored to
substantially the same condition as existed before the casualty, or (ii)
restoration cannot reasonably be expected to be completed within one year from
the date of casualty, the Borrower may choose, in its sole discretion, not to
proceed with Restoration but to prepay the Bonds in accordance with the
Indenture in an amount equal to the lesser of (x) the Insurance Proceeds or (y)
the Allocated Loan Amount, plus accrued interest through the related Accounting
Date for the Special Payment Date on which such Prepayment is applied on the
Bonds in accordance with the Loan Documents, in each case without payment of a
Yield Maintenance Premium. In that event, any excess of the Insurance Proceeds
over the Allocated Loan Amount shall be deposited into the Central Account for
application (or release to the Borrower) in accordance with the
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Servicing Agreement. In the event that the Borrower proceeds with the
Restoration, and the Insurance Proceeds exceed the costs of Restoration, such
excess proceeds shall be deposited into the Central Account for application (or
release to the Borrower) in accordance with the Servicing Agreement. The
Restoration shall be performed in accordance with the following provisions:
(1) The Borrower shall procure and pay for, and shall furnish
to the Servicer true copies of, all required governmental permits,
certificates and approvals with respect to the Restoration.
(2) The Borrower shall furnish the Servicer, within thirty
(30) days of the casualty, evidence reasonably satisfactory to the
Servicer of the cost to complete the Restoration.
(3) If the Restoration involves structural work or the
estimated cost to complete the Restoration exceeds $250,000, the
Restoration shall be conducted under the supervision of an architect
(the "Architect") selected by the Borrower and approved by the Servicer
(which approval shall not be unreasonably withheld or delayed), and no
such Restoration shall be made except in accordance with detailed plans
and specifications, detailed cost estimates and detailed work schedules
approved in writing by the Servicer (which approval shall not be
unreasonably withheld or delayed).
(4) The Restoration shall be prosecuted to completion with all
due diligence and in an expeditious and good and workmanlike manner and
in compliance with all laws and other governmental requirements, all
permits, certificates and approvals, all requirements of fire
underwriters and all insurance policies then in force with respect to
the Mortgaged Property. The Restoration shall be performed under a
general contract or construction management agreement approved by the
Servicer, with all construction contracts and architect's agreements
assigned to the Beneficiary.
(5) At all times when any work is in progress, the Borrower
shall maintain all insurance then required by law or customary with
respect to such work, and, prior to the commencement of any work, shall
furnish to the Servicer duplicate originals or certificates of the
policies therefor.
(6) Upon completion of the Restoration, the Borrower shall
obtain (A) any occupancy permit which may be required for the
Improvements and (B) all other governmental permits, certificates and
approvals and all permits, certificates and approvals of fire
underwriters which are required for or with respect to the Restoration,
and shall furnish true copies thereof to the Servicer.
(7) An Event of Default shall be deemed to have occurred under
this Deed of Trust if the Borrower, after having commenced demolition
or construction of any Improvements, shall abandon such demolition or
the construction work or shall fail to complete such demolition and
construction within a reasonable time after the
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commencement thereof (subject to events beyond the reasonable control
of the Borrower).
(f) The Borrower and the Servicer shall jointly adjust and settle all
insurance claims of $100,000 or more and, provided no Event of Default shall
exist and be continuing, the Borrower shall adjust and settle all insurance
claims less than $100,000. In the event any insured loss with respect to which
the insurance proceeds exceed $100,000 (other than proceeds under public
liability or workers' compensation insurance), the payment for such loss shall
be made directly to a segregated account maintained by the Servicer (the "Loss
Proceeds Account").
(g) If money in the Loss Proceeds Account is to be used for the
Restoration, then such money shall be disbursed in accordance with the following
provisions:
(1) Each request for an advance of Insurance Proceeds shall be
made on at least five days' prior notice to the Servicer and shall be
accompanied by a certificate of the Architect, if required under
Section 5.18(e)(3) above, otherwise by an executive officer or managing
general partner of the Borrower, stating (A) that all work completed to
date has been performed in compliance with the approved plans and
specifications, if any, and in accordance with all provisions of law;
(B) the sum requested is properly required to reimburse the Borrower
for payments by the Borrower to, or is properly due to, the contractor,
subcontractors, materialmen, laborers, engineers, architects or other
persons rendering services or materials for the Restoration (giving a
brief description of such services and materials), and that when added
to all sums, if any, previously disbursed by the Servicer does not
exceed the value of the work done to the date of such certificate; and
(c) that the amount of such proceeds remaining in the hands of the
Beneficiary or the Servicer will be sufficient on completion of the
work to pay the same in full (giving in such reasonable detail as the
Servicer may require an estimate of the cost of such completion);
(2) Each request for an advance of Insurance Proceeds shall be
accompanied by, if the estimated cost to complete the Restoration
exceeds $250,000, or if otherwise requested by the Servicer, waivers of
liens satisfactory to the Servicer covering that part of the
Restoration previously paid for, if any;
(3) No advance of Insurance Proceeds shall be made if there is
an Event of Default or other material default continuing on the part of
the Borrower (or any of its affiliates) under this Deed of Trust or any
other Loan Document;
(4) The request for an advance of Insurance Proceeds after the
Restoration has been completed shall be accompanied by a copy of any
certificate or certificates required by law for occupancy of the
Mortgaged Property that have not theretofore been delivered to the
Beneficiary or the Servicer; and
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(5) If the Servicer reasonably believes at any time that the
cost of the Restoration at any time shall exceed the amount of the
Insurance Proceeds available therefor, Insurance Proceeds shall not be
advanced until the Borrower shall deposit the full amount of the
deficiency with the Servicer (or make or provide other arrangements or
assurances reasonably satisfactory to the Servicer) and any amount so
deposited shall first be applied toward the cost of the Restoration
before any portion of the Insurance Proceeds is disbursed for such
purpose.
Upon notice to the Beneficiary by the Servicer of the failure on the
part of the Borrower promptly to commence or diligently to continue the
Restoration, or at any time upon request by the Borrower, the Beneficiary shall
apply the amount of any such proceeds then or thereafter in the hands of the
Beneficiary or the Servicer to the payment of the Secured Obligations by
prepaying the Bonds; provided, however, that notwithstanding anything herein
contained, the Beneficiary shall first apply such proceeds to the curing of any
default that has not been cured within the applicable cure period under this
Deed of Trust or any other Loan Document.
(h) Insurance Proceeds and any additional funds deposited by the
Borrower with the Beneficiary or Servicer shall constitute additional security
for the Secured Obligations. The Borrower shall execute, deliver, file and/or
record, at its own expense, such documents and instruments as the Beneficiary or
Servicer deems necessary or advisable to grant to the Beneficiary a perfected,
first priority security interest in the Insurance Proceeds and such additional
funds. If the Borrower elects to have the Insurance Proceeds applied to
Restoration, (i) the Insurance Proceeds shall be, at the Servicer's election,
disbursed in installments by the Servicer, and (ii) the Borrower shall upon
demand by the Servicer from time to time deposit with the Servicer, in a
mutually acceptable interest-bearing account, the amount of any deductible under
such insurance coverage and such amounts as reasonably determined by the
Servicer in excess of the amount from time to time on deposit as may be
necessary to complete the Restoration.
SECTION 5.19. PAYMENT OF IMPOSITIONS, LIENS AND UTILITIES.
(a) The Borrower shall pay or cause to be paid all Impositions as they
become due and payable. The Borrower will deliver to the Servicer an Officer's
Certificate certifying that the real estate taxes, assessments and similar items
with respect to the Mortgaged Property have been so paid and are not then
delinquent, which delivery shall occur promptly following such payment and, at
the request of the Servicer, the Borrower will deliver evidence satisfactory to
the Servicer with respect to the payment of such real estate taxes or any other
Impositions. The Borrower shall not suffer or permit any lien or charge
(including without limitation any mechanic's lien) against all or any part of
the Mortgaged Property (other than inchoate liens for real estate taxes and
other assessments not yet due and payable) and the Borrower shall promptly cause
to be paid and discharged any lien or charge whatsoever which may be or become a
lien or charge against the Mortgaged Property. The Borrower shall promptly pay
or cause to be paid all bills for utility services provided to the Mortgaged
Property.
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(b) Notwithstanding the provisions of subsection (a) of this Section
5.19, the Borrower shall have the right to contest in good faith the amount or
validity of any such lien or charge (including, without limitation, tax liens
and mechanics' liens) referred to in subsection (a) above by appropriate legal
proceedings and in accordance with all applicable law, after notice to, but
without cost or expense to, the Beneficiary or Servicer, provided that: (i) the
Borrower pays all Impositions as same become due and payable, unless the
Borrower delivers evidence satisfactory to the Servicer that, as a result of the
Borrower's contest, the Borrower's obligation to pay such Impositions has been
deferred by the appropriate governmental authority, in which event the Borrower
may defer such payment of such Impositions until the date specified by such
governmental authority; (ii) such contest shall be promptly and diligently
prosecuted by and at the expense of the Borrower; (iii) the Beneficiary shall
not thereby suffer any civil penalty, or be subjected to any criminal penalties
or sanctions; (iv) such contest shall be discontinued and such lien or charge
promptly paid if at any time all or any part of the Mortgaged Property shall be
in imminent danger of being foreclosed, sold, forfeited, or otherwise lost or if
the lien of this Deed of Trust or the priority thereof shall be in imminent
danger of being impaired; and (v) during such contest the Borrower shall
indemnify and protect the Beneficiary against any liability, loss or injury by
reason of such contest, and shall post a deposit with the Servicer representing
125% of the contested amount.
SECTION 5.20. CONDEMNATION. The Borrower shall promptly give the
Beneficiary and the Servicer written notice of the actual or (to the Borrower's
knowledge) threatened commencement of any condemnation or eminent domain
proceeding and shall deliver to the Servicer copies of any and all papers served
in connection with such proceedings. The Servicer may participate in any such
proceeding and the Borrower will deliver to the Servicer all instruments
requested by the Servicer to permit such participation.
Notwithstanding any taking by any public or quasi-public authority
through eminent domain or otherwise (including but not limited to any transfer
made in lieu of or in anticipation of the exercise of such taking), the Borrower
shall continue to pay the Secured Obligations at the time and in the manner
provided for in the Indenture, in this Deed of Trust and the other Loan
Documents, and the Secured Obligations shall not be otherwise reduced, until any
award or payment therefor shall have been actually received and applied by the
Beneficiary or Servicer (after expenses of collection) to the discharge of the
Secured Obligations. The Beneficiary shall not be limited to the interest paid
on the award by the condemning authority but shall be entitled to receive out of
the award interest on the Secured Obligations at the rate or rates provided in
the Loan Documents.
If there exists no Event of Default, the Borrower will be entitled to
receive payment of Condemnation Proceeds up to $100,000 to be applied to the
Restoration of such Mortgaged Property, if Restoration is required. Condemnation
Proceeds of more than $100,000 will be deposited into the Loss Proceeds Account
maintained by the Servicer. Once Condemnation Proceeds are received, the
Borrower shall proceed promptly with the Restoration of the Mortgaged Property;
provided that if a condemnation or eminent domain proceeding of any Mortgaged
Property is of such a nature that the Borrower and the Servicer determine that
(i) the
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Mortgaged Property can no longer be operated on an economically feasible basis,
or (ii) restoration cannot reasonably be expected to be completed within a
period of one year from the date of the condemnation, then the Borrower may, in
its sole discretion, choose not to proceed with Restoration, and prepay the
Bonds in accordance with the Indenture in an amount equal to the lesser of (x)
the amount of the Condemnation Proceeds and (y) the Allocated Loan Amount, plus
accrued interest through the Accounting Date for the Special Payment Date on
which such Prepayment is applied on the Bonds in accordance with the Loan
Documents, in each case without a Yield Maintenance Premium. In that event, any
excess of the Condemnation Proceeds over the Allocated Loan Amount shall be
deposited into the Central Account for application (or release to the Borrower)
in accordance with the Servicing Agreement. In the event that the Borrower
proceeds with the Restoration, and the Condemnation Proceeds exceed the costs of
Restoration, such excess proceeds shall be deposited into the Central Account
for application (or release to the Borrower) in accordance with the Servicing
Agreement. If the Borrower elects to proceed with Restoration, then the net
proceeds of such award or payment shall be treated for purposes of this Section
5.20 as Insurance Proceeds resulting from damage to the Mortgaged Property and
shall be made available to the Borrower to construct such additional
improvements subject to the terms and conditions of Sections 5.18(e), (f), (g)
and (h). If the Mortgaged Property is sold, through foreclosure or otherwise,
prior to the receipt by the Beneficiary or the Servicer of such award or
payment, the Beneficiary shall have the right, whether or not a deficiency
judgment on the Bonds shall have been sought, recovered or denied, to receive
such award or payment, or a portion thereof sufficient to pay the Secured
Obligations (by prepaying the Bonds in such manner and order of priority as set
forth in the Indenture).
SECTION 5.21. LEASES AND RENTS.
(a) The Beneficiary acknowledges that the Borrower is a party to a
lease agreement (the "Lease") with Lessee, pursuant to which the entire
Mortgaged Property has been leased to the Lessee, and this Deed of Trust is
subject to the terms of that Lease, which, inter alia, requires the Beneficiary
to (i) give the Lessee the same notice, if any, given to the Borrower of any
Default or acceleration of the Bonds or any foreclosure sale hereunder, (ii)
permit the Lessee to cure Defaults during applicable cure periods on the
Borrower's behalf and (iii) permit the Lessee to appear and to bid at any
foreclosure sale. The Borrower represents and warrants that it has entered into
no lease or occupancy agreement of any kind or nature with respect to the
Mortgaged Property other than the Lease. The Borrower shall not amend or modify
the Lease or cancel or terminate the Lease (except in connection with a Lease
Event of Default or a termination otherwise permitted under the Lease) without
the prior written consent of the Beneficiary, which consent will be given upon
confirmation from the Rating Agency that such action will not cause a
qualification, withdrawal or downgrading of the ratings then maintained by the
Rating Agency with respect to the Bonds. To the extent any obligation of the
Borrower hereunder is an obligation to be performed by the Lessee under the
Lease, the Borrower shall fulfill such obligation by causing the Lessee to
perform such obligation.
(b) Section 3.1(c) of the Lease provides that if the Percentage Rent
due for a Fiscal Year is less than that paid for such Fiscal Year, the Borrower,
at its option, may reimburse the
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excess or may credit such amount to the next month's Base Rent. As long as the
Bonds are Outstanding, the Borrower shall not credit any such amounts to future
Base Rent.
(c) The Borrower hereby grants and assigns to the Beneficiary all the
Rents from the Mortgaged Property and the right to enter the Mortgaged Property
for the purpose of enforcing its interest in the Lease and the Rents, this Deed
of Trust constituting a present, absolute assignment thereof. The Beneficiary
grants to the Borrower a revocable license to operate and manage the Mortgaged
Property and to collect the Rents; provided, however, the Beneficiary may revoke
such license upon and during the continuation of an Event of Default.
(d) Any future Lease on the Mortgaged Property shall be subordinate to
this Deed of Trust, subject to non-disturbance provisions similar to those in
the Subordination Agreement.
(e) Without the prior written consent of the Beneficiary, which shall
be given upon confirmation from the Rating Agency that the action will not cause
a qualification, withdrawal or downgrading of the ratings then maintained by the
Rating Agency with respect to the Bonds, the Borrower shall not (i) lease all or
any part of the Mortgaged Property other than to the Lessee pursuant to the
Lease (or a lease substantially similar to the Lease), (ii) consent to any
assignment of the Lease or a sublet of all or part of the Mortgaged Property
(other than a sublet of any retail or restaurant portion of such Mortgaged
Property in accordance with the Lease) or (iii) further assign the whole or any
part of the Lease or the Rents.
(f) With respect to the Lease, the Borrower shall (i) timely fulfill or
perform in all material respects each and every provision thereof on the
Borrower's part to be fulfilled or performed, (ii) promptly send copies to the
Servicer of all notices of default that the Borrower (and/or any person in
possession under the Borrower) shall send or receive thereunder, and (iii)
diligently enforce all of the terms, covenants and conditions contained in such
Lease upon the lessee's part to be performed. Upon the occurrence of any Event
of Default under this Deed of Trust, the Borrower (and/or any person in
possession under the Borrower other than the Lessee) shall pay monthly in
advance to the Beneficiary, or any receiver appointed to collect the Rents, the
fair and reasonable rental value for the use and occupation of the Mortgaged
Property or part of the Mortgaged Property as may be occupied by the Borrower
(or such person) and upon default in any such payment the Borrower (or such
person) shall vacate and surrender possession of the Mortgaged Property to the
Beneficiary or to such receiver and, in default thereof, the Borrower (or such
person) may be evicted by summary proceedings or otherwise.
(g) Neither this assignment nor any action taken pursuant hereto shall
operate to place any obligations or liability for the control, care, management
or repair of the Mortgaged Property upon the Beneficiary or Servicer, or for the
carrying out of any of the terms and conditions of the Lease; nor shall either
operate to make the Beneficiary or Servicer responsible or liable for any waste
committed on the Mortgaged Property by the tenants or any other parties, or for
any dangerous or defective condition of the Mortgaged Property, or for any
negligence in the management, upkeep, repair or control of the Mortgaged
Property resulting in loss or
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injury or death to any tenant, licensee, employee or stranger; nor shall it make
the Beneficiary a "mortgagee in possession."
SECTION 5.22. MAINTENANCE OF MORTGAGED PROPERTY; WASTE. The Borrower
shall maintain the Mortgaged Property in good and clean order and condition such
that the utility and operation of the Mortgaged Property will not be affected in
any materially adverse way, subject to ordinary wear and tear and casualty.
Subject to the provisions herein regarding casualty and condemnation, the
Borrower shall make or cause to be made all necessary or appropriate repairs,
replacements and renewals to the Mortgaged Properties. The Borrower shall not
commit or suffer any waste of the Mortgaged Property or make any change in the
use of the Mortgaged Property that will in any way materially increase the risk
of fire or other hazard arising out of the operation of the Mortgaged Property,
or take any action that might invalidate or give cause for cancellation of any
Required Insurance Policy, or do or permit to be done thereon anything that may
in any way impair the value of the Mortgaged Property or the security of this
Deed of Trust.
SECTION 5.23. ALTERATIONS. The Borrower shall not make or permit to be
made any Alterations to the Mortgaged Property unless such Alterations could not
reasonably be expected to decrease the value of the Mortgaged Property or to
affect adversely the ability of the Borrower to make payments under the Loan
Documents when due.
SECTION 5.24. COMPLIANCE WITH APPLICABLE LAW.
(a) The Borrower shall promptly comply with all existing and future
federal, state and local laws, orders, ordinances, governmental rules and
regulations or court orders affecting the Mortgaged Property, or the use thereof
("Applicable Law").
(b) Notwithstanding any provisions set forth herein or in any document
regarding the approval of Alterations of the Mortgaged Property by the
Beneficiary or the Servicer, the Borrower shall not alter the Mortgaged Property
in any manner which would materially increase the Borrower's responsibilities
for compliance with Applicable Laws without the prior written approval of the
Servicer. The Servicer's approval of the plans, specifications, or working
drawings for alterations of the Mortgaged Property shall create no
responsibility or liability on behalf of the Servicer for their completeness,
design, sufficiency or their compliance with Applicable Laws. The Servicer may
condition any such approval upon receipt of a certificate of compliance with
Applicable Laws from an independent architect, engineer, or other Person
acceptable to the Servicer.
(c) The Borrower shall give prompt notice to the Servicer of the
receipt by the Borrower of any notice related to a violation of any Applicable
Laws and of the commencement of any proceedings or investigations that relate to
compliance with Applicable Laws.
(d) After prior written notice to the Servicer, the Borrower, at its
own expense, may contest by appropriate legal proceeding, promptly initiated and
conducted in good faith and with
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due diligence, the Applicable Laws affecting the Mortgaged Property, provided
that (i) no Event of Default has occurred and is continuing under the Loan
Documents; (ii) the Borrower is permitted to do so under the provisions of any
other mortgage, deed of trust or deed to secure debt affecting the Mortgaged
Property; (iii) such proceeding shall be permitted under and be conducted in
accordance with the provisions of any other instrument to which the Borrower is
subject and shall not constitute a default thereunder; (iv) neither the
Mortgaged Property nor any part thereof or interest therein nor any of the
tenants or occupants thereof shall be affected in any material adverse way as a
result of such proceeding; and (v) the Borrower shall have furnished to the
Servicer all other items reasonably requested by the Servicer.
SECTION 5.25. TRANSFER OR ENCUMBRANCE OF THE MORTGAGED PROPERTY. Except
for the Permitted Liens and the granting of customary easements and similar
rights in the ordinary course of business and except as otherwise expressly
provided in the Loan Documents, the Borrower, without the prior written consent
of the Servicer, shall not sell, convey, alienate, mortgage, encumber or
otherwise transfer the Mortgaged Property or any part thereof or any interest
therein, nor incur any additional indebtedness, nor permit or suffer the
divestiture of its title or any interest therein, nor permit or suffer any
merger, consolidation or dissolution or syndication affecting the Borrower, nor
permit or suffer the pledge, assignment, encumbrance or transfer of any
partnership interest in the Borrower.
SECTION 5.26. ESTOPPEL CERTIFICATES. The Borrower, within ten (10)
Business Days after written request by the Servicer, shall furnish the Servicer
from time to time with a statement, setting forth (i) the then unpaid principal
amount of the Secured Obligations, (ii) the rate of interest then payable on the
Secured Obligations, (iii) the date through which all installments of interest,
principal and other amounts secured by this Deed of Trust have been paid, (iv)
any offsets or defenses to the payment of the Secured Obligations, and (v) that
no default or Event of Default has occurred on the part of the Borrower or, to
the Borrower's knowledge, the Beneficiary under this Deed of Trust, the Bonds or
any other Loan Document which is then continuing, or if any such default or
Event of Default has occurred, giving the particulars thereof.
SECTION 5.27. OPERATING OF HOTEL. The Borrower shall operate (or cause
to be operated) the Mortgaged Property as a hotel and may permit related uses.
SECTION 5.28. CHANGES IN THE LAWS REGARDING TAXATION. If any law is
enacted or adopted or amended after the date of this Deed of Trust which deducts
the Secured Obligations or any portion thereof from the value of the Mortgaged
Property for the purpose of taxation and which imposes a tax, either directly or
indirectly, on the principal amount of the Bonds or the Beneficiary's interest
in the Mortgaged Property, the Borrower will pay such tax, with interest and
penalties thereon, if any. In the event the Beneficiary is advised by counsel
chosen by it that the payment of such tax or interest and penalties by the
Borrower would be unlawful or taxable to the Beneficiary or unenforceable or
provide the basis for a defense of usury, then in any such event, the
Beneficiary shall have the option, by written notice of not less than thirty
days, to
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require the Borrower to prepay immediately thereafter all principal and accrued
interest then due and payable under the Bonds.
SECTION 5.29. NO CREDITS ON ACCOUNT OF THE SECURED OBLIGATION. The
Borrower will not claim or demand or be entitled to any credit or credits on
account of the Secured Obligations for any part of the Impositions assessed
against the Mortgaged Property or any part thereof and no deduction shall
otherwise be made or claimed from the taxable value of the Mortgaged Property,
or any part thereof, by reason of this Deed of Trust or the Secured Obligations.
In the event such claim, credit or deduction shall be required by law, the
Beneficiary shall have the option, by written notice of not less than thirty
days, to require the Borrower to prepay immediately thereafter all principal and
accrued interest then due and payable under the Bonds.
SECTION 5.30. DOCUMENTARY STAMPS. If at any time the United States of
America, any State thereof or any subdivision of any such State shall require
revenue or other stamps to be affixed to the Bonds or this Deed of Trust, or
impose any other tax or charge on the same, the Borrower will pay for the same,
with interest and penalties thereon, if any.
SECTION 5.31. RIGHT OF ENTRY. Subject to the rights of the Lessee under
the Lease and any other requirements of the Lease, the Beneficiary and its
agents shall have the right to enter and inspect the Mortgaged Property at any
time during regular business hours upon reasonable advance notice to the
Borrower.
SECTION 5.32. PERFORMANCE OF OTHER AGREEMENTS. The Borrower shall
observe and perform each and every term to be observed or performed by the
Borrower pursuant to the terms of any agreement or recorded instrument affecting
or pertaining to the Mortgaged Property, which the failure of the Borrower to
perform or observe would have a Material Adverse Effect on the Borrower's
operation of the Mortgaged Property or the Borrower's ability to perform its
obligations under the Loan Documents.
SECTION 6. RIGHTS AND REMEDIES.
SECTION 6.01. APPRAISALS. If an Event of Default occurs and is
continuing, the Servicer shall be entitled at any time to request an appraisal
to be performed by an appraiser satisfactory to the Servicer and/or a market
study to be performed by an MAI satisfactory to the Servicer with respect to the
Mortgaged Property or all the Mortgaged Properties. The Borrower shall pay all
reasonable fees for any appraisals and market studies performed pursuant to this
Section 6.01.
SECTION 6.02. EVENTS OF DEFAULT.
Upon the occurrence of any Event of Default, the Secured Obligations,
upon notice to the Borrower, shall immediately become due at the option of the
Beneficiary (or certain Bondholders as provided in the Indenture) and the
provisions of Section 6.03 shall apply.
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SECTION 6.03. REMEDIES.
(a) The Beneficiary may, to the extent permitted under applicable law,
elect to treat the fixtures included in the Mortgaged Property either as real
property or as personal property, or both, and proceed to exercise such rights
as apply thereto. With respect to any sale of real property included in the
Mortgaged Property made under the powers of sale herein granted and conferred,
the Beneficiary may, to the extent permitted by applicable law, include in such
sale any fixtures included in the Mortgaged Property and relating to such real
property.
(b) Upon the occurrence of any Event of Default, the Beneficiary may
take such action, without notice or demand, as it deems advisable to protect and
enforce its rights against the Borrower and in and to the Mortgaged Property or
any part thereof or interest therein, including, but not limited to, the
following actions, each of which may be pursued concurrently or otherwise, at
such time and in such order as the Beneficiary may determine, in its sole
discretion, without impairing or otherwise affecting the other rights and
remedies of the Beneficiary: (i) enter into or upon the Premises, either
personally or by its agents, nominees or attorneys, and dispossess the Borrower
and its agents and servants therefrom, and thereupon the Beneficiary may (A)
use, operate, manage, lease, control, insure, maintain, repair, restore and
otherwise deal with all and every part of the Mortgaged Property and conduct the
business thereat; (B) complete any construction on the Mortgaged Property in
such manner and form as the Beneficiary deems advisable; (C) make alterations,
additions, renewals, replacements and improvements to or on the Mortgaged
Property; (D) exercise all rights and powers of the Borrower with respect to the
Mortgaged Property, whether in the name of the Borrower or otherwise, including,
without limitation, the right to make, cancel, enforce or modify leases, obtain
and evict tenants, and demand, sue for, collect and receive all earnings,
revenues, rents, issues, profits and other income of the Mortgaged Property and
every part thereof; and (E) apply the receipts from the Mortgaged Property to
the payment of the Secured Obligations (in such manner and order of priority as
the Beneficiary shall elect in its sole and absolute discretion), after
deducting therefrom all expenses (including reasonable attorneys' fees and
expenses) incurred in connection with the aforesaid operations and all amounts
necessary to pay the taxes, assessments, insurance and other charges in
connection with the Mortgaged Property, as well as just and reasonable
compensation for the services of the Beneficiary, its counsel, agents and
employees in connection with the aforesaid operations; (ii) institute
proceedings for the complete foreclosure of this Deed of Trust, in which case
the Mortgaged Property may be sold for cash or upon credit in one or more
parcels; (iii) with or without entry, to the extent permitted and pursuant to
the procedures provided by applicable law, institute proceedings for the partial
foreclosure of this Deed of Trust for the portion of the Secured Obligations
then due and payable, subject to the continuing lien of this Deed of Trust for
the balance of the Secured Obligations not then due; (iv) sell for cash or upon
credit the Mortgaged Property or any part thereof and all or any part of any
estate, claim, demand, right, title and interest of the Borrower therein and
rights of redemption thereof, pursuant to power of sale or otherwise, at one or
more sales, as an entity or in parcels, at such time and place, upon such terms
and after such notice thereof as may be required or pertained by law, and in the
event of a sale, by foreclosure or otherwise, of less than all of the Mortgaged
Property, this Deed of Trust shall continue as a lien
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on the remaining portion of or estate in the Mortgaged Property; (v) institute
an action, suit or proceeding in equity for the specific performance of any
covenant, condition or agreement contained herein or any other Loan Document or
for mandatory or prohibitory injunctive relief, or other equitable relief
requiring the Borrower to cure or refrain from repeating any default; (vi)
recover judgment on the Bonds or any other Loan Document either before, during
or after any proceedings for the enforcement of this Deed of Trust; (vii) apply
for the appointment of a trustee, receiver, liquidator or conservator of the
Mortgaged Property upon ex parte application to any court of competent
jurisdiction, without regard for the adequacy of the security for the Secured
Obligations and without regard for the solvency of the Borrower or of any
person, firm or other entity liable for the payment of the Secured Obligations;
(viii) with or without accelerating the maturity of the Secured Obligations, the
Beneficiary may sue from time to time for any payment due under any Loan
Documents; and/or (ix) pursue such other remedies as the Beneficiary may have
under applicable law, in equity or under this Deed of Trust or any other Loan
Document.
(c) The purchase money proceeds or avails of any sale made under or by
virtue of this Section 6.03, together with any other sums which then may be held
by the Beneficiary under this Deed of Trust, whether under the provisions of
this Section 6.03 or otherwise, shall be applied as follows:
First: To the payment of the costs and expenses of any such
sale, including cost of evidence of title in connection with the sale
and reasonable compensation to the Trustee, its agents and counsel, and
of any judicial proceedings wherein the same may be made, and of all
expenses, liabilities and advances made or incurred by the Trustee
under this Deed of Trust, together with interest as provided herein on
all advances made by the Trustee and all taxes or assessments, except
any taxes, assessments or other charges subject to which the Mortgaged
Property shall have been sold.
Second: To the payment of the whole amount of the Secured
Obligations then due, owing or unpaid together with any and all
applicable interest, fees and late charges, in such manner and order of
priority as provided in the Indenture.
Third: To the payment of any other sums required to be paid by
the Borrower pursuant to any provision of this Deed of Trust, the Bonds
or any other Loan Document.
Fourth: To the payment of the surplus, if any, to whomsoever
may be lawfully entitled to receive the same.
The Beneficiary and any receiver of the Mortgaged Property, or any part
thereof, shall be liable to account for only those proceeds of sale, rents,
issues and profits actually received by it.
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In the event that the proceeds of any such sale, collection or
realization are insufficient to pay all amounts of the Secured Obligations to
which the Beneficiary is legally entitled, the Borrower shall be liable for the
deficiency (subject to Section 11.01), together with interest thereon at the
Default Rate until such amounts are paid in full, together with the costs of
collection and the reasonable fees and disbursements of any attorneys employed
by the Beneficiary to collect such deficiency.
(d) Any receiver appointed after an Event of Default and his agents
shall be empowered (i) to take possession of the Mortgaged Property and any of
the Borrower's business assets used in connection therewith, (ii) to exclude the
Borrower and the Borrower's agents, servants, and employees from the Premises,
(iii) to collect the Rents, (iv) to complete any construction which may be in
progress, (v) to do such maintenance and make such repairs and alterations as
the receiver deems necessary, (vi) to use all stores of materials, supplies, and
maintenance equipment on the Mortgaged Property and replace such items at the
expense of the receivership estate, (vii) to pay all taxes and assessments
against the Mortgaged Property, all premiums for insurance thereon, all utility
and other operating expenses, and all sums due under any prior or subsequent
encumbrance, and (viii) generally to do anything which the Borrower could
legally do if the Borrower were in possession of the Mortgaged Property. All
reasonable expenses incurred by the receiver or his agents shall constitute a
part of the Secured Obligations. Any revenues collected by the receiver shall be
applied first to the expenses of the receivership, including reasonable
attorneys' fees and disbursements incurred by the receiver and the Beneficiary,
together with interest thereon at the Default Rate from the date incurred until
repaid, then to the payment of the whole amount of the Secured Obligations then
due, owing or unpaid, together with any and all applicable interest, fees and
late charges (in such manner and order of priority as the Beneficiary shall
elect in its sole and absolute discretion), and the balance to the payment of
any other sums required to be paid by the Borrower pursuant to any provision of
this Deed of Trust, the Bonds or the other Loan Documents or in such other
manner as the court may direct. Unless sooner terminated with the express
consent of the Beneficiary, any such receivership will continue until the
Secured Obligations have been discharged in full, or until title to the
Mortgaged Property has passed after foreclosure sale and all applicable periods
of redemption have expired.
(e) In the case of a foreclosure under this Deed of Trust, the said
Mortgaged Property, real, personal and mixed, may be sold in one parcel or more
than one parcel to the extent permitted by law.
(f) At the Beneficiary's request, Trustee may adjourn from time to time
any sale to be made under or by virtue of this Deed of Trust by announcement at
the time and place appointed for such sale or for such adjourned sale or sales;
and, except as otherwise provided by any applicable provision of law, Trustee,
at the Beneficiary's request, without further notice or publication, may make
such sale at the time and place to which the same shall be so adjourned.
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(g) Upon the completion of any sale or sales under or by virtue of this
Section 6.03, and the period of redemption (if any), the Trustee or an officer
of any court empowered to do so, shall execute and deliver to the accepted
purchaser or purchasers a good and sufficient instrument, or good and sufficient
instruments, conveying, assigning and transferring all estate, right, title and
interest in and to the property and rights sold. The Trustee is hereby
irrevocably appointed the true and lawful attorney of the Borrower, in its name
and stead, to make all necessary conveyances, assignments, transfers and
deliveries of the Mortgaged Property and rights so sold and for that purpose the
Trustee may execute all necessary instruments of conveyance, assignment and
transfer, and may substitute one or more persons with like power, the Borrower
hereby ratifying and confirming all that its said attorney or such substitute or
substitutes shall lawfully do by virtue hereof, it being agreed that such power
of attorney shall be coupled with an interest. Any such sale or sales made under
or by virtue of this Section 6.03, whether made under the power of sale herein
granted or under or by virtue of judicial proceedings or of a judgment or decree
of foreclosure and sale, shall operate to divest all the estate, right, title,
interest, claim and demand whatsoever, whether at law or in equity, of the
Borrower in and to the properties and rights so sold, and shall be a perpetual
bar both at law and in equity against the Borrower and against any and all
persons claiming or who may claim the same, or any part thereof from, through or
under the Borrower.
(h) In the event of any sale made under or by virtue of this Section
6.03 (whether made under the power of sale herein granted or under or by virtue
of judicial proceedings or of a judgment or decree of foreclosure and sale) the
entire Secured Obligations, if not previously due and payable, immediately
thereupon shall, anything in the Bonds, this Deed of Trust or the other Loan
Documents to the contrary notwithstanding, become due and payable.
(i) Upon any sale made under or by virtue of this (whether made under
the power of sale herein granted or under or by virtue of judicial proceedings
or of a judgment or decree of foreclosure and sale), the Beneficiary may bid for
and acquire the Mortgaged Property or any part thereof and in lieu of paying
cash therefor may make settlement for the purchase price by crediting upon the
Secured Obligations the net sales price after deducting therefrom the expenses
of the sale and the costs of the action and any other sums which the Beneficiary
is authorized to deduct under this Deed of Trust.
(j) No recovery of any judgment by the Beneficiary and no levy of an
execution under any judgment upon the Mortgaged Property or upon any other
property of the Borrower shall affect in any manner or to any extent, the lien
of this Deed of Trust upon the Mortgaged Property or any part thereof, or any
liens, rights, powers or remedies of the Beneficiary hereunder, but such liens,
rights, powers and remedies of the Beneficiary shall continue unimpaired as
before.
(k) So long as the Secured Obligations, or any part thereof, remain
unpaid, the Borrower agrees that possession of the Mortgaged Property by the
Borrower, or any person claiming under the Borrower, shall be as tenant, and, in
case of a sale under power or upon foreclosure as provided in this Deed of
Trust, the Borrower and any person in possession under
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the Borrower, as to whose interest such sale was not made subject, shall, at the
option of the purchaser at such sale, then become and be tenants holding over,
and shall forthwith deliver possession to such purchaser, or be summarily
dispossessed in accordance with the laws applicable to tenants holding over. If
the Borrower (or such person) is permitted to remain or otherwise remains in
possession, the possession shall be as a month-to-month tenant of the
Beneficiary and, on demand, the Borrower (or such person) will pay to the
Beneficiary (or any receiver of the Mortgaged Property) monthly, in advance, the
fair and reasonable rental value for the space so occupied and in default
thereof the Borrower (or such person) may be dispossessed by the usual summary
proceedings or otherwise.
(l) No remedy conferred upon or reserved to the Beneficiary by this
Deed of Trust is intended to be exclusive of any other remedy or remedies
available to the Beneficiary under the Loan Documents, at law, in equity or
otherwise, and each and every such remedy hereunder and/or under any other Loan
Documents, at law or in equity, shall be cumulative and shall be in addition to
every other remedy given under this Deed of Trust and/or under any other Loan
Document or now or hereafter existing at law or in equity. Any delay or omission
of the Beneficiary to exercise any right or power accruing upon the occurrence
of any Event of Default shall not impair any such right or power and shall not
be construed to be a waiver of or acquiescence in any such Event of Default.
Every power and remedy given by this Deed of Trust and/or under any other Loan
Document and/or at law or in equity may be exercised from time to time
concurrently or independently, when and as often as may be deemed expedient by
the Beneficiary in such order and manner as the Beneficiary, in its sole and
absolute discretion, may elect. If the Beneficiary accepts any moneys required
to be paid by the Borrower under this Deed of Trust after the same become due,
such acceptance shall not constitute a waiver of the right either to require
prompt payment, when due, of all other sums secured by this Deed of Trust or to
declare an Event of Default with regard to subsequent defaults. If the
Beneficiary accepts any moneys required to be paid by the Borrower under this
Deed of Trust in an amount less than the sum then due, such acceptance shall be
deemed an acceptance on account only and on the condition that it shall not
constitute a waiver of the obligation of the Borrower to pay the entire sum then
due, and the Borrower's failure to pay the entire sum then due shall be and
continue to be a default hereunder notwithstanding acceptance of such amount on
account.
(m) The state-specific provisions of Annex I are hereby incorporated by
reference herein as though set forth in full herein.
Section 6.04. Right to Cure Defaults. Upon the occurrence of any Event
of Default or if the Borrower fails to make any payment or to do any act as
herein provided, the Beneficiary may, but without any obligation to do so and
without notice, except as otherwise provided herein, to or demand on the
Borrower and without releasing the Borrower from any obligation hereunder, make
or do the same in such manner and to such extent as the Beneficiary may
reasonably deem necessary to protect the security hereof. The Beneficiary is
authorized to enter upon the Mortgaged Property for such purposes, or appear in,
defend, or bring any action or proceeding to protect its interest in the
Mortgaged Property or to foreclose this Deed of Trust or collect the Secured
Obligations, and the cost and expense thereof (including, without
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limitation, reasonable attorneys' fees and disbursements to the extent permitted
by law), with interest as provided in this Section 6.04, shall be immediately
due and payable to the Beneficiary upon demand by the Beneficiary therefor. All
such costs and expenses incurred by the Beneficiary in remedying such Event of
Default or failure of the Borrower or in appearing in, defending, or bringing
any such action or proceeding shall bear interest at the Default Rate, for the
period from the date that such cost or expense was incurred to the date of
payment to the Beneficiary, and such costs, expenses and interest shall be added
to the Secured Obligations and shall be secured by this Deed of Trust.
Section 6.05. Appointment of Receiver. The Beneficiary, upon the
occurrence of an Event of Default or in any action to foreclose this Deed of
Trust or upon the actual or threatened waste to any part of the Mortgaged
Property, shall be entitled forthwith as a matter of right, concurrently or
independently of any other right or remedy hereunder, either before or after
declaring the Secured Obligations (or any part thereof) to be due and payable,
to the appointment of a receiver or other custodian ex parte and without notice
and without regard to the value of the Mortgaged Property as security for the
Secured Obligations, or the solvency or insolvency of any person liable for the
payment of the Secured Obligations, and whether or not foreclosure proceedings
have been commenced.
SECTION 7. WAIVER.
SECTION 7.01. WAIVER OF COUNTERCLAIM. To the fullest extent permitted
by applicable law, the Borrower hereby waives the right to assert a claim or
counterclaim, other than a compulsory counterclaim, in any action or proceeding
brought against it by the Beneficiary with respect to any Event of Default.
SECTION 7.02. SOLE DISCRETION OF THE BENEFICIARY. Wherever pursuant to
this Deed of Trust, the Beneficiary or its agents exercise any right given to
them to approve or disapprove, or any arrangement or term is to be satisfactory
to the Beneficiary or its agents, the decision of the Beneficiary or its agents
to approve or disapprove or to decide that such arrangements or terms are
satisfactory or not satisfactory shall be in the sole discretion of the
Beneficiary or its agents and shall be final and conclusive, except as may be
otherwise specifically provided herein.
SECTION 7.03. WAIVER OF NOTICE. The Borrower shall not be entitled to
any notices of any nature whatsoever from the Beneficiary except with respect to
matters for which this Deed of Trust or the other Loan Documents specifically
and expressly provide for the giving of notice by the Beneficiary to the
Borrower and except with respect to matters for which the Beneficiary is
required by applicable law to give notice, and the Borrower hereby expressly
waives the right to receive any notice from the Beneficiary with respect to any
matter for which this Deed of Trust or other Loan Documents do not specifically
and expressly provide for the giving of notice by the Beneficiary to the
Borrower.
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SECTION 7.04. OTHER MORTGAGES; NO ELECTION OF REMEDIES.
(a) This Deed of Trust is made contemporaneously with other Mortgages
of even date herewith (the "Other Mortgages") given by the Borrower to or for
the benefit of the Beneficiary and that cover other property (the "Other
Mortgaged Properties"). The Other Mortgages secure the Secured Obligations and
the performance of the other covenants and agreements of the Borrower set forth
in the Loan Documents. Upon the occurrence of an Event of Default, the
Beneficiary may proceed under this Deed of Trust and/or the Other Mortgages
against any of the Mortgaged Property and/or the Other Mortgaged Properties in
one or more parcels and in such manner and order as the Beneficiary shall elect.
The Borrower hereby irrevocably waives and releases, to the extent permitted by
law, and whether now or hereafter in force, any right to have the Mortgaged
Property and/or the Other Mortgaged Properties marshalled upon any foreclosure
of this Deed of Trust or the Other Mortgages.
(b) Without limiting the generality of the foregoing, and without
limitation as to any other right or remedy provided to the Beneficiary in this
Deed of Trust or the other Loan Documents, and to the extent permitted by law,
in the case of an Event of Default (i) the Beneficiary shall have the right to
pursue all of its rights and remedies under this Deed of Trust and the Loan
Documents, at law and/or in equity, in one proceeding, or separately and
independently in separate proceedings from time to time, as the Beneficiary, in
its sole and absolute discretion, shall determine from time to time, (ii) the
Beneficiary shall not be required to either marshall assets, sell Mortgaged
Property and/or Other Mortgaged Properties in any particular order of alienation
(and may sell the same simultaneously and together or separately), or be subject
to any "one action" or "election of remedies" law or rule with respect to the
Mortgaged Property and the Other Mortgaged Properties, (iii) the exercise by the
Beneficiary of any remedies against any one item of Mortgaged Property and/or
Other Mortgaged Properties will not impede the Beneficiary from subsequently or
simultaneously exercising remedies against any other item of Mortgaged Property
and/or Other Mortgaged Properties, (iv) all liens and other rights, remedies or
privileges provided to the Beneficiary herein shall remain in full force and
effect until the Beneficiary has exhausted all of its remedies against the
Mortgaged Property and all Mortgaged Properties have been foreclosed, sold
and/or otherwise realized upon in satisfaction of the Secured Obligations, and
(v) the Beneficiary may resort for the payment of the Secured Obligations to any
security held by the Beneficiary in such order and manner as the Beneficiary, in
its discretion, may elect and the Beneficiary may take action to recover the
Secured Obligations, or any portion thereof, or to enforce any covenant hereof
without prejudice to the right of the Beneficiary thereafter to foreclose this
Deed of Trust.
(c) Without notice to or consent of the Borrower and without impairment
of the lien and rights created by this Deed of Trust, the Beneficiary may, at
any time (in its sole and absolute discretion, but the Beneficiary shall have no
obligation to), execute and deliver to the Borrower a written instrument
releasing all or a portion of the lien of this Deed of Trust as security for any
or all of the obligations of the Borrower now existing or hereafter arising
under or in respect of the Indenture and each of the other Loan Documents,
whereupon following the
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execution and delivery by the Beneficiary to the Borrower of any such written
instrument of release, this Deed of Trust shall no longer secure such
obligations of the Borrower so released.
SECTION 7.05. NOTICES. Any notice, demand, statement, request or
consent made hereunder shall be effective and valid only if in writing,
referring to this Deed of Trust, signed by the party giving such notice, and
delivered either personally to such other party, or sent by telecopy, by
nationally recognized overnight courier delivery service or by certified mail of
the United States Postal Service, postage prepaid, return receipt requested,
addressed to the other party, as follows (or to such other address or person as
either party or person entitled to notice may by notice to the other party
specify):
To the Beneficiary:
LaSalle National Bank,
as Indenture Trustee
135 South LaSalle Street, 17th Floor,
Chicago, Illinois 60674-4107,
Attention: Asset-Backed Securities Trust Services Group
Reference: RFS Financing Partnership, L.P.,
Commercial Mortgage Bonds, Series 1996-1
Telecopy No.: (312) 904-2084
and a copy concurrently to:
Weil, Gotshal & Manges
767 Fifth Avenue
New York, NY 10153
Attention: Paul Cohn, Esq.
Telecopy No.: (212) 310-8000
To the Servicer:
Midland Loan Services, L.P.
210 West Tenth Street
Kansas City, MO 64105
Attention: Lawrence D. Ashley
Telecopy No.: 816-435-2326
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To the Borrower:
RFS Financing Partnership, L.P.
889 Ridge Lake Boulevard, Suite 100
Memphis, Shelby County, Tennessee 38120
Attention: Michael J. Pascal
Telecopy No.: (901) 767-5156
and with a copy concurrently to:
Hunton & Williams
2000 Riverview Tower
900 South Gay Street
Knoxville, Tennessee 37902
Attention: David C. Wright, Esq.
Telecopy No. (423) 549-7704
Unless otherwise specified, notices shall be deemed given as follows:
(i) if delivered personally, when delivered, (ii) if delivered by telecopy, when
transmitted and receipt confirmed, (iii) if delivered by nationally recognized
overnight courier delivery service, on the day following the day such material
is sent, or (iv) if delivered by certified mail, on the third day after the same
is deposited with the United States Postal Service as provided above.
SECTION 7.06. NON-WAIVER. The failure of the Beneficiary to insist upon
strict performance of any term hereof shall not be deemed to be a waiver of any
term of this Deed of Trust. The Borrower shall not be relieved of the Borrower's
obligations hereunder by reason of (a) failure of the Beneficiary to comply with
any request of the Borrower to take any action to foreclose this Deed of Trust
or otherwise enforce any of the provisions hereof or the other Loan Documents,
(b) the release, regardless of consideration, of the whole or any part of the
Mortgaged Property, or of any person liable for the Secured Obligations or
portion thereof, or (c) any agreement or stipulation by the Beneficiary
extending the time of payment or otherwise modifying or supplementing the terms
of this Deed of Trust or the other Loan Documents.
SECTION 8. SECURITY AGREEMENT RECORDATION.
SECTION 8.01. SECURITY AGREEMENT.
(a) This Deed of Trust is both a real property Deed of Trust and a
"security agreement" within the meaning of the Uniform Commercial Code. The
Mortgaged Property includes both real and personal property and all other rights
and interests, whether tangible or intangible in nature, of the Borrower in the
Mortgaged Property. The Borrower, by executing and delivering this Deed of
Trust, has granted to the Beneficiary, as security for the Secured Obligations,
a security interest in the Mortgaged Property to the full extent that the
Mortgaged Property may be subject to the Uniform Commercial Code of the State in
which the Mortgaged
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Property is located (said portion of the Mortgaged Property so subject to the
Uniform Commercial Code being called in this Section 8.01 the "UCC Collateral").
If an Event of Default shall occur, the Beneficiary, in addition to any other
rights and remedies which it may have, shall have and may exercise immediately
and without demand, any and all rights and remedies granted to a secured party
upon default under the Uniform Commercial Code, including, without limiting the
generality of the foregoing, the right to take possession of the UCC Collateral
or any part thereof, and to take such other measures as the Beneficiary may deem
necessary for the care, protection and preservation of the UCC Collateral. Upon
request or demand of the Beneficiary, the Borrower shall at its expense assemble
the UCC Collateral and make it available to the Beneficiary at a convenient
place acceptable to the Beneficiary. The Borrower shall pay to the Beneficiary
on demand any and all expenses, including legal expenses and attorneys' fees and
disbursements, incurred or paid by the Beneficiary in protecting its interest in
the UCC Collateral and in enforcing its rights hereunder with respect to the UCC
Collateral. Any notice of sale, disposition or other intended action by the
Beneficiary with respect to the UCC Collateral sent to the Borrower in
accordance with the provisions hereof at least ten (10) days prior to such
action, shall constitute reasonable notice to the Borrower. The proceeds of any
disposition of the UCC Collateral, or any part thereof, may be applied by the
Beneficiary to the payment of the Secured Obligations in such priority and
proportions as the Beneficiary in its sole and absolute discretion shall deem
proper.
(b) Except as provided for in the Lease, that portion of the Mortgaged
Property consisting of personal property and equipment shall be owned by the
Borrower and shall not be the subject matter of any lease or other transaction
whereby the ownership or any beneficial interest in any of such property is held
by any person or entity other than the Borrower nor shall the Borrower create or
suffer to be created any security interest covering any such property as it may
from time to time be replaced, other than the security interest created herein
and as set forth in the Permitted Liens.
SECTION 8.02. RECORDING OF DEED OF TRUST, ETC. The Borrower forthwith,
upon the execution and delivery of this Deed of Trust, will cause this Deed of
Trust, and any security instrument creating a lien or security interest or
evidencing the lien hereof upon the Mortgaged Property (including any assignment
of leases and rents), to be filed, registered or recorded, and thereafter from
time to time, each such other instrument of further assurance to be filed,
registered or recorded, all in such manner and in such places as may be required
by any present or future law in order to publish notice of and fully to protect
the lien or security interest hereof upon, and the interest of the Beneficiary
in, the Mortgaged Property. The Borrower will pay (a) all filing, registration
and recording fees and taxes (including, without limitation, mortgage recording
taxes, intangible taxes and documentary stamps), and all other expenses
(including, without limitation, attorneys' fees and disbursements), incident to
or arising in connection with the Secured Obligations and/or the preparation,
execution, acknowledgment, enforcement, delivery and/or recording of this Deed
of Trust, any mortgage supplemental hereto, any security instrument with respect
to the Mortgaged Property (including, without limitation, any assignment of
leases and rents) and any instrument of further assurance (including, without
limitation, any fees and taxes due in connection with any future advances,
re-advances or re-loans under the
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<PAGE> 48
Bonds), and (b) all federal, state, county and municipal, taxes, duties,
imposts, assessments and charges arising out of or in connection with the
Secured Obligations and/or the making, execution, enforcement, delivery and/or
recording of this Deed of Trust, any mortgage supplemental hereto, any security
instrument with respect to the Mortgaged Property (including any assignment of
leases and rents), and/or any instrument of further assurance (including,
without limitation, any such fees and taxes due in connection with any future
advances, re-advances or re-loans under the Bonds), except where prohibited by
law so to do. In default thereof, the Beneficiary may advance the same and the
amount so advanced shall be payable by the Borrower to the Beneficiary within
ten (10) days after demand therefor, together with interest thereon at the
Default Rate from the date of the advance thereof until such amount(s) are
repaid in full. The Borrower shall hold harmless and indemnify the Beneficiary,
its successors and assigns, against any liability incurred by reason of the
imposition of any tax on the making, execution, delivery and/or recording of
this Deed of Trust, any mortgage supplemental hereto, any security instrument
with respect to the Mortgaged Property or any instrument of further assurance.
SECTION 9. RIGHTS OF THE BENEFICIARY.
SECTION 9.01. FURTHER ACTS, ETC. The Borrower will, at the sole cost of
the Borrower, and without expense to the Beneficiary, do, execute, acknowledge
and deliver all and every such further acts, deeds, conveyances, deeds of trust,
assignments, notices of assignments, transfers and assurances as the Servicer
shall, from time to time, reasonably require, for the better assuring,
conveying, assigning, transferring, and confirming unto the Beneficiary the
property and rights hereby granted, bargained, sold, and conveyed or intended
now or hereafter so to be, or which the Borrower may be or may hereafter become
bound to grant, convey, bargain or sell or assign to the Beneficiary, or for
carrying out the intention or facilitating the performance of the terms of this
Deed of Trust or for filing, registering or recording this Deed of Trust and, on
demand, will execute and deliver within five (5) business days after request of
the Servicer, and if the Borrower fails to so deliver, hereby authorizes the
Servicer thereafter to execute in the name of the Borrower or without the
signature of the Borrower to the extent the Servicer may lawfully do so, one or
more financing statements, chattel mortgages or comparable security instruments,
to evidence more effectively the lien hereof upon the Mortgaged Property. The
Borrower grants to the Servicer an irrevocable power of attorney coupled with an
interest for the purpose of exercising and perfecting any and all rights and
remedies available to the Beneficiary at law and in equity, including, without
limitation, such rights and remedies available to the Beneficiary pursuant to
this Section 9.01.
SECTION 9.02. RECOVERY OF SUMS REQUIRED TO BE PAID. The Beneficiary
shall have the right from time to time to take action to recover any sum or sums
which constitute a part of the Secured Obligations as the same become due,
without regard to whether or not the balance of the Secured Obligations shall be
due, and without prejudice to the right of the Beneficiary thereafter to bring
an action of foreclosure, or any other action, for a default or defaults by the
Borrower existing at the time such earlier action was commenced.
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<PAGE> 49
SECTION 9.03. COSTS OF DEFENDING AND UPHOLDING THE LIEN. In addition
to, and not in limitation of, Sections 9.04 and 11.03, if any action or
proceeding is commenced to which action or proceeding the Beneficiary is made a
party or in which it becomes necessary to defend or uphold the lien of this Deed
of Trust or the Beneficiary's rights under any assignment of leases and rents,
the Borrower shall, on demand, reimburse the Beneficiary for all expenses
(including, without limitation, reasonable attorneys' fees and reasonable
appellate attorneys' fees) incurred by the Beneficiary in any such action or
proceeding, together with interest at the Default Rate, and all such amounts
shall be secured hereby and be a part of the Secured Obligations. In any action
or proceeding to foreclose this Deed of Trust or to recover or collect the
Secured Obligations, the provisions of law relating to the recovering of costs,
disbursements and allowances shall prevail unaffected by this covenant.
SECTION 9.04. ADDITIONAL ACTIONS. In addition to, and not in limitation
of, the provisions of Sections 9.03 and 11.03, the Beneficiary shall have the
right to appear in and defend any action or proceeding, in the name and on
behalf of the Borrower, which the Beneficiary in its discretion, feels may
adversely affect the Mortgaged Property or this Deed of Trust, and the
Beneficiary shall also have the right to institute any action or proceeding
which the Beneficiary, in its discretion, feels should be brought to protect its
interest in the Mortgaged Property or its rights hereunder or the Beneficiary's
rights under any assignment of leases and rents. All costs and expenses incurred
by the Beneficiary in connection with such actions or proceedings, including,
without limitation, reasonable attorneys' fees, and appellate attorneys' fees,
together with interest at the Default Rate, shall be paid by the Borrower, on
demand, and shall be secured hereby and shall be a part of the Secured
Obligations.
SECTION 9.05. ADDITIONAL SECURITY. Without notice to or consent of the
Borrower and without impairment of the lien and rights created by this Deed of
Trust, the Beneficiary may accept (but the Borrower shall not be obligated to
furnish except as otherwise provided in the Loan Documents) from the Borrower or
from any other person or persons, additional security for the Secured
Obligations. Neither the giving of this Deed of Trust nor the acceptance of any
such additional security shall prevent the Beneficiary from resorting, first, to
such additional security, and, second, to the security created by this Deed of
Trust and the other Loan Documents without affecting the Beneficiary's lien and
rights under this Deed of Trust.
SECTION 10. APPLICABLE LAWS.
SECTION 10.01. USURY LAWS. This Deed of Trust and the other Loan
Documents are subject to the express condition that at no time shall the
Borrower be obligated or required to pay interest (inclusive of fees and charges
which are or could be in the nature of interest) on the Secured Obligations at a
rate which could subject the Beneficiary to either civil or criminal liability
as a result of being in excess of the maximum interest rate which the Borrower
is permitted by law to contract or agree to pay. If by the terms of this Deed of
Trust or the other Loan Documents, the Borrower is at any time required or
obligated to pay interest (inclusive of any such fees and charges) on the
Secured Obligations at a rate in excess of such maximum rate, the rate of
interest (inclusive of any such fees and charges) on the Secured Obligations
shall be
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<PAGE> 50
deemed to be immediately reduced to such maximum rate and the interest
(inclusive of any such fees and charges) payable shall be computed at such
maximum rate and all prior interest payments (inclusive of any such fees and
charges) in excess of such maximum rate shall be applied and shall be deemed to
have been payments in reduction of the principal balance of the Secured
Obligations and the principal balance of the Secured Obligations shall be
reduced by such amount in such manner and order of priority as the Beneficiary
shall elect in its sole and absolute discretion.
SECTION 10.02. GOVERNING LAW; JURISDICTION; WAIVER OF TRIAL BY JURY.
THIS DEED OF TRUST SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW
OF THE STATE IN WHICH THE MORTGAGED PROPERTY IS LOCATED WITHOUT REGARD TO
CONFLICT OF LAW PROVISIONS THEREOF. EACH BORROWER AND EACH ENDORSER HEREBY
SUBMITS TO PERSONAL JURISDICTION IN SAID STATE AND IN THE STATE OF NEW YORK AND
THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN SAID STATE AND IN
THE STATE OF NEW YORK (AND ANY APPELLATE COURTS TAKING APPEALS THEREFROM) FOR
THE ENFORCEMENT OF SUCH BORROWER'S OBLIGATIONS HEREUNDER AND WAIVES ANY AND ALL
PERSONAL RIGHTS UNDER THE LAW OF ANY OTHER STATE TO OBJECT TO JURISDICTION
WITHIN SUCH STATE FOR THE PURPOSES OF SUCH ACTION, SUIT, PROCEEDING OR
LITIGATION TO ENFORCE SUCH OBLIGATIONS OF SUCH BORROWER OR ENDORSER. EACH
BORROWER AND EACH ENDORSER HEREBY WAIVES AND AGREES NOT TO ASSERT, AS A DEFENSE
IN ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS DEED OF
TRUST (A) THAT IT IS NOT SUBJECT TO SUCH JURISDICTION OR THAT SUCH ACTION, SUIT
OR PROCEEDING MAY NOT BE BROUGHT OR IS NOT MAINTAINABLE IN THOSE COURTS OR THAT
THIS DEED OF TRUST MAY NOT BE ENFORCED IN OR BY THOSE COURTS OR THAT IT IS
EXEMPT OR IMMUNE FROM EXECUTION, (B) THAT THE ACTION, SUIT OR PROCEEDING IS
BROUGHT IN AN INCONVENIENT FORUM OR (C) THAT THE VENUE OF THE ACTION, SUIT OR
PROCEEDING IS IMPROPER. IN THE EVENT ANY SUCH ACTION, SUIT, PROCEEDING OR
LITIGATION IS COMMENCED, THE BORROWER AND ENDORSER AGREE THAT SERVICE OF PROCESS
MAY BE MADE, AND PERSONAL JURISDICTION OVER SUCH BORROWER OR ENDORSER OBTAINED,
BY SERVICE OF A COPY OF THE SUMMONS, COMPLAINT AND OTHER PLEADINGS REQUIRED TO
COMMENCE SUCH LITIGATION BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED UPON SUCH
BORROWER OR ENDORSER AT RFS FINANCING PARTNERSHIP, L.P., 889 RIDGE LAKE
BOULEVARD, SUITE 100, MEMPHIS, SHELBY COUNTY, TENNESSEE 38120, ATTENTION:
MICHAEL J. PASCAL.
THE BORROWER HEREBY EXPRESSLY WAIVES ANY AND ALL RIGHTS TO TRIAL
BY JURY IN ANY ACTION OR PROCEEDING RELATED TO THE ENFORCEMENT OF
THIS DEED OF TRUST.
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<PAGE> 51
SECTION 11. MISCELLANEOUS.
SECTION 11.01. EXCULPATION. Notwithstanding anything herein or in any
other Loan Document to the contrary, except as otherwise set forth in this
Section 11.01 to the contrary, the Beneficiary shall not enforce the liability
and obligation of the Borrower to perform and observe the obligations contained
in this Deed of Trust, the Bonds or any of the other Loan Documents executed and
delivered by the Borrower by any action or proceeding wherein a money judgment
shall be sought against the Borrower or its partners. The provisions of this
Section 11.01 shall not, however, (a) impair the validity of the Indebtedness
evidenced by the Bonds or in any way affect or impair the Liens of the Mortgages
or any of the other Loan Documents or the right of the Beneficiary to foreclose
the Mortgages following an Event of Default; (b) impair the right of the
Beneficiary to name the Borrower as a party defendant in any action or suit for
judicial foreclosure and sale under any of the Mortgages; (c) affect the
validity or enforceability of the Bonds or the other Loan Documents; (d) impair
the right of the Beneficiary to obtain the appointment of a receiver; (e) impair
the right of the Beneficiary to bring suit for actual damages, losses and costs
resulting from fraud or intentional misrepresentation by the Borrower in
connection with this Deed of Trust, the Bonds or the other Loan Documents; (f)
impair the right of the Beneficiary to bring suit with respect to the Borrower's
misappropriation of Rents collected more than one month in advance; (g) impair
the right of the Beneficiary to obtain Insurance Proceeds or Condemnation
Proceeds due to the Beneficiary pursuant to the Mortgages; (h) impair the right
of the Beneficiary to enforce Section 5.17 (the environmental covenants) of this
Deed of Trust even after repayment in full of the Indebtedness; (i) prevent or
in any way hinder the Beneficiary from exercising, or constitute a defense, or
counterclaim, or other basis for relief in respect of the exercise of, any other
remedy against any or all of the collateral securing the Bonds as provided in
the Loan Documents; or (j) impair the right of the Beneficiary to bring suit
with respect to any misapplication of any funds. Notwithstanding the foregoing,
in the event a Mortgaged Property is released from the lien created by the
Mortgages, the Borrower shall be released in all respects from any further
liability with respect to the Bonds other than any further liability for
breaches of Section 5.17.
SECTION 11.02. DUPLICATE ORIGINALS. This Deed of Trust may be executed
in any number of duplicate originals and each such duplicate original shall be
deemed to constitute but one and the same instrument.
SECTION 11.03. INDEMNITY AND THE BENEFICIARY'S COSTS. The Borrower
agrees to pay all costs, including, without limitation, reasonable attorneys'
fees and expenses, incurred by the Beneficiary in enforcing the terms hereof or
of any assignment of leases and rents whether or not suit is filed and waives to
the full extent permitted by law all right to plead any statute of limitations
as a defense to any action under this Deed of Trust or any assignment of leases
and rents. The Borrower agrees to indemnify and hold the Beneficiary harmless
from any and all liability, loss, damage or expense (including, without
limitation, attorneys' fees and disbursements) that it may or might incur under
this Deed of Trust or any assignment of leases and rents or in connection with
the enforcement of any of the Beneficiary's rights or remedies under this Deed
of Trust or any assignment of leases and rents, any action taken by the
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<PAGE> 52
Beneficiary under this Deed of Trust or any assignment of leases and rents, or
by reason or in defense of any and all claims and demands whatsoever that may be
asserted against the Beneficiary arising out of the Mortgaged Property (except
to the extent that such liability, loss, damage or expense is the result of the
gross negligence or the intentional misconduct of the Beneficiary, the Indenture
Trustee or the Servicer) and should the Beneficiary incur any such liability,
loss, damage or expense, the amount thereof with interest thereon at the Default
Rate shall be payable by the Borrower immediately without demand, shall be
secured by this Deed of Trust, and shall be a part of the Secured Obligations.
The Borrower agrees to pay or reimburse the Beneficiary for paying: (a)
all reasonable costs and expenses of the Beneficiary and the Servicer (including
reasonable counsel fees and expenses) in connection with any Default and any
enforcement or collection proceedings resulting therefrom including in
connection with any bankruptcy, insolvency, liquidation, reorganization,
moratorium or other similar proceedings involving the Borrower; (b) all
transfer, stamp, documentary or other similar taxes, assessments or charges
levied by any governmental or revenue authority in respect of this Deed of
Trust, the other Loan Documents or any other document referred to herein or
therein and all costs, expenses, taxes, assessments and other charges incurred
in connection with any filing, registration, recording or perfection of any
security interest contemplated by this Deed of Trust the other Loan Documents or
any document referred to therein; and (c) all taxes and assessments, recording
fees, registration taxes, title insurance premiums, appraisal fees, costs of
surveys, fees of third-party consultants and all other fees and expenses
reasonably incurred by the Beneficiary and the Servicer in connection with any
Mortgaged Properties (including all Servicing Fees).
The Borrower hereby agrees to indemnify the Beneficiary and the
Servicer and their respective directors, officers, employees and agents
(including the general partner of the Servicer and such general partner's
directors, officers, employees and agents) from, and hold each of them harmless
against, any and all losses, liabilities, claims, damages or expenses incurred
by any of them arising out of or by reason of any claim of any Person relating
to or arising out of any Loan Document or resulting from the ownership or
financing of any Mortgaged Property or any investigation or litigation or other
proceedings (including any threatened investigation or litigation or other
proceedings) relating to any actual or proposed use by the Borrower of the
proceeds of the Bonds, including the reasonable fees and disbursements of
counsel incurred in connection with any such investigation or litigation or
other proceedings (but excluding any such losses, liabilities, claims, damages
or expenses incurred by reason of the gross negligence or willful misconduct of
the Beneficiary or any other Person to be indemnified).
SECTION 11.04. Incorporation by Reference. All of the covenants,
conditions and agreements contained in all and any of the Loan Documents now or
hereafter executed by the Borrower and/or others and by or in favor of the
Beneficiary are hereby made a part of this Deed of Trust to the same extent and
with the same force as if fully set forth herein.
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SECTION 11.05. AMENDMENTS.
(a) This Deed of Trust, and any provisions hereof, may not be modified,
amended, waived, extended, changed, discharged or terminated orally or by any
act or failure to act on the part of the Borrower or the Beneficiary, but only
by an agreement in writing signed by the party against whom enforcement of any
modification, amendment, waiver, extension, change, discharge or termination is
sought.
(b) Moreover, this Deed of Trust may not be modified, amended, waived,
extended, changed, discharged or terminated unless (i) the Beneficiary has
obtained the written consent of Bondholders who hold 66 2/3% of the principal
balance of the Bonds or (ii) the amendment is designed (A) to correct or clarify
the description of any property subject to the lien of the Deed of Trust, (B) to
pledge additional property to the Beneficiary, (C) to add other covenants and
agreements thereafter to be observed by the Borrower or to surrender any right
or power reserved to or conferred on the Borrower by the Deed of Trust or other
Loan Documents, (D) to cure any ambiguity, or to cure, correct or otherwise
supplement any defective or inconsistent provision contained herein or in any
other Loan Document (other than the Indenture), provided that such change does
not adversely affect the interests of any Bondholder in any material respect,
which shall be deemed to be the case upon receipt of written confirmation from
the Rating Agency that such change will not adversely affect the then current
ratings on the Bonds, (E) to evidence any succession and the assumption by any
such successor of the respective covenants herein, or (F) in connection with any
amendment of the Indenture or Servicing Agreement that is approved as provided
therein. No amendment may be made that would impair the Servicer's, the
Trustee's or the Beneficiary's rights hereunder without the consent of such
party.
SECTION 11.06. HEADINGS, ETC. The headings and captions of various
paragraphs of this Deed of Trust are for convenience of reference only and are
not to be construed as defining or limiting, in any way, the scope or intent of
the provisions hereof.
SECTION 11.07. ADDRESSES OF MORTGAGED PROPERTIES. The street addresses
of the Mortgaged Properties are as set forth on Schedule D hereto.
SECTION 11.08. WIRE TRANSFER. All payments of principal and interest
and other amounts due under this Deed of Trust shall be paid to the Beneficiary
by wire transfer of immediately available funds to such bank or place, or in
such manner, as the Beneficiary may from time to time designate.
SECTION 11.09. SEVERABILITY. In the event any one or more of the
provisions contained in this Deed of Trust shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Deed of Trust, but
this Deed of Trust shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein or therein. The
invalidity of any
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<PAGE> 54
provision of this Deed of Trust in any one jurisdiction shall not affect or
impair in any manner the validity of such provision in any other jurisdiction.
SECTION 11.10. COVENANTS TO RUN WITH THE LAND. All of the grants,
covenants, terms, provisions and conditions in this Deed of Trust shall run with
the Mortgaged Property and shall apply to, and bind the successors and assigns
of the Borrower. Without limiting the generality of the foregoing, the
Beneficiary may, at any time and from time to time without the consent of the
Borrower, sell, assign, syndicate or otherwise transfer and/or dispose of all or
any portion of its rights and remedies under this Deed of Trust and any other
security instrument or document affecting the Mortgaged Property (including,
without limitation, any assignment of leases and rents) to any other person or
entity, either separately or together with other property of the Beneficiary for
such purposes and on such terms as the Beneficiary shall elect, and such other
person or entity shall thereupon become vested with all of the rights and
obligations in respect thereof granted to the Beneficiary herein, therein or
otherwise. Each representation and agreement made by the Borrower in this Deed
of Trust and any other security instrument or document affecting the Mortgaged
Property (including, without limitation, any assignment of leases and rents)
shall be deemed to run to the Beneficiary and all of its successors and assigns.
None of the rights or obligations of the Borrower hereunder may be assigned or
otherwise transferred without the prior written consent of the Beneficiary.
SECTION 11.11. TRUSTEE'S DUTIES. Trustee shall not be liable for any
error of judgment or act done by Trustee, or be otherwise responsible or
accountable under any circumstances whatsoever, except if the result of
Trustee's gross negligence or willful misconduct. Trustee shall not be
personally liable in case of entry by him or anyone acting by virtue of the
powers herein granted him upon the Mortgaged Property for debts contracted or
liability or damages or damages incurred in the management or operation of the
Mortgaged Property. Trustee shall have the right to rely on any instrument,
document or signature authorizing or supporting any action taken or proposed to
be taken by him hereunder or believed by him to be genuine. Trustee shall be
entitled to reimbursement for actual expenses incurred by him in the performance
of his duties hereunder and to reasonable compensation for such of his services
hereunder as shall be rendered. The Borrower will, from time to time, reimburse
Trustee for and save and hold him harmless from and against any and all loss,
cost, liability, damage and expense whatsoever incurred by him in the
performance of his duties. All monies received by Trustee shall, until used or
applied as herein provided, be held in trust for the purposes for which they
were received, but need not be segregated in any manner from any other monies
(except to the extent required by law) and Trustee shall be under no liability
for interest on any monies received by him hereunder. Trustee may resign by
giving of notice of such resignation in writing to the Beneficiary. If Trustee
shall die, resign or become disqualified from acting in the execution of this
trust or shall fail or refuse to exercise the same when requested by the
Beneficiary or if for any or no reason and without cause the Beneficiary shall
prefer to appoint a substitute trustee to act instead of the original Trustee
named herein, or any prior successor or substitute trustee, the Beneficiary
shall, without any formality or notice to the Borrower or any other person, have
full power to appoint a substitute trustee and, if the Beneficiary so elects,
several substitute trustees in succession who shall succeed to all the estate,
rights, powers and
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duties of the aforenamed Trustee. Any new Trustee appointed pursuant to any of
the provisions hereof shall, without any further act, deed or conveyance, become
vested with all the estates, properties, rights, powers and trusts of its or his
predecessor in the rights hereunder with like effect as if originally named as
Trustee herein; but, nevertheless, upon the written request of the Beneficiary
or his successor trustee, Trustee ceasing to act shall execute and deliver an
instrument transferring to such successor trustee, upon the trust herein
expressed, all the estates, properties, rights, powers and trusts of Trustee so
ceasing to act, and shall duly assign, transfer and deliver any of the property
and monies held by Trustee to the successor trustee so appointed in its or his
place. Trustee may authorize one or more parties to act on his behalf to perform
the ministerial functions required of him hereunder, including without
limitation, the transmittal and posting of any notices.
SECTION 11.12. BUSINESS DAYS. In the event any time period or any date
provided in this Deed of Trust ends or falls on a day other than a Business Day,
then such time period shall be deemed to end and such date shall be deemed to
fall on the next succeeding Business Day, and performance herein may be made on
such Business Day, with the same force and effect as if made on such other day.
SECTION 11.13. RELATIONSHIP. The relationship of the Beneficiary to the
Borrower hereunder is strictly and solely that of the Borrower and the
Beneficiary and nothing contained in the Bonds, this Deed of Trust or any other
Loan Document is intended to create, or shall in any event or under any
circumstance be construed as creating, a partnership, joint venture,
tenancy-in-common, joint tenancy or other relationship of any nature whatsoever
between the Beneficiary and the Borrower other than as mortgagor and the
Beneficiary.
SECTION 11.14. NO MERGER. The rights and estate created by this Deed of
Trust shall not, under any circumstances, be held to have merged into any other
estate or interest now owned or hereafter acquired by the Beneficiary unless the
Beneficiary shall have consented to such merger in writing.
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IN WITNESS WHEREOF, the Borrower has duly executed this Deed of Trust
as of the day and year first above written.
RFS FINANCING PARTNERSHIP L.P.,
a Tennessee limited partnership
By: RFS FINANCING CORPORATION,
a Tennessee corporation, its duly authorized
general partner
Signed and acknowledged in
the presence of:
By:______________________________
Name: Michael J. Pascal
________________________________ Title: Vice President
Name:
[SEAL]
Post Office Address of Individual Signatory:
____________________________________________
____________________________________________
____________________________________________
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<PAGE> 57
STATE OF _________________ )
) ss:
COUNTY OF ________________ )
On this_____ day of ____ , before me ________________________, a Notary
Public in and for said County and State, personally appeared ______________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his capacity, and that by his
signature on the instrument he, or the entity upon behalf of which he acted,
executed the instrument.
------------------------------------
Notary Public
My Commission expires: __________________
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LIST OF SCHEDULE AND EXHIBITS
Schedule A Description of Premises
Schedule B Exceptions to Good Condition
Schedule C Environmental Reports
Schedule D Street Address of Mortgaged Properties
Annex I Local Law Provisions
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SCHEDULE A
Description of Premises
[LEGAL DESCRIPTION]
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<PAGE> 60
SCHEDULE D
Street Addresses of the Mortgaged Properties
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
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ANNEX I
56
<PAGE> 1
EXHIBIT 13
The Company commenced operations in August 1993 upon completion of its initial
public offering and the simultaneous acquisition of seven hotels with 1,118
rooms. The following chart summarizes information regarding the 53 hotels (the
"Hotels") owned at December 31, 1996 through the Company's operating
partnership, RFS Partnership, L.P., and its subsidiaries (collectively, the
"Partnership").
<TABLE>
<CAPTION>
<S> <C> <C>
Full Service Hotels:
Holiday Inn . . . . . . . . . . . . . . . . . . . 6 . . . . . . 1,206
Doubletree . . . . . . . . . . . . . . . . . . . 1 . . . . . . . 220
Courtyard by Marriott . . . . . . . . . . . . . . 1 . . . . . . . 102
Independent . . . . . . . . . . . . . . . . . . . 1 . . . . . . . 115
Sub-total . . . . . . . . . . . . . . . . . . 9 . . . . . . 1,643
Extended Stay Hotels:
Residence Inn by Marriott . . . . . . . . . . . 12 . . . . . . 1,575
Hawthorn Suites . . . . . . . . . . . . . . . . . 1 . . . . . . . 220
Homewood Suites . . . . . . . . . . . . . . . . . 1 . . . . . . . . 98
Sub-total . . . . . . . . . . . . . . . . . . 14 . . . . . . 1,893
Limited Service Hotels:
Hampton Inn . . . . . . . . . . . . . . . . . . . 17 . . . . . . 2,203
Holiday Inn Express . . . . . . . . . . . . . . . 7 . . . . . . . 861
Comfort Inn . . . . . . . . . . . . . . . . . . 6 . . . . . . . 787
Sub-total . . . . . . . . . . . . . . . . . 30 . . . . . . 3,851
Total . . . . . . . . . . . . . . . . . . . . 53 . . . . . . 7,387
</TABLE>
The Hotels are located in 23 states. Management believes it is prudent to
diversify geographically and among franchise brands.
To maintain the Company's federal income tax status as a REIT, neither the
Company nor the Partnership can operate hotels. The Partnership leases the
Hotels to wholly-owned subsidiaries of Doubletree Corporation, (collectively,
the "Lessees") pursuant to leases (the "Percentage Leases") which provide for
annual rent equal to the greater of (i) fixed base rent, or (ii) rent payments
based on percentages of the Hotels' revenues. Base rent is payable monthly.
Percentage rent is payable quarterly. The Lessees operate 49 Hotels. Three
Hotels are operated by Alpha Inn Management Company and one by TMH, Inc.
pursuant to management agreements between the RFS, Inc. and Alpha Inn
Management Company and TMH, Inc. RFS, Inc. has a right of first refusal,
subject to certain exceptions, to lease hotels acquired by the Partnership,
through February 27, 2006.
Comparison of the Year Ended December 31, 1996 to 1995
Increases in lease revenue for the year ended December 31, 1996 over 1995 are
due to (i) an increased number of hotels being owned by the Partnership and
leased to the Lessees during 1996, and (ii) increases in revenue per available
room ("REVPAR") at the hotels owned throughout both periods.
At December 31, 1994, the Partnership owned 41 hotels. The Partnership acquired
or opened seven hotels during 1995 in the following months (the number of
hotels is indicated in parenthesis following the date): January (1), March
(1), April (1), August (1), October (3). Additionally, the Partnership
acquired or opened hotels during 1996 as follows: January (1), May (1), July
(1), November (2) and, December (1). One hotel was sold in March of 1996.
The following table shows statistical data regarding the Hotels on an actual
basis and a pro forma basis. The pro forma basis includes 47 of the 53 Hotels
owned at December 31, 1996; the 6 hotels not included were opened or expanded
since January 1, 1995.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Occupancy 76.2% 76.3% (0.1) 76.9% 76.9% --
ADR $69.13 $62.52 10.6 $69.88 $64.81 7.8
REVPAR $52.68 $47.73 10.4 $53.72 $49.86 7.7
</TABLE>
Interest income results, in large part, from the temporary investment of the
Company's cash. As cash was used principally to acquire hotels, interest
income decreased in 1996 over 1995.
Increases in real estate taxes and property taxes and casualty insurance and
depreciation in 1996 over 1995 are due to the increased number of hotels owned
by the Partnership during 1996 over 1995 and higher tax assessments.
8
<PAGE> 2
Increases in amortization of franchise fees and unearned compensation are
primarily due to increased amortization of unearned compensation as a result of
a grant of restricted stock to the newly appointed president of the Company in
the second quarter of 1996.
Increases in compensation expense in 1996 over the same period in 1995 are
primarily due to an increased number of employees in 1996 over 1995.
Increased general and administrative expenses in 1996 over 1995 is due to
increased professional fees and travel expenses, as well as the reversal of
accruals during 1995 which management believed were needed at December 31,
1994. The increased costs in 1996 were primarily related to potential
acquisitions, New York Stock Exchange Listing fees and the write-off of costs
incurred to form a new REIT, Lodging Trust USA.
The write-down of a hotel property of $.7 million in 1996 is a result of a
contract to sell a hotel. The write-down adjusts the carrying value of the
hotel to the estimated net proceeds expected from the sale.
Interest expense increased in 1996 over 1995 as a result of increased
borrowings under the Credit Line to fund the purchase of hotels, interest
associated with the issuance of bonds payable and the assumption of a
promissory note payable in connection with the purchase of a hotel during the
fourth quarter of 1995.
Comparison of the Year Ended December 31, 1995 to 1994.
Increases in lease revenue for the year ended December 31, 1995 over 1994 are
due to (i) an increased number of hotels being owned by the Partnership
throughout 1995 and, (ii) increases in REVPAR at the hotels owned throughout
both periods.
At December 31, 1994, the Partnership owned 41 hotels. The Partnership acquired
seven hotels during 1995 on the following dates: January 4, 1995, March 15,
1995, April 20, 1995, August 8, 1995, October 2, 1995, October 5, 1995, October
18, 1995.
The following table shows statistical data regarding the hotels on an actual
and a pro forma basis; the pro forma information assumes the 48 hotels owned at
December 31, 1995 were owned from January 1, 1994:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Occupancy 76.3% 75.0% 1.8 76.2% 75.1% 1.5
ADR $62.52 $55.17 13.3 $62.06 $58.87 5.4
REVPAR $47.73 $41.38 15.3 $47.32 $44.21 7.0
</TABLE>
Interest income results, in large part, from the temporary investment of a
portion of the net proceeds from the Company's public offerings. As proceeds
were used to acquire hotels, interest income decreased in 1995 over 1994.
Increases in real estate taxes and insurance and depreciation and amortization
expenses in 1995 over 1994 are due primarily to the increased number of hotels
owned by the Partnership throughout 1995 and higher real estate tax assessments
at certain Hotels.
An accrual was made in the first six months of 1995 to provide for potential
increases in real estate taxes as a result of re-valuations by local
authorities. Management believes that, as of December 31, 1995, adequate
provisions for such potential increases have been made.
Increases in compensation expense in 1995 over 1994 are due to an increased
number of employees in 1995 over 1994, bonuses and, effective January 1, 1995,
10% salary increases for the three executive officers of the Company.
Decreases in franchise tax expense in 1995 over 1994 are due to changes in the
estimated franchise tax expense for 1995 resulting from structural changes in
the Company. Franchise tax expense for 1995 represents accruals for estimated
1995 franchise taxes. Franchise tax expense for 1994 represents accruals for
estimated 1994 franchise taxes plus $40,000 of payments made in 1994 for 1993
franchise taxes.
General and administrative expenses in 1995 decreased as compared to 1994 due
to decreases in other professional services and legal and accounting fees. In
1994, the Company accrued for estimated costs associated with a potential
restructuring which ultimately did not occur. Overaccruals for these estimated
costs were reversed during 1995. Additionally, approximately $.2 million of
deferred loan costs associated with the Company's $10 million line of credit
were written off in 1994 when the Company obtained its $50 million line of
credit. These decreases were partially offset by a ground lease the
Partnership entered into in connection with the acquisition of a hotel. This
expense was $.2 million in 1995.
Interest expense increased in 1995 over 1994 as a result of increased
borrowings during 1995 on the Credit Line and the assumption of a promissory
note payable in connection with the purchase of a hotel during the fourth
quarter of 1995.
9
<PAGE> 3
The Company has a $75 million line of credit (the "Credit Line") which expires
on September 8, 1998. The Credit Line may be used to fund working capital
requirements and to fund investments in hotel properties. Borrowings under the
Credit Line bear interest at the 90-day LIBOR rate (5.625% at December 31,
1996) plus 1.75%. The Credit Line is secured by a first mortgage on 27 hotels
(the "Collateral Pool") with a net book value of $183.0 million at December 31,
1996. The Credit Line contains various covenants, including maintenance of
debt coverage ratios, as defined, on all debt and all hotels of 3.0:1 and on
the Credit Line and Collateral Pool of 1.75:1. The Company must also
maintain a minimum net worth in an amount equal to the net worth in its most
recent year-end audited financial statements and a minimum operating income, as
defined, from the Collateral Pool of approximately $26.3 million. The Company
had outstanding borrowings of $50.0 million on the Credit Line at December 31,
1996. The Company is in the process of increasing the Credit Line to $150
million.
The Credit Line contains a term loan option which allows the Company to convert
the principal balance outstanding on September 8, 1998, not to exceed $75
million, to a term loan (the "Term Loan"). The Term Loan would bear interest
at a fixed rate equal to the 5-year U.S. Treasury Bond yield plus 2-1/2% or a
variable rate equal to the lender's floating corporate base rate plus 1%. The
Term Loan would be payable over 5 years in 59 equal monthly installments of
principal plus interest, given a 10 year amortization, plus a sixtieth payment
of remaining principal plus interest.
The Company, through a subsidiary, issued $75 million of commercial mortgage
bonds, (the "Bonds") series 1996-1 as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Class A $50 Million 6.83% August 20, 2008
Class B $25 Million 7.30% November 21, 2011
</TABLE>
Principal payments on the Class A Bonds are payable based on a 141-month
amortization schedule beginning in December 1996; principal payments on the
Class B Bonds are payable based on a 39-month amortization schedule beginning
in September 2008. The total monthly principal and interest payments
approximate $.7 million.
In connection with the purchase of a hotel in Fishkill, NY, the Partnership
assumed approximately $2.4 million of indebtedness pursuant to industrial
development bonds, (the "IDB's") issued in 1988 and which are due December 1,
2002. The IDB's bear interest at a variable rate which, as of December 31,
1996, was approximately three and one-half percent (3.5%) per annum. Principal
is payable in installments of $.6 million every three years with the next
installment due in 1997.
In connection with the purchase of a hotel in Atlanta, GA, the Partnership
assumed a promissory note payable with a principal balance of approximately
$5.9 million. The promissory note bears interest at 10.15% and is due in
monthly principal and interest installments of $53,000. The note is due July
1, 1998 and contains a severe prepayment premium.
On February 27, 1996, the Company issued 973,684 shares of Series A Convertible
Preferred Stock for an aggregate purchase price of $18.5 million.
On January 2, 1997, the Partnership consummated the acquisition of 4 Sheraton
Hotels in California for an aggregate purchase price of approximately $91
million. The purchase price was paid with funds from the Credit Line and the
issuance of 2,244,934 units of limited partnership interest in the Partnership.
The Company budgeted $12.1 million for capital improvements in 1996 at the 53
hotels owned at December 31, 1996. At December 31, 1996, the Partnership had
spent approximately $11.0 million of the budgeted amounts. The Company will
use cash generated from operations to fund the remaining $1.1 million of
expenditures. The Company intends to substantially complete these improvements
by the second quarter of 1997. Additionally, the Company has budgeted
approximately $13.8 million in 1997 for capital improvements at 52 Hotels owned
at December 31, 1996. This does not include one Hotel at which extensive
renovations are being contemplated.
The Partnership is developing the following hotels:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Residence Inn Jacksonville, FL 120 $8.3 million
Courtyard Crystal Lake, IL 90 $6.0 million
Homewood Suites Chandler, Az 83 $6.4 million
Homewood Suites Plano, TX 99 $8.2 million
Hampton Inn Chandler, Az 101 $5.3 million
Hampton Inn Sedona, AZ 56 $5.7 million
</TABLE>
10
<PAGE> 4
Completion of these hotels is expected by the end of 1997. Additionally, the
Partnership plans to construct a 42-suite addition to the Residence Inn in Ann
Arbor, MI. Construction costs are estimated at $3.7 million. Completion of
the addition is expected in the second quarter of 1997.
In addition to purchasing existing hotel properties at targeted rates of
return, management anticipates that the Company will both develop additional
hotels and enter into contracts to acquire hotels from third parties after
development. It is expected that future investments in hotel properties will
be financed, in whole or in part, with cash generated from operations,
short-term investments, proceeds from additional issuances of Common Stock,
borrowings under the Credit Line or other securities or borrowings.
The Company in the future may seek to increase further the amount of its credit
facilities, negotiate additional credit facilities, or issue corporate debt
instruments. In June 1996, the Company's shareholders approved an amendment to
the Company's charter to delete the charter limitation on indebtedness.
Although the Company no longer has any charter restrictions on the amount of
indebtedness the Company may incur, the Board of Directors of the Company has
adopted a policy limiting the amount of indebtedness that the Company will
incur to an amount not in excess of approximately 40% of the Company's
investment in hotel properties, at cost, after giving effect to the Company's
use of proceeds from any indebtedness and accounting for all investments in
hotel properties under the purchase method of accounting. Any debt incurred or
issued by the Company may be secured or unsecured, long-term or short-term, may
charge a fixed or variable interest rate and may be subject to such other terms
as the Board of Directors of the Company in its discretion, may approve.
The Company has filed a Shelf Registration Statement on Form S-3 (the "Shelf")
with the Securities and Exchange Commission for the issuance from time to time
of preferred stock, common stock and depositary shares representing entitlement
to all rights and preferences of a fraction of a share of preferred stock of a
specified series ("Depositary Shares") in the aggregate amount of up to $250
million. The Shelf became effective July 30, 1996.
The Company intends to fund cash distributions to shareholders principally out
of cash generated from operations. The Company may incur, or cause the
Partnership to incur, indebtedness to meet distribution requirements imposed on
a REIT under the Code (including the requirement that a REIT distribute to its
shareholders annually at least 95% of its taxable income) to the extent that
working capital and cash flow from the Company's investments are insufficient
to make such distributions. In 1996, the Partnership has, through December 31,
1996, made cash distributions to its partners, including the Company, of $34.3
million or $1.39 per Partnership unit, from which the Company made cash
distributions to common shareholders of $33.9 million, or $1.39 per share. The
Company also made cash distributions to the preferred shareholder of $.8
million, or $0.86 per share which represents the pro rata quarterly
distribution from February 27, 1996 (date of issuance) through December 31,
1996. The Company and the Partnership utilized available cash to fund such
distributions.
The Hotels' operations historically have been seasonal in nature, reflecting
higher occupancy during the second and third quarters. This seasonality can be
expected to cause fluctuations in the Partnership's quarterly lease revenue to
the extent that it receives Percentage Rent.
Operators of hotels generally posses the ability to adjust room rates quickly.
However, competitive pressures have limited, and may in the future, limit the
ability of the hotels' operators to raise rates in the face of inflation.
Industry-wide ADR generally failed to keep pace with inflation from 1987
through 1993.
The National Association of Real Estate Investment Trusts has adopted a new
definition of funds from operations ("FFO"). Under the new definition, FFO
consists of net income excluding gains (or losses) from debt restructuring or
sales of properties, plus depreciation of real property and after adjustments
for unconsolidated partnerships and joint ventures. Under this new definition,
the Company's FFO is computed as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Income before minority interest $35,087 $31,085
Add depreciation 10,919 8,578
Add loss on sale and
write-down of hotel properties 912 --
Less preferred dividend (1,195) --
FFO $45,723 $39,663
Weighted average shares and
partnership units outstanding 24,677 24,620
FFO per share $ 1.85 $ 1.61
</TABLE>
11
<PAGE> 5
<TABLE>
<CAPTION>
(in thousands, except per share data)
for the years ended December 31,
<S> <C> <C> <C>
Revenue:
Leases $61,594 $47,249 $21,666
Interest 392 1,058 1,688
Total revenue 61,986 48,307 23,354
Expenses:
Real estate taxes and property and casualty insurance 6,289 5,019 2,201
Depreciation 10,919 8,578 3,758
Amortization of franchise fees and
unearned compensation 760 536 381
Compensation 2,120 936 391
Franchise taxes 260 283 542
General and administrative 2,037 968 1,588
Loss on sale of hotel property 244
Write-down of a hotel property 668
Amortization of loan costs 398 310 117
Interest expense, net 3,204 592 25
Total expenses 26,899 17,222 9,003
Income before minority interest 35,087 31,085 14,351
Minority interest 500 439 195
Net income 34,587 30,646 14,156
Preferred stock dividends 1,195
Net income applicable to common shareholders $33,392 $30,646 $14,156
Net income per common and common equivalent share $1.37 $1.26 $0.94
Weighted average shares and partnership units
outstanding 24,677 24,620 15,348
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
12
<PAGE> 6
<TABLE>
<CAPTION>
for the years ended December 31, 1996, 1995 and 1994 (in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993 7,494,000 $75 $78,106 $765 ($139) $78,807
Issuance of common stock, 16,670,000 167 256,245 256,412
net of offering expenses
Issuance of restricted common 130,000 1 1,993 (1,994)
stock to officers and directors
Distributions on common shares, (13,790) (13,790)
($0.97 per share)
Amortization of unearned 308 308
compensation
Net Income 14,156 14,156
Balances at December 31, 1994 24,294,000 243 336,344 1,131 (1,825) 335,893
Distributions on common shares
($1.18 per share) (28,666) (28,666)
Allocation from minority interest 513 513
Amortization of unearned
compensation 427 427
Net Income 30,646 30,646
Balances at December 31, 1995 24,294,000 243 336,857 3,111 (1,398) 338,813
Issuance of preferred stock,
net of expenses of $357 973,684 10 18,133 18,143
Issuance of restricted common
stock to officers and directors 90,000 1 1,558 (1,559) 0
Distributions on common shares,
($1.39 per share) (33,854) (33,854)
Distributions on Preferred shares,
($0.86 per share) (839) (839)
Amortization of unearned
compensation 632 632
Net Income 34,587 34,587
Balances at December 31, 1996 973,684 $10 24,384,000 $244 $356,548 $3,005 ($2,325) $357,482
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
13
<PAGE> 7
<TABLE>
<CAPTION>
(in thousands, except share data)
as of December 31,
<S> <C> <C>
Investment in Hotel Properties, net $415,618 $363,014
Hotels under development 7,325 1,083
Cash and cash equivalents 57,935 2,680
Accounts receivable-Lessees 7,187 5,795
Deferred expenses, net 3,598 1,579
Prepaid and other assets 1,402 574
Escrow deposits 6,064 2,201
$499,129 $376,926
Accounts payable and accrued expenses $ 2,258 $ 1,758
Accrued real estate taxes 1,774 1,660
Borrowings on line of credit 50,000 21,850
Bonds 74,769
Other debt 8,295 8,336
Minority interest 4,551 4,509
141,647 38,113
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, 973,684 shares outstanding at
December 31, 1996 10
Common stock, $.01 par value, 100,000,000 shares
authorized, 24,384,000 and 24,294,000
shares outstanding at December 31, 1996
and December 31, 1995 respectively 244 243
Paid-in capital 356,548 336,857
Undistributed income 3,005 3,111
Unearned directors' and officers' compensation (2,325) (1,398)
Total shareholders' equity 357,482 338,813
$499,129 $376,926
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
14
<PAGE> 8
<TABLE>
<CAPTION>
(in thousands, except share unit and per share data)
for the years ended December 31,
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $34,587 $30,646 $14,156
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 12,077 9,424 4,256
Income allocated to minority interest 500 439 195
Loss on sale and write-down of hotel properties 912
Changes in assets and liabilities:
Accounts receivable-Lessees (1,414) (1,898) (3,351)
Prepaids and other assets (828) 206 (542)
Accounts payable and other liabilities 614 79 2,607
Net cash provided by operating activities 46,448 38,896 17,321
Cash flows from investing activities:
Investment in hotel properties and
hotels under development (73,356) (71,248) (241,992)
Proceeds from sale of hotel property 3,891
Escrow deposits and prepayments under
purchase agreements (5,053) (2,201) (1,002)
Cash paid for franchise agreements (579) (411)
Sale of short-term investments 8,109
Net cash used by investing activities (74,518) (74,028) (235,296)
Cash flows from financing activities:
Net proceeds from sale of common stock 256,412
Net proceeds from sale of preferred stock 18,143
Proceeds from issuance of bonds 75,000
Distributions to common and preferred shareholders (34,693) (28,666) (13,790)
Distributions to limited partners (458) (510) (58)
Borrowings under revolving credit agreement 92,750 21,850
Payments on revolving credit agreement (64,600)
Payments on debt and bonds (272)
Redemption of shares/units (125) (18)
Loan fees paid (2,545) (387) (250)
Net cash provided (used) by financing activities 83,325 (7,838) 242,296
Net increase (decrease) in cash and cash equivalents 55,255 (42,970) 24,321
Cash and cash equivalents at beginning of year 2,680 45,650 21,329
Cash and cash equivalents at ending of year $57,935 $2,680 $45,650
Supplemental disclosures of cash flow information:
Cash paid for interest $3,820 $450 $24
Supplemental disclosures of non-cash investing and financing activities:
In 1996, the Company issued 90,000 shares of Restricted Common Stock, which at date of issuance, were valued from $15 5/8 to
$17 5/8 per share.
In 1996, the Partnership applied deposits of $1,190 toward the purchase of aquired hotels and land.
In 1995, the Company recorded a $513 allocation to paid-in capital from minority interest.
In 1995, the Partnership assumed a note payable of $5,916 in connection with the purchase of a hotel.
In 1995, the Partnership applied a deposit of $1,002 toward the purchase of an acquired hotel.
In 1994, the Company issued an additional 5,000 shares of Restricted Common Stock to an independent director, which, at the date
of issuance, were valued at $14.50 per share.
In 1994, the Partnership applied a deposit of $250 toward the purchase of an acquired hotel.
In 1994, the Company issued 125,000 shares of Restricted Common Stock to its officers and directors at prices of $13 1/2 and
$16 5/8.
In 1994, the Partnership issued 223,567 limited partnership units valued at $3,884 in connection with the purchase of two hotels.
In 1994, the Partnership assumed $2,420 of Industrial Development Bonds indebtedness in connection with the purchase of a hotel.
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
15
<PAGE> 9
RFS Hotel Investors, Inc. (the "Company") was incorporated in Tennessee on June
1, 1993 and is a self-administered real estate investment trust ("REIT"). The
Company contributed substantially all of the net proceeds of its public
offerings to RFS Partnership, L.P. (the "Partnership") in exchange for the
sole general partnership interest in the Partnership. The Partnership began
operations in August 1993. At December 31, 1996, and 1995, the Company owned
approximately 98.7% of the Partnership. RFS Managers, Inc. ("Managers") a
wholly-owned subsidiary of the Company, was formed effective January 1, 1995 to
provide management services to the Company. During 1996, RFS Financing
Partnership, L.P., (the "Financing Partnership"), a bankruptcy remote, single
purpose Tennessee limited partnership, was formed to issue commercial mortgage
bonds (the "Bonds").
The Company, through its subsidiary partnerships, acquires or develops and owns
hotel properties.
The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated.
Hotel properties are recorded at cost and are
depreciated using the straight-line method over the estimated useful lives of
the assets of 40 years for buildings and improvements and 5 to 7 years for
furniture and equipment. Upon disposition, both the asset and accumulated
depreciation accounts are relieved and the related gain or loss is credited or
charged to the income statement. Major renewals, betterments and improvements
are capitalized. At each reporting period, the Company reviews the carrying
value of each hotel property, for which management has not committed to a plan
of disposition, to determine if facts and circumstances exist which would
suggest that the investment in the hotel property may be impaired or that the
depreciation period should be modified. The Company does not believe that
there are any current facts or circumstances indicating any material impairment
of any hotel property for which management has not committed to a plan of
disposition at December 31, 1996. For hotel properties for which management
has committed to a plan of disposition, the Company adjusts the carrying value
to the lower of carrying value or fair value less costs of disposition. During
1996, the Company contracted to sell a hotel property and has adjusted the
carrying amount to the estimated net proceeds expected from the sale.
All highly liquid investments with the maturity of
three months or less when purchased are considered to be cash equivalents. The
Company invests portions of its excess cash in money market funds.
Deferred expenses consist of initial fees paid to
franchisors, annual loan fees and costs incurred in issuing the Bonds, and are
recorded at cost. Amortization of franchise fees is computed using the
straight-line method over the lives of the franchise agreements which range
from 10 to 15 years. Amortization of annual loan fees is computed using the
straight-line method over 12 months. Amortization of the costs incurred in
issuing the Bonds is computed using the interest method over the stated
maturity of the Bonds. Accumulated amortization of the deferred expenses is
$1.1 million and $.6 million at December 31, 1996 and 1995 respectively.
The Partnership leases the hotels to RFS, Inc., and
other wholly-owned subsidiaries of Doubletree Corporation, (collectively, the
"Lessees"), pursuant to lease agreements
The Percentage Leases provide for the payment of rent
equal to the greater of (i) fixed base rent or (ii) percentage rent based on a
percentage of gross room revenue, beverage revenue and food revenue at the
hotels. Lease revenue is recognized as earned from the Lessee under the
Percentage Leases from the date of acquisition. Relevant lease dates, with the
number of properties acquired indicated in parentheses, are as follows:
February 1994 (1), April 1994 (3), June 1994 (16), August 1994 (3), September
1994 (1), October 1994 (5), November 1994 (1), December 1994 (1), January 1995
(1), March 1995 (1), April 1995 (1), August 1995 (1), October 1995 (3), January
1996 (1), May 1996 (1), July 1996 (1), November 1996 (2), December 1996 (1).
Minority interest in the Partnership represents the
limited partners proportionate share of the equity in the Partnership. Income
is allocated to minority interests based on the weighted average percentage
ownership throughout the year.
Net income per common share is computed by
dividing net income before minority interest less preferred dividends by the
weighted average number of shares of common stock and common stock equivalents
outstanding for the reporting period. Limited partnership interests in the
Partnership and Options are considered common stock equivalents.
The Company has qualified as a Real Estate Investments
Trust ("REIT") under Sections 856 to 860 of the Internal Revenue Code.
Accordingly, no provision for federal income taxes has been reflected in the
consolidated financial statements.
Earnings and profits, which will determine the taxability of distributions to
shareholders, will differ from net
16
<PAGE> 10
income reported for financial reporting purposes due to the differences for
federal tax purposes in the estimated useful lives used to compute depreciation
and in the recognition of unearned compensation to officers and directors.
Distributions made in 1996, 1995, and 1994 were considered 100% ordinary income
for federal income tax purposes.
The Company intends to pay regular quarterly distributions
which are dependent upon receipt of distributions from the Partnership in order
to maintain its REIT status under the Internal Revenue Code.
The Company places cash deposits at financial institutions.
At December 31, 1996, bank account balances exceeded federal depository
insurance limits by $58.3 million.
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.
Reclassifications to conform to the 1996 presentation have
been made in the 1995 and 1994 consolidated financial statements with no effect
on previously reported total assets, total shareholders' equity or net income.
The investment in hotel properties consists of the following at December 31,
1996, and 1995, respectively (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
Land $ 50,265 $ 43,694
Building and improvements 351,889 305,833
Furniture and equipment 24,736 13,799
Capital improvements program expenditures 11,999 12,365
438,889 375,691
Less accumulated depreciation 23,271 12,677
$415,618 $363,014
</TABLE>
Capitalized interest in 1996 was $.5 million. At December 31, 1996, the
Company owned 53 hotel properties in 23 states. Fifty-two of the hotels are
affiliated with national franchises.
The Company has a $75 million line of credit (the "Credit Line") which expires
on September 8, 1998. The Credit Line may be used for working capital and
future investments in hotel properties. Borrowings under the Credit Line bear
interest at the 90-day LIBOR rate (5.625% at December 31, 1996), plus 1.75%.
The Credit Line is collateralized by a first mortgage on 27 hotels (the
"Collateral Pool") with a net book value of approximately $183.0 million at
December 31, 1996. The Credit Line contains various covenants, including
maintenance of debt coverage ratios, as defined, on all debt and all hotels of
3.0:1 and on the Credit Line and Collateral Pool of 1.75:1. The Company must
also maintain a minimum net worth in an amount equal to the net worth in its
most recent year-end audited financial statements and a minimum operating
income, as defined, from the Collateral Pool of $26.3 million. The Company was
in compliance with these covenants at December 31, 1996. The Company had
borrowed $50 million on the Credit Line as of December 31, 1996.
The Credit Line contains a term loan option which allows the Company to convert
the principal balance outstanding on September 8, 1998, not to exceed $75
million, to a term loan (the "Term Loan"). The Term Loan would bear interest
at a fixed rate equal to the 5-year U.S. Treasury Bond yield, plus 21/2% or a
variable rate equal to the lender's floating corporate base rate plus 1%. The
Term Loan would be payable over 5 years in 59 equal monthly installments of
principal plus interest, given a 10 year amortization, plus a sixtieth payment
of remaining principal plus interest.
In November, 1996, the Financing Partnership issued $75 million of commercial
mortgage bonds, series 1996-1 as follows:
Class A $50 Million 6.83% August 20, 2008
Class B $25 Million 7.30% November 21, 2011
17
<PAGE> 11
Principal payments on the Class A Bonds are based on a 141-month amortization
schedule beginning in December 1996; principal payments on the Class B Bonds
are payable based on a 39-month amortization schedule beginning in September
2008. Total monthly principal and interest payments approximate $.7 million.
Aggregate annual principal payments for the next five years at December 31,
1996 for the Bonds are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1997 $ 2,877
1998 3,082
1999 3,302
2000 3,537
2001 3,790
</TABLE>
The Bonds are collateralized by first priority mortgage liens on 15 hotel
properties with an aggregate net book value of $136.6 million at December 31,
1996. The Bonds cannot be prepaid for five years, and thereafter, only upon
payment of a yield maintenance premium.
In connection with the purchase of a hotel in Fishkill, NY, the Partnership
assumed approximately $2.4 million of industrial development bonds, ("IDB's"),
issued in 1988 and which are due December 1, 2002. The IDB's bear interest at
a variable rate which, as of December 31, 1996, was approximately three and
one-half percent (3.5%) per annum. Interest is payable quarterly; principal is
payable in installments of $.6 million every three (3) years with the next
installment due in 1997. The Fishkill hotel is collateral for the IDB's and
has a net book value of $12.7 million at December 31, 1996.
In connection with a purchase of a hotel in Atlanta, GA, the Partnership
assumed a promissory note payable with a principal balance of $5.9 million.
The promissory note bears interest at 10.15% and is due in monthly principal
and interest installments of $53,000. The note is due July 1, 1998 and
contains a severe prepayment premium. A Residence Inn in Atlanta is collateral
for the note and has a net book value of $11.8 million at December 31, 1996.
Aggregate annual principal payments for the next five years at December 31,
1996 for the above long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1997 $ 646
1998 5,829
1999 --
2000 600
2001 --
</TABLE>
The Company has entered into master agreements with the Lessees. The master
agreements require the Lessees to maintain a certain net worth, as defined,
grants RFS, Inc. a ten-year right to lease hotel properties acquired or
developed by the Partnership or the Company, subject to certain exceptions, and
restricts, for a period of time, changes in control of the Lessees, among other
items.
The Company must rely on the Lessees to generate sufficient cash flow from the
operation of the hotel properties to enable the Lessees to meet rent
obligations under the Percentage Leases. The rent obligations under the
Percentage Leases are unsecured and are not guaranteed by Doubletree. At
December 31, 1996, the Lessees are in compliance with the provisions of the
master agreement and the Percentage Leases.
Both the base rent and the percentage rent threshold room revenue in each lease
computation are subject to adjustments for changes in the Consumer Price Index
("CPI"). The adjustment is made for all leases entered into after December 31,
1993 and is calculated at the beginning of each calendar year following the
year of acquisition. Effective January 1, 1996, adjustments to the leases were
computed using the average CPI increase for 1995 of 2.8%.
In 1996, 1995, and 1994, the Company earned base rents of $25.9 million, $22.0
million and $10.7 million, respectively, and percentage rents in excess of the
base rents, of $35.7 million, $25.3 million and $11.0 million, respectively.
Under the Percentage Leases, the Partnership is obligated to pay the costs of
real estate taxes, property insurance, maintenance of underground utilities and
structural elements of the hotel properties, and for the periodic replace-
18
<PAGE> 12
ment or refurbishment of furniture, fixtures and equipment required for the
retention of the franchise licenses with respect to the hotel properties.
The Company has future lease commitments under the various Percentage Leases
from the Lessees for various terms extending through 2015. Minimum future
rental income under these Percentage Leases for the next five (5) years is
$34.3 million per year. Aggregate future minimum rental income under these
Percentage Leases is $347.1 million at December 31, 1996.
The Partnership is developing the following hotels:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Residence Inn Jacksonville, FL 120 $8.3 Million
Courtyard Crystal Lake, IL 90 $6.0 Million
Homewood Suites Chandler, AZ 83 $6.4 Million
Homewood Suites Plano, TX 99 $8.0 Million
Hampton Inn Chandler, AZ 101 $5.2 Million
Hampton Inn Sedona, AZ 56 $5.5 Million
</TABLE>
Completion of the above hotels is expected during 1997.
Additionally, the Partnership plans to construct a 42-suite addition to the
Residence Inn in Ann Arbor, MI. Construction costs are estimated at $3.3
million. Completion of the addition is expected in the second quarter of 1997.
At December 31, 1996, the Company intends to spend, in 1997, a remaining $1.1
million to complete the 1996 capital improvement programs with respect to the
Hotels.
The Board of Directors is authorized to provide for the issuance of shares of
Preferred Stock in one or more series, to establish the number of shares in
each series and to fix the designation, powers, preferences and rights of each
such series and the qualifications, limitations or restrictions thereof.
The Company has issued to one of the Lessees 973,684 shares of Series A
Convertible Preferred Stock (the "Series A Preferred Stock"). The Series A
Preferred Stock has an initial preference value of $19.00 per share (the
"Stated Value"), a par value of $0.01, and is senior to the Company's common
stock as to dividends and upon liquidation of the Company. The shares of Series
A Preferred Stock are entitled to a $1.45 cumulative annual dividend per share.
Each share of Series A Preferred Stock has one vote and is convertible into one
share of common stock after the seventh anniversary of issuance. The shares of
Series A Preferred Stock have mandatory redemption rights upon the occurrence
of certain events which are under the Company's control. The Company can redeem
the Series A Preferred Stock after the seventh anniversary of issuance at the
Stated Value, together with all accrued and unpaid dividends.
Pursuant to the Partnership Agreement, holders of units of limited partnership
interests in the Partnership have certain rights ("Redemption Rights") which
enable them to cause the Partnership to redeem their units of limited
partnership interest in the Partnership for cash, or, at the Company's option,
for shares of Common Stock on a one-for-one basis. At December 31, 1996, an
aggregate of 324,675 shares are issuable upon exercise of Redemption Rights.
The units of limited partnership interests were valued at the fair market value
of Common Stock on the date of issuance of the units. In 1995 and 1994, 8,626
and 1,437 limited partnership units were redeemed for approximately $125,000
and $18,000 in cash, respectively. The number of shares issuable upon exercise
of the Redemption Rights will be adjusted upon the occurrence of stocks
splits, mergers, consolidations or similar pro-rata share transactions, which
otherwise would have the effect of diluting the ownership interests of the
limited partners.
The Company's Amended and Restated 1993 Restricted Stock and Stock Option Plan
(the "Plan") provides for the grant of stock options to purchase a specified
number of shares of Common Stock ("Options") or grants of Restricted Shares of
Common Stock ("Restricted Stock"). The Plan is administered as two separate
plans, with 1,600,000 shares of Common Stock, of which 250,000 shares may be
Restricted Stock, being available for awards to the officers and key employees
of the Company and its subsidiaries and affiliates and 400,000 shares, of which
50,000 shares may be Restricted Stock, being available for awards to Directors
of the Company who are not officers or employees. The Company may grant
incentive stock options ("ISO's"), non-qualified stock options or both to
purchase the Company's Common Stock. Under the Plan, the exercise price of an
ISO may not be less than 100% of the fair market value of the common shares at
the date of grant, and must be at least 110% of the fair market value at the
date grant if the grantee possesses more than 10% of the voting power of the
outstanding stock. Options issued under the plan have a maximum term of ten
years from the date of grant. The exercise price of the options shall be
determined on the date of each grant.
19
<PAGE> 13
The following table summarizes the option activity under the Plan:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Shares under options at beginning of year 525,000 500,000 175,000
Granted 250,000 25,000 325,000
Exercised -- -- --
Lapsed -- -- --
Terminated -- -- --
Shares under option at end of year 775,000 525,000 500,000
Shares under option exercisable at
end of year 240,000 135,000 35,000
Price range of shares under option
at end of year 13.50-17.00 13.50-16.625 13.50-16.625
Options available for future grant 925,000 345,000 370,000
</TABLE>
Also, under the Plan, the Company granted 90,000 and 125,000 shares of
Restricted Stock in 1996 and 1994, respectively subject to vesting. At December
31, 1996, 60,000 shares were vested.
The Company has also granted 20,000 shares of Restricted Stock at prices
ranging from $10.00 to $14.50 per share subject to vesting. These grants were
not granted under the Plan. At December 31, 1996, 11,000 shares were vested.
Options and Restricted Stock shares vest at 20% per year. Prior to vesting,
holders of the Restricted Stock are entitled to vote and receive distributions
with respect to unvested shares.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value.
The carrying amount approximates fair value because of the
short majority of those instruments.
The carrying amount approximates fair value due to the
Company's ability to obtain such borrowings at comparable interest rates.
The fair value of the Company's Bonds and other debt is
based on the current rates offered to the Company for debt of the same
remaining maturities.
The estimated fair value of the Company's financial instruments at December 31,
1996 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
Cash and cash equivalents $57,935 $57,935
Borrowing on Line of Credit 50,000 50,000
Bonds and Other Debt 83,064 82,969
</TABLE>
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for The Plan. FASB Statement No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123") was issued by the FASB in 1995 and, if fully
adopted, changes the methods for recognition of cost on plans similar to those
of the Company. Adoption of the expense recognition provisions of SFAS 123 is
optional; however, pro forma disclosures as if the Company adopted the cost
recognition requirements under SFAS 123 in 1995 are presented below.
The fair value of each option granted during 1996 and 1995 is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
assumptions: (1) dividend of $1.44, (2) expected volatility of .24, (3) risk-
free interest rate of 6.94%, and (4) expected life of 10 years.
20
<PAGE> 14
Had compensation cost for the Company's 1996 and 1995 grants for stock-based
compensation plans been determined consistent with SFAS 123, the Company's net
income, and net income per common share for 1996 and 1995 would approximate the
pro forma amounts below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Net Income $34.6 Million $34.5 $30.6 Million $30.6
Net Income per common
and common equivalent
share $ 1.37 $1.37 $ 1.26 $1.26
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995,
and additional awards in future years are anticipated.
The unaudited pro forma condensed statements of operations of the Company are
presented as if the acquisition of the 53 hotel properties which are owned at
December 31, 1996 had occurred on January 1, 1995. These unaudited pro forma
condensed statements of operations are not necessarily indicative of what
actual results of operations of the Company would have been assuming such
transactions had been completed as of January 1, 1995, nor does it purport to
represent the results of operations for future periods.
<TABLE>
<CAPTION>
<S> <C> <C>
Operating Data: (in thousands)
Total Revenue $71,582 $63,741
Real estate taxes and property casualty and insurance 7,397 7,217
Depreciation and amortization 15,045 14,755
Compensation 2,120 936
Franchise taxes 260 283
General and administrative 2,037 968
Loss on sale of hotel property 244 --
Write-down of a hotel property 668 --
Interest expense 7,403 7,403
Income before minority interest 36,408 32,179
Minority Interest 3,459 3,057
Net Income $32,949 $29,122
Net Income and common equivalent per common share $ 1.31 $ 1.19
Weighted average shares and partnership
units outstanding 26,954 26,954
</TABLE>
In January 1997, the Partnership consummated the acquisition of 4 Sheraton
Hotels in California for an aggregate purchase price of approximately $91
million. The purchase price was paid with funds from the Credit Line and the
issuance of units of limited partnership interest in the Partnership.
On January 22, 1997, the Company declared a $0.36 cash distribution on each
share of Common Stock outstanding on February 3, 1997. The dividend was paid
on February 17, 1997.
21
<PAGE> 15
To the Board of Directors and Shareholders
RFS Hotel Investors, Inc.
We have audited the accompanying consolidated balance sheets of RFS
Hotel Investors, Inc. as of December 31, 1996 and 1995 and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of RFS
Hotel Investors, Inc. as of December 31, 1996 and 1995 and the consolidated
results of their cash flows for each of three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Memphis, Tennessee
January 22, 1997
<PAGE> 16
<TABLE>
<CAPTION>
(unaudited) (in thousands, except share data)
<S> <C> <C> <C> <C> <C> <C>
Lease Revenue $61,594 $47,249 $21,666 $1,907
Hotels' total revenue $11,668 $19,596
Income before interest
depreciation and
amortization 50,368 41,101 18,632 1,608 2,020 3,136
Income (loss) before
minority interest or
extraordinary gain 35,087 31,085 14,351 1,236 (911) (1,329)
Net income (loss) 34,587 30,646 14,156 1,208 (911) (1,060)
Net income per share 1.37 1.26 0.94 0.25 n/a n/a
Total assets 499,129 376,926 346,870 80,754 n/a n/a
Total debt 133,064 30,186 2,420 0 n/a 23,772
(1) Information for the initial Hotels relates to periods prior to August 13, 1993, the date of acquisition of the initial Hotels by
the Company. Under the rules and regulations of the Securities and Exchange Commission, the initial Hotels are deemed to be a
predecessor to the Company. Information since August 13, 1993 is for the Company.
<CAPTION>
(unaudited) (in thousands, except share data)
<S> <C> <C> <C> <C> <C>
1996:
Revenue $13,337 $16,174 $18,342 $14,135 $61,986
Income before
minority interest 7,344 9,987 11,553 6,203 35,087
Net income 7,236 9,850 11,392 6,109 34,587
Earnings per share 0.29 0.39 0.45 0.24 1.37
Dividends paid 0.33 0.34 0.36 0.36 1.39
FFO per share (1) 0.40 0.50 0.57 0.38 1.85
1995:
Revenue $10,366 $12,369 $13,763 $11,809 $48,307
Income before
minority interest 6,081 8,713 9,640 6,651 31,085
Net income 5,898 8,602 9,513 6,542 30,646
Earnings per share 0.25 0.35 0.39 0.38 1.26
Dividends paid 0.28 0.29 0.30 0.31 1.18
FFO per share (1) 0.33 0.44 0.48 0.37 1.61
1994:
Revenue $2,206 $4,056 $8,063 $9,209 $23,354
Income before
minority interest 1,463 2,695 5,078 5,115 14,351
Net income 1,437 2,680 4,996 5,043 14,156
Earnings per share 0.19 0.22 0.31 0.21 0.94
Dividends paid 0.23 0.24 0.24 0.26 0.97
FFO per share (1) 0.23 0.26 0.38 0.28 1.18
(1) The National Association of Real Estate Investment Trusts has adopted a new definition of funds from operations (FF0). Under
the definition, FFO represents net income excluding gains (or losses) from debt restructuring or sales of properties, plus
depreciation of real property and after adjustments for unconsolidated partnerships and joint ventures.
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
State of
Name Incorporation
- - ---- -------------
RFS Partnership, L.P. Tennessee
RFS Managers, Inc. Tennessee
RFS Financing Corporation Tennessee
RFS Financing Partnership, L.P. Tennessee
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
RFS Hotel Investors, Inc. on Form S-3 (file no. 3333-03307) and on Form S-8
(file no. 333-19411) of our report dated January 22, 1997, on our audits of the
consolidated financial statements of RFS Hotel Investors, Inc. as of December
31, 1996 and 1995, and for the three years in the period ended December
31, 1996, and our report dated January 22, 1997 on our audit of the financial
statement schedule of RFS Hotel Investors, Inc. as of December 31, 1996, which
reports are included in, or incorporated by reference, in this Annual Report on
Form 10-K.
Coopers & Lybrand L.L.P.
Memphis, Tennessee
March 24, 1997
<PAGE> 1
EXHIBIT 23.2
[KPMG PEAT MARWICK LLP LETTERHEAD]
ACCOUNTANTS' CONSENT
The Board of Directors
RFS, Inc.:
We consent to incorporation by reference in the Registration Statement (No.
333-03307) on Form S-3 and the Registration Statement (No. 333-19411) on Form
S-8 of RFS Hotel Investors, Inc. of our report dated January 20, 1997, relating
to the consolidated balance sheet of RFS, Inc. and subsidiary as of December
31, 1996, and the related consolidated statement of operations, stockholder's
equity, and cash flows for the year ended December 31, 1996, which report is
included in the 1996 annual report on Form 10-K of RFS Hotel Investors, Inc.
KPMG Peat Marwick LLP
Memphis, Tennessee
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 57,935
<SECURITIES> 0
<RECEIVABLES> 7,187
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 446,214
<DEPRECIATION> 23,271
<TOTAL-ASSETS> 499,129
<CURRENT-LIABILITIES> 0
<BONDS> 133,064
0
10
<COMMON> 244
<OTHER-SE> 357,228
<TOTAL-LIABILITY-AND-EQUITY> 499,129
<SALES> 61,594
<TOTAL-REVENUES> 61,986
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 26,899
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 35,087
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,587
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 1.37
</TABLE>
