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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1999 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition
from ________________ to ________________
Commission File Number: 0-23256
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JAMESON INNS, INC.
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(Exact name of Registrant as specified in its Articles)
Georgia 58-2079583
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8 Perimeter Center East, Suite 8050,
Atlanta, Georgia 30346-1603
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (770) 901-9020
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
9.25% Series A Cumulative Preferred Stock, par value $1.00 per share
$1.70 Series S Cumulative Convertible Preferred Stock, par value $1.00 per share
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(Title of Each Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to the
filing requirements for the past 90 days. [X] Yes [ ] No
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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. [ ]
Aggregate market value of the voting and non-voting common equity
stock held by nonaffiliates of the registrant as of March 14, 2000:
$70,060,505.
Number of shares of common stock outstanding on March 14, 2000 - 11,419,935.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual meeting of stockholders
to be held June 17, 2000 are incorporated by reference into Part III.
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FORM 10-K
JAMESON INNS, INC.
ANNUAL REPORT
YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
FORWARD LOOKING STATEMENTS
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PART I
Item 1. Business 2
Item 2. Properties 40
Item 3. Legal Proceedings 46
Item 4. Submission of Matters to a Vote of Security Holders 46
PART II
Item 5. Market for Jameson's Common Equity and Related Stockholder Matters 46
Item 6. Selected Financial Data 47
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 51
Item 7A. Quantitative and Qualitative Disclosure about Market Risks 60
Item 8. Financial Statements and Supplementary Data 60
Item 9. Changes in and Disagreements with Accountants on Accounting 60
Financial Disclosure
PART III
Item 10. Directors and Executive Officers of Jameson 61
Item 11. Executive Compensation 61
Item 12. Security Ownership of Certain Beneficial Owners and Management 61
Item 13. Certain Relationships and Related Transactions
PART IV
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 61
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JAMESON INNS, INC.
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FORWARD-LOOKING STATEMENTS
This report, including the documents incorporated in this report by
reference, contains certain forward-looking statements. These include
statements about our expansion plans, acquisition or leasing of additional land
parcels, construction of new hotels and expansion of existing hotels, access to
debt financing and capital, payment of quarterly dividends and other matters.
These statements are not historical facts but are expectations or projections
based on certain assumptions and analyses made by our senior management in
light of their experience and perception of historical trends, current
conditions, expected further developments and other factors. Whether actual
results and developments will conform to our expectations and predictions is,
however, subject to a number of risks and uncertainties. These include, but are
not limited to:
- our ability to:
- raise additional equity capital adequate to sustain
our growth plans;
- integrate the Signature Inns, which we recently
acquired, into our ownership and administrative
structure;
- secure construction and permanent financing for new
Inns on favorable terms and conditions;
- assess accurately the market demand for new Inns and
expansions of existing Jameson Inns;
- identify and purchase or lease new sites which meet
our various criteria, including reasonable land
prices or ground lease terms;
- contract for the construction of new Inns and
expansions of existing Jameson Inns in a manner
which produces Inns consistent with our present
quality and standards at a reasonable cost and
without significant delay;
- provide ongoing renovation and refurbishment of the
Inns sufficient to maintain consistent quality
throughout the chain; and
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- manage our business in a cost-effective manner given
the increase in the number of Inns we own and the
geographic areas in which they are located.
- The ability of our lessee, Jameson Hospitality, LLC, to
manage the Inns profitably.
- General economic, market and business conditions,
particularly those in the lodging industry and in the
geographic markets in which the Inns are located.
- The business opportunities (or lack of opportunities) that
may be presented to and pursued by us.
- Availability of qualified managers and employees necessary to
execute our growth strategy, particularly in light of current
low rates of unemployment.
- Changes in laws or regulations.
- Our continued qualification as a real estate investment
trust, or REIT, and continuation of favorable income tax
treatment for REITs under federal tax laws.
The words "estimate," "project," "intend," "expect," "anticipate,"
"believe" and similar expressions are intended to identify forward-looking
statements. These forward-looking statements are found at various places
throughout this report and the documents incorporated in this report by
reference as well as in other written materials, press releases and oral
statements issued by us or on our behalf. We caution you not to place undue
reliance on these forward-looking statements, which speak only as of the date
that they are made. We do not undertake any obligation to publicly release any
revisions to these forward-looking statements to reflect events or
circumstances after the date of this report.
PART I
ITEM 1. BUSINESS
GENERAL
We are a self-administered real estate investment trust, commonly
called a REIT, headquartered in Atlanta, Georgia. We develop and own limited
service hotel properties ("Inns") in the southeastern United States under the
trademark "The Jameson Inn(R)." In addition, as a result of our acquisition of
Signature Inns, Inc. in May of 1999, we own Inns in the Midwest operating under
the trademark "Signature Inn(R)." In this report, we sometimes refer separately
to the Inns operating under the Jameson trademark as "Jameson Inns" and to
those operating under the Signature trademark as "Signature Inns."
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We focus on developing Inns in communities which have a strong and
growing industrial or commercial base and a shortage of quality hotel rooms.
Generally, our Inns are rooms-only facilities designed to appeal to price and
quality conscious travelers. Our target customers are business travelers, such
as sales representatives and government employees, as well as families and
leisure travelers attending events in our markets, such as college or cultural
gatherings, fairs, festivals and family reunions.
As a REIT, we are prohibited from operating our properties.
Accordingly, all of the Inns are leased to Jameson Hospitality, LLC under
master leases. The master leases require Jameson Hospitality to pay us base
rent based on the number of rooms in operation on the first day of each month
and, where required under the formulas in the master leases, percentage rent
based on room revenues as defined in the master leases. Percentage rent is
designed to allow us to participate in any growth in revenues at the Inns. The
master leases generally provide that a portion of aggregate room revenues in
excess of specified amounts will be paid to us as percentage rent.
Jameson Hospitality is wholly owned by Thomas W. Kitchin, our
chairman and chief executive officer, and members of his family. References
to Jameson Hospitality throughout this report refer to either Jameson
Hospitality or its predecessors, Jameson Operating Company, Jameson Operating
Company, LLC and Jameson Operating Company II, LLC, as appropriate.
Our mailing address is: Jameson Inns, Inc., 8 Perimeter Center East,
Suite 8050, Atlanta, Georgia 30346-1604. Our telephone number is: (770)
901-9020.
MATERIAL DEVELOPMENTS IN 1999
On May 7, 1999, we concluded a merger with Indianapolis-based
Signature Inns, Inc. Through the Signature merger, we acquired 25
wholly-owned Signature Inns (2,978 available rooms) and a 40% general
partnership interest in a limited partnership which owned one additional
Signature Inn located in Carmel, Indiana (81 available rooms). In December
1999 we acquired the remaining 60% partnership interest in this partnership
and took direct ownership of the Signature Inn-Carmel. All of the Signature
Inns are located in six Midwestern states and, like our Jameson Inns, are
limited service hotels serving both business and leisure travelers. At the
conclusion of the Signature merger, we leased all of the Signature Inns
except the Signature Inn-Carmel to Jameson Hospitality which operates all of
the Jameson Inns. We leased the Carmel Signature Inn to Jameson Hospitality
in December 1999 when we acquired direct ownership of the property.
As consideration for the merger, Signature common stockholders
received one-half share of Jameson common stock and a cash payment of $1.22 in
exchange for each share of Signature common stock, as well as a dividend of
$.28 per share. Holders of outstanding shares of Signature $1.70 Cumulative
Convertible Preferred Stock, Series A, received an equal number of shares of
Jameson $1.70 Series S Cumulative Convertible Preferred Stock having
substantially the same terms as the Signature Series A preferred stock.
The acquisition of Signature Inns increased the total number of rooms
in our hotels by approximately 73%. The acquisition also provided us additional
geographic diversity by expanding our operations from the southeastern United
States into the Midwest.
Effective April 2, 1999, our subsidiary, Jameson Outdoor Advertising
Company, acquired certain assets of Jameson Hospitality consisting of
billboards, ground leases for sites on which the billboards are erected and
other related assets. As consideration for these assets we issued 72,727 shares
of our 9.25% Series A preferred stock, paid cash in the amount of $400,000 and
assumed liabilities in the amount of approximately $700,000. We obtained an
opinion from Interstate/Johnson Lane Corporation that the terms of the
transaction were fair from a financial standpoint to us and to our
shareholders. In order to maintain our REIT status, these assets are leased to
and operated by Jameson Hospitality which pays us annual rentals on each of the
billboards. In 1999, rental payments from these assets totaled approximately
$412,000.
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In December 1999 and January 2000, we refinanced approximately
$15,800,000 of indebtedness secured by five Signature Inns, including the
issuance of adjustable rate economic development revenue refunding bonds in the
aggregate principal amount of $12,115,000 secured by four Signature Inns.
During 1999, we opened eight new Jameson Inns (397 total additional
rooms) and 11 expansions of existing Jameson Inns (217 total additional rooms).
In October 1999, we opened our first Jameson Inn in the state of Florida and
are further extending our geographic presence in the Southeast through
development of Jameson Inns in Kentucky, Louisiana and Virginia.
RISK FACTORS
Risks Which are Specific to Jameson
The following risks relate specifically to the conduct of our
business. You should also refer to the information under the heading Forward
Looking Statements on page 1.
Our rapid expansion creates financial and operating risks. Our growth
strategy contemplates a rapid and continuous development of new Inns and
expansions of existing properties. We plan to borrow 100% of the related
development and expansion costs. The successful implementation of this strategy
depends on numerous factors, including those unique to us and those generally
associated with overall hotel, real estate and general economic conditions.
Those factors specific to us include our ability to:
- raise additional equity capital adequate to sustain our
growth plans;
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- secure construction and permanent financing to finance such
development on terms and conditions favorable to us;
- assess accurately the market demand for new Inns and
expansions of existing properties;
- identify and purchase or lease new sites which meet our
various criteria, including reasonable land prices and ground
lease terms;
- contract for the construction of new Inns and expansions in a
manner which produces hotel properties consistent with
present quality and standards at a reasonable cost and
without significant delays; and
- manage our business in a cost-effective manner given the
increase in the number and geographic dispersion of our Inns.
In addition, risk factors affecting our profitability include Jameson
Hospitality's ability both to manage our Inns and to attract, develop and
retain the personnel, procedures and practices necessary to generate the room
revenues which we anticipate will result from development and expansions of
Inns.
Some or all of the factors discussed above could preclude or at least
delay the development of new Inns and the expansion of existing properties.
Similarly, the terms of financing available to us or the operating results of
any new or expanded Inns could have a negative economic effect on us and reduce
the amount of cash available for distribution as dividends.
Potential conflicts of interest exist among us and our chief executive
officer and Jameson Hospitality. In addition to his positions with and stock
ownership interest in us, Thomas W. Kitchin, our chairman and chief executive
officer, and members of his family are the owners of Jameson Hospitality, which
constructs and operates all of the Inns and pays and allocates all of our
administrative overhead expenses. These relationships create conflicts of
interest in our dealings with Jameson Hospitality under the master leases and
the various construction agreements, and with regard to allocation and payment
of our overhead expenses. In that regard, the master leases, the form of the
construction agreements and the cost reimbursement agreement under which Jameson
Hospitality pays and allocates our overhead were not negotiated on an
arm's-length basis.
We depend exclusively on Jameson Hospitality for lease revenues.
Certain rules relating to the qualification of REITs prohibit us from operating
the Inns. To comply with these rules, we have leased the Inns to Jameson
Hospitality. As a result, we depend exclusively on Jameson Hospitality for
lease revenues. Jameson Hospitality's obligations under the master leases are
unsecured. Jameson Hospitality has few liquid assets, a history of operating
losses and limited
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net worth. As a result, Jameson Hospitality has very limited resources to
perform certain of its financial obligations under the Jameson Lease. These
include indemnifying us against various claims, damages and losses and making
payments of base rent.
Also, under the master leases, Jameson Hospitality controls the daily
operations of the Inns and we have no ability to participate in those
decisions. Thus, even if Jameson Hospitality were managing the Inns
inefficiently or in a manner which failed to maximize the amount of percentage
rent we receive, we would be unable to require a change in operating
procedures. The master leases limit us to seeking redress only if Jameson
Hospitality violates the lease terms, and then only to the extent of the
remedies set forth in the master leases. Those remedies include our ability to
terminate the master leases upon certain limited events of default, including
Jameson Hospitality's failure to pay base rent.
We will need to obtain additional debt financing on favorable terms to
carry out our expansion plans. We intend to borrow 100% of the funds required
to finance the development of new Inns and the expansion of existing Jameson
Inns. We also may need to borrow funds to pay the costs of replacement and
refurbishment of furniture, fixtures and equipment of the Inns that we are
required to pay under the master leases. We are not certain that we will be
able to obtain this financing, either through commercial borrowings or the
issuance of corporate debt securities. If we are able to borrow needed funds,
we may not be able to continue to meet our debt service obligations. To the
extent that we cannot, we risk the loss of some or all of our assets, including
the Inns, to foreclosure.
Interest rate increases could increase our cost of current and future
debt. A significant portion of our indebtedness is subject to adjustable
interest rates and is secured by a substantial number of our Inns and
billboards. Because of the current relative unavailability and high cost of
fixed interest rate long-term financing, we anticipate that our future
borrowings will be at interest rates which adjust with certain indices.
Therefore, our cost of financing will vary subject to events beyond our
control. Adverse economic conditions could result in higher interest rates
which would increase debt service requirements on floating rate debt and could
reduce cash available for distribution. Adverse economic conditions could also
cause the terms on which borrowings are available to us to be unfavorable. In
those circumstances, if we needed capital to repay indebtedness, we could be
required to sell one or more Inns at times which might not permit realization
of the maximum return on our investment.
Cross-collateralization of the Inns increases our risk of loss. A
significant number of our current loan agreements provide for
cross-collateralization and cross-default with respect to our debt, and future
loan agreements will likely contain similar provisions. The results of a
cross-default provision are that all of the loans with this provision
effectively secure repayment of our other loans and a default on one loan
results in a default on the other loans. In general, these provisions in our
loans may place our assets at a greater risk of foreclosure.
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The foreclosure of a mortgage on an Inn could have material adverse
tax effects on us. If a mortgage lender foreclosed on an Inn to enforce its
lien in satisfaction of non-recourse debt, we might be required to recognize
income. If the amount of the debt discharged exceeded that property's fair
market value, the amount of debt discharge income to be recognized would be
equal to the excess of the amount of such debt over the fair market value of
the property. In addition, we would recognize a capital gain to the extent, if
any, that the fair market value of the property exceeded our basis in it. We
also could recognize gain if a mortgage lender foreclosed on a recourse debt.
The debt discharge income would be subject to the 95% distribution requirement
described below in under the heading --Taxation of Jameson--Annual Distribution
Requirements, even though we would receive no cash with which to make a
distribution.
Debt repayment terms could reduce our ability to make cash
distributions. If our debt service obligations continue to be based primarily
on 15- to 20-year amortizations, the portion of our cash flow necessary to make
principal payments on obligations to finance future Inns may exceed the cost
recovery deductions, which are based on 39-year useful lives, we can take on
our federal income tax return. As a result, our cash available for distribution
to our shareholders may not be adequate to allow distribution of 95% of our
taxable income. In that case, we might be forced to borrow to fund a
distribution to shareholders. If we were unable to borrow the money, and as a
result did not make the requisite distribution, our status as a REIT would be
jeopardized.
We could become more highly leveraged which would increase our debt
service requirements and our risk of default. We currently have a policy of
limiting our outstanding indebtedness to 65% of the aggregate appraised value
of the Inns. However, our organizational documents do not limit the amount of
indebtedness that we may incur. Accordingly, our Board of Directors could
change the current policies and we could become more highly leveraged. This
would increase our debt service requirements and also the risk of our
defaulting on our obligations. An increase in our debt service requirements
could adversely affect our financial condition and results of operations, as
well as our ability to make dividend distributions to our shareholders. This
could, as a result, jeopardize our status as a REIT. See --Taxation of Jameson,
below.
Our lack of industry diversification makes us more vulnerable to
economic downturns. We currently, and intend in the future to, invest only in
Inns. This concentration of our investments in narrow segments of a single
industry makes us more vulnerable to adverse effects of occurrences such as
economic downturns. A weakness in the economy could have a more significant
effect on the operation of the Inns and, therefore, on lease revenues and cash
available for distribution than if our investments were more economically
diverse.
The Inns' geographic concentration increases our risks from local and
regional economic downturns and other events. All currently operating Jameson
Inns are located in the Southeast and approximately 40% of our Jameson Inns'
rooms are located in Georgia. All Signature Inns are in the Midwest and
approximately 50% of Signature Inns' rooms are located in Indiana. For the
foreseeable future we will continue to restrict development of new Inns to
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those two regions of the country. This geographic concentration makes us more
vulnerable to local and regional occurrences such as economic downturns,
seasonal factors and natural disasters. Any of these could adversely affect our
lease revenues and cash available for distribution.
We rely heavily on the services of Thomas W. Kitchin. We and Jameson
Hospitality have relied and will continue to rely heavily upon the services and
expertise of Thomas W. Kitchin, our chairman, and chief executive officer and
the chief executive officer and manager of Jameson Hospitality, for strategic
business direction. In addition, certain of our loan agreements provide for a
default upon a change of management. The occurrence of any event which would
cause us to lose the services of Mr. Kitchin could have a material adverse
effect on us. We have purchased a $1.0 million key-man life insurance policy on
the life of Mr. Kitchin. There is no assurance, however, that we will continue
to maintain such insurance policy in effect or that any proceeds thereof would
be sufficient to compensate us for the loss of Mr. Kitchin's services.
Shares issued under our stock incentive plans could dilute
shareholders' investments. We maintain certain stock option and stock grant
plans to provide incentive compensation to our directors, officers and key
employees and to those of Jameson Hospitality. The availability for resale of
shares of our common stock issued or issuable under our stock incentive plans
may depress the market price of the our common stock. In addition, to the
extent stock options and other incentive awards which may be granted under our
stock incentive plans vest and are exercised at prices below the net book value
of the our common stock, the resulting issuance of shares of our common stock
will cause an immediate dilution of the interests of our other shareholders.
Rising interest rates and limited trading volume may depress the price
of our capital stock. An increase in market interest rates may result in higher
yields on other financial instruments than our shareholders realize from
distributions and dividends paid on our common and preferred stock. This could
adversely affect the market price of the our common and preferred stock. In
addition, the trading volume of equity interests in REITs is generally not as
high as in equity interests in other entities. Accordingly, our status as a
REIT may also adversely affect the trading volume of shares of our common and
preferred stock. This would reduce the liquidity of an investment in Jameson.
Our corporate documents have certain antitakeover provisions that tend
to reduce the likelihood of our acquisition by another company. Certain
provisions of our articles of incorporation and bylaws may have the effect of
discouraging a third party from making an acquisition proposal for us without
the approval of the our Board of Directors. This will tend to reduce the
likelihood of a change in control of Jameson, even when the holders of our
stock could have the opportunity to realize a premium over the then prevailing
market prices. For example, a provision of our articles of incorporation
creates our classified Board. Under that provision, our Board of Directors is
made up of three classes of directors with staggered terms of office. Directors
for each class are elected for a three-year term upon the expiration of their
then
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current class term. This makes it more difficult for our shareholders to change
control of Jameson even if a change of control were in the shareholders'
interest. In addition, to comply with the various restrictions imposed on
REITs, our articles of incorporation contain a provision limiting the amount of
our voting stock which a shareholder or group of shareholders may own. This
limit may also have the effect of precluding an acquisition of control of
Jameson without the approval of our Board of Directors.
Our articles of incorporation also authorize the Board of Directors to
issue up to 10,000,000 shares of preferred stock and to establish the
preferences and rights of any shares so issued. Accordingly, our Board of
Directors is authorized, without shareholder approval, to issue preferred stock
with distribution, dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of
shares of our common stock. Issuance of preferred stock could have the effect
of delaying or preventing a change of control of Jameson even if a change of
control were in our shareholders' interest. To date, our Board has approved the
issuance of the 9.25% Series A Cumulative Preferred Stock ("Series A Preferred
Stock") and the $1.70 Series S Cumulative Convertible Preferred Stock ("Series
S Preferred Stock") totaling 3,528,727 shares.
We could make changes in our investment and financing policies which
could adversely affect our financial condition and/or results of operations.
Our Board of Directors determines our investment and financing policies and our
policies with respect to certain other activities, including growth, debt
capitalization, distributions, operating policies and our qualification as a
REIT. Among other things, our Board of Directors could make financing decisions
which could result in the creation of interests in Jameson and/or the Inns with
priority over the interests of the shareholders, and/or make equity investments
in concerns with debt superior to our equity interest. Our Board of Directors
has no present intention to amend or revise these policies. However, except
with respect to our qualification as a REIT, our Board of Directors may do so
at any time without the approval of the shareholders. Any decision by our Board
of Directors to relinquish our status as a REIT is subject to the approval of a
majority of our voting stock present at a meeting of our shareholders. A change
in these policies could adversely affect our financial condition or results of
operations.
Risks of Hotel Investments Generally
The following are risks which affect hotel investments generally which
could significantly affect our results of operations.
General economic and regulatory conditions in the hotel industry will
affect our business. Our ownership of the Inns is subject to varying degrees of
risk generally incident to the ownership and operation of real property and, in
particular, hotels. Our ownership of the Inns may be adversely affected by a
number of factors, including:
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- the national, regional or local economic climate (which may
be adversely impacted by plant closings, industry slowdowns,
inflation and other factors);
- local hotel market conditions (such as an oversupply of guest
rooms);
- perceptions by travelers of the safety, convenience and
attractiveness of the Inns;
- changes in governmental regulations, zoning or tax laws;
- operating cost increases, labor problems, potential
environmental or other legal liabilities, and changes in
interest rate levels.
We face significant competition and the supply of hotel rooms is
growing faster than demand in some of the markets in which Inns are located. A
strong national economy and readily available debt and equity financing during
the past several years has prompted the construction of a significant number of
new hotels and motels in certain markets where we operate. Demand for lodging
in the travel industry, however, has generally not kept up with the growth in
the supply of rooms. As a result, occupancy rates for hotels, including the
Inns, have tended to remain constant or to decline. This condition is unlikely
to change in the foreseeable future and may have a negative impact on our
results of operations. In addition, there are numerous hotels, including those
that are part of major chains with substantial advertising budgets, national
reservation systems, marketing programs and greater name recognition than we
have, that compete with the Inns in attracting travelers. Further, many of the
Inns are located in smaller communities where the entry of even one additional
competitor into the market may materially affect the financial performance of
the Inn in that community. In several of the larger communities where Inns are
located, significant numbers of additional hotel rooms are currently under
construction.
We incur significant renovation and refurbishment costs. Hotels in
general, including the Inns, have an ongoing need for renovation and
refurbishment. We have adopted a policy of maintaining sufficient cash or
available borrowings to fund expenditures for replacement and refurbishment of
furniture, fixtures and equipment for the Inns up to an amount equal to 4% of
Jameson Hospitality's total aggregate room revenues since July 1, 1995, less
the amounts actually expended since that date.
We may not be adequately insured. The ownership of hotel properties by
its nature presents risks of liability resulting from injuries to guests and
resulting litigation. Under the terms of the master leases, we carry
comprehensive liability, fire, extended coverage, rental loss and business
interruption insurance covering all of the Inns with policy specifications and
insured limits customarily carried for similar properties. However, our
insurance coverage could be insufficient to fully protect our business and
assets from all claims or liabilities, including environmental liabilities.
Further, we may not always be able to obtain additional insurance at
commercially reasonable rates. In the event losses or claims are beyond the
limits or scope of our insurance coverage, our business and assets could be
materially adversely affected. In
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addition, certain types of losses (such as certain environmental liabilities)
are not generally insured because they are either uninsurable or not
economically insurable. If an uninsured loss or a loss in excess of insured
limits occurs, we could lose our capital invested in the affected Inn, as well
as anticipated future revenues from that Inn, while remaining obligated for any
mortgage indebtedness or other financial obligations related to that Inn. Any
such loss could have a material adverse effect on our financial condition and
results of operations.
We must comply with the Americans with Disabilities Act. The Americans
with Disabilities Act of 1990 (the "ADA") requires that all public
accommodations meet certain federal requirements related to access and use by
disabled persons. If we were required to make modifications to comply with the
ADA, our ability to make expected distributions to our shareholders could be
adversely affected. In addition to remedial costs, noncompliance with the ADA
could result in imposition of fines or an award of damages in private
litigation.
Our business is subject to seasonal fluctuations. The hotel industry
is seasonal in nature. Hotel revenues are generally greater in the second and
third calendar quarters than in the first and fourth quarters. This seasonality
will cause quarterly fluctuations in our lease revenues.
Risks of Real Estate Investments Generally
The following are risks which are inherent in real estate investments
generally and which could also significantly impact our results of operations.
Real estate investments, including the Inns, are typically very
illiquid. Equity real estate investments, including our investments in the Inns,
are relatively illiquid. The illiquidity of our investment in the Inns is
further increased by the location of many of the Inns in smaller communities.
As a result, our ability to sell or otherwise dispose of any Inn in response to
changes in economic or other conditions, or if necessitated by the need to fund
a required distribution to shareholders, may be limited.
Environmental laws and regulations could increase our costs or reduce
the value of one or more of the Inns. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may be liable for the costs of removal or remediation
of hazardous or toxic substances on, under or in such property. These laws
often impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of hazardous or toxic substances. In addition,
the presence of hazardous or toxic substances, or the failure to properly
remediate the property, may adversely affect the owner's ability to borrow
using that real property as collateral. Persons who arrange for the disposal or
treatment of hazardous or toxic substances may also be liable for the costs of
removal or remediation of those substances at the disposal or treatment
facility, whether or not that facility is owned or operated by that person. We
cannot be certain that
- there are no material claims or liabilities related to our
ownership of the Inns;
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- future laws, ordinances or regulations will not impose any
material environmental liability on us; and
- the current environmental condition of the Inns will not be
affected by operation of the Inns, by the condition of
properties in the vicinity of the Inns (such as the presence
of underground storage tanks) or by third parties.
Under the terms of the master leases, we indemnify Jameson Hospitality
against environmental liabilities, except those caused by the acts or negligent
failures of Jameson Hospitality. In addition, the master leases provide that
Jameson Hospitality will indemnify us against environmental liabilities caused
by Jameson Hospitality's acts or negligent failures. Jameson Hospitality's
financial condition may limit the value of its indemnity and, in any event, the
indemnity will not apply to or protect us against past unknown violations and
related liabilities.
Tax Risks
The following risks relate to our status as a REIT under federal
income tax laws.
Failure to qualify as a REIT would reduce the amount of cash available
to distribute to our shareholders. We intend to continue to operate in a manner
so as to qualify as a REIT under the Internal Revenue Code. A REIT generally is
not taxed at the corporate level on income it currently distributes to its
shareholders, so long as it distributes at least 95% of its taxable income and
satisfies certain other technical and complex requirements. Because our
qualification as a REIT in our current and future taxable years depends upon
our meeting the requirements of the Internal Revenue Code in future periods, we
cannot be certain that we will continue to qualify as a REIT. If, in any
taxable year, we were to fail to qualify as a REIT for federal income tax
purposes, we would not be allowed a deduction for distributions to shareholders
in computing taxable income and would be subject to federal income tax
(including any applicable alternative minimum tax) on our taxable income at
regular corporate rates. In addition, unless entitled to relief under certain
statutory provisions, we would be disqualified from treatment as a REIT for
federal income tax purposes for the four taxable years following the year
during which qualification was lost. The additional tax liability resulting
from the failure to so qualify would significantly reduce the amount of funds
available for distribution to our shareholders.
We may need to borrow funds in order to make the distributions to
shareholders which the tax laws require. To obtain the favorable tax treatment
associated with REITs, we generally will be required each year to distribute to
our shareholders at least 95% of our net taxable income (excluding any net
capital gain). In addition, we will be subject to tax on our undistributed net
taxable income and net capital gain, and a 4% nondeductible excise tax on the
amount, if any, by
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which certain distributions which we pay with respect to any calendar year are
less than the sum of 85% of our ordinary net income plus 95% of our capital
gain net income for the calendar year.
We intend to make distributions to our shareholders to comply with the
distribution provisions of the Internal Revenue Code and to avoid or minimize
income taxes and the nondeductible excise tax. Our income and cash flow will
consist primarily of the rents received from Jameson Hospitality under the
master leases. Differences in timing between the receipt of income and the
payment of expenses in arriving at our taxable income and the effect of
required debt amortization payments could make it necessary for us to borrow
funds on a short-term basis to meet the distribution requirements that are
necessary to achieve the tax benefits associated with qualifying as a REIT even
if we believe that then prevailing market conditions are not generally
favorable for such borrowings or that such borrowings would not be advisable in
the absence of such tax considerations.
Distributions are determined by our Board of Directors and depend on a
number of factors, including the amount of cash available for distribution, our
financial condition, any decision to reinvest rather than to distribute such
funds, our capital expenditures, the annual distribution requirements under the
REIT provisions of the Internal Revenue Code and such other factors as our
Board of Directors considers important. Accordingly, we cannot assure you that
we will be able to maintain our required distribution rate. See --Taxation of
Jameson--Requirements for Qualification and -- Annual Distribution
Requirements, below.
THE MASTER LEASES
We entered into master leases with Jameson Hospitality covering all of
the completed and operating Jameson Inns (the "Jameson Lease") and a separate
master lease covering the Signature Inns (the "Signature Lease"). New Inns
which we develop during the term of the master leases will become subject to
the respective master leases upon their completion of construction. The Jameson
Lease and the Signature Lease are substantially the same except regarding the
term and the calculation of rent. The following is a summary description of the
material terms and conditions of both the Jameson Lease and the Signature
Lease.
TERM. The Jameson Lease term expires on December 31, 2007, subject to
earlier termination upon the occurrence of certain events. The Signature Lease
expires December 31, 2012, also subject to earlier termination upon the
occurrence of certain events.
RENT. During the terms of each of the master leases, Jameson
Hospitality is obligated to pay to us base rent calculated on the number of
rooms in operation on the first day of the month and, where required under the
formula described below, percentage rent based on room revenues. In general,
percentage rent is calculated by multiplying average daily per room rental
revenues for all of the Inns under each master lease by certain percentages and
then subtracting the amount of the base rent paid for the same period.
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Under the Jameson Lease, base rent is payable monthly and equals
$264.00 per room per month multiplied by the number of rooms available to rent
at the beginning of the month. Percentage rent is payable quarterly and, at
January 1, 2000, is based on the following formula:
39% of the first $23.16 of average daily per room rental revenues;
plus
65% of all additional average daily per room rental revenues; less
100% of the base rent paid for the same period.
Under the Signature Lease, base rent is $ 394 per room per month
multiplied by the number of rooms available to rent at the beginning of the
month. Percentage rent is payable quarterly and, at January 1, 2000, is based
on the following formula:
37% of the first $37.38 of average daily per room rental revenues;
plus
65% of the next $10.00 of average daily per person rental values; plus
70% of all additional average daily per room rental revenues; less
100% of base rent paid for the same period.
Under the master leases, percentage rent is based on the total number
of rooms available to rent during the period, rather than the number of rooms
available to rent at the beginning of each month. The total base rent plus
percentage rent payable by Jameson Hospitality under the Jameson Lease is
limited to 47% of room revenues. For purposes of calculating base rent and
percentage rent, each master lease under which Jameson or one of its
subsidiaries is lessor is treated as a separate Jameson Lease or Signature
Lease; that is, only the number of rooms and amount of room revenue
attributable to Inns under a particular master lease are considered when
determining the amount of base rent and percentage rent Jameson Hospitality is
obligated to pay under that master lease.
Effective January 1, 2001, the $23.16 amount referred to above under
the Jameson Lease and the $37.38 amount referred to under the Signature Lease
will be increased based on the percentage increase in the Consumer Price Index
for all Urban Consumers published by the U.S. Department of Labor Bureau of
Labor Statistics for the year ended December 31, 2000. Similar adjustments will
be made on each subsequent January 1 for the year then beginning based on the
changes the Consumer Price Index experienced over the most recently completed
calendar year.
Average daily per room rental revenues are determined by dividing room
revenues realized by Jameson Hospitality over any given period by the sum of
the number of rooms available for rent on each day during the period. Room
revenues as defined in the Jameson Lease include revenues from telephone
charges, vending machine payments and other miscellaneous revenues and exclude
all credits, rebates and refunds, sales taxes and other excise
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<PAGE> 18
taxes. Room revenues as defined in the Signature Lease are substantially the
same as in the Jameson Lease. On or before March 1 of each year, Jameson
Hospitality is required to provide a calculation of the percentage rent payable
for the preceding year, together with a report by the same independent
accounting firm serving as auditors of Jameson's financial statements, on the
amount of room revenues and percentage rent. Total rent, including both base
rent and percentage rent, which we earned under the Jameson Lease for the years
ended December 31, 1997, 1998 and 1999 was $13.0 million, $18.2 million and
$22.7 million, respectively. Total rent, including both base rent and
percentage rent we earned under the Signature Lease for the period May 7, 1999,
through December 31, 1999 was $11.5 million.
OPERATING EXPENSES. In addition to paying base rent and, if
applicable, percentage rent, the master leases require Jameson Hospitality to
pay all costs and expenses incurred in the operation of the Inns, including
workers' compensation insurance premiums. We are responsible for other types of
insurance, real and personal property taxes, the costs of replacing or
refurbishing furniture, fixtures and equipment, and the maintenance of
structural elements, roofs and underground utilities.
APPROVAL OF MASTER LEASES. Our independent directors are members of
our Board of Directors who are not also officers or employees of Jameson and
who are not affiliated with Jameson Hospitality. Our independent directors
determined that the master leases, as amended, are fair to us.
TRADEMARKS. Jameson Hospitality owns the registered trademarks, The
Jameson Inn(R) and Signature Inns(R). The master leases require Jameson
Hospitality to operate the Inns using the trademarks and not to use the
trademarks (or license their use to any other parties) for the operation of
lodging facilities other than the Inns if we object to the unrelated use. We
have an option to purchase The Jameson Inn(R) and Signature Inns(R) trademarks
from Jameson Hospitality at the end of each master lease or upon the earlier
termination of the master lease with respect to all of the Inns for $25,000 for
The Jameson Inn(R) trademark and $50,000 for the Signature Inns(R) trademark.
MAINTENANCE AND MODIFICATIONS. Under the master leases, we are
required to maintain the underground utilities and the structural elements of
the improvements and the roof of each Inn. Jameson Hospitality is required, at
its expense, to maintain the Inns in good order and repair and to make
non-structural, foreseen and unforeseen, and ordinary and extraordinary repairs
which may be necessary and appropriate to keep the Inns in good order and
repair.
Jameson Hospitality, at its expense, may make non-capital and capital
additions, modifications or improvements to the Inns which do not significantly
alter the character or purposes, or significantly detract from the value or
operating efficiencies, of the Inns. Modifications or improvements estimated to
cost in excess of $100,000 must be done under the supervision of a qualified
architect, engineer or contractor satisfactory to us and in accordance with
plans and specifications which we approve.
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All alterations, replacements and improvements are subject to all the
terms and provisions of the master leases and become the property of Jameson
upon termination of a master lease. Through March 1, 2000, Jameson Hospitality
had not undertaken any significant capital or non-capital alterations,
replacements or improvements to the Inns.
Hotels in general, including the Inns, have an ongoing need for
renovation and refurbishment. A significant number of Jameson Inns have been
constructed within the past two years and generally do not require any
renovation or refurbishment. However, Inns older than two years require
periodic replacement of furniture, fixtures and equipment and the master leases
require that we pay the costs of the refurbishment. We have adopted a policy of
maintaining sufficient cash or available borrowings to fund expenditures for
replacement and refurbishment of furniture, fixtures and equipment for the Inns
up to an amount equal to 4% of Jameson Hospitality's total aggregate room
revenues since July 1, 1995, less the amounts actually expended since that
date.
INSURANCE AND PROPERTY TAXES. The master leases provide that we are
responsible for paying or reimbursing Jameson Hospitality for real and personal
property taxes as well as for all insurance coverage on the Inns except
workers' compensation coverage, which is an obligation of Jameson Hospitality.
INDEMNIFICATION. The master leases require Jameson Hospitality to
indemnify us and our affiliates from and against all liabilities, costs and
expenses (including reasonable attorneys' fees and expenses) incurred by,
imposed upon or asserted against us or our affiliates, on account of, among
other things, (1) any accident or injury to person or property on or about the
Inns, (2) any misuse by Jameson Hospitality, or any of its agents, of the
leased property, (3) taxes and assessments in respect of the Inns (other than
our real and personal property taxes and income taxes on income attributable to
the Inns), or (4) any breach of a master lease by Jameson Hospitality. The
master leases do not, however, require Jameson Hospitality to indemnify us
against our gross negligence or willful misconduct. We are required to
indemnify Jameson Hospitality against any environmental liabilities other than
those caused by the acts or negligent failures of Jameson Hospitality (for
which Jameson Hospitality will indemnify us).
ASSIGNMENT AND SUBLEASING. Under the terms of the master leases,
Jameson Hospitality is not permitted to sublet all or any part of any of the
Inns or assign its interest under the master leases, other than to an affiliate
of Jameson Hospitality controlled by Mr. Kitchin, without the prior written
consent of Jameson. No assignment or subletting will release Jameson
Hospitality from any of its obligations under the master leases.
EVENTS OF DEFAULT. Events of default under the master leases include,
among others, the following:
(1) Jameson Hospitality's continuing failure to pay rent
for a period of 10 days after receipt by Jameson Hospitality from us
of written notice of nonpayment;
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(2) except under certain circumstances, continued failure by
Jameson Hospitality to observe or perform any other term of the master
leases for a period of 30 days after Jameson Hospitality receives
notice from us of the failure;
(3) Jameson Hospitality's bankruptcy, insolvency or
similar event; and
(4) Jameson Hospitality's voluntary discontinuation of
operations at an Inn for more than five days, without our consent,
except as a result of damage, destruction or condemnation.
If an event of default occurs and continues beyond any curative
period, we have the option of terminating the master leases as to any
individual Inn (which would not affect the master leases as to the remainder of
the Inns) or as to all of the Inns by giving Jameson Hospitality 10 days
written notice of the termination date.
TERMINATION OF MASTER LEASES ON DISPOSITION OF INNS. If we enter into
an agreement to sell or otherwise transfer an Inn, we may terminate the
applicable master lease as to that Inn. However, if a master lease is
terminated as to Inns comprising 25% or more of the total rooms of all of the
Inns within a period of 12 consecutive months, we must compensate Jameson
Hospitality for the loss of its leasehold interest or offered substitute
hotels. Most of the Inns have been mortgaged to secure our indebtedness. In the
event of a foreclosure sale (or transfer in lieu of foreclosure) of any Inn,
the applicable master lease will terminate with respect to that Inn.
INVENTORY. The master leases require all inventory required in the
operation of the Inns to be acquired and replenished by Jameson Hospitality.
Inventory includes: (1) cleaning supplies, (2) linens, (3) towels and (4) paper
goods.
GROWTH PLANS FOR 2000
We plan to enhance stockholder value by increasing funds from
operations and cash available for distribution by developing additional Inns,
expanding existing Jameson Inns and participating, through the master leases,
in increased room revenues generated through operation of the Inns by Jameson
Hospitality. For definitions and calculation of funds from operations and cash
available for distributions, see Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations.
DEVELOPMENT OF NEW INNS. We believe that attractive opportunities
exist for the development of new Jameson Inns in certain markets in the
southeastern United States. Accordingly, we intend to continue developing new
Jameson Inns in targeted communities. With operating Jameson Inns in Alabama,
Florida, Georgia, Mississippi, North Carolina, South Carolina and Tennessee, we
plan to continue developing Jameson Inns in those states as well as in
Kentucky, Louisiana and Virginia. At December 31, 1999, Jameson had a total of
24 Jameson
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Inns under development, including 20 Jameson Inns under construction, and
contracts to acquire 2 parcels of land on which additional Jameson Inns are
expected to be constructed during 2000 and 2001. In addition, we currently have
and will consider long-term ground leases for our future Jameson Inn locations.
We believe that Jameson has benefitted significantly from its strategy
of developing new Jameson Inns because of the experience and track record of
Jameson and Jameson Hospitality in the development, construction and operation
of Jameson Inns.
In evaluating potential development sites, we target communities with
strong industrial bases sufficient to attract business travelers. These
communities typically have significant manufacturing facilities, state and
federal government installations, or colleges and universities. We strive to
locate our Inns in proximity to family-style restaurants and targets markets
which offer local community events (e.g. annual festivals, fishing tournaments,
collegiate football games and other athletic events, graduation ceremonies,
etc.) and/or tourist and recreational facilities (e.g. lakes, golf courses,
hunting areas, etc.) attracting groups and individual discretionary and leisure
travelers.
Although we have no specific plans to construct new Signature Inns, we
will consider developing new Signature Inns according to assessment of market
demand, cost and other relevant factors.
EXPANSION OF EXISTING JAMESON INNS. We intend to continue to expand
existing Jameson Inns whenever market conditions warrant. To date, we have
expanded 33 Jameson Inns and, at December 31, 1999, one additional Jameson Inn
was undergoing a 20-room expansion which we expect to open in July 2000. Since
Jameson Inns built prior to 1999 were initially constructed with the office and
lobby, swimming pool and fitness center on sites generally large enough for
future expansions, the incremental cost per room of expansions is lower than
for new Inns. Accordingly, Jameson has been able to earn attractive returns on
its investment by expanding Jameson Inns in markets with strong room demand.
Also, as compared to the development of new Inns, expansion of existing Jameson
Inns is a relatively lower risk growth strategy since we have an opportunity to
assess local room demand and market trends based on our direct experience in
developing and owning the existing hotel. We expect to employ substantially the
same strategy regarding expansion of our currently operating Jameson Inns. The
sites for new, interior-corridor Jameson Inns, however, and all of the current
Signature Inn sites are fully developed and these properties cannot be
expanded. In these markets, expansions will occur, if at all, through the
acquisition of additional sites and the construction of new Inns.
JAMESON HOSPITALITY AS CONTRACTOR. We anticipate that Jameson
Hospitality will act as general contractor for new Inns we build and for
expansions of existing Jameson Inns. Each construction contract for a new Inn
or a group of Inns provides for a turnkey price for all work performed under
the contract subject to reduction, however, if Jameson Hospitality's profits
(as defined in the construction contract) exceed 10%. The contract price
excludes the cost of the
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land and closing costs, but includes the costs of constructing and equipping
the Inns, including interest charges we incur on the associated construction
debt during construction and working with Jameson Hospitality to staff the Inn
prior to opening. An independent architectural firm reviews each construction
contract and each is also subject to approval by a majority of our independent
directors. The average price charged by Jameson Hospitality for the eight new
Jameson Inns opened during 1999 and the 11 expansions of Jameson Inns opened in
1999 was approximately $42,000 per room.
INTERNAL GROWTH. Through percentage rent, we participate in any
increases in room revenues generated through increases in occupancy rates and
average daily room rates or ADR of the Inns by Jameson Hospitality. Total rent
payable under the Jameson Lease, including base rent and percentage rent, is
limited, however, for each calendar year to 47% of Jameson Hospitality's room
revenues. See --The Master Leases, above. Jameson Hospitality practices
aggressive market-sensitive pricing, increasing room rates at particular Inns
as market conditions in the specific communities warrant. The Inns' site
managers receive a significant portion of their compensation based on achieving
specified monthly room revenues and annual expense controls.
MARKETING. Jameson Hospitality is responsible for marketing the Inns.
It focuses on local efforts directed to the business community in the city or
town where the particular Inn is located. Jameson Hospitality currently employs
15 direct sales managers, each of whom conducts and supervises direct sales
for designated Inns. In addition, one of the key responsibilities of an Inn's
manager is to make sales calls on local chambers of commerce, businesses,
factories, government installations and colleges and universities. The goal of
the sales call is to familiarize local business people with the Inn in their
community and solicit their recommendation of the Inn to business travelers
visiting communities where Inns are located, including both individual
discretionary travelers as well as groups attending family or community events.
Jameson Hospitality employs billboards and other similar types of advertising
and has an "800" number to facilitate reservations for the Jameson Inns. Since
our acquisition of Signature, Jameson Hospitality has maintained the
reservation system previously used for the Signature Inns. This system utilizes
an "800" number, but also interfaces with major electronic reservation systems
such as Sabre, Apollo, Worldspan, System One and Amadeus. This interface
connects the Signature Inns with travel agents nationally and internationally.
In addition to billboard advertising which Jameson Hospitality has
traditionally utilized and will continue to utilize, Jameson Hospitality places
advertisements for the Inns in regional and special event publications and in
newspapers. Jameson Hospitality also markets the Inns through two websites:
www.jamesoninns.com and www.signature-inns.com.
COMPETITION. The hotel industry is highly competitive. Each of the
Inns is located in an area that has competing hotels. The number of competitive
hotels in a particular area could have a material adverse effect on occupancy,
ADR, and revenue per available room, or REVPAR, of the Inns. Many of the
Jameson Inns are located in smaller communities where the entry of even
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one additional competitor into the market could materially affect the financial
performance of the Jameson Inn in that community. Many of the Signature Inns
are located in larger cities and communities in which significant new hotel and
motel development is occurring.
The Inns compete on the basis of price, quality and value. Competition
for the Inns is made up primarily of limited service hotels in the southeastern
and midwestern United States operating under national franchises which have
greater financial resources than we do, substantial advertising budgets,
national reservation systems, marketing programs and greater name recognition.
REGULATIONS
ENVIRONMENTAL MATTERS. Under various federal, state, and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may be liable for the costs of removal or remediation
of hazardous or toxic substances on, under or in such property. Such laws often
impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances. In
addition, the presence of hazardous or toxic substances, or the failure to
properly remediate such property, may adversely affect the owner's ability to
borrow using the real property as collateral. Persons who arrange for the
disposal or treatment of hazardous or toxic substances may also be liable for
the costs of removal or remediation of such substances at the disposal or
treatment facility, whether or not such facility is owned or operated by such
person.
While we have not incurred any such costs in connection with our
ownership of the Inns, we may be potentially liable for such costs. We are not
aware of any potential material liability or claims for which we may be
responsible. However, we cannot be certain that (1) there are no material
claims or liabilities related to real property which we own; (2) future laws,
ordinances or regulations will not impose any material environmental liability
on us; or (3) the current environmental condition of the Inns will not be
affected by their operations, by the condition of properties in the vicinity of
the Inns (such as the presence of underground storage tanks) or by third
parties.
Under the terms of the master leases, we indemnify Jameson Hospitality
against environmental liabilities, except those caused by the acts or negligent
failures of Jameson Hospitality. In addition, the master leases provide that
Jameson Hospitality will indemnify us against environmental liabilities caused
by Jameson Hospitality's acts or negligent failures, although Jameson
Hospitality's financial condition may limit the value of such indemnity and, in
any event, such indemnity will not apply to or protect us against past unknown
violations and related liabilities. See --The Master Leases, above.
We believe that the Inns are in compliance in all material respects
with all federal, state and local ordinances and regulations regarding
hazardous or toxic substances and do not anticipate that we will be required in
the foreseeable future to expend any material amounts in
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order to comply with such ordinances and regulations. We have not been notified
by any governmental authority, and are not otherwise aware, of any material
noncompliance, liability or claim relating to hazardous or toxic substances in
connection with any of our present or former properties.
AMERICANS WITH DISABILITIES ACT. Under the Americans with Disabilities
Act of 1990 or the ADA, all public accommodations are required to meet certain
federal requirements related to access and use by disabled persons. In addition
to remedial costs, noncompliance with the ADA could result in imposition of
fines or an award of damages to private litigants. We believe that all existing
Inns are substantially in compliance with these requirements and we intend to
construct future Inns in accordance with such requirements as well. In 1993, we
engaged a disabilities consultant to make recommendations regarding compliance
of the then existing Jameson Inns with the ADA. The consultant submitted a
report recommending a number of improvements for access to and use by disabled
persons with respect to certain of the Jameson Inns then in operation, which
improvements were made. We have also incorporated the consultant's
recommendation into the construction of new Jameson Inns and will continue to
do so.
EMPLOYEES
At December 31, 1999, we employed 18 persons. Our employees are also
employees of Jameson Hospitality. Under a cost reimbursement agreement between
Jameson and Jameson Hospitality, we reimburse Jameson Hospitality for the time
that these shared employees spend on our business. For the year ended December
31, 1999, our reimbursement to Jameson Hospitality (or its predecessor) totaled
approximately $360,000. None of our or Jameson Hospitality's employees is
represented by a union or labor organization, nor have our or Jameson
Hospitality's operations ever been interrupted by a work stoppage. We consider
relations with our employees to be excellent.
JAMESON HOSPITALITY. Jameson Hospitality leases and operates all
completed Inns under the terms of the master leases. See --The Master Leases,
above. Jameson Hospitality has also acted as contractor for the initial
construction and expansion of all Jameson Inns. We expect Jameson Hospitality
to serve as construction contractor for any further expansions of Jameson Inns
and for construction of all new Jameson Inns and Signature Inns.
The names and certain other information concerning the executive
officers of Jameson Hospitality are set forth below. At December 31, 1999,
Jameson Hospitality had a total of 2,600 full- and part-time employees engaged
in day-to-day management, marketing and construction of the Inns.
Jameson Hospitality and its predecessor companies have a history of
operating losses and a limited net worth. The audited financial statements of
Jameson Hospitality appear elsewhere in this annual report and should be
referred to for additional financial information concerning Jameson
Hospitality. Although it has not done so to date, Jameson Hospitality may
engage in
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activities other than as lessee and construction contractor of the Inns,
subject to restrictions under the master leases.
Predecessors of Jameson Hospitality include Jameson Operating Company,
Jameson Operating Company II, LLC and Jameson Development Company, LLC which,
on May 7, 1998, changed its name to Jameson Hospitality, LLC. In December 1999,
Kitchin Investments, Inc. ("KI") merged into Jameson Hospitality. KI was a
company wholly owned by Thomas W. Kitchin, our chairman and chief executive
officer, which paid, and was reimbursed for, the salaries of our employees as
well as our rent and other administrative and overhead expenses.
The executive officers and key employees of Jameson Hospitality are
the following:
<TABLE>
<CAPTION>
Name Position
----------------- ---------------------------------------------------
<S> <C>
Thomas W. Kitchin President and Chief Executive Officer
William D. Walker Vice President--Development
Craig R. Kitchin Vice President--Finance and Chief Financial Officer
Steven A. Curlee Vice President--Legal, General Counsel, Secretary
Gregory W. Winey Director of Operations
Martin D. Brew Treasurer and Corporate Controller
Joseph H. Rubin President of Jameson Development Company
</TABLE>
Set forth below is certain information concerning Jameson
Hospitality's executive officers, managers and key employees.
Thomas W. Kitchin is the founder and owner with other family members of
Jameson Hospitality. He is also the founder and has been an officer and director
of Jameson since its incorporation in 1988. Prior to founding Jameson and the
predecessors of Jameson Hospitality, he spent 10 years in the oil and gas
industry and served as chief executive officer of an oil and gas company listed
on the American Stock Exchange. Mr. Kitchin serves as a director of the
Association of Publicly Traded Companies, an association that represents public
companies that trade on The Nasdaq Stock Market, New York Stock Exchange and
American Stock Exchange; a director of the Georgia Hospitality and Travel
Association; director of the American Hotel & Motel Association; director of the
Georgia State University Cecil B. Day School of Hospitality Administration;
director of a private school; and director of the Northside Hospital Advisory
Board. In addition, he has served on the board of directors of several banks and
oil companies and numerous other civic, charitable and social service agencies.
Mr. Kitchin is the father of Craig R. Kitchin, president and chief financial
officer of Jameson.
William D. Walker is vice president--development of Jameson as well as
of Jameson Hospitality. He has been an officer of Jameson since its inception
in 1988 and served as a director from 1988 through October 29, 1993. He has
been an officer of Jameson Hospitality and its predecessors since their
inception. Prior to joining us, he worked in various financial
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management positions for twelve years. Mr. Walker received a B.B.A. degree in
finance from Texas Tech University in 1975.
Craig R. Kitchin has been an officer of Jameson Hospitality and its
predecessors since their inception. Also an officer of Jameson, he became chief
financial officer of Jameson in February 1994, vice president--finance in
November 1997, and president in November 1998. He joined Jameson as its
controller and treasurer on June 15, 1992, upon receiving his M.B.A. degree
from the University of Chicago with concentrations in accounting and finance.
Before attending the University of Chicago, he was a financial analyst with FMC
Corporation in Santa Clara, California, from 1989 to 1990, where his primary
responsibilities included budgeting and forecasting overhead expenses. Mr.
Kitchin graduated from Santa Clara University with a B.S. degree in finance in
1989. Craig Kitchin is the son of Thomas W. Kitchin, the chairman and chief
executive officer of Jameson.
Steven A. Curlee has been an officer of Jameson Hospitality and its
predecessors since their inception. Also an officer of Jameson, he became
general counsel and secretary of Jameson on January 1, 1993 and vice
president--legal in November 1997. From April 1985 to July 1992, he was general
counsel of an oil and gas company listed on the American Stock Exchange. Prior
thereto, he was engaged in the private practice of law in Tulsa, Oklahoma for
five years. From 1976 to 1980, Mr. Curlee served on active duty in the U.S.
Navy as a Judge Advocate. He continues to serve in the Navy Reserves, having
attained the rank of Commander. Mr. Curlee received a B.A. degree in political
science and his J.D. from the University of Arkansas. He received a Master of
Law in Taxation degree from Georgetown University. Mr. Curlee is admitted to
practice law in Arkansas, the District of Columbia, Oklahoma, Texas and
Georgia.
Gregory W. Winey is director of operations of Jameson Hospitality. He
joined Jameson Hospitality in April 1998 as a regional manager supervising the
operations of 17 Jameson Inns. In October 1998 he became the director of
operations supervising the operations of all Jameson Inns. Before joining
Jameson Hospitality, he was with Promus Hotel Corporation from May 1991 to
December 1997 serving in several capacities in hotel operations, most recently
as a senior area manager overseeing the daily operations of 17 hotel
properties, including Hampton Inns, Hampton Inn & Suites and Home Suites
Hotels. Prior to that he was a food and beverage manager for a 300-room Days
Inn Hotel in Charlotte, North Carolina for one year, and prior to that he was
employed for six years by Traveler's Management Corporation as an innkeeper and
rooms division manager of a 432-room convention hotel.
Martin D. Brew has been an officer of Jameson Hospitality and of
Jameson since we acquired Signature in May 1999. Prior to joining Jameson
Hospitality, he was employed by Signature Inns for 13 years, first as
controller and later as treasurer. Mr. Brew was also employed by KPMG LLP
before prior to his employment with Signature Inns. Mr. Brew has a B. S. degree
in business from Indiana University and is a member of the American Institute
of Certified Public Accountants.
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Joseph H. Rubin became president of Jameson Development Company, the
construction division of Jameson Hospitality, LLC, in October 1999. Prior to
joining Jameson, Mr. Rubin was president and chief executive officer of Abrams
Industries, Inc., an Atlanta based commercial real estate developer and
construction company, where he had been employed since 1979. Mr. Rubin earned a
B.A. degree in economics at Guilford College and a J.D. degree at the
University of North Carolina. He is a Certified Public Accountant and is
licensed to practice law in Georgia and North Carolina.
POLICIES AND OBJECTIVES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of our investment objectives and
policies, financing policies and policies with respect to certain other
activities. These policies may be amended or revised from time to time at the
sole discretion of our Board of Directors. We can give no assurance that we
will attain our investment objectives or that the value of Jameson will not
decrease.
INVESTMENT OBJECTIVES AND POLICIES. Our investment objective is to
provide quarterly cash distributions and achieve long-term capital appreciation
through increases in cash flow and the value of Jameson. We will seek to
accomplish these objectives through the ownership and leasing of the Inns to
Jameson Hospitality, selective development of additional Inns, Jameson
Hospitality's increases in the Inns' room revenues and, where deemed
appropriate, renovations and expansions of the Inns. A key criterion for new
investments will be the opportunity they offer for growth in funds from
operations and cash available for distribution. For definitions and calculation
of funds from operations and cash available from operations, see Item
7--Jameson Management's Discussion and Analysis of Financial Condition and
Results of Operations.
We anticipate that we will conduct all of our activities directly,
although Inns located in certain states are owned by our subsidiaries and we
may participate with other entities in property ownership, through joint
ventures, partnerships or other types of co-ownership.
We currently intend to invest only in Jameson Inns and Signature Inns,
although we may also hold temporary cash investments from time to time pending
investment or distribution to stockholders. Through the Signature merger in May
1999, we acquired 25 wholly-owned Signature Inns and an interest as a general
partner in a limited partnership which owned one additional Signature Inn in
Carmel, Indiana. In December 1999, we acquired all of the interest of the
limited partner in that partnership, dissolved the partnership and took direct
ownership of the Signature Inn-Carmel which we now wholly own.
We may purchase or lease properties for long-term investment, expand
and improve properties, or sell such properties, in whole or in part, when
circumstances warrant. Equity investments may be subject to existing mortgage
financing and other indebtedness which have priority over our equity interest.
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While we emphasize equity real estate investments, we may, in our
discretion, invest in mortgages, stock of other REITs and other real estate
interests. Mortgage investments may include participating or convertible
mortgages. However, we have not invested previously in mortgages or stock of
other REITs, and do not presently intend to do so.
DISPOSITIONS. In July 1999 we sold the Jameson Inn in Milledgeville,
Georgia. We also sold the Jameson Inn in Clinton, Tennessee, in February 2000.
Except for these properties, we have no current intention to dispose of any of
the Inns, although we reserve the right to do so if, based upon management's
periodic review of our portfolio, the Board of Directors determines that this
action would be in our best interests.
FINANCING. In January 1997, we filed a shelf registration statement on
Form S-3 (the "1997 Registration Statement") with the Securities and Exchange
Commission (the "SEC") that provides for the issuance of an aggregate of up to
$100 million in our common stock, preferred stock and common stock warrants to
be offered and sold from time to time. On March 10, 1997, we completed the sale
of 2,300,000 newly issued shares of our common stock. We used net proceeds of
approximately $26 million to repay certain existing mortgage indebtedness at
that date. In February 1998, our stockholders approved an amendment to our
articles of incorporation to increase the number of authorized shares of our
common stock from 20 million to 40 million shares and the authorized shares of
preferred stock from 100,000 to 10 million shares. Following adoption of that
amendment, in 1998 we sold, under the 1997 Registration Statement, 1,200,000
shares of our Series A preferred stock at an offering price of $25 per share.
We used the approximately $28.5 million in net proceeds from the offering of
Series A preferred stock to repay indebtedness and for general corporate
purposes. In September 1999, we filed a post-effective amendment to the 1997
Registration Statement to permit us to sell up to 1,000,000 shares of our
common stock at prevailing market prices through our designated sales agent,
RCG Brinson Patrick, a division of Ramius Securities, LLC. Through December 31,
1999, we have sold a total of 61,100 shares of common stock at-the-market.
These sales raised approximately $493,000 in net proceeds which we used to
repay indebtedness and for general corporate purposes. We intend to use
additional net proceeds, if any, from any sale of securities under the 1997
Registration Statement for the repayment of existing indebtedness, working
capital and general corporate purposes.
In the event we desire to raise additional equity capital, our Board
of Directors has the authority, without stockholder approval, to issue
additional shares of Jameson common stock or other capital stock of Jameson in
any manner (and on such terms and for such consideration) it deems appropriate,
including in exchange for property. Existing stockholders would have no
preemptive right to purchase shares issued in any offering, and any such
offering might cause a dilution of a stockholder's investment in Jameson.
We anticipate that any additional borrowings will be made directly by
Jameson. Indebtedness we incur may be in the form of bank borrowings, secured
and unsecured, and publicly and privately placed debt instruments. Indebtedness
may be recourse to all or any part
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of our Inns or may be limited to the Inn to which the indebtedness relates. We
may use the proceeds from any of our borrowings for the payment of
distributions, for working capital, to refinance existing indebtedness or to
finance acquisitions, expansions or development of new Inns.
At December 31, 1999, we had outstanding an aggregate of approximately
$174 million of mortgage debt, including approximately $10.4 million in
construction debt. The construction debt provides for total borrowings of $44.5
million and is secured by mortgages on 20 Inns. In December 1999 and January
2000, we refinanced approximately $15,800,000 of indebtedness secured by five
Signature Inns, including the issuance of adjustable rate economic development
revenue refunding bonds in the aggregate principal amount of $12,115,000
secured by four Signature Inns.
While our organizational documents do not limit the amount or
percentage of indebtedness that we may incur, we have adopted a policy of
limiting our outstanding indebtedness to 65% of the aggregate appraised values
of the Inns. Our Board of Directors could change our current policies and we
could become more highly leveraged, resulting in an increased risk of default
on our obligations and in an increase in debt service requirements. This
increase could adversely affect our financial condition and results of
operations, our ability to make dividend distributions to its stockholders and
could, as a result, jeopardize our status as a REIT.
WORKING CAPITAL RESERVES. Our policy is to maintain working capital
reserves (and when not sufficient, access to borrowings) in amounts that our
Board of Directors determines to be adequate to meet normal contingencies in
connection with the operation of our business and investments.
POLICY REGARDING CAPITAL EXPENDITURES. On July 1, 1995, we adopted a
policy of maintaining cash or sufficient access to borrowings equal to 4% of
the Jameson Inns' aggregate room revenues since July 1, 1995, less amounts
actually spent from that date forward. Prior to this date, the obligation to
fund replacement and refurbishment of furniture, fixtures and equipment was
Jameson Hospitality's. This policy now extends to the Signature Inns acquired
in May 1999. For the period July 1, 1995, through December 31, 1999, 4% of room
revenues equaled $6.8 million and we expended $10.8 million on items in that
same period.
OTHER POLICIES. We intend to operate in a manner that will not subject
us to regulation under the Investment Company Act of 1940. We do not intend to
(1) invest in the securities of other issuers for the purpose of exercising
control over such issuer, (2) underwrite securities of other issuers or (3)
actively trade in loans or other investments.
We may make investments other than as previously described, although
we do not currently intend to do so. We have the authority to repurchase or
otherwise reacquire our common stock or any of our other securities and may
engage in such activities in the future. We have not repurchased, and have no
present intention to repurchase, any shares of our common
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stock. During the past five years, except in connection with the acquisition of
billboard assets from Jameson Hospitality and the Signature merger, we have not
issued Jameson common stock or any other securities in exchange for property,
nor have we reacquired any of our common stock or any other securities;
however, Jameson has authority to engage in such activities and may do so in
the future. During the past five years, we have not made any loans to our
officers, directors or other affiliates. We may in the future make loans to
such persons and entities, including, without limitation, our officers, and to
joint ventures in which we participate. During the last five years, we have not
engaged in trading, underwriting or agency distribution or sale of securities
of other issuers, and we do not intend to do so in the future. Our Board of
Directors may review and modify our policies with respect to such activities
from time to time without the vote of the stockholders.
At all times, we intend to make investments in such a manner as to be
consistent with the requirements of the Internal Revenue Code to qualify as a
REIT unless, because of circumstances or changes in the Internal Revenue Code
(or in the Treasury Regulations), our Board of Directors, with the consent of a
majority of our stockholders, determines to revoke our REIT election.
CONFLICTS OF INTEREST. Because of Thomas W. Kitchin's ownership in and
positions with Jameson and Jameson Hospitality, there are inherent conflicts of
interest in the construction of new Jameson Inns and Signature Inns and
expansion of existing Inns by Jameson Hospitality. Conflicts of interest also
exist in our dealings with Jameson Hospitality under the master leases, the
construction contracts and under the cost reimbursement agreement between the
two companies. See --The Master Leases; -- Growth Plans for 2000; Jameson
Hospitality as Contractor; -- and Employees. In an effort to reduce the
conflicts of interest, we have adopted a policy of requiring that any material
transaction or arrangement between us and Jameson Hospitality, or an affiliate
of either, is subject to approval by a majority of our independent directors.
Further, Jameson Hospitality has agreed that neither it nor any of its
affiliates will (1) operate or manage a hotel property in which we have not
invested that is within a 20-mile radius of an Inn, or (2) own or have any
interest in any Inn in which we or affiliates do not have an interest.
Our Board of Directors also has a policy that any contract or
transaction between us and one or more of our directors or officers, or between
us and any other entity in which one or more of our directors or officers are
directors or officers or have a financial interest must be approved by a
majority of either our independent directors or disinterested shareholders
after the material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to them. The Board of
Directors may change this policy without the consent of the shareholders upon
the affirmative vote of a majority of our independent directors.
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TAXATION OF JAMESON
We made an election to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code, commencing with our taxable year beginning
January 1, 1994. We believe that commencing with the 1994 taxable year, we were
organized and we have operated in such a manner as to qualify for taxation as a
REIT under the Internal Revenue Code. We intend to continue to operate in such
a manner, but we cannot guarantee that we have operated in a manner, or will
operate in a manner in the future, so as to remain qualified as a REIT.
The sections of the Internal Revenue Code relating to qualification
and operation as a REIT are highly technical and complex. The following
discussion summarizes the material aspects of the Internal Revenue Code
sections that govern the federal income tax treatment of a REIT and its
shareholders. Because it is a summary, it does not cover all aspects of this
subject. In order to understand all of the rules and regulations applicable to
us as a REIT, you need to refer to the applicable Internal Revenue Code
provisions, Treasury Regulations and administrative and judicial
interpretations thereof.
As long as we qualify for taxation as a REIT, we generally will not be
subject to federal corporate income tax on our net income that is currently
distributed to our shareholders. This treatment substantially eliminates the
"double taxation" (at the corporate and shareholder levels) that generally
results from investment in a corporation. However, we will be subject to
federal income or excise tax as follows: First, we will be taxed at regular
corporate rates on our REIT taxable income, which is defined generally as
taxable income (subject to certain adjustments), including net capital gains,
less dividends (or certain deemed dividends) paid to shareholders. Second, we
will generally be subject to the "alternative minimum tax" if REIT taxable
income plus any tax adjustments and preferences is greater than dividends paid
to shareholders. Third, if we have (1) net income from the sale or other
disposition of "foreclosure property" which is held primarily for sale to
customers in the ordinary course of a trade of business or (2) other
nonqualifying net income from foreclosure property, we will be subject to tax
at the highest corporate rate on such income. Fourth, if we have net income
from prohibited transactions (generally certain sales or other dispositions of
property (other than foreclosure property) held primarily for sale to customers
in the ordinary course of business), this income will be subject to a 100% tax.
Fifth, if we should fail to satisfy the 75% or 95% gross income tests discussed
below and have nonetheless maintained our qualification as a REIT because
certain other requirements have been met, we will be subject to a 100% tax on
the net income attributable to the greater of the amount by which we fail the
75% or 95% gross income tests. Sixth, generally, if we fail to distribute to
our shareholders during each calendar year an amount equal to our required
distribution, we will be subject to a 4% nondeductible excise tax on the excess
of such required distribution amount over the amount actually distributed for
the year. The amount of required distribution is equal to the sum of (1) 85% of
our ordinary income for such year, (2) 95% of our REIT capital gain net income
for such year and (3) the amount, if any, of the required distribution for the
previous year over the amount actually distributed for that year.
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In addition, if during the 10-year period (the "Recognition Period")
beginning on the first day of the first taxable year for which we qualified as a
REIT, we recognize gain on the disposition of any asset held by us as of the
beginning of such Recognition Period, then, to the extent of the excess of (1)
the fair market value of such asset as of the beginning of such Recognition
Period over (2) our adjusted basis in such asset as of the beginning of the
Recognition Period (the "Jameson Built-In Gain"), such Jameson Built-In Gain,
which may be reduced by certain net operating loss carryforwards, will be
subject to tax at the highest regular corporate rate. The Recognition Period
began January 1, 1994, and will expire December 31, 2003. Further, if we acquire
any asset from a C corporation in a transaction in which the basis of the asset
in our hands is determined by reference to the basis of the asset (or any other
property) in the hands of the C corporation (such as our acquisition of
Signature Inns by reason of our acquisition of Signature Inns, Inc. on May 7,
1999, the "Signature Built-In Gain"), and we recognize gain on the disposition
of such asset during the ten-year period beginning on the date on which such
asset was acquired by us, then, to the extent of the Signature Built-In Gain,
such gain will be subject to tax at the highest regular corporate rate, pursuant
to regulations that have not yet been promulgated. The amount of our Jameson
Built-In-Gain based on the appraisals obtained in connection with our initial
public offering in 1994 is approximately $8.1 million and will discourage a
disposition by us of any Inn held at the time until after 2003. The amount of
our Signature Built-In Gain attributable to the Signature Inns acquisition is
less than $1.0 million.
REQUIREMENTS FOR QUALIFICATION
The Internal Revenue Code defines a REIT as a corporation, trust or
association (1) which is managed by one or more trustees or directors; (2) the
beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation, but for Sections 856 through 860 of the Internal
Revenue Code; (4) which is neither a financial institution nor an insurance
company subject to certain provisions of the Internal Revenue Code; (5) the
beneficial ownership of which is held by 100 or more persons; (6) at any time
during the last half of each taxable year not more than 50% in value of the
outstanding stock of which is owned, directly or indirectly, by five or fewer
individuals (as defined in the Internal Revenue Code to include certain
entities); (7) which makes an election to be a REIT and satisfies all relevant
filing and other administrative requirements established by the IRS that must
be met in order to elect and maintain REIT status; (8) which uses a calendar
year for federal income tax purposes and complies with the record keeping
requirements of the Internal Revenue Code and Treasury Regulations promulgated
thereunder; and (9) which meets certain other tests, described below, regarding
the nature of its income and assets. The Internal Revenue Code provides that
conditions (1) to (4), inclusive, must be met during the entire taxable year
and that condition (5) must be met during at least 335 days of a taxable year
of 12 months, or during a proportionate part of a taxable year of less than 12
months. We have represented that we have met since we became a publicly held
company, and we currently do meet, all of such definitional requirements.
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INCOME TESTS
In order for us to maintain our qualification as a REIT, we must
satisfy two gross income tests annually.
- First, at least 75% of our gross income (excluding gross
income from prohibited transactions) for each taxable year
must consist of defined types of income derived directly or
indirectly from investments relating to real property or
mortgages on real property (including "rents from real
property" and, in certain circumstances, interest) or
qualified temporary investment income.
- Second, at least 95% of our gross income (excluding gross
income from prohibited transactions) for each taxable year
must be derived from such real property or temporary
investments, and from dividends and other types of interest
and gain from the sale or disposition of stock or securities.
Rents received by us under the master leases with Jameson Hospitality
will qualify as "rents from real property" in satisfying the gross income
requirements for a REIT described above only if several conditions are met.
- First, the amount of rent must not be based in whole or in
part on the income or profits of any person. However, an
amount received or accrued generally will not be excluded
from the term "rents from real property" solely by reason of
being based on a fixed percentage or percentages of receipts
or sales. Therefore, the percentage rent provisions of the
master leases should not disqualify rental income received
from Jameson Hospitality.
- Second, the Internal Revenue Code provides that rents
received from a tenant, directly or indirectly, will not
qualify as "rents from real property" in satisfying the gross
income tests if the REIT, or a direct or indirect owner of
10% or more of the REIT, directly or constructively owns 10%
or more of such tenant (a "Related Party Tenant"). We believe
that since January 1, 1994, we have satisfied, and we will
use our best efforts to continue to satisfy this requirement.
Therefore, Jameson Hospitality is not and should not become a
Related Party Tenant of Jameson (by reason of our adherence
to the Ownership Limit and the Related Party Limit).
- Third, if rent attributable to personal property, leased in
connection with a lease of real property, is greater than 15%
of the total rent received under the lease, then the portion
of rent attributable to such personal property will not
qualify as "rents from real property." Applicable Internal
Revenue Code provisions provide that with respect to each
lease, rent attributable to the personal property for the
taxable year is that amount which bears the same ratio to
total rent as the average of a
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REIT's adjusted bases of all personal property at the
beginning and at the end of each taxable year bears to the
average of the REIT's aggregate adjusted bases of all real
and personal property at the beginning and at the end of such
taxable year. We have confirmed by numerical testing that the
resulting rental income attributable to personal property
since January 1, 1994 has been less than 15%. We monitor
these tests regularly. If we project that for any Inn for any
taxable year the resulting rental income attributable to
personal property may exceed 15% of all rental income, a
portion of the personal property of that Inn may be sold by
us to Jameson Hospitality, with the lease payments adjusted
accordingly.
- Finally, for rents received to qualify as "rents from real
property," the REIT generally must not operate or manage the
leased property or furnish or render services to the tenants
of such property, other than through an independent
contractor from whom the REIT derives no revenue; provided,
however, we may directly perform certain services other than
services which are considered rendered to the occupant of the
property.
We have not, do not and will not knowingly (1) charge rent for any
property that is based in whole or in part on the income or profits of any
person (except by reason of being based on a percentage of receipts or sales,
as described above); (2) rent any property to a Related Party Tenant; (3) lease
personal property in connection with the rental of any Inn which would cause
the rental income attributable to such personal property to exceed 15% of the
amount of total rental income; or (iv) perform services considered to be
rendered for the occupants of the Inns other than through an independent
contractor.
Under the master leases, Jameson Hospitality has leased the land,
buildings, improvements, furnishings, and equipment comprising the Inns from
us. Jameson Hospitality pays us a per room rent ("Base Rent") plus additional
rent based on a percentage of the gross room rental revenues ("Percentage
Rent," with the total of the Base Rent and Percentage Rent being called "Total
Rent"). In order for the Total Rent to constitute "rents from real property,"
the leases must be respected as true leases for federal income tax purposes and
not treated as service contracts, joint venture or some other type of
arrangement. The determination of whether the leases are true leases depends on
an analysis of all of the surrounding facts and circumstances.
In addition, pursuant to Section 7701(e) of the Internal Revenue Code,
a service contract, partnership agreement, or some other type of arrangement
may be treated instead as a lease of property if the contract, agreement or
arrangement is properly treated as a lease of property, taking into account all
relevant factors, including whether or not: (1) the service recipient is in
physical possession of the property, (2) the service recipient controls the
property, (3) the service recipient has a significant economic or possessory
interest in the property (e.g., the property's use is likely to be dedicated to
the service recipient for a substantial portion of the useful life of the
property, the service recipient shares the risk that the property will decline
in value, the service
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recipient shares in any appreciation in the value of the property, the service
recipient shares in savings in the property's operating costs, or the service
recipient bears the risk of damage to or loss of the property), (4) the service
provider does not bear any risk of substantially diminished receipts or
substantially increased expenditures if there is nonperformance under the
lease, (5) the service provider does not use the property concurrently to
provide significant services to entities unrelated to the service recipient and
(6) the contract price does not substantially exceed the rental value of the
property for the term of the lease.
Under the master leases, (1) Jameson Hospitality has the right to
exclusive possession, use and quiet enjoyment of the Inns during the term of
the master leases, (2) Jameson Hospitality bears the cost of, and is
responsible for daily maintenance and repair of the Inns, other than the cost
of maintaining underground utilities and structural elements (including the
roofs) of the improvements, (3) Jameson Hospitality dictates how the Inns are
operated, maintained, and improved and bears all of the costs and expenses of
operating the Inns (including the cost of any inventory used in their
operation) during the term of the leases (other than real and personal property
taxes, casualty, liability and other types of insurance and equipment and the
maintenance of structural elements, roofs and underground utilities), (4)
Jameson Hospitality benefits from any savings in the costs of operating the
Inns during the term of the leases, (5) in the event of damage or destruction
to an Inn, Jameson Hospitality is at economic risk because it will be obligated
to restore the property to its prior condition and bear all costs of such
restoration in excess of any insurance proceeds (except, under certain
circumstances, during the last six months of the term of the master leases),
(6) Jameson Hospitality has indemnified us against all liabilities imposed on
us during the term of the master leases by reason of injury to persons or
damage to property occurring at the Inns or due to Jameson Hospitality's use,
management, maintenance or repair of the Inns, and (7) Jameson Hospitality is
obligated to pay substantial fixed rent for the term of the leases. In
addition, we do not believe that the Total Rent under the leases materially, if
not all, exceeds the fair rental value of the Inns.
Pursuant to IRS Revenue Ruling 55-540, if one or more of the following
conditions are present, the master leases will instead be considered as
conditional contracts for purchase and sale of the Inns:
- portions of the periodic payments are made specifically
applicable to an equity interest in the property to be
acquired by Jameson Hospitality,
- Jameson Hospitality will acquire title upon the payment of a
stated amount of "rentals" under the contract which it is
required to make,
- the total amount which Jameson Hospitality is required to pay
for a relatively short period of use constitutes an
inordinately large proportion of the total sum required to be
paid to secure the transfer of the title,
- the agreed "rental" payments materially exceed the current
fair rental value,
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- the property may be acquired under a purchase option at a
price which is nominal in relation to the value of the
property at the time when the option may be exercised, as
determined at the time of entering into the original
agreement, or which is a relatively small amount when
compared with the total payments which are required to be
made, and
- some portion of the periodic payments is specifically
designated as interest or is otherwise readily recognizable
as the equivalent of interest.
Under the master leases, (1) no portion of the Total Rent has been or
will be applied to any equity interest in the Inns to be acquired by Jameson
Hospitality, (2) Jameson Hospitality has not acquired and will not be acquiring
title to the Inns upon the payment of a stated amount of either Base Rent or
Percentage Rent, (3) the Total Rent does not and will not materially exceed the
current fair rental value of the Inns, (4) the Inns may not be acquired by
Jameson Hospitality under a purchase option and (5) no portion of either Base
Rent or Percentage Rent has been or will be specifically designated as interest
or will be recognizable as the equivalent of interest. We believe that the
master leases will be treated as true leases for federal income tax purposes.
However, the IRS could challenge the tax treatment of the master leases, and,
if it does, it could be successful. If the master leases are recharacterized as
a service contract, partnership agreement, or some other type of arrangement
rather than a true lease, part or all of the payments that we receive from
Jameson Hospitality may not satisfy the various requirements for qualification
as "rents from real property." In that case, we likely would not be able to
satisfy either the 75% or 95% gross income tests and, as a result, would fail
to qualify as a REIT.
Any gross income derived from a prohibited transaction is subject to a
100% tax. The term "prohibited transaction" generally includes a sale or other
disposition of property (other than foreclosure property) that is held
primarily for sale to customers in the ordinary course of a trade or business.
None of our assets are or have been held for sale to customers in the ordinary
course of our business and we will not sell an Inn or associated property in
the ordinary course of our business. Whether property is held "primarily for
sale to customers in the ordinary course of a trade or business" depends,
however, on the facts and circumstances in effect from time to time, including
those related to a particular property. Nevertheless, we have since January 1,
1994 complied with and we will attempt to continue to comply with the terms of
the safe- harbor provisions in the Internal Revenue Code prescribing when asset
sales will not be characterized as prohibited transactions. Complete assurance
cannot be given, however, that we can comply with the safe-harbor provisions of
the Internal Revenue Code or avoid owning property that may be characterized as
property held "primarily for sale to customers in the ordinary course of a
trade or business."
If we fail to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, we may nevertheless qualify as a REIT for such year if we
are entitled to relief under certain provisions of the Internal Revenue Code.
These relief provisions will generally be
33
<PAGE> 37
available if (1) our failure to meet such tests is due to reasonable cause and
not due to willful neglect, (2) we attach a schedule of the sources of our
gross income to our return, and (3) any incorrect information on such schedule
was not due to fraud with intent to evade tax. We cannot state, however,
whether in all circumstances we would be entitled to the benefit of these
relief provisions. As discussed above, even if these relief provisions apply, a
100% tax would be imposed which would be equal to the excess of 75% or 95% of
our gross income over our qualifying income in the relevant category, whichever
is greater, multiplied by the ratio that REIT taxable income bears to gross
income for the taxable year (with certain adjustments).
ASSET TESTS
At the close of each quarter of our taxable year, we must also satisfy
three tests relating to the nature of our assets. First, at least 75% of the
value of our total assets must be represented by "real estate assets" which
means (1) real property (including interests in real property and interests in
mortgages on real property), (2) shares in other REITs (3) stock or debt
instruments held for not more than one year purchased with the proceeds of a
stock offering or long-term (at least five years) debt offering of the Company,
and (4) cash, cash items (including receivables) and government securities.
Second, not more than 25% of our total assets may be represented by securities
other than those in the 75% asset class. Third, of the investments included in
the 25% asset class, the value of any one issuer's securities owned by us may
not exceed 5% of the value of our total assets and we may not own more than 10%
of such issuer's outstanding voting securities. We have satisfied these asset
tests since January 1, 1994, and we will use our best efforts to continue to
satisfy such tests in the future.
After meeting the assets tests at the close of any quarter, we will
not lose our status as a REIT for failure to satisfy the asset tests at the end
of a later quarter solely by reason of changes in asset values. If the failure
to satisfy the asset tests results from an acquisition of securities or other
property during a quarter, the failure can be cured by disposition of
sufficient nonqualifying assets within 30 days after the close of that quarter.
We maintain adequate records of the value of our assets to ensure compliance
with the asset test and we intend to take such other action within 30 days
after the close of any quarter as may be required to cure any noncompliance.
However, this action may not always be successful.
34
<PAGE> 38
ANNUAL DISTRIBUTION REQUIREMENTS
In order to qualify as a REIT, we are required to distribute dividends
(other than capital gain dividends) to our shareholders in an amount at least
equal to (A) the sum of (1) 95% of our "REIT taxable income" (computed without
regard to the dividends paid deduction and any net capital gain) and (2) 95% of
our net income (after tax), if any, from foreclosure property, minus (B) the
sum of certain items of noncash income. In addition, if we dispose of any asset
during our Recognition Period, we will be required to distribute at least 95%
of the Built-In Gain (after tax), if any, recognized on the disposition of such
asset. Such distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before we timely file our
tax return for such year and if paid on or before the first regular dividend
payment after such declaration. To the extent that we do not distribute all of
our net capital gain or distribute at least 95%, but less than 100% of our
"REIT taxable income," as adjusted, we will be subject to tax thereon at
regular corporate tax rates. Furthermore, if we should fail to distribute our
required distribution during each calendar year, we would be subject to a 4%
nondeductible excise tax on the excess of such required distribution over the
amounts actually distributed.
Since January 1, 1994, we have made, and we hereafter will make,
timely distributions sufficient to satisfy all annual distribution
requirements. However, it is possible that, from time to time, we may
experience timing differences between (1) the actual receipt of income and
actual payment of deductible expenses and (2) the inclusion of that income and
deduction of such expenses in arriving at our REIT taxable income. Therefore,
we could have less cash available for distribution than would be necessary to
meet our annual 95% distribution requirement or to avoid federal corporate
income tax with respect to capital gain or the 4% nondeductible excise tax
imposed on certain undistributed income. To meet the 95% distribution
requirement necessary to qualify as a REIT or to avoid federal income tax with
respect to capital gain or the excise tax, it could be necessary for us to
borrow funds.
Under certain circumstances, we may be able to rectify a failure to
meet the distribution requirement for a year by paying dividends to
shareholders in a later year. If we declare a dividend before the date on which
our tax return is due for a taxable year (including extensions) and distribute
the amount of such dividend to shareholders in the 12-month period following
the close of such taxable year, such subsequent year dividend may be deductible
in computing our REIT taxable income for the immediately preceding year. The
distribution of such dividend must be made no later than the date of the first
regular dividend payment made after the declaration and distribution of such
dividend and we must elect such treatment in our return.
Shareholders receiving subsequent year distributions are taxable on
such distributions in the year of actual receipt except in the following case.
Any distributions we declare in October, November or December of any year
payable to a shareholder of record on a specified date in any such month shall
be treated as both paid by us and received by the shareholder on December 31,
provided that the distribution is actually paid during January of the following
calendar year. However, if we actually pay the declared distributions before
December 31, the distributions will
35
<PAGE> 39
be treated as both paid by us and received by the shareholders on the actual
dates paid and received, respectively.
If, as a result of an audit by the IRS, the REIT taxable income for a
prior taxable year is increased, we may elect to distribute an additional
"deficiency dividend," as defined under Section 860 of the Internal Revenue
Code, and claim an additional deduction for dividends paid for such taxable
year in order to meet the annual distribution requirement. All deficiency
dividends must be distributed within 90 days after the final determination of
an audit, and the claim for such deficiency dividends must be filed within 120
days of such determination. We would also be liable for the payment of interest
charges on the amount of the deficiency dividend. However, the payment of such
dividends would ensure that our qualification as a REIT would not be
jeopardized due to a failure to meet our annual distribution requirement.
FAILURE TO QUALIFY
If we fail to qualify for taxation as a REIT in any taxable year, and
the relief provisions do not apply, we will be subject to tax (including any
applicable alternative minimum tax) on our taxable income at regular corporate
rates. Distributions to shareholders in any year in which we fail to qualify
will not be deductible by us nor will they be required to be made. In such
event, to the extent of current and accumulated earnings and profits, all
distributions to shareholders will be taxable as ordinary income, and, subject
to certain limitations of the Internal Revenue Code, corporate distributees may
be eligible for the dividends received deduction (such deduction is not
available to corporate distributees so long as we qualify as a REIT). Unless
entitled to relief under specific statutory provisions, we will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which we ceased to qualify as a REIT.
TAXATION OF SHAREHOLDERS
TAX CONSEQUENCES TO NON TAX-EXEMPT U.S. SHAREHOLDERS. As long as we
qualify as a REIT, distributions made to our taxable U.S. shareholders from
current or accumulated earnings and profits (and not designated as capital gain
dividends) will be taken into account by such U.S. shareholders as ordinary
income in the year they are received and will not be eligible for the dividends
received deduction for corporations. Such distributions will be treated as
portfolio income and not as income from passive activities. Accordingly,
shareholders will not be able to apply any passive losses against such income.
Distributions that are designated as capital gain dividends will be taxed as
long-term capital gains (to the extent they do not exceed our actual net
capital gain for the taxable year) without regard to the period for which a
shareholder has held our stock. However, corporate shareholders may be required
to treat up to 20% of certain capital gain dividends as ordinary income.
Distributions in excess of current and accumulated earnings and
profits will not be taxable to a U.S. shareholder to the extent such
distributions do not exceed the adjusted basis of such U.S. shareholder's
shares, but rather will reduce the adjusted basis of such shares. To the
36
<PAGE> 40
extent that distributions in excess of current and accumulated earnings and
profits exceed the adjusted basis of a U.S. shareholder's shares, such
distributions will be included in income as long-term capital gain (or
short-term capital gain if the shares have been held for one year or less)
assuming the shares are held as a capital asset by the U.S. shareholder.
Shareholders may not include in their income tax returns any net operating
losses or capital losses of the Company. Finally, in general, any loss upon a
sale or exchange of shares by a shareholder who has held such shares for more
than one year (after applying certain holding period rules) will be treated as
a long-term capital loss to the extent of distributions from us required to be
treated by such shareholder as long-term capital gain.
In determining the extent to which a distribution on the Series A
Preferred Stock or Series S Preferred Stock constitutes a dividend for tax
purposes, our earnings and profits will be allocated, on a pro rata basis,
first to distributions with respect to the Series A Preferred Stock and the
Series S Preferred Stock, and then to the common stock.
Under the Internal Revenue Code we are permitted to make an election
to treat all or a portion of our undistributed net capital gain as if it had
been distributed to our shareholders. If we were to make such an election, our
shareholders would be required to include in their income as long-term capital
gain their proportionate share of our undistributed net capital gain, as we
designated. Each of our shareholders would be deemed to have paid his
proportionate share of our income tax with respect to such undistributed net
capital gain, and this amount would be credited or refunded to the shareholder.
In addition, the tax basis of the shareholder's stock would be increased by his
or her proportionate share of undistributed net capital gain included in his or
her income less his or her proportionate share of our income tax with respect
to such gains. With respect to distributions we designate as capital gain
dividends, we may designate (subject to certain limits) whether the dividend is
taxable to shareholders as a 20% rate gain distribution or as an unrecaptured
depreciation distribution taxed at a 25% rate.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING. We will
report to our U.S. shareholders and the IRS the amount of distributions paid
during each calendar year and the amount of tax withheld, if any. Under the
backup withholding rules, a U.S. shareholder may be subject to backup
withholding at the rate of 31% with respect to distributions paid unless such
holder (a) is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact, or (b) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. A shareholder that does not provide us with his correct
taxpayer identification number may also be subject to penalties imposed by the
IRS. Any amount paid as backup withholding will be creditable against the
shareholder's income tax liability. In addition, we may be required to withhold
a portion of capital gain distributions to any shareholders who fail to certify
their non-foreign status to us. See below "-- Taxation of Non-U.S.
Shareholders."
TAXATION OF TAX-EXEMPT SHAREHOLDERS. Distributions to a U.S.
shareholder that is a tax-exempt entity should not constitute "unrelated
business taxable income" as defined in
37
<PAGE> 41
Section 512(a) of the Internal Revenue Code ("UBTI"), provided that the
tax-exempt entity has not financed the acquisition of our shares with
"acquisition indebtedness" within the meaning of Section 514(c) of the Internal
Revenue Code and the shares are not otherwise used in an unrelated trade or
business of the tax-exempt entity. In addition, if we are considered to be a
pension-held REIT, then a portion of the dividends paid to qualified trusts
(any trust defined under Section 401(a) and exempt from tax under Section
501(a)) that owns more than 10 percent by value in the REIT may be considered
UBTI. In general, a pension-held REIT is a REIT that is held by at least one
qualified trust holding more than 25% by value of the interests in the REIT or
by one or more qualified trusts (each of whom owns more than 10% by value)
holding in the aggregate more than 50% by value of the interests in the REIT.
We are not currently a pension-held REIT.
TAXATION OF NON-U.S. SHAREHOLDERS. The rules governing United States
federal income taxation of nonresident alien individuals, foreign corporations,
foreign partnerships and other foreign shareholders (collectively, "Non-U.S.
Shareholders") are complex and we will make no attempt herein to provide more
than a summary of such rules. The Treasury Department issued new final
regulations relating to withholding, information reporting and backup
withholding on U.S. source income paid to foreign persons (including, for
example, dividends we pay to our foreign shareholders). These regulations
generally will be effective with respect to payments made after December 31,
2000, subject to certain transition rules. We urge prospective investors to
consult their own tax advisors as to the effect, if any, of the final
regulations on their purchase, ownership and disposition of shares of common
stock.
Distributions to Non-U.S. Shareholders that are not attributable to
gain from sales or exchanges by us of United States real property interests and
not designated by us as capital gains dividends will be treated as dividends of
ordinary income to the extent their source is our current or accumulated
earnings and profits. Such distributions will ordinarily be subject to a
withholding tax equal to 30% of the gross amount of the distribution unless an
applicable tax treaty reduces or eliminates that tax. However, if income from a
Non-U.S. Shareholder's investment in our stock is treated as effectively
connected with the Non-U.S. Shareholder's conduct of a United States trade or
business, the Non-U.S. Shareholder generally will be subject to a tax at
graduated rates, in the same manner as U.S. Shareholders are taxed with respect
to such distributions (and may also be subject to the 30% branch profits tax in
the case of a shareholder that is a foreign corporation). We expect to withhold
United States income tax at the rate of 30% on the gross amount of any such
distributions made to a Non-U.S. Shareholder unless (1) a lower treaty rate
applies or (2) the Non-U.S. Shareholder files an IRS Form 4224 with us claiming
that the distribution is "effectively connected" income within the meaning of
Section 871 of the Internal Revenue Code. Distributions in excess of our
current and accumulated earnings and profits will not be taxable to a Non-U.S.
Shareholder to the extent that such distributions do not exceed the adjusted
basis of the Non-U.S. Shareholder's shares, but rather will reduce the adjusted
basis of such shares. To the extent that distributions in excess of current and
accumulated earnings and profits exceed the adjusted basis of a Non-U.S.
Shareholder's shares, such distributions will give rise to tax liability if the
Non-U.S. Shareholder
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<PAGE> 42
would otherwise be subject to tax on any gain from the sale or disposition of
his shares in Jameson, as described below. If it cannot be determined at the
time a distribution is made whether or not such distribution will be in excess
of our current and accumulated earnings and profits, the distribution will be
subject to withholding at a 30% rate. Further, pursuant to recently enacted
legislation, we will be required to withhold 10% of any distribution in excess
of our current and accumulated earnings and profits. However, amounts withheld
may be refundable if it is subsequently determined that such distribution was
in excess of our current and accumulated earnings and profits and the amount
withheld exceeded the Non-U.S. Shareholder's U.S. tax liability, if any.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from our sales or exchanges of United States real property
interests will be taxed to a Non-U.S. Shareholder under the provisions of the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA,
distributions attributable to gain from sales of United States real property
interests are taxed to a Non-U.S. Shareholder as if such gain were "effectively
connected" with a United States business. Non-U.S. Shareholders would thus be
taxed at the normal capital gain rates applicable to U.S. Shareholders (subject
to any applicable alternative minimum tax). Also, distributions subject to
FIRPTA may be subject to a 30% branch profits tax in the case of a foreign
corporate shareholder not entitled to treaty exemption. We are required by
Treasury Regulations to withhold 35% of any distribution to a Non-U.S.
Shareholder that could be designated by us as a capital gains dividend. This
amount is creditable against the Non-U.S. Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of shares
generally will not be taxed under FIRPTA if we are a "domestically controlled
REIT," defined generally as a REIT in which at all times during a specified
testing period less than 50% in value of the REIT's stock was held directly or
indirectly by foreign persons. We believe that we are a "domestically
controlled REIT," and therefore the sale of our shares should not be subject to
taxation under FIRPTA. We anticipate that we will continue to be a
"domestically controlled REIT" and that sales of our shares by Non-U.S.
Shareholders will not be subject to U.S. taxation unless (1) the investment in
the shares is "effectively connected" with the Non-U.S. Shareholder's trade or
business in the United States, in which case such Non-U.S. Shareholder would be
taxed at the normal capital gain rates applicable to U.S. Shareholders (subject
to any applicable alternative minimum tax), or (2) in the case of a Non-U.S.
Shareholder who is a "nonresident alien individual", such Non-U.S. Shareholder
was present in the United States for a period or periods aggregating 183 days
or more during the taxable year and certain other conditions apply, in which
case such person would be subject to a 30% tax on his capital gains.
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<PAGE> 43
OTHER TAX CONSEQUENCES
We and our shareholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which we or they
transact business or reside. The state and local tax treatment of Jameson and
our shareholders may not conform to the federal income tax consequences
discussed above. Consequently, you should consult your own tax advisor regarding
the effect of state and local tax laws on an investment in us.
ITEM 2. PROPERTIES.
THE INNS. The following tables set forth certain information about our
114 operating Inns at December 31, 1999.
Jameson Inns
- ------------
<TABLE>
<CAPTION>
Year Number
Opened/ Of
Expanded Rooms
-------- ------
<S> <C> <C>
ALABAMA:
Albertville 94 40
Alexander City 94/95 60
Arab 95 40
Auburn 97 40
Bessemer(1) 99 40
Decatur 96/99 58
Eufaula 96 40
Florence 96/96 63
Greenville 96 40
Jasper 97/98 58
Oxford 97 40
Ozark 95 39
Prattville 98/99 58
Scottsboro 98 40
Selma 92/95 59
Sylacauga 97 40
</TABLE>
40
<PAGE> 44
<TABLE>
<S> <C> <C>
Trussville 98/99 60
Tuscaloosa (2) 97 40
-----
Subtotal 855
=====
FLORIDA:
Lake City 99 55
-----
Subtotal 55
=====
GEORGIA:
Albany 95/96 62
Americus 92/93/94 77
Bainbridge 94/95 60
Brunswick 95/96 60
Calhoun 88/94 59
Carrollton 94/95 59
Commerce 96 40
Conyers 96/99 57
Covington 90 38
Dalton 98/99 59
Douglas 95 40
Dublin (2) 97 40
Eastman 89 41
Fitzgerald 94 40
Greensboro 90 40
Hartwell 92 40
Jesup 90/91 60
Kingsland 98 40
LaGrange 96/98 56
Macon 97 40
Oakwood 97 40
</TABLE>
41
<PAGE> 45
<TABLE>
<S> <C> <C>
Perry 98 40
Rome 99 67
Statesboro 89 39
Thomaston 90/96 60
Thomasville (2) 98 39
Valdosta 95/95 55
Warner Robins 97 59
Washington 90 41
Waycross 93/96 60
Waynesboro 96 40
Winder 88 39
-----
Subtotal 1,587
=====
MISSISSIPPI:
Grenada 99 39
Meridian 99/99 59
Tupelo 98/98 60
Vicksburg 99/99 59
-----
Subtotal 217
=====
NORTH CAROLINA:
Asheboro 97 40
Dunn (2) 98 40
Eden 98 39
Forest City 97/98 59
Garner 98 40
Greenville 98 40
Hickory 98/99 59
Laurinburg 97 40
</TABLE>
42
<PAGE> 46
<TABLE>
<S> <C> <C>
Lenoir 98 39
Roanoke Rapids 98 39
Sanford 97 40
Smithfield 98 40
Wilson 97 39
-----
Subtotal 554
=====
SOUTH CAROLINA:
Anderson 93/94 57
Cheraw 95/99 57
Duncan 98 40
Easley 95 40
Gaffney 95/97 58
Georgetown 96 40
Greenwood 95/96 64
Lancaster 95 40
Orangeburg 95 40
Seneca 96 40
Simpsonville 96 40
Spartanburg 98 40
Union 97 40
-----
Subtotal 596
=====
TENNESSEE:
Cleveland 98/99 60
Clinton (3) 97 40
Decherd 97 40
Gallatin 99/99 59
Johnson City 97 59
</TABLE>
43
<PAGE> 47
<TABLE>
<S> <C> <C>
Oak Ridge 99 79
Tullahoma 97 40
-----
Subtotal 377
=====
JAMESON INN TOTAL 4,241
=====
</TABLE>
(1) A 20-Room expansion of this Inn was under construction at December 31,
1999.
(2) Land is subject to a ground lease.
(3) We sold this hotel property during the first quarter of 2000.
Signature Inns
- ---------------
<TABLE>
<CAPTION>
Number
Year Of
Opened Rooms
-------- -----
<S> <C> <C>
INDIANA:
Indianapolis North 81 141
Fort Wayne 82 102
Castleton 83 125
Lafayette 83 121
Muncie 84 101
Southport 85 101
Indianapolis East 85 101
Indianapolis West 85 101
Kokomo 86 101
Evansville 86 125
Terre Haute 87 150
Elkhart 87 125
South Bend 87 123
Carmel(1) 97 81
-----
</TABLE>
44
<PAGE> 48
<TABLE>
<S> <C> <C>
Subtotal 1,598
=====
OHIO:
Cincinnati (North) 85 130
Cincinnati (Northeast) 85 99
Columbus 86 125
Dayton 87 125
-----
Subtotal 479
=====
KENTUCKY:
Florence 87 125
Louisville South 88 123
Louisville East (2) 97 119
-----
Subtotal 367
=====
ILLINOIS:
Normal 88 124
Peoria 88 124
Springfield 96 124
-----
Subtotal 372
=====
IOWA:
Bettendorf 89 119
=====
TENNESSEE:
Knoxville 89 124
=====
SIGNATURE INNS TOTAL 3,059
=====
</TABLE>
- ----------------
(1) Signature Inn-Carmel was the only hotel not wholly owned by
Signature at the time of its merger with Jameson in May 1999. Signature served
as the general partner of Signature Meridian Limited Partnership, the limited
partnership that owned the Signature Inn-Carmel, and owned a 40% interest in the
limited partnership. In December 1999, we purchased the 60% interest of the
limited partner in the partnership, dissolved the partnership and took direct
ownership of the property which we now wholly own.
(2) Operates as both a Best Western and a Signature Inn.
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<PAGE> 49
ITEM 3. LEGAL PROCEEDINGS.
We are not a party to any litigation which, in our judgment, would have
a material adverse effect on our operations or financial condition if adversely
determined. However, due to the nature of our business, we are, from time to
time, a party to certain legal proceedings arising in the ordinary course of our
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to security holders for a vote during the
fourth quarter of fiscal year 1999 which required the solicitation of any
proxies.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of March 15, 2000, there were approximately 2,600 holders of record
of our common stock and, we estimate, approximately 9,300 beneficial holders of
our common stock.
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
The following table sets forth the high and low sale prices for our
common stock for the periods indicated. The prices are as reported on the Nasdaq
National Market based on published financial sources. The table also sets forth
the cash dividends paid per share for the periods indicated for a share of each
of our common stock.
46
<PAGE> 50
<TABLE>
<CAPTION>
Jameson Common Stock (1)
------------------------
(1) Cash
----- Dividends
High Low Per Share
---- --- ---------
<S> <C> <C> <C>
1998
- ----
First Quarter $12.88 $11.25 $ .23
Second Quarter $12.38 $ 9.75 $ .23
Third Quarter $11.50 $ 9.06 $ .24
Fourth Quarter $10.25 $ 8.75 $ .24
1999
- ----
First Quarter $ 9.38 $ 7.63 $ .24
Second Quarter $10.00 $ 8.31 $ .24
Third Quarter $ 9.75 $ 8.25 $ .245
Fourth Quarter $ 8.88 $ 7.00 $ .245
</TABLE>
- --------------
(1) Our common stock trades on the Nasdaq National Market under the symbol
"JAMS."
We intend to continue making regular quarterly distributions to our
stockholders. Our cash available for distribution is generally an amount equal
to our net income from operations plus the amount of non-cash expenses we
record, such as amortization, depreciation and stock compensation expenses, less
amounts we believe should be retained for working capital purposes, debt service
or anticipated capital expenditures.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth our selected financial and operating
information on a pro forma and historical basis. The following information
should be read in conjunction with the consolidated financial statements and
notes thereto included elsewhere in this report. The consolidated historical
financial data has been derived from our audited historical consolidated
financial statements.
Historical financial and operating information includes all Jameson
Inns owned by Jameson, including both those under development as well as
operating Jameson Inns; however, due to Jameson's development of new Jameson
Inns and expansion of existing Jameson Inns, the information is not comparable
between periods. Historical financial and operating information includes all
Signature Inns owned by Jameson as of December 31, 1999. See Item 2. Properties.
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<PAGE> 51
Historical operating results, including net income, may not be comparable to
future operating results.
The historical financial data for Signature Inns was prepared from the
audited financial statements and filings of Signature for each of the years in
the period ended December 31, 1998. The information for the year ended December
31, 1999 assumes the Signature Inns were operated by Jameson Hospitality for the
entire year.
JAMESON INNS, INC.
SELECTED FINANCIAL INFORMATION
(dollars in thousands, except per share data, ADR and REVPAR)
<TABLE>
<CAPTION>
Historical
-------------------------
December 31,
-------------------------
--------- --------- --------- --------- ---------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Investment in real estate (before
accumulated depreciation) $57,370 $80,816 $117,515 $168,880 $321,134
Net investment in real estate 50,780 71,611 104,931 152,125 296,583
Total assets 52,806 73,985 107,606 156,329 322,852
Total mortgage debt 30,214 22,317 29,625 53,697 173,958
Stockholders' equity 21,754 50,763 75,161 98,869 136,303
</TABLE>
<TABLE>
<CAPTION>
Historical
-------------------------
Year Ended December 31,
-------------------------
--------- --------- --------- --------- ---------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Financial Data:
Gross revenues:
Lease revenue from
Jameson Hospitality $ 6,342 $ 9,376 $ 12,966 $ 18,230 $ 34,669
Expenses:
Depreciation 1,825 2,670 3,898 5,636 10,397
Property tax and
insurance expense 514 733 1,107 1,524 3,186
General and administrative
expenses 622 499 445 592 1,131
Loss on disposal of
furniture and equipment -- 48 144 508 755
</TABLE>
48
<PAGE> 52
<TABLE>
<S> <C> <C> <C> <C> <C>
Write-off of offering
costs -- -- -- -- 100
Loss on impairment of
real estate -- -- -- 2,507 --
------ ------ ------ ------ ------
Income from operations 3,381 5,426 7,372 7,463 19,100
Other income (expense):
Interest expense, net of (1,590) (1,386) (778) (1,656) (8,429)
amounts capitalized
Equity in income (loss of
hotel limited partnership -- -- -- -- 76
Other income -- -- -- -- 24
------ ------ ------ ------ ------
Income before
extraordinary item 1,791 4,040 6,595 5,807 10,771
Extraordinary loss 19 989 689 134 -
Net income 1,772 3,051 5,906 5,673 10,771
Preferred stock dividends 490 -- -- 2,788 5,387
------ ------ ------ ------ ------
Net income attributable to
common stockholders 1,282 3,051 5,906 3,485 5,383
Basic earnings before
extraordinary item 0.35 0.65 0.72 0.37 0.51
Diluted earnings before
extraordinary item 0.46 0.63 0.70 0.36 0.51
Basic earnings per
common share 0.34 0.49 0.64 0.36 0.51
Diluted earnings per
common share 0.45 0.48 0.63 0.35 0.51
Dividends paid per
common share 0.80 0.86 0.90 0.94 0.97
Cash flow provided by
operating activities 4,181 6,626 11,911 13,845 23,202
Cash flow used in
investing activities (18,845) (23,548) (37,362) (55,845) (40,228)
Cash flow provided by
financing activities 14,546 16,895 25,581 42,161 19,057
OTHER DATA:
Funds from operations(1) $ 3,616 $ 6,758 $ 10,637 $ 12,270 $ 16,658
Ratio of earnings to fixed
charges and preferred stock
dividends(2) 1.37 2.84 5.21 1.50 1.25
</TABLE>
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<PAGE> 53
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Jameson Inns:
Occupancy rate 67.5% 66.9% 64.9% 61.7% 60.0%
ADR $ 42.80 $ 45.80 $ 7.25 $ 50.60 $ 53.05
REVPAR $ 28.89 $ 30.64 $ 30.68 $ 31.21 $ 31.84
Room Revenues(3) $ 13,310 $ 19,950 $ 27,588 $ 38,787 $ 48,358
Room nights available 448,906 634,549 878,056 1,216,998 1,485,849
Operating hotels (at
period end) 32 43 62 81 88
Rooms available (at
period end) 1,537 2,107 2,924 3,748 4,241
Pro Forma(4)
-----------------------
Year Ended December 31,
-----------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Signature Inns:
Occupancy rate 66.5% 65.2% 64.0% 61.5% 57.9%
ADR $ 56.37 $ 57.56 $ 58.68 $ 61.48 $ 63.41
REVPAR $ 37.50 $ 37.55 $ 37.53 $ 37.81 $ 36.73
Room Revenues(3) $ 38,903 $ 39,850 $ 42,960 $ 43,971 $ 42,013
Room nights available 998,275 1,020,758 1,080,263 1,114,960 1,116,535
Operating hotels (at
period end) 23 24 26 26 26
Rooms available (at
period end) 2,735 2,859 3,059 3,059 3,059
</TABLE>
- ---------------
(1) Funds from operations is defined by the National Association of Real
Estate Investment Trusts ("NAREIT") according to the March 1995
interpretation as net income (computed in accordance with generally
accepted accounting principles ("GAAP")) excluding gains (or losses)
from debt restructuring and sales of property, plus depreciation and
after adjustments for unconsolidated partnerships and joint ventures.
Jameson has made adjustments to its net income (loss) consisting only
of depreciation, loss on disposals, loss on impairment of real estate
and the extraordinary item. Jameson notes that industry analysts and
investors use funds from operations as another tool to evaluate and
compare equity REITs. Jameson also believes it is meaningful as an
indicator of net income excluding most non-cash items and provides
information about Jameson's cash available for distributions, debt
service and capital expenditures. Other non-cash expenses such as
deferred finance cost amortization and stock-based compensation expense
have not been added back in funds from operations. Funds from
operations does not represent cash flow from operating activities in
accordance with GAAP and is not indicative of cash available to fund
all of Jameson's cash needs. Funds from operations should not be
considered as an alternative to net income or any other GAAP measure as
an indicator of performance and should not be considered as an
alternative to cash flows as a measure of liquidity. In addition,
Jameson's funds from operations may not be comparable to other
companies' funds from operations due to differing methods of
calculating funds from operations and varying interpretations of the
NAREIT definition.
In October 1999, NAREIT issued an additional clarification effective
as of January 1, 2000 stipulating that FFO should include both
recurring and non-recurring operating results. Consistent with this
clarification, non-recurring items that are not defined as
"extraordinary" under GAAP will be reflected in the calculation of FFO.
Gains and losses from the sale of depreciable operating property will
continue to be excluded from the calculation of FFO.
(2) For purposes of computing these ratios, earnings have been calculated
by adding fixed charges (excluding capitalized interest and preferred
stock dividends) to income before
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<PAGE> 54
extraordinary item. Fixed charges consist of interest costs whether
expensed or capitalized, amortization of debt discounts and issue costs
whether expensed or capitalized and preferred stock dividends in
applicable periods. Jameson paid preferred stock dividends in 1995,
1998 and 1999.
(3) The master leases between Jameson and Jameson Hospitality with regard
to the Jameson Inns and the Signature Inns define "Room Revenues" to
include gross room rentals, revenues from telephone charges, vending
machine payments and other miscellaneous revenues and excludes all
credits, rebates and refunds, sales taxes and other excise taxes.
(4) Assumes that the Signatures Inns were owned as of January 1 of the
respective year.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion in conjunction with our
historical consolidated financial statements and those of Jameson Hospitality
and the accompanying notes which are included in this report.
GENERAL
The following table shows certain historical financial and other
information for the years indicated.
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
Occupancy rate 60.0% 61.7% 64.9%
ADR $ 56.36 $ 50.60 $ 47.25
REVPAR $ 33.83 $ 31.21 $ 30.68
Room rentals (000s) $ 74,246 $ 37,983 $ 26,937
Other Inn revenues (000s) $ 2,181 $ 804 $ 651
Room Revenues (000s) $ 76,427 $ 38,787 $ 27,588
Room nights available 2,194,613 1,216,998 878,056
Operating Inns (at period end) 114 81 62
Rooms available (at period end) 7,300 3,748 2,924
</TABLE>
We have grown from a hotel chain with four Jameson Inns (162 rooms)
at January 1, 1990, to 88 Jameson Inns (4,241 rooms) and 26 Signature Inns
(3,059 rooms) in operation at December 31, 1999. From our inception in 1988
until December 31, 1993, we were engaged in the business of developing, owning
and managing Jameson Inns. As part of our development activities, we engaged in
development and construction of new Jameson Inns. On December 31,
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<PAGE> 55
1993, we reorganized by divesting ourselves of the subsidiary corporations
through which we conducted our construction activities, securities brokerage
activities and aviation operations. In addition, we transferred our outdoor
advertising business to Jameson Hospitality's predecessor. We no longer manage
or operate our Inns upon their completion, but limit our primary activities to
developing and owning the properties. Effective January 1, 1994, our primary
source of revenue became lease payments by Jameson Hospitality which leases and
operates our Inns under the master leases.
Effective April 2, 1999, our subsidiary, Jameson Outdoor Advertising
Company, acquired certain assets of Jameson Hospitality consisting of
billboards, ground leases for the sites on which the billboards are erected and
other related assets. As consideration for these assets we issued 72,727 shares
of our 9.25% Series A preferred stock, paid cash in the amount of $400,000 and
assumed liabilities in the amount of approximately $700,000. We obtained an
opinion from Interstate/Johnson Lane Corporation that the terms of the
transaction were fair from a financial standpoint to us and to our shareholders.
In order to maintain our REIT status, these assets are leased to and operated by
Jameson Hospitality which pays us annual rentals on each of the billboards. In
1999, rental payments from these assets totaled approximately $412,000.
On May 7, 1999, we merged with Signature Inns, Inc. which owned and
operated a chain of limited service hotels in the Midwest. In this merger, we
acquired 25 Signature Inns and an interest in a limited partnership which owned
an additional Signature Inn. In December 1999, we acquired the outstanding
limited partnership interest in that partnership, dissolved the partnership and
took direct ownership of the hotel property. As a result of these transactions,
at December 31, 1999, we owned a total of 26 Signature Inns located in six
midwestern states. All of the Signature Inns are also leased to Jameson
Hospitality.
Although room revenues are earned by our lessee, Jameson Hospitality,
not by us, they are the basis upon which the percentage rent paid to us by
Jameson Hospitality (under the Jameson Lease) is determined and, accordingly, we
discuss those revenues below. The term "Same Inn Room Revenues" refers to
revenues earned with respect to our Inns which were operating during all of both
comparison periods and includes revenues attributable to rooms added to our
existing Inns by virtue of expansion of such Inns.
The master leases provide for the payment of base rent and percentage
rent. For the year ended December 31, 1999, we earned a combined base rent and
percentage rent in the aggregate amount of $22.7 million from rental of Jameson
Inns and $11.5 million from rental of Signature Inns. The principal determinant
of percentage rent under the master leases is room revenues of our Inns.
Therefore, we believe that a review of the historical performance of the
operations of our 88 operating Jameson Inns and 26 Signature Inns, particularly
with respect to occupancy, ADR and REVPAR, is appropriate for understanding our
lease revenue (see --Funds from Operations; Cash Available for Distribution,
below, for the calculation of ADR and REVPAR).
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<PAGE> 56
RESULTS OF OPERATIONS
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1999 TO THE YEAR ENDED
DECEMBER 31, 1998.
Our lease revenue for 1999 increased 90% to $34.7 million as compared
to $18.2 million for 1998. The increase was due to an increase in Jameson
Hospitality's room revenues.
As a result of the following three factors, Jameson Hospitality's room
revenues rose 97.0%, from $38.8 million for 1998 to $76.4 million in 1999:
- The number of room nights available at our Inns increased from
1,216,998 in 1998 to 2,194,613 in 1999, or 80.3%, due
primarily to our acquisition of Signature in May 1999, which
accounted for 708,764 of the additional room nights available,
and to the opening from January 1998 through December 1999 of
27 new Jameson Inns (1,150 total additional rooms) and 15
expansions of existing Jameson Inns (290 total additional
rooms).
- The occupancy rate for all Inns decreased from 61.7% for 1998
to 60.0% for 1999. The decrease in overall occupancy of the
Inns is attributable primarily to:
- additional competition in certain markets, and
- the expansion of several high occupancy Jameson Inns
which then experienced lower occupancy rates because
of the additional rooms available.
- ADR increased 11.4% from $50.60 in 1998 to $56.36 in 1999 due
primarily to the addition of the Signature Inns which
experienced an ADR of $63.31 for the period of May 7, 1999,
through December 31, 1999.
Jameson Hospitality's Same Inn Room Revenues for Jameson Inns for 1999
compared to 1998 grew to $35.4 million from $33.7 million, or 5.0%. The growth
is due to an increase in ADR from $50.48 to $52.87 for these Inns and the
expansion of 11 of these Inns since January 1998, partially offset by a decrease
in the occupancy rate of these Inns from 63.6% in 1998 to 62.3% in 1999.
Our general and administrative expense includes overhead charges for
management, accounting and legal services for the corporate home office. Our
general and administrative expense for 1999 was $1.1 million, as compared to
$592,000 for 1998, due to additional costs resulting from our increased size and
more time spent by shared employees on our business matters as compared to
Jameson Hospitality's and other related entities'.
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<PAGE> 57
Our property taxes and insurance expenses totaled $3.2 million in 1999,
compared with $1.5 million for 1998. The increase is attributable primarily to
the increase in the number of Inns as a result of the Signature acquisition in
May 1999 and to the construction and expansion of Jameson Inns.
Our interest expense increased from $1.7 million in 1998 to $8.4
million in 1999 due to the increase in our average outstanding debt balance in
1999. This was the result primarily of our assumption of an additional $67.1
million of indebtedness in connection with the Signature acquisition in May 1999
and increased indebtedness related to the development of new Jameson Inns.
Our depreciation expense increased from $5.6 million in 1998 to $10.4
million in 1999, due primarily to the Signature acquisition in May 1999 and to
an increase in the number of operating Jameson Inns and the expansion of
existing Jameson Inns during 1999.
Our loss on disposal of furniture and equipment increased from $508,000
in 1998 to $755,000 in 1999 due to an increase in replacement of furniture,
fixtures and equipment before the end of its depreciable life.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO THE YEAR ENDED
DECEMBER 31, 1997. Our lease revenue for 1998 increased 40.0% to $18.2 million
as compared to $13.0 million for 1997. The increase was due to an increase in
Jameson Hospitality's room revenues.
As a result of the following three factors, Jameson Hospitality's room
revenues rose 41%, from $27.6 million for 1997 to $38.8 million in 1998:
- The number of room nights available at Jameson Inns increased
from 878,056 in 1997 to 1,216,998 in 1998, or 38.6%, due to
the opening from January 1997 through December 1998 of 38 new
38- to 59-room Jameson Inns, and five 16- to 19-room
expansions of existing Jameson Inns.
- Jameson Inns' occupancy rate decreased from 64.9% for 1997 to
61.7% for 1998. The decrease in overall occupancy of the
Jameson Inns is attributable primarily to (a) the expansion of
several high occupancy Jameson Inns which then experienced
lower occupancy rates because of the additional rooms
available, (b) the opening of new Jameson Inns which typically
require several months of operations before realizing higher
occupancy rates and (c) additional competition in certain
markets.
- ADR increased 7.1% from $47.25 in 1997 to $50.60 in 1998.
Jameson Hospitality's Same Inn Room Revenues for 1998 versus 1997 grew
to $26.2 million from $25.1 million, or 4%. The growth is due to an increase in
ADR from $47.03 to
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<PAGE> 58
$50.07 for these Jameson Inns and an increase in room nights available (due to
expansions of certain of these Jameson Inns) from 797,737 to 807,842 partially
offset by a decrease in the occupancy rate from 65.4% to 63.4% for these Jameson
Inns for 1997 compared to 1998.
Our general and administrative expense includes overhead charges for
management, accounting and legal services for the corporate home office. Our
general and administrative expense for 1998 was $592,000, as compared to
$445,000 for 1997, due to additional costs resulting from our increased size and
more time spent by shared employees on our business matters as compared to
Jameson Hospitality's and other related entities'.
Our property taxes and insurance expenses totaled $1.5 million in 1998,
compared with $1.1 million for 1997. The increase is attributable to the
increase in the number of Jameson Inns and the expansion of existing Jameson
Inns.
Our interest expense increased from $0.8 million in 1997 to $1.7
million in 1998 due to the increase in its average outstanding debt balance in
1998. As a result of the early extinguishment of debt in 1998 and 1997, we had
losses of $133,951 and $689,542, respectively, comprised of the write-offs of
deferred finance costs and prepayment penalties, which are reflected as
extraordinary items.
Our depreciation expense increased from $3.9 million in 1997 to $5.6
million in 1998, due to an increase in the number of operating Jameson Inns and
the expansion of existing Jameson Inns.
Our loss on disposal of furniture and equipment increased from $144,000
in 1997 to $508,000 in 1998 due to an increase in replacement of furniture,
fixtures and equipment before the end of its depreciable life.
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<PAGE> 59
FUNDS FROM OPERATIONS; CASH AVAILABLE FOR DISTRIBUTION
The following table illustrates our calculation of funds from
operations and cash available for distribution on a historical basis for the
years ended December 31, 1997, 1998 and 1999. In March 1995, NAREIT published a
new interpretation of funds from operations which we retroactively adopted at
that time.
In October 1999, NAREIT issued an additional clarification effective as
of January 1, 2000 stipulating that FFO should include both recurring and
non-recurring operating results. Consistent with this clarification,
non-recurring items that are not defined as "extraordinary" under GAAP will be
reflected in the calculation of FFO. Gains and losses from the sale of
depreciable operating property will continue to be excluded from the calculation
of FFO.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1998 1999
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Net income available to common stockholders $ 5,906 $ 3,485 $ 5,383
Add:
Depreciation expense 3,898 5,636 10,396
Adjustment for equity share of hotel limited
partnership -- -- 24
Loss on disposals 144 508 755
Write-off of offering costs -- -- 100
Extraordinary item 689 134 --
Loss on impairment of real estate -- 2,507 --
-------- -------- --------
Funds from operations, per March 1995 NAREIT
interpretation 10,637 12,270 16,658
Add:
Loan fee amortization expense 80 114 228
Less:
Additions to reserve for furniture, fixtures and
equipment(1) (1,077) (1,551) (3,057)
Required loan principal repayments (78) (146) (2,365)
-------- -------- --------
Cash available for distribution $ 9,562 $ 10,687 $ 11,464
======== ======== ========
</TABLE>
- ---------------
(1) This amount equals 4% of the room revenues of our Inns for the
respective period.
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<PAGE> 60
LIQUIDITY AND CAPITAL RESOURCES
We expect to continue to develop additional Jameson Inns and Signature
Inns and to expand existing Jameson Inns, as suitable opportunities arise. We
will not undertake such investments, however, unless adequate sources of
financing are available. Since our election to be taxed as a REIT, we have
financed construction of new Jameson Inns and currently intend to continue
financing the construction of new Jameson Inns and Signature Inns entirely with
bank borrowings. We believe we can continue to finance new Inns and expansions
with these construction and long-term mortgage loans. At December 31, 1999, we
had approximately $174 million in outstanding debt. At that date we had two
operating Jameson Inns and one Signature Inn which were debt free and could be
used as collateral if we need additional borrowing capacity.
Jameson has $33.7 million in lines of credit (the "Line") with some
convertible to term notes beginning in 2000. At December 31, 1999, we had drawn
down $13.3 million under the Line with $20.4 million remaining available credit.
Loans made under the Line bear interest at rates initially ranging from 8.5% to
9.0%, which are adjustable annually to a spread over the prime rate plus .25 to
.5 percentage points. The minimum annual interest rate payable is 7% and the
maximum is 13%. The annual interest rates at December 31, 1999, ranged from 8.0%
to 8.5%. Loans made under the Line are secured by mortgages on 27 of the Jameson
Inns. Payments of interest are due monthly, and monthly payments of principal
and interest commence at various dates beginning in April 2000. Principal under
each term loan under the Line is amortized using a 15-year period and is payable
in full at various dates through 2007. We use the Line to purchase land and to
supplement the financing of construction costs, and certain other operating
needs including the payment of dividends and other operating expenses.
In January 1999, we entered into an agreement with a bank to
provide $17.2 million in new financing, which is secured by 14 operating Jameson
Inns which were previously debt free. This bank note bears interest at the
weekly average yield on United States Treasury securities adjusted to the
constant maturity of one year plus 3.75% per annum and is adjusted annually.
Monthly installments of principal and interest are due through maturity in 2019.
Monthly deposits of $15,000 are required to be deposited into a replacement
reserve escrow account until a balance of $200,000 has been achieved.
The proceeds of this financing were used to repay amounts outstanding under the
Line.
In December 1999, we obtained a ten-year term loan in the principal
amount of $3.7 million to refinance the Signature Inn-Carmel and to provide
funds for our purchase of the remaining interest in the partnership which had
owned the property. The interest rate on the loan is the prime rate plus .5% and
adjusts annually. At December 31, 1999, the interest rate was 9.0%. Payments of
principal and interest are due monthly. Repayment of the loan is secured by
the Inn.
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<PAGE> 61
In December 1999 and January 2000, we refinanced indebtedness secured
by four Signature Inns by issuance of adjustable rate economic development
revenue refunding bonds in the aggregate principal amount of $12,115,000. The
bonds mature on December 1, 2016, subject to prior optional and mandatory
redemption, and are subject to mandatory purchase under certain conditions. The
interest rates on the bonds adjust weekly and ranged from 3.4% to 5.7% in
December 1999.
Historically, we have utilized construction and long-term mortgage
financing to fund the balance of construction costs of Inns not funded under the
Line. For each new Jameson Inn to be built, we generally obtain a construction
loan for approximately $1.1 to $2.8 million depending on the size of the Inn to
be built. After an 18-month interest-only period, each construction loan
converts to a long-term mortgage financing upon completion of the Inn without
any further action by us, and is amortized over a 15 or 20 year period and
payable in full seven years from its inception. The interest rate on each of the
loans adjusts annually, to rates ranging from the then prevailing prime rate
plus .125% to prime plus .375%. As of December 31, 1999, the construction loans
are secured by mortgages on 20 of the Jameson Inns under construction.
As of December 31, 1999, we had a total of 22 new Jameson Inns and one
expansion of an existing Jameson Inn under construction with total remaining
construction costs, excluding land, expected to total $61.0 million when the
projects are complete. For 20 of these properties, we had obtained construction
loans during 1998 and 1999 totaling $44.5 million with remaining availability of
$34.1 million at December 31, 1999. To fund the completion of the properties
under construction we will use the remaining availability under the construction
loans, availability on the Line and proceeds from the financing of the two or
unencumbered Inns and the refinancing of Inns with increased borrowing capacity.
The availability on the Line at December 31, 1999 was $20.4 million.
Since we presently intend to rely primarily on borrowings for
construction and permanent financing of new Jameson Inns and Signature Inns and
for the expansion of existing Jameson Inns, the lack of sufficient financing on
favorable terms and conditions could prevent or significantly deter us from
constructing new Jameson Inns or expanding existing Jameson Inns. The
availability of such financing depends on a number of factors over which we have
no control, including general economic conditions, the economic and competitive
environments of the communities in which the Inns are located and the level and
stability of long-term interest rates. We are also considering possible
additional long-term debt or equity financing that would be available to fund
its ongoing development activities.
In January 1997, we filed a shelf registration statement on Form S-3
with the SEC to provide additional financing. In September 1999, we filed a
post-effective amendment to that registration statement. See Item 1.
Business--Policies and Objectives with Respect to Certain Activities--Financing
for a description of the registration statement and post-effective amendment.
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<PAGE> 62
As with most real estate investments, our investments in the Inns are
relatively illiquid and such illiquidity is further increased by the location of
many Jameson Inns in small communities. As a result, the ability of Jameson to
sell or otherwise dispose of any Inn to provide liquidity will be very limited.
We have four stock incentive plans in place. As of December 31, 1999,
965,136 shares of our common stock were reserved for future stock option and
restricted stock grants and previously issued options to purchase 889,971 shares
of our common stock were outstanding (including 458,971 which were exercisable).
In addition, as of December 31, 1999, 84,270 shares of our common stock issued
to certain key employees of Jameson and Jameson Hospitality are restricted as to
sale until fully vested in 2006, 2007 and 2008.
YEAR 2000
A critical business issue has emerged regarding how existing
application software programs and operating systems can accommodate the year
2000 date value. Many existing application software products in the market place
were designed to accommodate only two-digit date entries. Beginning in the year
2000, these systems and products must be able to accept four-digit entries to
distinguish years beginning with 2000 from prior years. As a result, computer
systems and software used by many companies have required or still may require
to be upgraded to comply with such "Year 2000" requirements. Jameson and Jameson
Hospitality conducted an assessment of their computer and other operating
systems to identify those which could be affected by the "Year 2000" issue. The
assessment included the review of corporate and hotel applications, hardware,
and software (information technology or "IT"), and non-IT areas such as
microprocessors and embedded chips. On-going testing of existing systems, to
determine compliance, were completed by November 1999. Systems that were
determined to be non-compliant were repaired or replaced by November 1999. The
remediation phase included modification to, or replacement of, software, and
hardware or microprocessors.
Approximately $50,000 was expended by Jameson Hospitality for Year 2000
remediation. Neither we nor Jameson Hospitality tracked the internal costs
incurred for the Year 2000 project (principally the payroll and related costs
for our information systems group). The costs of the project were funded through
operating cash flows of the companies.
We and Jameson Hospitality rely on third party consultants and
suppliers for a variety of our corporate and Inn operations. The ability of
third parties to adequately address their Year 2000 issues is outside of our
control. There can be no assurance that the failure of Jameson and Jameson
Hospitality, or such third parties, to adequately address their respective Year
2000 issues will not have a material adverse effect on our future financial
condition or results of operations. Jameson and Jameson Hospitality believe
they have an effective program in place which will resolve the Year 2000 issues
in a timely manner. Year 2000 risks include failure to obtain successful testing
of hardware/software, failed attempts to obtain vendor compliance, and failure
on the part of suppliers and service providers. Jameson and Jameson Hospitality
believe
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<PAGE> 63
that under most reasonably likely worst case scenarios Inn operations could be
disrupted, a reduction in Inn occupancy could occur due to lost reservations, or
corporate financial functions could be impaired. This event would cause certain
processes to revert to manual systems and could have a material adverse impact
on Jameson and Jameson Hospitality's operating results and financial position.
Jameson and Jameson Hospitality maintain contingency plans in their normal
course of business designed to be deployed in the event of various potential
business interruptions. Contingency plans were implemented between December 1
and December 31, 1999, for systems that could not be feasibly repaired or
replaced. No material business disruptions have occurred to date for us or
Jameson Hospitality as a result of Year 2000 issues.
INFLATION
Operators of hotels in general possess the ability to adjust room rates
quickly. Jameson Hospitality raised its room rates for Jameson Inns by
approximately 3% in 1997, 7% in 1998 and 4% in 1999 and by approximately 4% for
Signature Inns since May 1999. Nevertheless, competitive pressures have limited,
and may in the future limit, Jameson Hospitality's ability to raise rates in the
face of inflation.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information regarding this, to the extent that it is relevant to our
business, is included in Item 1 of this report under the caption Risk Factors -
Interest Rate Increases Could Increase Our Cost of Current and Future Debt and
in Item 7 under the caption Liquidity and Capital Resources.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data are indexed in Item 14
of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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<PAGE> 64
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required to be contained in this Item is incorporated
by reference to our definitive proxy statement to be filed with respect to our
2000 annual meeting under the headings "Proposal One -- Election of Directors,"
"Executive Officers" and "Certain Transactions."
ITEM 11. EXECUTIVE COMPENSATION
The information required to be contained in this Item is incorporated
by reference to our definitive proxy statement to be filed with respect to our
2000 annual meeting under the heading "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required to be contained in this Item is incorporated
by reference to our definitive proxy statement to be filed with respect to our
2000 annual meeting under the heading "Principal Stockholders and Security
Ownership of Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be contained in this Item is incorporated
by reference to our definitive proxy statement to be filed with respect to our
2000 annual meeting under the heading "Certain Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C> <C>
(a) 1. Financial Statements of Jameson Inns, Inc.
Report of Independent Auditors F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3
Consolidated Statements of Operations for each of the three years ended
December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Stockholders' Equity for each of the three
years ended December 31, 1999, 1998 and 1997 F-5
</TABLE>
61
<PAGE> 65
<TABLE>
<S> <C> <C> <C>
Consolidated Statements of Cash Flows for each of the three years ended
December 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7
2. Financial Statement Schedules
Schedule III--Real Estate and Accumulated Depreciation F-33
Notes to Schedule III F-36
Report of Independent Auditors F-37
All other schedules have been omitted since the required information is
not present, or is not present in amounts sufficient to require
submission of the schedule, or because the information required is
included in the financial statements and notes thereto.
3. Financial Statements of Jameson Hospitality, LLC
Report of Independent Auditors F-39
Consolidated Balance Sheets as of December 31, 1999, and 1998 F-40
Consolidated Statements of Operations for each of the three years ended
December 31, 1999, 1998 and 1997 F-41
Consolidated Statements of Members Capital for each of the three years
ended December 31, 1999, 1998 and 1997 F-42
Consolidated Statements of Cash Flows for each of the three years ended
December 31, 1999, 1998 and 1997 F-43
Notes to Consolidated Financial Statements F-45
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of
the year ended December 31, 1999.
</TABLE>
62
<PAGE> 66
(c) 1. The following exhibits are filed as part of this Annual
Report or incorporated herein by reference:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
1.1-- Sales Agency Agreement by and among Jameson
Inns, Inc., RGC Brinson Patrick, a division of
Ramius Securities, LLC, and Jameson
Hospitality, LLC, dated September 3, 1999,
incorporated by reference to Exhibit 1.4 to
Post-Effective Amendment No. 1 to the
Registration Statement on Form S-3, File
No. 333-20143
3.1-- Articles of Incorporation of the Registrant
incorporated by reference to Exhibit 3.1.1 to
the Registration Statement filed on Form S-11,
File No. 33-71160
3.2-- Articles of Amendment to the Articles of
Incorporation of the Registrant incorporated by
reference to Exhibit 3.1.2 to the Registration
Statement filed on Form S-11, File No.
33-71160
3.3-- Articles of Amendment to the Articles of
Incorporation of the Registrant setting forth
the Designation of Preferences, Rights,
Privileges and Restrictions of the 9.25% Series
A Cumulative Preferred Stock the Registrant
incorporated by reference to Exhibit 2.1 to the
Registrant's Form 10-K/A1 (Amendment No. 1 to
the Registrant's Annual Report on Form 10-K)
for the year ended December 31, 1993
3.4-- Articles of Amendment to the Articles of
Incorporation of the Registrant incorporated by
reference to Exhibit 3.3.1 to Form 10-K/A2
(Amendment No. 2 to the Registrant's Annual
Report on Form 10-K) for the year ended
December 31, 1993
3.5-- Articles of Amendment to the Articles of
Incorporation of the Registrant amending the
Designation of Preferences, Rights, Privileges
and Restrictions of the 9.25% Series A
Cumulative Preferred Stock of the Registrant
incorporated by reference to Exhibit 3.6 to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994
</TABLE>
63
<PAGE> 67
<TABLE>
<S> <C>
3.6-- Articles of Amendment to the Articles of
Incorporation of the Registrant amending the
Designation of Preferences, Rights, Privileges
and Restrictions of the 9.25% Series A
Cumulative Preferred Stock incorporated by
reference to Exhibit 3.5 to the Registration
Statement on Form S-4, File No. 333-74149
3.7-- Articles of Amendment to the Articles of
Incorporation of the Registrant setting forth
the Designation of Preferences, Rights,
Privileges and Restrictions of the $1.70 Series
S Cumulative Convertible Preferred Stock
incorporated by reference to Exhibit 3.7 of
Post-Effective Amendment No. 1 to the
Registration Statement on Form S-3, File No.
333-20143
3.8-- Bylaws of the Registrant incorporated by
reference to Exhibit 3.2.1 to the
Registration Statement on Form S-11, File
No. 33-71160
3.9-- Amendment to the Bylaws of the Registrant
incorporated by reference to Exhibit 3.2.2 to
the Registration Statement on Form S-11, File
No. 33-71160
3.10-- Amendment No. 2 to the Bylaws of Registrant
incorporated by reference to Exhibit 3.8 to the
Annual Report on Form 10-K for the year ended
December 31, 1995
4.1-- Specimen certificate of Common Stock
incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-11
(File No. 33-71160)
4.2-- Specimen certificate of 9.25% Series A
Cumulative Preferred Stock incorporated by
reference to Exhibit 1 to the Registration
Statement on Form 8-A filed March 13, 1998
(File No. 23256)
</TABLE>
64
<PAGE> 68
<TABLE>
<S> <C>
4.3-- Specimen certificate of $1.70 Series S
Cumulative Convertible Preferred Stock
incorporated by reference to Exhibit 1 to the
Registration Statement on Form 8-A filed March
26, 1999 (File no. 000-23256)
10.1-- Master Lease Agreement (relating to Jameson
Inns) incorporated by reference to Exhibit
10.1 to the Annual Report filed on Form 10-K
for the year ended December 31, 1993
10.2-- Amendment No. 1 to Master Lease Agreement
(relating to Jameson Inns) between Jameson
Inns., Inc. and Jameson Operating Company
(revised) incorporated by reference to Exhibit
10.2 to the Annual Report filed on Form 10-K
for the year ended
December 31, 1995
10.3-- Amendment No. 2 to Master Lease Agreement
(relating to Jameson Inns) between Jameson
Inns., Inc. and Jameson Operating Company
(revised) incorporated by reference to Exhibit
10.3 to the Annual Report filed on Form 10-K
for the year ended
December 31, 1996
10.4-- Amendment No. 3 to Master Lease Agreement
(relating to Jameson Inns) between Jameson
Inns., Inc. and Jameson Operating Company
(revised) incorporated by reference to Exhibit
10.4 to the Annual Report filed on Form 10-K
for the year ended
December 31, 1996
10.5-- Amendment No. 4 to Master Lease Agreement
(relating to Jameson Inns) between Jameson
Inns., Inc. and Jameson Operating Company
(revised) incorporated by reference to Exhibit
10.5 to the Annual Report filed on Form 10-K
for the year ended
December 31, 1997
10.6-- Amendment No. 5 to Master Lease Agreement
(relating to Jameson Inns) between Jameson
Inns., Inc. and Jameson
</TABLE>
65
<PAGE> 69
<TABLE>
<S> <C>
Alabama, Inc., as lessor, and Jameson
Development Company, LLC incorporated by
reference to Exhibit 10.6 to the
Registration Statement on Form S-4, File No.
33-74149
10.7-- Schedule of documents substantially similar
to Exhibit 10.1 incorporated by reference to
Exhibit 3.7 to the Registration Statement on
Form S-4, File No. 333-74149
10.8-- Schedule of documents substantially similar
to Exhibit 10.6 incorporated by reference by
Exhibit 10.8 to the Registration Statement on
Form S-4, File No. 333-74149
10.9-- Master Lease Agreement (relating to
Signature Inns) incorporated by reference to
Exhibit 10.9 to the Post-Effective Amendment
No. 1 to the Registration Statement on Form
S-3, File No. 333-20143
10.10-- Amendment No. 1 to Master Lease Agreement
(relating to Signature Inns) incorporated by
reference to Exhibit 10.11 to the
Post-Effective Amendment No. 1 to the
Registration Statement on Form S-3, File No.
333-20143
10.11-- Cost Reimbursement Agreement between
Jameson Inns., Inc. and Jameson Hospitality,
LLC (formerly Kitchin Investments, Inc.)
incorporated by reference to Exhibit 10.2 to
the Registration Statement on Form S-11,
File No. 33-71160
10.12-- Form of Construction Contract between
Jameson Inns., Inc., and Jameson Hospitality,
LLC (formerly Jameson Construction Company) for
construction of Jameson Inns incorporated by
reference to Exhibit 10.7 to the Annual Report
filed on Form 10-K for the year ended December
31, 1995
10.13-- Jameson 1993 Stock Incentive Plan
incorporated by reference to Exhibit 10.22.1 to
the Registration Statement on Form S-11, File
No. 33-71160
</TABLE>
66
<PAGE> 70
<TABLE>
<S> <C>
10.14-- Form of Stock Option Agreement under Jameson
Inns, Inc. Stock Incentive Plan incorporated by
reference to Exhibit 10.23 to the Registration
Statement on Form S-11, File No. 33-71160
10.15-- Amendment No. 1 to Jameson 1993 Stock
Incentive Plan incorporated by reference to
Exhibit 10.10 to the Annual Report filed on
Form 10-K for the year ended December 31, 1995
10.16-- 1994 Amendment to Jameson 1993 Stock
Incentive Plan incorporated by reference to
Exhibit 10.11 to the Annual Report filed on
Form 10-K for the year ended December 31, 1995
10.17-- Amendment No. 3 to Jameson 1993 Stock
Incentive Plan incorporated by reference to
Exhibit 10.12 to the Annual Report filed on
Form 10-K for the year ended December 31, 1995
10.18-- Jameson Inns., Inc. Director Stock Option
Plan incorporated by reference to Exhibit 10.13
to the Annual Report filed on Form 10-K for the
year ended December 31, 1995
10.19-- Jameson 1996 Stock Incentive Plan
incorporated by reference to Exhibit 10.45 to
the Annual Report filed on Form 10-K for the
year ended December 31, 1995
10.20-- Jameson 1997 Director Stock Option Plan
incorporated by reference to Exhibit 10.17 to
the Annual Report filed on Form 10-K for the
year ended December 31, 1997
</TABLE>
67
<PAGE> 71
<TABLE>
<S> <C>
10.21-- Indemnification and Hold Harmless Agreement
between Jameson Inns, Inc. and Jameson
Hospitality, LLC (formerly Jameson Operating
Company) incorporated by reference to Exhibit
10.25 to the Registration Statement on Form
S-11, File No. 33-71160
10.22-- Indemnification and Hold Harmless Agreement
between Jameson Inns, Inc. and Jameson
Hospitality, LLC (formerly Kitchin Investments,
Inc.) incorporated by reference to Exhibit 10.26
to the Registration Statement on Form S-11, File
No. 33-71160
10.23-- Form of Indemnification agreement between
Jameson Inns., Inc. and Directors and Officers
incorporated by reference to Exhibit 10.27 to
the Registration Statement on Form S-11, File
No. 33-71160
10.24-- Form of Construction Loan Agreement, Indenture,
Security Agreement and Promissory Note for loan
from Empire Financial Services, Inc. to Jameson
Inns., Inc. (formerly Jameson Company) for
construction of Jameson Inn incorporated by
reference to Exhibit 10.39 to the Registration
Statement on Form S-11, File No. 33-71160
10.25-- Form of Construction Loan Indenture,
Security Agreement, Assignment of Fees and
Income, Promissory Note for $4.2 million
revolving loan from Empire Financial Services,
Inc. to Jameson Inns., Inc. incorporated by
reference to Exhibit 10.21 to the Annual Report
filed on Form 10-K for the year ended December
31, 1993
10.26-- Form of Deed to Secure Debt, Security
Agreement, Assignment of Operating Lease,
Assignment of Fees and Income, Promissory Note
for loan from Empire Financial Services, Inc.
to Jameson Inns., Inc. incorporated by
reference to Exhibit 10.24 to the Annual Report
filed on Form 10-K for the year ended December
31, 1995
</TABLE>
68
<PAGE> 72
<TABLE>
<S> <C>
10.27-- Loan Modification Agreement and Note
increasing by $2.6 million the revolving loan
from Empire Financial Services, Inc. to Jameson
Inns., Inc. incorporated by reference to
Exhibit 10.26 to the Annual Report filed on
Form 10-K for the year ended December 31, 1995
10.28-- Deeds to Secure Debt, Mortgages, Assignments
and Security Agreements, Assignment of Rents
and Leases, Assignments of Income and
Promissory Note for $17,171,717 loan from Bank
Midwest, N.A. to Jameson Inns, Inc. secured by
14 separate Jameson Inns incorporated by
reference to Exhibit 10.34 to the Registration
Statement on Form S-4, File No. 333-74149
10.29-- Adjustable Rate Note dated June 30, 1996 in the
amount of $1,050,000 from Jameson Inns., Inc.
to Empire Financial Services, Inc. for loan on
Waynesboro, Georgia incorporated by reference
to Exhibit 10.3 to the Report for the quarter
ended March 31, 1996
10.30-- Asset Purchase Agreement by and among Jameson
Outdoor Advertising Company, Jameson Inns, Inc.
and Jameson Hospitality, LLC dated as of
April 2, 1999.
10.31-- Term Loan Agreement dated as of December 28,
1999, between Jameson Inns, Inc. and First
National Bank & Trust; Mortgage; Security
Agreement; Assignment of Rents and Leases;
Mortgage Note for $3.7 million
</TABLE>
69
<PAGE> 73
<TABLE>
<S> <C>
10.32-- Loan Agreement between the City of Elkhart,
Indiana and Jameson Inns, Inc. dated as of
December 1, 1999, relating to the issuance of
$3,305,000 of Adjustable Rate Economic
Development Revenue Refunding Bonds, Series
1999; Trust Indenture between City of Elkhart,
Indiana and Firstar Bank, N.A. as Trustee, dated
as of December 1, 1999; Escrow Deposit Agreement
dated December 22, 1999, by and among Jameson
Inns, Inc., the City of Elkhart, Indiana, Bank
One Trust Company, NA as Escrow Trustee and Bank
One Trust Company, NA as Prior Trustee; Specimen
Irrevocable Letter of Credit dated December 22,
1999, for the benefit of bondholders for
the account of Jameson Inns, Inc.; Reimbursement
Agreement between Jameson Inns, Inc. and Firstar
Bank, N.A. dated December 22, 1999; Mortgage,
Assignment of Rents and Security Agreement from
Jameson Inns, Inc. to Firstar Bank, N.A. dated
as of December 22, 1999; Assignment of Leases
and Rents from Jameson Inns, Inc. to Firstar
Bank, N.A. dated as of December 22, 1999;
Assignment and Subordination of Master Lease by
Jameson Inns, Inc. and Jameson Hospitality, LLC
for the benefit of Firstar Bank, N.A. dated as
of December 22, 1999; Environmental Indemnity
Agreement by Jameson Inns, Inc. to and for the
benefit of Firstar Bank, N.A. dated as of
December 22, 1999; Agreement with respect to
Pledged Bonds by and among Firstar Bank, N.A.,
as Trustee, Firstar Bank, N.A. as Letter of
Credit Bank and Jameson Inns, Inc. dated as of
December 1, 1999; Bond Purchase Agreement by and
among the City of Elkhart, Indiana, Jameson
Inns, Inc. and Banc One Capital Markets, Inc.
dated as of December 21, 1999; Remarketing
Agreement between Banc One Capital Markets,
Inc. and Jameson Inns, Inc. dated as of December
1, 1999
10.33-- Schedule of documents substantially similar to
Exhibit 10.32
23.1-- Consent of Ernst & Young LLP
27.1-- Financial Data Schedule (for SEC use only)
</TABLE>
70
<PAGE> 74
Jameson Inns, Inc.
Consolidated Financial Statements
Years ended December 31, 1999 and 1998
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors......................................F-2
Consolidated Financial Statements
Consolidated Balance Sheets.........................................F-3
Consolidated Statements of Operations...............................F-4
Consolidated Statements of Stockholders' Equity.....................F-5
Consolidated Statements of Cash Flows...............................F-6
Notes to Consolidated Financial Statements..........................F-7
</TABLE>
F-1
<PAGE> 75
Report of Independent Auditors
The Board of Directors
Jameson Inns, Inc.
We have audited the accompanying consolidated balance sheets of Jameson Inns,
Inc. as of December 31, 1999 and 1998, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Jameson Inns, Inc. at December 31, 1999 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with auditing principles generally
accepted in the United States.
Atlanta, Georgia
February 8, 2000
F-2
<PAGE> 76
Jameson Inns, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
---------------------------------------
<S> <C> <C>
ASSETS
Operating property and equipment $ 318,601,921 $ 168,880,042
Property and equipment held for sale 2,532,131 --
Less accumulated depreciation (24,551,080) (16,754,843)
---------------------------------------
296,582,972 152,125,199
Cash 2,531,009 500,377
Restricted cash 12,616,482 --
Lease revenue receivable 6,941,315 2,289,753
Deferred finance costs, net 2,942,324 1,110,336
Other assets 1,237,643 303,497
---------------------------------------
$ 322,851,745 $ 156,329,162
=======================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes payable $ 173,957,998 $ 53,697,435
Accounts payable and accrued expenses 1,269,334 199,730
Accounts payable to affiliates 6,475,510 2,087,106
Accrued interest payable 972,544 350,436
Accrued property taxes 2,178,719 432,168
Preferred stock dividends payable 1,694,595 693,750
---------------------------------------
186,548,700 57,460,625
Stockholders' equity:
Preferred stock, 1,272,727 shares authorized,
9.25% Series A Cumulative Preferred Stock,
$1 par value, liquidation preference $25 per
share, 1,272,727 (1,200,000 in 1998) shares issued
and outstanding 1,272,727 1,200,000
Preferred stock, 2,256,000 shares authorized, 8.5%
Series S Cumulative Convertible
Preferred Stock, $1 par value, liquidation
preference $20 per share, 2,256,000 shares
(0 in 1998) issued and outstanding 2,256,000 --
Common stock, $.10 par value, 40,000,000 shares
authorized, 11,083,952 shares (9,895,810 in 1998)
issued and outstanding 1,108,395 989,581
Additional paid-in capital 132,692,914 97,705,947
Retained deficit (1,026,991) (1,026,991)
---------------------------------------
Total stockholders' equity 136,303,045 98,868,537
---------------------------------------
$ 322,851,745 $ 156,329,162
=======================================
</TABLE>
See accompanying notes.
F-3
<PAGE> 77
Jameson Inns, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Lease revenue $ 34,668,532 $ 18,229,748 $ 12,966,185
Expenses:
Property tax expense 2,619,999 1,041,687 683,902
Insurance expense 566,351 481,932 422,890
Depreciation 10,396,468 5,636,079 3,898,091
General and administrative expenses 1,130,577 592,041 444,908
Loss on disposal of furniture and
equipment 755,214 507,718 143,544
Write off of offering costs 99,724 -- --
Loss on impairment of real estate -- 2,507,000 --
------------------------------------------------------
Total expenses 15,568,333 10,766,457 5,593,335
------------------------------------------------------
Income from operations 19,100,199 7,463,291 7,372,850
Interest expense, net of capitalized amounts 8,429,007 1,656,240 777,718
Equity in income of hotel limited partnership 75,462 -- --
Other income 23,913 -- --
------------------------------------------------------
Income before extraordinary loss 10,770,567 5,807,051 6,595,132
Extraordinary loss-early extinguishment of
debt -- 133,951 689,542
------------------------------------------------------
Net income 10,770,567 5,673,100 5,905,590
Less preferred stock dividends 5,387,248 2,188,050 --
======================================================
Net income attributable to common
stockholders $ 5,383,319 $ 3,485,050 $ 5,905,590
======================================================
Per common share:
Income before extraordinary loss:
Basic $ .51 $ .37 $ .72
Diluted $ .51 $ .36 $ .70
Net income:
Basic $ .51 $ .36 $ .64
Diluted $ .51 $ .35 $ .63
</TABLE>
See accompanying notes.
F-4
<PAGE> 78
Jameson Inns, Inc.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
PREFERRED PREFERRED
STOCK STOCK COMMON CONTRIBUTED RETAINED STOCKHOLDERS'
SERIES A SERIES S STOCK CAPITAL DEFICIT EQUITY
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $ -- $ -- $ 735,747 $ 51,054,202 $ (1,026,991) $ 50,762,958
Issuance of common stock, net of
offering expense -- -- 234,549 25,887,675 -- 26,122,224
Exercise of stock options -- -- 6,981 413,417 -- 420,398
Vesting of stock options -- -- -- 37,424 -- 37,424
Vesting of restricted stock grants -- -- 131 70,652 -- 70,783
Common stock dividends ($0.90 per
share) -- -- -- (2,252,906) (5,905,590) (8,158,496)
Net income -- -- -- -- 5,905,590 5,905,590
-----------------------------------------------------------------------------------------
Balance at December 31, 1997 -- -- 977,408 75,210,464 (1,026,991) 75,160,881
Issuance of preferred and common
stock, net of offering expense 1,200,000 -- 4,253 27,839,002 -- 29,043,255
Exercise of stock options -- -- 5,930 353,089 -- 359,019
Vesting of restricted stock grants -- -- 1,990 60,442 -- 62,432
Common stock dividends ($0.94 per
share) -- -- -- (3,784,845) (5,457,255) (9,242,100)
Preferred stock dividends ($1.82
per share) -- -- -- (1,972,205) (215,845) (2,188,050)
Net income -- -- -- -- 5,673,100 5,673,100
-----------------------------------------------------------------------------------------
Balance at December 31, 1998 1,200,000 -- 989,581 97,705,947 (1,026,991) 98,868,537
Issuance of preferred and common
stock, net of offering expense 72,727 2,256,000 117,341 39,585,070 -- 42,031,138
Exercise of stock options -- -- 1,501 100,302 -- 101,803
Vesting of restricted stock grants -- -- (28) 67,653 -- 67,625
Common stock dividends ($.97 per
share) -- -- -- (4,072,307) (6,077,070) (10,149,377)
Preferred stock dividends-Series S
($1.10 per share) -- -- -- -- (2,486,112) (2,486,112)
Preferred stock dividends-Series A
($2.28 per share) -- -- -- (693,751) (2,207,385) (2,901,136)
Net income -- -- -- -- 10,770,567 10,770,567
------------------------------------------------------------------------------------------
Balance at December 31, 1999 $ 1,272,727 $ 2,256,000 $ 1,108,395 $132,692,914 $ (1,026,991) $136,303,045
==========================================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 79
Jameson Inns, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 10,770,567 $ 5,673,100 $ 5,905,590
Adjustments to reconcile net income to cash
provided by operating activities:
Extraordinary loss -- 133,951 596,526
Depreciation and amortization 10,624,136 5,750,186 3,977,605
Equity in income of hotel limited partnership (75,462) -- --
Write off of offering costs 99,724 -- --
Loss on disposal of furniture and equipment 755,214 507,718 143,544
Stock-based compensation expense 67,625 62,432 108,207
Loss on impairment of real estate -- 2,507,000 --
Changes in assets and liabilities increasing
(decreasing) cash:
Lease revenue receivable (4,651,562) (832,081) (773,048)
Restricted cash 882,592 -- --
Other assets (894,526) (206,712) 186,794
Accounts payable and accrued expenses 730,989 (13,681) 193,290
Accounts payable to affiliates 4,605,402 (98,778) 1,552,424
Accrued interest payable (7,893) 185,679 44,214
Accrued property taxes and other accrued
liabilities 295,263 176,294 125,205
------------------------------------------------
Net cash provided by operating activities 23,202,069 13,845,108 12,060,351
INVESTING ACTIVITIES
Acquisition of Signature Inns and billboards, net 92,092 -- --
Proceeds from disposition of property and equipment 1,441,586 -- --
Additions to property and equipment (41,761,690) (55,844,810) (37,362,186)
------------------------------------------------
Net cash used in investing activities (40,228,012) (55,844,810) (37,362,186)
FINANCING ACTIVITIES
Common stock dividends paid (10,149,377) (9,242,100) (8,158,496)
Preferred stock dividends paid (4,386,403) (1,494,300) --
Proceeds from issuance of preferred and
common stock, net of offering expense 977,230 29,043,255 26,122,224
Proceeds from exercise of stock options 101,803 359,019 420,398
Proceeds from mortgage notes payable 62,003,310 53,936,020 33,919,713
Payment of deferred finance costs (2,001,251) (576,922) (260,306)
Payments on mortgage notes payable (27,488,737) (29,863,474) (26,612,029)
------------------------------------------------
Net cash provided by financing activities 19,056,575 42,161,498 25,431,504
------------------------------------------------
Net increase in cash 2,030,632 161,796 129,669
Cash at beginning of year 500,377 338,581 208,912
------------------------------------------------
Cash at end of year $ 2,531,009 $ 500,377 $ 338,581
================================================
SUPPLEMENTAL INFORMATION
Interest paid, net of interest capitalized $ 8,746,028 $ 2,252,778 $ 733,504
================================================
State income and franchise taxes paid $ 11,824 $ 17,353 $ 16,752
================================================
</TABLE>
See accompanying notes.
F-6
<PAGE> 80
Jameson Inns, Inc.
Notes to Consolidated Financial Statements
December 31, 1999
1. BUSINESS AND BASIS OF FINANCIAL STATEMENTS
Jameson Inns, Inc. ("the Company") develops and owns limited service hotel
properties (the "Inns") operating under the trademark "The Jameson Inn(R)." In
addition, as a result of the Company's acquisition of Signature Inns, Inc.
("Signature") in May of 1999, the Company owns Inns in the Midwest operating
under the trademark "Signature Inns(R)".
On May 7, 1999, the Company merged with Signature, a limited-service hotel
company based in Indiana with Inns located in Midwestern states. Through the
Signature merger, the Company acquired 25 wholly-owned Signature Inns (2,978
available rooms) and a 40% general partnership interest in a limited
partnership which owned one additional Signature Inn (81 available rooms). In
December 1999 the Company acquired the remaining partnership interest in this
partnership and took direct ownership of the hotel.
At December 31, 1999, there were 88 Jameson Inns in operation in seven
Southeastern states and 26 Signature Inns in operation in six Midwestern
states, with a total of 7,300 rooms and an additional 24 Jameson Inns under
development, including 22 under construction and contracts to acquire two
additional parcels of land on which additional Jameson Inns are expected to be
constructed during 2000 and 2001. At December 31, 1999, a 20-room expansion of
one existing Jameson Inn was also being constructed.
F-7
<PAGE> 81
Jameson Inns, Inc.
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES
The Company has several business relationships with Jameson Hospitality, LLC
("JH") including contracts to construct the new Inns (see Note 11) and the
lease to operate the Inns (see Note 6). JH is the successor to Jameson
Development Company, LLC and Jameson Operating Company II, LLC which previously
held the contracts and the lease, respectively and Kitchin Investments, Inc.,
which was merged into JH on December 31, 1999. JH is wholly-owned by Thomas W.
Kitchin, chairman and chief executive officer of the Company, and members of
his family.
The Company's principal business also includes arranging construction and
permanent financing, land acquisition, ownership of the Inns and billboards,
capital improvements to the Inns, and acquisition and replacement of furniture,
fixtures and equipment for the Inns.
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 amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Costs incurred to acquire and open new Inn locations or to renovate existing
Inns are capitalized as property costs and amortized over their depreciable
life. The Company also capitalizes construction period interest costs and real
estate taxes. Interest costs of $1,596,925 and $1,125,935, were capitalized in
1999 and 1998, respectively.
Property and equipment used in Inn operations is depreciated using the
straight-line method generally over 31.5 to 39 years (buildings), 15 years
(land improvements) and three to five years (furniture, fixtures and
equipment). Billboards are depreciated over ten years (see Note 5).
F-8
<PAGE> 82
Jameson Inns, Inc.
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
DEFERRED FINANCE COSTS
Deferred finance costs represent fees and other expenses incurred to obtain
long-term debt financing on the Inn facilities and are amortized to expense
over the terms of the loans, beginning with the opening of the Inn.
Amortization of deferred finance costs is included in interest expense on the
consolidated statements of operations. Accumulated amortization totaled $408,578
and $180,910 as of December 31, 1999 and 1998, respectively.
INCOME TAXES
The Company has elected to be taxed as a REIT under the Internal Revenue Code
of 1986, as amended (the "Code"), and has operated as such since January 1,
1994. As a result, the Company is not subject to federal income taxes to the
extent that it distributes annually at least 95% of its taxable income to its
shareholders and satisfies certain other requirements defined in the Code.
The Company uses the liability method of accounting for income taxes, which
amounts have not been material since the REIT election.
STOCK-BASED COMPENSATION
The Company uses the intrinsic value method for valuing its awards of stock
options, restricted stock and other stock awards and recording the related
compensation expense, if any. This compensation expense is included in general
and administrative expense which is allocated as part of the Cost Reimbursement
Agreement described in Note 11.
See Note 8 for pro forma disclosures using the fair value method as described
in Financial Accounting Standards Board Statement No. 123, Accounting for
Stock-Based Compensation ("FAS 123").
F-9
<PAGE> 83
Jameson Inns, Inc.
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS
The Company considers its cash, restricted cash, and mortgage notes payable to
meet the definition of financial instruments as prescribed by Financial
Accounting Standards Board Statement No. 107, Disclosures about Fair Value of
Financial Instruments. At December 31, 1999 and 1998, the carrying value of the
Company's financial instruments approximated their fair value.
RESTRICTED CASH
Restricted cash represents amounts that have been funded from bond issuances,
held in trust, primarily to retire four outstanding bonds payable. In January
2000, $12,115,000 of the restricted cash was used to retire such bonds.
PRINCIPLES OF CONSOLIDATION
Intercompany transactions among the entities included in the consolidated
financial statements have been eliminated. As of December 31, 1999, the Company
had one wholly-owned and two 99.8%-owned qualified real estate investment trust
subsidiaries. Various companies wholly-owned by the Company's Chairman and CEO
and members of his family own the remaining 0.2% of these two subsidiaries.
The equity in income in hotel limited partnership represents the Company's 40%
general partnership interest in the Carmel, Indiana Signature Inn limited
partnership. The investment was accounted for using the equity method of
accounting whereby the Company recorded its proportionate share of the
partnership's income. On December 28, 1999, the Company purchased the remaining
60% partnership interest, therefore, the operations of the partnership from
December 28, 1999 to December 31, 1999 are consolidated in the Company's
financial statements.
F-10
<PAGE> 84
Jameson Inns, Inc.
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
Net income attributable to common stock is reduced by all preferred stock
dividends declared through the end of the period.
Basic earnings per share is calculated using weighted average shares
outstanding less issued and outstanding but unvested restricted shares of
Common Stock.
Diluted earnings per share is calculated using weighted average shares
outstanding plus the dilutive effect of outstanding shares of Preferred Stock,
outstanding restricted shares of Common Stock and outstanding stock options,
using the treasury stock method and the average stock price during the period.
The potential conversion of the Redeemable Series S Preferred Stock has been
excluded from the dilutive earnings per share calculation as the effects of
redemption would be antidilutive.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
---------------------------------
<S> <C> <C>
Land and improvements $ 57,449,978 $ 34,671,144
Buildings 208,229,439 98,322,232
Furniture, fixtures and equipment 30,262,230 18,849,944
Billboards 2,537,437 -
Construction in process 20,122,837 17,036,722
---------------------------------
Operating property and equipment 318,601,921 168,880,042
Property and equipment held for sale 2,532,131 -
Accumulated depreciation (24,551,080) (16,754,843)
---------------------------------
$296,582,972 $152,125,199
=================================
</TABLE>
In 1996, the Company adopted Financial Accounting Standards Board Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to
F-11
<PAGE> 85
Jameson Inns, Inc.
Notes to Consolidated Financial Statements (continued)
Be Disposed Of, which requires impairment losses to be recorded on long-lived
assets used in operations or held for sale when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. During 1998, the Company
recognized a $2,507,000 loss on impairment of real estate related to one of its
properties. In 1999 the property was sold and the sales price approximated its
carrying value. No impairment losses have been recognized in 1999 or 1997.
F-12
<PAGE> 86
Jameson Inns, Inc.
Notes to Consolidated Financial Statements (continued)
3. PROPERTY AND EQUIPMENT (CONTINUED)
Based on a review of its investment portfolio at December 31, 1999, the Company
has determined that one property does not meet its investment criteria.
Accordingly, the Company has decided to sell the property and therefore the
property is classified as held for sale in the accompanying balance sheet. In
February 2000, the Company closed on the sale of this hotel property. The sales
price, less selling costs, approximated the carrying amount. In addition, the
Company owns several parcels of land adjacent to operating Inns which are held
for sale at December 31, 1999. The hotel property and parcels of land held for
sale are recorded at the lower of cost or fair value less anticipated selling
costs.
4. MERGER WITH SIGNATURE INNS, INC.
On May 7, 1999, the Company completed its merger with Signature Inns, Inc. In
the merger, the Company acquired 25 Signature Inns located in six Midwestern
states and a 40% general partnership interest in a partnership which owned one
Signature Inn. Immediately prior to the merger, the Signature operating assets
were sold to, and the liabilities pertaining to the operations of the Signature
Inns were assumed by JH in connection with the merger, the Company entered into
a new master lease with JH covering the 25 wholly-owned Signature Inns (See Note
6).
In the merger, holders of Signature common stock received one-half of a share
of Jameson common stock and $1.22 in cash for each share of Signature common
stock. Holders of Signature Series A Preferred Stock received one share of
Jameson Series S Preferred Stock for each share of Signature Series A Preferred
Stock. In the merger, the Company assumed all of the outstanding indebtedness
of Signature, except for $2.1 million which was repaid at closing with
additional borrowings under the Company's line of credit. As of May 7, 1999,
the debt assumed totaled $67.1 million and was secured by mortgages on
twenty-four of the Signature Inns.
F-13
<PAGE> 87
Jameson Inns, Inc.
Notes to Consolidated Financial Statements (continued)
4. MERGER WITH SIGNATURE INNS, INC. (CONTINUED)
The purchase price of Signature approximated $46.3 million, consisting of $2.6
million in cash, the issuance of 1,051,846 shares of Jameson Common Stock (at
$9.125 per share), 2,256,000 shares of Jameson Series S Preferred Stock (at
$13.375 per share), and merger related costs of approximately $4.0 million. The
purchase price has been allocated to the fair value of the net assets acquired
as follow:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 6,721,951
Restricted cash 1,384,074
Hotel limited partnership 1,079,675
Property and equipment 108,332,245
Amount due from affiliates 398,447
Accounts payable and accrued expenses (277,580)
Accrued interest payable (630,001)
Accrued property taxes (1,411,796)
Mortgage notes payable (69,231,797)
------------
$ 46,365,218
============
</TABLE>
The merger was accounted for as a purchase of Signature by Jameson as
prescribed by Accounting Principles Board Opinion No. 16, Business
Combinations. Accordingly, the historical results of Jameson include the
effects of the merger beginning May 8, 1999.
F-14
<PAGE> 88
Jameson Inns, Inc.
Notes to Consolidated Financial Statements (continued)
4. MERGER WITH SIGNATURE INNS, INC. (CONTINUED)
The following presents the unaudited pro forma results of operations as if the
purchase and all related transactions were consumed on January 1, of the
respective period for the year ended December 31. Such information reflects the
allocation of the purchase price.
<TABLE>
<CAPTION>
1999 1998
------------------------------------
<S> <C> <C>
Pro forma:
Lease revenues $ 39,626,806 $ 35,081,173
Income before extraordinary items 10,616,738 9,481,780
Extraordinary items -- 133,951
------------------------------------
Net income 10,616,738 9,347,829
Preferred stock dividends 6,736,336 6,023,250
------------------------------------
Net income attributable to common stock $ 3,880,402 $ 3,324,579
=====================================
Pro forma earnings per share:
Basic earnings per common share:
Income before extraordinary items $ .36 $ .32
Extraordinary items -- (.01)
------------------------------------
Net income $ .36 $ .31
=====================================
Diluted earnings per common share:
Income before extraordinary items $ .35 $ .31
Extraordinary items -- (.01)
------------------------------------
Net income $ .35 $ .30
=====================================
</TABLE>
F-15
<PAGE> 89
Jameson Inns, Inc.
Notes to Consolidated Financial Statements (continued)
5. ACQUISITION OF OUTDOOR ADVERTISING ASSETS OF JAMESON HOSPITALITY, LLC
On April 2, 1999, the Company completed the acquisition of the outdoor
advertising assets and certain operations of JH. These assets consist of
approximately 100 roadside billboards on which advertising for the Company's
hotel properties and, in certain instances, other services or products for third
parties, is placed. These billboards were leased to JH and continue to be used
for similar types of advertising. Consideration of $2,381,000 paid to JH
consisted of (i) 72,727 newly issued shares of the Company's Series A Preferred
Stock (at $17.625 per share), (ii) $400,000 in cash, and (iii) the assumption of
indebtedness of approximately $700,000 which is secured by mortgages on the
billboards and the revenues generated therefrom.
6. THE LEASES
The Company has entered into master leases, whereby all of the operating Inns
are leased to JH. Therefore, all of the lease revenue and related receivables
are derived from these leases.
The Jameson and Signature leases, which expire December 31, 2007 and 2012,
respectively, provide for payment of Base Rent plus Percentage Rent. Base Rent,
which is payable and recorded monthly, equals $264 and $394 per month for the
Jameson Inns and Signature Inns, respectively, for each rentable room in the
Inns at the beginning of the relevant month.
Percentage Rent, which is payable quarterly, is calculated as a percentage in
excess of Base Rent of the total amount of room rental and other miscellaneous
revenues realized by JH over the relevant period. For Jameson Inns, the
percentage is 39% of such revenues up to $22.18 per day per room in 1999 over
the period, plus 65% of all additional average daily room rental revenues. For
Signature Inns, the percentage is 37% of such revenues up to $35.80 per day per
room in 1999 over the period, plus 65% of all additional average daily room
rental revenues.
F-16
<PAGE> 90
Jameson Inns, Inc.
Notes to Consolidated Financial Statements (continued)
6. THE LEASES (CONTINUED)
Total rent for the Jameson Inns in any calendar year may not exceed 47% of total
room rental revenues for that year. The $22.18 and $35.80 per room amount, for
Jameson Inns and Signature Inns, respectively, used in calculating percentage
rent is subject to adjustment each year based on changes in the Consumer Price
Index and as of January 1, 2000 was $23.16 and $37.38 for Jameson Inns and
Signature Inns, respectively.
Base rent totaled $20,998,052, $10,501,920 and $7,532,712 in 1999, 1998 and
1997, respectively, and assuming the same number of rooms in operation as at
December 31, 1999, would total $27,898,440 per year until the Lease expires.
The Lease requires the Company to pay real and personal property taxes, casualty
and liability insurance premiums and the cost of maintaining structural
elements, including underground utilities and the cost of replacing or
refurbishing the furniture, fixtures and equipment in the Inns. The Company
intends to maintain cash reserves or sufficient access to borrowings equal to 4%
of room revenues of JH, less amounts expended to date, to fund the Company's
future capital expenditures for such replacements and refurbishments. JH is
required to pay workers compensation insurance premiums, utility costs and all
other costs and expenses incurred in the operations of the Inns.
F-17
<PAGE> 91
Jameson Inns, Inc.
Notes to Consolidated Financial Statements (continued)
7. MORTGAGE NOTES PAYABLE
As of December 31, long-term debt consists of:
<TABLE>
<CAPTION>
1999 1998
---------------------------------
<S> <C> <C>
Notes payable on Inns:
Terms ranging from seven to twenty-one years, due in monthly installments of
principal and interest with remaining unpaid balances payable in full at
maturity, which range from 2000 to 2017. Interest rates are adjusted
annually and range from 7.785% to 10% and are mainly adjustable to a spread
above the prime rate or Treasury securities at December 31, 1999.
Secured by mortgages on 67 of the Inns as of December 31, 1999. $108,534,789 $23,843,114
Term of twenty years and interest accrues at a margin of 3.75% above a weekly
average yield on Treasury securities, adjusted annually (8.26% at December
31, 1999). Principal and interest payments are due monthly and are being
amortized through maturity in 2019. Secured by mortgages on 14 of the Inns. 16,780,358 --
Terms of 17 years, due in annual installments of principal and bi-annual
installments of interest with any remaining unpaid balances payable in full
December 2016. Interest rates are adjusted weekly and were 5.65% at
December 31, 1999. Secured by mortgages on 4 of the Inns. 12,115,000 --
Notes payable on Company owned billboards:
Terms of five years due in monthly installments of principal and interest
with remaining unpaid balances payable in full at maturity which range from
2000 to 2004. Interest rates are fixed and ranged from 9.50% to 11% at
December 31, 1999. Secured by the Company's billboards. 646,984 --
</TABLE>
F-18
<PAGE> 92
Jameson Inns, Inc.
Notes to Consolidated Financial Statements (continued)
7. MORTGAGE NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
1999 1998
---------------------------------
<S> <C> <C>
Lines of credit:
$33.7 million line of credit convertible beginning in 2000 to term notes due
at various dates through 2007. At December 31, 1999, the Company had $20.4
million of availability. The Line bears interest at initial annual rates
ranging from 8.5% to 9.0%, adjusted annually to the prime rate plus .25% to
.5%, with a floor of 7% and a cap of 13% (8% to 8.5% at December 31, 1999).
Payments of interest are due monthly, and monthly payments of principal and
interest commence at various dates beginning April 2000. Principal under
each term loan will be amortized using a 15-year period and payable in full
at various dates from 2003 to 2007. Secured by mortgages on 27 of the Inns. 13,332,203 27,463,179
$600,000 line of credit secured by billboards. At December 31, 1999, the
Company had $576,918 available to borrow. The line bears interest at an
initial rate of 9.50%, which is adjusted periodically to the prime rate
plus 1%. Payments of interest are due monthly with the principal balance
payable in full upon maturity in December 2000. 23,082 --
Construction obligations:
$44.5 million total commitments. As of December 31, 1999, $34.1 million was
available for borrowing. The construction loans have terms of seven years
and are due in monthly installments of interest only for 18 months and
principal and interest using a 15- or 20-year amortization period until
maturity. Interest rates are adjusted annually to the then prevailing prime
rate plus .125% to prime plus .375%. Interest rates at December 31, 1999
ranged from 7.875% to 8.625%. Secured by 20 Inns under construction. 10,410,577 2,391,142
$12,115,000 of bonds payable maturing December 2016, secured by
restricted cash, with interest at 9.8%. In January 2000, all such
bonds were retired utilizing the Company's restricted cash. 12,115,000 --
---------------------------------
$173,957,998 $53,697,435
=================================
</TABLE>
F-19
<PAGE> 93
Jameson Inns, Inc.
Notes to Consolidated Financial Statements (continued)
7. MORTGAGE NOTES PAYABLE (CONTINUED)
At December 31, 1999 and 1998, approximately $286.5 million and $119.0 million,
respectively, of the Company's net book value of property and equipment
collateralized the mortgage notes payable. At December 31, 1999 and 1998, the
carrying value of the long-term debt approximated its fair value.
The following table summarizes the scheduled aggregate principal payments for
the five years subsequent to December 31, 1999:
<TABLE>
<S> <C>
2000 $ 22,775,918
2001 7,630,953
2002 5,567,345
2003 19,861,256
2004 14,414,037
Thereafter 103,708,489
-------------
$ 173,957,998
=============
</TABLE>
The Company used proceeds of its preferred stock offering in 1998 and common
stock offering in 1997 to early extinguish debt in those years. As a result of
the early extinguishment of certain debt in 1998 and 1997, the Company had
extraordinary losses of $133,951 and $689,542, respectively, comprised of the
write-off of unamortized deferred finance costs and prepayment penalties.
8. STOCKHOLDERS' EQUITY
PREFERRED STOCK
On May 7, 1999, in connection with the Signature merger, the Company issued
2,256,000 shares of 8.5% Series S Cumulative Convertible Preferred Stock
("Series S Preferred Stock") at $13.375 per share. The Series S Preferred Stock
is senior to all shares of the Company's common stock and is on a parity with
the Company's 9.25% Series A Preferred Stock ("Series A Preferred Stock").
F-20
<PAGE> 94
Jameson Inns, Inc.
Notes to Consolidated Financial Statements (continued)
8. STOCKHOLDERS' EQUITY (CONTINUED)
PREFERRED STOCK (CONTINUED)
On March 18, 1998, the Company completed the sale of 1,200,000 newly issued
shares of 9.25% Series A Preferred Stock at $25 per share before underwriting
discounts and expenses. Net proceeds of approximately $28.5 million were used to
repay certain existing mortgage indebtedness at that date.
Dividends on the Series A and Series S Preferred Stock are cumulative from the
date of original issue and are payable quarterly in arrears on or about the 20th
day of January, April, July and October to shareholders of record on the last
business day of December, March, June and September at the fixed rate of 9.25%
per annum of the liquidation preference of $25 per share (equivalent to a fixed
annual rate of $2.3125 per share) for the Series A Preferred Stock and at the
fixed rate of 8.5% per annum of the liquidation preference of $20 per share
(equivalent to a fixed annual rate of $1.70 per share) for the Series S
Preferred Stock.
Holders of Series A and Series S Preferred Stock generally will have no voting
rights except as required by law. In addition, certain changes to the terms of
the Series A and Series S Preferred Stock that would be materially adverse to
the rights of holders of the Series A and Series S Preferred Stock cannot be
made without the affirmative vote of holders of at least a majority of the
outstanding Series A and a two-thirds vote of the Series S Preferred Stock.
The Series S Preferred Stock is convertible into the Company's common stock, at
the option of the holder at the stated Conversion Price (as defined).
Additionally, at any time on or after February 1, 2000, the Company has the
right to redeem any, or all, of the Series S Preferred Stock, plus accrued and
unpaid dividends, at the Redemption Price, as defined, which ranges from $20.00
to $20.97 per share (depending on the date of redemption). The holders do not
have the option to redeem the Series S Preferred Stock.
The Series A Preferred Stock is not convertible into or exchangeable for any
other property or securities.
F-21
<PAGE> 95
Jameson Inns, Inc.
Notes to Consolidated Financial Statements (continued)
8. STOCKHOLDERS' EQUITY (CONTINUED)
Upon the occurrence of a Change of Control Event, as defined, at any time prior
to March 18, 2003, the Company may redeem all of the outstanding Series A
Preferred Stock at a purchase price ranging from $25.05 to $26.05 per share
(depending on the date of the redemption), plus accrued and unpaid dividends (if
any) to the date of redemption. Except in certain circumstances relating to
preservation of the Company's status as a REIT and in connection with a change
of control of the Company, the Series A Preferred Stock is not redeemable prior
to March 18, 2003. On and after such date, the Series A Preferred stock will be
redeemable for cash at the option of the Company, in whole or in part, at a
redemption price of $25 per share, plus dividends accrued and unpaid to the
redemption date (whether or not declared) without interest.
STOCK OPTIONS
The Company has four stock option plans. The Company adopted the 1993 Stock
Incentive Plan ("1993 Plan") to provide incentives to attract and retain
officers and key employees of both the Company and JH. The 1993 Plan provides
for a number of shares equal to 10% of the Company's outstanding common shares
(excluding shares issued pursuant to exercises of options granted under the 1993
Plan). The Jameson 1996 Stock Incentive Plan ("1996 Plan") provides for 500,000
additional shares reserved for issuance. As of December 31, 1999 the Company had
a total of 1,505,107 shares reserved for issuance, including 735,136 shares
available for future option grants and restricted stock grants under the 1993
and 1996 Plans.
F-22
<PAGE> 96
Jameson Inns, Inc.
Notes to Consolidated Financial Statements (continued)
8. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS (CONTINUED)
The Director Stock Option Plan ("1995 Director Plan") reserved 150,000 shares of
Common Stock to attract and retain qualified independent directors. This plan
provides that, upon election to the Board of Directors, each director will
receive options to purchase 25,000 shares of common stock at the then current
market price; such options are fully vested upon issuance. In addition, the
Company adopted the 1997 Director Stock Option Plan ("1997 Director Plan") which
reserved 200,000 shares of Common Stock and provides that at time of the
Company's approval of the plan and subsequently upon each annual shareholders
meeting, each independent director will be granted an option to purchase 5,000
shares at the then current market price with all shares becoming fully vested
upon issuance. As of December 31, 1999, a total of 350,000 options are reserved
for issuance under the 1995 and 1997 Director Plans, including 230,000 options
available for future option grants.
F-23
<PAGE> 97
Jameson Inns, Inc.
Notes to Consolidated Financial Statements (continued)
8. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS (CONTINUED)
A summary of the stock option activity in the four plans follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER RANGE OF AVERAGE
OF EXERCISE PRICE EXERCISE PRICE
SHARES PER SHARE PER SHARE
----------------------------------------------------
<S> <C> <C> <C>
Options outstanding December 31, 1996 427,843 $ 6.65 - $10.875 $ 7.36
Granted in 1997 497,000 $11.375 - $11.75 $11.63
Exercised in 1997 (86,992) $ 6.65 - $10.875 $ 7.11
Forfeited in 1997 (30,000) $ 7.25 - $11.75 $11.28
-------
Options outstanding December 31, 1997 807,851 $ 6.65 - $11.75 $ 9.87
Granted in 1998 175,000 $ 9.125 - $11.375 $10.63
Exercised in 1998 (50,737) $ 6.65 - $10.875 $ 7.07
Forfeited in 1998 (84,000) $ 10.00 - $11.75 $11.39
-------
Options outstanding December 31, 1998 848,114 $ 6.65 - $11.75 $10.04
Granted in 1999 231,835 $ 7.125 - $ 9.75 $ 7.91
Exercised in 1999 (14,758) $ 6.65 - $ 7.25 $ 7.11
Forfeited in 1999 (175,220) $ 7.25 - $11.75 $11.03
-------
Options outstanding December 31, 1999 889,971 $ 6.65 - $11.75 $ 9.38
=======
Options exercisable:
December 31, 1997 365,855 $ 6.65 - $11.62 $ 7.78
=======
December 31, 1998 417,714 $ 6.65 - $11.75 $ 8.71
=======
December 31, 1999 458,971 $ 6.65 - $11.75 $ 9.02
=======
</TABLE>
The average contractual life remaining on options outstanding at December 31,
1999 was 6.88 years.
F-24
<PAGE> 98
Jameson Inns, Inc.
Notes to Consolidated Financial Statements (continued)
8. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS (CONTINUED)
RESTRICTED STOCK
In 1999, 1998 and 1997, the Company awarded 4,750, 20,821 and 1,400 shares,
respectively of Common Stock to certain officers and employees of the Company
and JH, under the provisions of the 1996 Plan. The shares vest ten years after
date of grant, assuming the individual is continuously employed by one of the
two companies at that date. Holders are entitled to all dividends prior to
forfeiture or full vesting. As of December 31, 1999, 84,270 restricted shares of
common stock remain outstanding; the balance were forfeited and returned to the
Company.
Compensation expense resulting from the stock award is calculated as the fair
value of the restricted shares at the date of grant based on the market price at
date of grant; and is being recorded over the ten-year vesting period using the
straight line method, net of forfeitures. The expense recorded was $67,625 in
1999, $62,432 in 1998 and $62,389 in 1997.
F-25
<PAGE> 99
Jameson Inns, Inc.
Notes to Consolidated Financial Statements (continued)
8. STOCKHOLDERS' EQUITY (CONTINUED)
PRO FORMA EFFECTS OF STOCK-BASED COMPENSATION
Pro forma information regarding net income and earnings per share is required by
FAS 123, which also requires that the information be determined as if the
Company has accounted for its stock options and restricted stock granted
subsequent to December 31, 1994, using the fair value method prescribed by that
Statement. The fair value for these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following assumptions for
1999, 1998 and 1997; risk-free interest rates of 4.10% to 6.69%; a dividend
yield of 8%; a volatility factor of the expected market price of the Company's
Common Stock of .151, .196 and .197, respectively; and an expected life of the
option of 3 to 10 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options and shares which have no vesting restrictions and
are fully transferable. In addition, valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options and restricted stock have characteristics
significantly different from those of traded options or unrestricted shares, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its stock
options and restricted stock.
F-26
<PAGE> 100
Jameson Inns, Inc.
Notes to Consolidated Financial Statements (continued)
8. STOCKHOLDERS' EQUITY (CONTINUED)
PRO FORMA EFFECTS OF STOCK-BASED COMPENSATION (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period. The Company's pro forma
information follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------
<S> <C> <C> <C>
Pro forma net income (in 000's) $5,310 $3,419 $5,882
Pro forma earnings per share-basic $ .50 $ .35 $ .64
Pro forma earnings per share-diluted $ .50 $ .34 $ .62
</TABLE>
DIVIDEND REINVESTMENT PLAN
In April 1995, the Company registered 200,000 shares of common stock for
purchase under the Dividend Reinvestment and Stock Purchase Plan. The plan
allows existing shareholders to reinvest their dividends in additional shares
purchased at a 5% discount from the average market price of the shares. The plan
also allows existing shareholders to make additional cash purchases at the
current market price of common stock of up to $5,000 per calendar quarter.
During 1999, 1998 and 1997, 60,459, 41,726 and 45,483 shares, respectively, were
purchased through dividend reinvestments and additional cash purchases.
WARRANTS
As a part of its initial public offering, the Company issued and had warrants
outstanding to purchase up to 260,000 shares of Common Stock at an exercise
price of $14.85 per share; the warrants were exercisable in whole or in part
from date of grant until January 26, 1999. The warrants expired on that date
with no exercises.
F-27
<PAGE> 101
Jameson Inns, Inc.
Notes to Consolidated Financial Statements (continued)
9. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------------------
<S> <C> <C> <C>
NUMERATOR
Income before extraordinary loss $ 10,770,567 $ 5,807,051 $ 6,595,132
Extraordinary loss -- (133,951) (689,542)
--------------------------------------------------------
Net income 10,770,567 5,673,100 5,905,590
Preferred stock dividends 5,387,248 (2,188,050) --
--------------------------------------------------------
Numerator for basic earnings per share-income
available to common stockholders $ 5,383,319 $ 3,485,050 $ 5,905,590
========================================================
DENOMINATOR
Weighted average shares outstanding 10,628,980 9,836,624 9,285,670
Less: Unvested restricted shares (85,685) (64,734) (63,661)
--------------------------------------------------------
Denominator for basic earnings per share 10,543,295 9,771,890 9,222,009
Plus: Effect of dilutive securities
Employee and director stock options 46,849 95,497 146,511
Unvested restricted shares 67,402 61,509 44,999
--------------------------------------------------------
Total dilutive potential common shares 114,251 157,006 191,510
--------------------------------------------------------
Denominator for diluted earnings per
share-adjusted weighted average shares and
assumed conversions 10,657,546 9,928,896 9,413,519
========================================================
BASIC EARNINGS PER COMMON SHARE
Income before extraordinary loss $ .51 $ 0.37 $ 0.72
Extraordinary loss -- (.01) (.08)
--------------------------------------------------------
Net income per common share $ .51 $ 0.36 $ 0.64
========================================================
DILUTED EARNINGS PER COMMON SHARE
Income before extraordinary loss $ .51 $ 0.36 $ 0.70
Extraordinary loss -- (0.01) (.07)
--------------------------------------------------------
Net income $ .51 $ 0.35 $ 0.63
========================================================
</TABLE>
F-28
<PAGE> 102
Jameson Inns, Inc.
Notes to Consolidated Financial Statements (continued)
9. EARNINGS PER SHARE (CONTINUED)
Options to purchase 521,833, 503,833, and 27,500 shares of Common Stock during
1999, 1998, and 1997, respectively, and warrants to purchase 260,000 shares of
Common Stock during 1998 and 1997 were all outstanding but were not included in
the computation of diluted earnings per share because the securities' exercise
price was greater than the average market price of the common shares and,
therefore, the effect would be antidilutive. Additionally, the potential
conversion of the Series S Preferred Stock was not included in the computation
of diluted earnings per share as the effect of conversion would be antidilutive.
10. INCOME TAXES
The Company recorded no provision for federal income taxes in 1999, 1998 or 1997
due to its REIT status. State tax expense, which is not material, is included in
general and administrative expenses. At December 31, 1999, the Company had net
operating loss carryforwards of approximately $1.2 million available for federal
income tax purposes, which begin to expire in 2005. As a result of the REIT
election and change in ownership resulting from the IPO, future utilization of
the net operating loss carryforwards by the Company, may be limited.
The Company declared and paid dividends on its Common Stock of $.97, $.94 and
$.90 per share in 1999, 1998 and 1997, respectively. Of these dividends, $.48,
$.72 and $.73 per share represents ordinary income and $.49, $.22 and $.17 per
share represents return of capital in 1999, 1998 and 1997, respectively.
11. ADDITIONAL RELATED PARTY TRANSACTIONS
JH identifies sites and constructs the Inns for the Company. The Company paid JH
and its predecessor companies a total of $27,342,000, $41,055,000 and
$29,628,000 for construction of new Inns, Inn expansions, fitness centers or
renovations during the years ended December 31, 1999, 1998 and 1997,
respectively.
F-29
<PAGE> 103
Jameson Inns, Inc.
Notes to Consolidated Financial Statements (continued)
11. ADDITIONAL RELATED PARTY TRANSACTIONS (CONTINUED)
The Company shared employees and office space with Kitchin Investments, Inc.,
which until December 31, 1999 was wholly owned by Thomas W. Kitchin, the
Company's chairman and chief executive officer. Under the Cost Reimbursement
Agreement, Kitchin Investments, Inc. charged the Company approximately $360,000,
$200,000 and $220,000 for its allocation of salary, office overhead, and other
general and administrative costs in 1999, 1998 and 1997, respectively. On
December 31, 1999, Kitchin Investments, Inc, merged with JH and the Cost
Reimbursement Agreement was assumed by JH effective December 31, 1999.
12. OTHER COMMITMENTS AND CONTINGENCIES
As of December 31, 1999, the Company had executed or expected to execute
construction contracts with JH, for new Inns or expansions totaling $81.1
million, of which $63.8 million had not been expended.
The Company leases office space, land underlying certain of its Inns which
are built or under construction and land for each billboard location for terms
of five or ten years. Lease expense of $101,500, $71,600 and $12,900 in 1999,
1998, and 1997, respectively, is included in general and administrative expense
in the Company's statements of operations. The leases require future minimum
payments as follows:
<TABLE>
<S> <C>
2000 $ 613,891
2001 627,485
2002 611,483
2003 265,611
2004 162,694
Thereafter 6,625,890
---------------
$ 8,907,053
===============
</TABLE>
The rent expense under the office lease was paid by Kitchin Investments, Inc.
and was allocated under the Cost Reimbursement Agreement described in Note 11.
F-30
<PAGE> 104
Jameson Inns, Inc.
Notes to Consolidated Financial Statements (continued)
12. OTHER COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is a defendant or plaintiff in various legal actions which have
arisen in the normal course of business. In the opinion of management, the
ultimate resolution of these matters will not have a material adverse effect on
the Company's financial position or results of operations.
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 QUARTERS
--------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lease revenue $ 4,875,038 $ 9,322,064 $ 11,379,166 $ 9,092,264
Net income 1,627,806 3,811,516 3,983,628 1,347,617
Earnings per common share:
Net income:
Basic $ 0.10 $ 0.24 $ 0.21 $ (0.03)
Diluted $ 0.09 $ 0.24 $ 0.21 $ (0.03)
<CAPTION>
1998 QUARTERS
--------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
--------------------------------------------------------------------------------
Lease revenue $ 3,852,678 $ 4,742,604 $ 5,032,808 $ 4,601,658
Income before extraordinary loss 1,465,414 66,341 2,606,566 1,668,730
Net income (loss) 1,437,378 (11,673) 2,578,665 1,668,730
Earnings per common share:
Income before extraordinary loss:
Basic $ .14 $ (.06) $ .20 $ .10
Diluted $ .14 $ (.06) $ .19 $ .10
Net income:
Basic $ .14 $ (.07) $ .19 $ .10
Diluted $ .13 $ (.07) $ .19 $ .10
</TABLE>
F-31
<PAGE> 105
Jameson Inns, Inc.
Notes to Consolidated Financial Statements (continued)
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
Quarterly earnings per share do not sum to the annual earnings per share amounts
due to the effects of the timing of stock issuances and fluctuations in average
price during the period.
F-32
<PAGE> 106
Jameson Inns, Inc.
Schedule III - Real Estate and Accumulated Depreciation
As of December 31, 1999
<TABLE>
<CAPTION>
Cost Capitalization
Initial Cost Subsequent to Acquisition
------------------------- --------------------------
Buildings, Buildings,
Mortgage Equipment & Equipment &
Property Debt Land Improvements Land Improvements
- -------- ---- ---- ------------ ---- ------------
<S> <C> <C> <C> <C> <C>
Georgia:
Albany (f) $ 1,001,000 $265,344 $ 0 $ 92,308 $ 1,742,571
Americus 1,055,867 131,629 0 222,297 2,554,507
Bainbridge 929,827 125,000 0 0 1,656,835
Brunswick (f) 600,606 175,275 0 (0) 1,678,670
Calhoun (f) 1,001,000 113,722 0 18,008 1,685,566
Carrollton (f) 2,000 225,000 0 50,029 1,654,307
Commerce (f) 501,000 304,809 0 1,300 1,317,911
Conyers 735,725 301,128 0 (0) 2,247,825
Covington (f) 967,000 141,452 0 22,399 1,348,390
Dalton 1,776,444 546,257 0 1,550 2,258,785
Douglas (f) 1,000 120,033 0 0 1,191,027
Dublin (f) 10,000 0 0 0 1,425,343
Eastman (g) 1,198,597 87,883 0 13,917 1,432,761
Fitzgerald (g) 1,198,597 133,515 0 0 1,110,516
Greensboro (g) 1,198,597 109,840 0 17,394 1,515,668
Hartwell 1,055,867 85,000 0 13,460 1,416,952
Jesup (f) 1,001,000 89,917 0 14,239 2,088,777
Kingsland 1,078,102 283,432 0 0 1,429,018
Lagrange (f) 1,001,000 200,073 0 (0) 1,972,948
Macon (f) 478,227 288,518 0 (0) 1,390,149
Milledgeville 0 575,582 4,826,285 (530,186) (4,235,220)
Oakwood (f) 328,369 258,903 0 (0) 1,354,759
Perry (f) 35,000 238,325 0 0 1,400,988
Rome 993,456 254,849 0 0 3,741,127
Statesboro 1,055,867 132,817 0 21,032 1,498,651
Thomaston (f) 967,000 157,181 0 24,890 2,111,635
Thomasville 1,150,000 331,161 0 0 1,512,088
Valdosta (f) 2,000 166,632 0 (0) 1,624,697
Warner Robins (f) 510,000 365,853 0 (0) 2,042,770
Washington 1,055,867 107,780 0 17,067 1,307,184
Waycross (f) 1,501,000 87,000 0 13,777 2,044,714
Waynesboro 1,029,569 142,501 0 0 1,264,888
Winder (f) 967,000 124,500 1,268,199 0 714,986
Alabama:
Albertville 790,189 174,000 0 418 1,100,339
Alexander City (g) 1,198,597 160,086 0 (0) 1,774,656
Arab 789,768 131,554 0 0 1,107,491
Auburn 669,787 227,000 0 0 1,378,337
Bessemer 1,117,000 327,192 0 0 1,511,051
Decatur 1,029,013 201,629 0 (0) 2,097,753
Eufaula (f) 1,000 228,869 0 5,575 1,219,203
Florence 621,159 313,579 0 1,202 1,903,313
Greenville (g) 1,198,597 228,511 0 0 1,493,135
Jasper 489,816 225,633 0 0 2,233,137
Oxford (g) 1,198,597 307,635 0 (340) 1,384,733
Ozark (g) 1,198,597 176,148 0 0 1,168,763
Prattville 1,681,765 319,736 0 (0) 2,259,182
Scottsboro 1,146,863 324,732 0 (0) 1,467,125
Selma 1,513,666 143,812 0 22,773 1,939,526
Sylacauga (f) 1,000 224,476 0 0 1,441,380
Trussville 1,580,518 425,438 0 1,377 2,262,439
Tuscaloosa 820,971 0 0 0 1,456,546
Florida:
Lake City 1,850,000 391,456 0 0 3,080,689
<CAPTION>
Gross Amount at Which Life on
Carried at Close of Which
Period Depreciation
------------------------ in Latest
Buildings, Income
Equipment & Accumulated Date Date of Statement
Property Land Improvements Total Depreciation Acquired Construction is Computed
- -------- ----- ------------ ---------- ------------ -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Georgia:
Albany (f) $357,652 $1,742,571 $2,100,222 $345,522 1994 1995 (e)
Americus 353,926 2,554,507 2,908,433 690,237 1991 1992 (d)
Bainbridge 125,000 1,656,835 1,781,835 341,030 1994 1994 (e)
Brunswick (f) 175,275 1,678,670 1,853,945 254,401 1994 1995 (e)
Calhoun (f) 131,730 1,685,566 1,817,296 453,460 1988 1988 (d)
Carrollton (f) 275,029 1,654,307 1,929,336 329,970 1993 1994 (e)
Commerce (f) 306,109 1,317,911 1,624,020 207,044 1996 1996 (e)
Conyers 301,128 2,247,825 2,548,952 241,324 1996 1996 (e)
Covington (f) 163,851 1,348,390 1,512,241 404,453 1990 1990 (d)
Dalton 547,807 2,258,785 2,806,591 115,811 1998 1998 (e)
Douglas (f) 120,033 1,191,027 1,311,060 232,971 1995 1995 (e)
Dublin (f) 0 1,425,343 1,425,343 192,604 1997 1997 (e)
Eastman (g) 101,800 1,432,761 1,534,561 469,198 1989 1989 (d)
Fitzgerald (g) 133,515 1,110,516 1,244,031 256,196 1993 1994 (e)
Greensboro (g) 127,234 1,515,668 1,642,902 528,440 1989 1990 (d)
Hartwell 98,460 1,416,952 1,515,412 397,678 1991 1992 (d)
Jesup (f) 104,156 2,088,777 2,192,933 666,495 1990 1990 (d)
Kingsland 283,432 1,429,018 1,712,450 121,091 1997 1998 (e)
Lagrange (f) 200,073 1,972,948 2,173,021 273,102 1995 1996 (e)
Macon (f) 288,518 1,390,149 1,678,666 148,310 1997 1997 (e)
Milledgeville 45,396 591,065 636,461 378,466 1991 -- (d)
Oakwood (f) 258,903 1,354,759 1,613,661 195,891 1996 1997 (e)
Perry (f) 238,325 1,400,988 1,639,314 143,716 1997 1998 (e)
Rome 254,849 3,741,127 3,995,976 74,065 1998 1999 (e)
Statesboro 153,849 1,498,651 1,652,500 563,514 1988 1989 (d)
Thomaston (f) 182,071 2,111,635 2,293,706 630,176 1990 1990 (d)
Thomasville 331,161 1,512,088 1,843,249 82,535 1998 1998 (e)
Valdosta (f) 166,632 1,624,697 1,791,328 372,765 1994 1995 (e)
Warner Robins (f) 365,853 2,042,770 2,408,623 247,028 1997 1997 (e)
Washington 124,847 1,307,184 1,432,031 432,957 1989 1990 (d)
Waycross (f) 100,777 2,044,714 2,145,491 477,251 1992 1993 (e)
Waynesboro 142,501 1,264,888 1,407,389 220,239 1995 1996 (e)
Winder (f) 124,500 1,983,185 2,107,685 789,905 1988 -- (d)
Alabama:
Albertville 174,418 1,100,339 1,274,757 247,728 1994 1994 (e)
Alexander City (g) 160,086 1,774,656 1,934,742 332,798 1994 1994 (e)
Arab 131,554 1,107,491 1,239,045 217,588 1995 1995 (e)
Auburn 227,000 1,378,337 1,605,337 157,762 1996 1997 (e)
Bessemer 327,192 1,511,051 1,838,243 60,057 1998 1999 (e)
Decatur 201,629 2,097,753 2,299,382 259,644 1995 1996 (e)
Eufaula (f) 234,444 1,219,203 1,453,647 212,094 1995 1996 (e)
Florence 314,781 1,903,313 2,218,094 292,733 1995 1996 (e)
Greenville (g) 228,511 1,493,135 1,721,647 179,652 1996 1996 (e)
Jasper 225,633 2,233,137 2,458,770 219,242 1997 1997 (e)
Oxford (g) 307,295 1,384,733 1,692,028 183,688 1996 1997 (e)
Ozark (g) 176,148 1,168,763 1,344,911 269,722 1994 1995 (e)
Prattville 319,736 2,259,182 2,578,918 98,010 1998 1998 (e)
Scottsboro 324,732 1,467,125 1,791,857 100,581 1998 1998 (e)
Selma 166,585 1,939,526 2,106,111 477,788 1991 1992 (d)
Sylacauga (f) 224,476 1,441,380 1,665,856 171,344 1997 1997 (e)
Trussville 426,815 2,262,439 2,689,254 146,146 1997 1998 (e)
Tuscaloosa 0 1,456,546 1,456,546 172,112 1996 1997 (e)
Florida:
Lake City 391,456 3,080,689 3,472,145 38,108 1998 1999 (e)
</TABLE>
F-33
<PAGE> 107
Jameson Inns, Inc.
Schedule III - Real Estate and Accumulated Depreciation
As of December 31, 1999
<TABLE>
<CAPTION>
Cost Capitalization
Initial Cost Subsequent to Acquisition
------------------------- --------------------------
Buildings, Buildings,
Mortgage Equipment & Equipment &
Property Debt Land Improvements Land Improvements
- -------- ---- ---- ------------ ---- ------------
<S> <C> <C> <C> <C> <C>
Illinois:
Normal 3,092,571 1,076,916 5,163,743 0 157,394
Peoria 3,057,429 817,523 4,886,124 0 109,545
Springfield 0 0 1,494,985 0 109,207
Indiana:
Carmel 3,700,000 684,321 3,730,497 0 0
Elkhart (h) 6,610,000 637,753 5,834,950 0 99,475
Evansville 2,999,832 359,102 2,880,265 0 92,981
Ft. Wayne 2,490,620 473,564 3,062,301 0 102,215
Indy Castleton 3,119,739 584,039 5,241,877 0 118,986
Indy East 2,754,674 400,007 2,479,422 0 136,126
Indy Northwest 2,151,544 442,666 2,217,552 0 129,448
Indy South 2,264,200 180,071 1,824,161 0 87,166
Indy West 2,943,257 916,161 5,236,594 0 75,321
Kokomo 2,999,832 527,376 3,720,270 0 65,135
Lafayette 3,334,981 403,849 3,970,336 0 66,642
Muncie 2,399,866 407,065 3,392,767 0 37,024
South Bend 3,599,799 585,531 5,836,122 0 49,981
Terre Haute (h) 7,480,000 878,773 2,102,079 (0) 161,492
Iowa:
Bettendorf 1,358,220 974,058 3,073,596 0 130,644
Kentucky:
Florence (h) 5,040,000 524,289 2,293,556 0 68,410
Louisville East 3,860,091 585,491 6,973,653 0 79,919
Louisville South (h) 5,100,000 644,870 6,509,901 0 229,509
Mississippi:
Grenada 1,150,000 350,000 0 0 1,551,209
Meridian 1,785,133 419,856 0 930 2,354,193
Tupelo 1,577,566 427,924 0 1,360 2,242,159
Vicksburg 1,820,021 326,653 0 1,112 2,361,846
North Carolina:
Asheboro 997,923 278,841 0 (0) 1,472,466
Clayton/Garner 1,090,701 255,234 0 0 1,508,249
Dunn 0 202,052 0 (0) 1,487,078
Eden 1,090,701 197,468 0 26 1,507,341
Forest City 986,761 187,294 0 2,950 1,979,461
Greenville 1,143,712 310,006 0 0 1,484,713
Hickory 1,777,040 412,322 0 0 2,327,299
Laurinburg (f) 0 225,441 0 (181,525) 1,240,031
Lenoir 1,078,102 360,923 0 1,605 1,396,990
Roanoke Rapids 1,143,712 320,014 0 (4,812) 1,483,422
Sanford (f) 500,000 227,030 0 32,171 1,436,095
Smithfield 1,075,806 246,092 0 (0) 1,510,542
Wilson 994,033 237,712 0 20 1,509,639
Ohio:
Cincy North 2,315,465 521,588 2,220,586 0 84,992
Cincy Northeast 2,264,200 320,613 2,184,392 0 98,226
Columbus 2,574,163 782,254 3,905,175 0 120,223
Dayton 2,151,544 625,511 3,388,780 0 180,242
South Carolina:
Anderson 1,055,867 201,000 0 133,385 2,011,890
Cheraw (g) 1,198,597 168,458 0 0 1,906,296
Duncan 1,066,231 212,246 0 (0) 1,461,683
Easley (f) 1,000 266,753 0 2,710 1,135,569
Gaffney (g) 1,198,597 135,025 0 (0) 1,652,888
<CAPTION>
Gross Amount at Which Life on
Carried at Close of Which
Period Depreciation
------------------------ in Latest
Buildings, Income
Equipment & Accumulated Date Date of Statement
Property Land Improvements Total Depreciation Acquired Construction is Computed
- -------- ---- ------------ ----- ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Illinois:
Normal 1,076,916 5,321,137 6,398,053 154,885 1999 -- (e)
Peoria 817,523 4,995,670 5,813,192 149,750 1999 -- (e)
Springfield 0 1,604,192 1,604,192 83,110 1999 -- (e)
Indiana:
Carmel 684,321 3,730,497 4,414,818 0 1999 -- (e)
Elkhart (h) 637,753 5,934,425 6,572,178 158,662 1999 -- (e)
Evansville 359,102 2,973,246 3,332,348 107,144 1999 -- (e)
Ft. Wayne 473,564 3,164,516 3,638,080 99,909 1999 -- (e)
Indy Castleton 584,039 5,360,863 5,944,902 149,654 1999 -- (e)
Indy East 400,007 2,615,548 3,015,555 98,868 1999 -- (e)
Indy Northwest 442,666 2,347,001 2,789,667 104,047 1999 -- (e)
Indy South 180,071 1,911,327 2,091,398 79,670 1999 -- (e)
Indy West 916,161 5,311,915 6,228,076 139,388 1999 -- (e)
Kokomo 527,376 3,785,405 4,312,781 107,941 1999 -- (e)
Lafayette 403,849 4,036,978 4,440,827 119,633 1999 -- (e)
Muncie 407,065 3,429,791 3,836,856 101,210 1999 -- (e)
South Bend 585,531 5,886,103 6,471,635 151,626 1999 -- (e)
Terre Haute (h) 878,773 2,263,571 3,142,344 107,218 1999 -- (e)
Iowa:
Bettendorf 974,058 3,204,240 4,178,298 114,675 1999 -- (e)
Kentucky:
Florence (h) 524,289 2,361,966 2,886,255 101,118 1999 -- (e)
Louisville East 585,491 7,053,572 7,639,063 171,226 1999 -- (e)
Louisville South (h) 644,870 6,739,410 7,384,280 167,352 1999 -- (e)
Mississippi:
Grenada 350,000 1,551,209 1,901,209 13,798 1998 1999 (e)
Meridian 420,786 2,354,193 2,774,979 77,561 1998 1999 (e)
Tupelo 429,284 2,242,159 2,671,443 134,208 1998 1998 (e)
Vicksburg 327,765 2,361,846 2,689,611 93,296 1998 1999 (e)
North Carolina:
Asheboro 278,841 1,472,466 1,751,307 169,337 1997 1997 (e)
Clayton/Garner 255,234 1,508,249 1,763,483 107,409 1998 1998 (e)
Dunn 202,052 1,487,078 1,689,130 141,760 1997 1998 (e)
Eden 197,494 1,507,341 1,704,835 118,976 1997 1998 (e)
Forest City 190,244 1,979,461 2,169,705 265,279 1996 1997 (e)
Greenville 310,006 1,484,713 1,794,719 113,527 1998 1998 (e)
Hickory 412,322 2,327,299 2,739,621 107,209 1998 1998 (e)
Laurinburg (f) 43,916 1,240,031 1,283,947 175,345 1996 1997 (e)
Lenoir 362,528 1,396,990 1,759,518 124,687 1997 1998 (e)
Roanoke Rapids 315,202 1,483,422 1,798,623 119,507 1997 1998 (e)
Sanford (f) 259,201 1,436,095 1,695,296 171,925 1996 1997 (e)
Smithfield 246,092 1,510,542 1,756,634 150,578 1997 1998 (e)
Wilson 237,732 1,509,639 1,747,371 161,367 1996 1997 (e)
Ohio:
Cincy North 521,588 2,305,577 2,827,165 105,145 1999 -- (e)
Cincy Northeast 320,613 2,282,617 2,603,231 89,564 1999 -- (e)
Columbus 782,254 4,025,398 4,807,653 124,716 1999 -- (e)
Dayton 625,511 3,569,022 4,194,534 119,367 1999 -- (e)
South Carolina:
Anderson 334,385 2,011,890 2,346,275 427,545 1993 1993 (e)
Cheraw (g) 168,458 1,906,296 2,074,754 238,923 1995 1995 (e)
Duncan 212,246 1,461,683 1,673,928 147,478 1997 1998 (e)
Easley (f) 269,463 1,135,569 1,405,033 232,752 1994 1995 (e)
Gaffney (g) 135,025 1,652,888 1,787,913 290,239 1995 1995 (e)
</TABLE>
F-34
<PAGE> 108
Jameson Inns, Inc.
Schedule III - Real Estate and Accumulated Depreciation
As of December 31, 1999
<TABLE>
<CAPTION>
Cost Capitalization
Initial Cost Subsequent to Acquisition
------------------------- -------------------------
Buildings Buildings,
Mortgage Equipment & Equipment &
Property Debt Land Improvements Land Improvements
- -------- --------- -------- ------------- ------- ------------
<S> <C> <C> <C> <C> <C>
Georgetown (g) 1,198,597 144,353 0 0 1,464,621
Greenwood (f) 1,001,000 140,231 0 20,741 1,763,498
Lancaster (g) 1,198,597 150,592 0 (0) 1,130,528
Orangeburg (g) 1,198,597 165,010 0 585 1,190,234
Seneca (g) 1,198,597 204,385 0 0 1,235,102
Simpsonville (f) 952,000 229,205 0 0 1,306,064
Spartanburg 1,072,792 247,838 0 0 1,459,299
Union (g) 1,198,597 178,006 0 746 1,288,082
Tennessee: 0
Cleveland 0 384,688 0 4,343 2,240,024
Decherd (f) 0 254,501 0 191 1,316,358
Gallatin 1,682,041 405,738 0 0 2,252,260
Johnson City 288,580 405,939 0 89 2,141,656
Knoxville 2,221,460 572,026 3,347,959 0 89,484
Oakridge 939,372 451,037 0 8 4,400,227
Tullahoma (f) 0 303,536 0 0 1,304,099
Construction in progress:
Alcoa, TN 142,966 427,803 0 0 225,422
Bessemer, AL 0 0 0 0 96,408
Columbia, TN 279,097 483,568 0 6,859 705,417
Crestview, FL 975,649 471,426 0 10 1,582,235
Goldsboro, NC 288,100 397,096 0 0 394,252
Greeneville, TN 980,861 406,055 0 155 1,968,500
Harrisonburg, VA 144,890 435,000 0 (700) 398,525
Henderson, NC 403,101 478,688 0 0 498,081
Jackson, MS 365,584 586,831 0 602 625,284
Jackson, TN 1,002,366 467,741 0 141 1,678,103
Jacksonville, FL 1,553,918 679,519 0 1,448 2,537,701
Kingsport, TN 327,774 425,481 0 0 280,627
Lafayette, LA 0 433,291 0 0 79,279
Lakeland, FL 291,911 618,636 0 0 379,150
Martinsville, VA 57,108 411,496 0 3,100 229,663
Newnan, GA 863,220 529,377 0 0 1,122,648
Ormond Beach, FL 1,449,938 497,099 0 10,859 2,583,456
Palm Bay, FL 197,716 418,745 0 0 362,396
Pearl, MS 0 564,932 0 0 2,296,251
Pooler, GA 787,582 501,223 0 (0) 1,475,308
Richmond, KY 63,405 607,095 0 0 166,184
Shreveport, LA 66,382 531,041 0 0 151,872
Wilmington, NC 169,009 685,078 0 0 220,090
Billboards (including CIP) 670,073 0 2,381,012 0 222,408
Property and equipment held for sale 1,050,101 1,094,514 0 0 1,437,617
------------ ----------- ------------ --------- ------------
Totals $173,957,998 $47,912,952 $105,447,139 $ 83,595 $167,690,366
============ =========== ============ ========= ============
<CAPTION>
Gross Amount at Which Life on
Carried at Close of Which
Period Depreciation
----------------------- in Latest
Buildings, Income
Equipment & Accumulated Date Date of Statement
Property Land Improvements Total Depreciation Acquired Construction is Computed
- -------- ---- ------------ ------ ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Georgetown (g) 144,353 1,464,621 1,608,974 195,712 1996 1996 (e)
Greenwood (f) 160,972 1,763,498 1,924,470 282,339 1994 1995 (e)
Lancaster (g) 150,592 1,130,528 1,281,120 218,829 1994 1995 (e)
Orangeburg (g) 165,595 1,190,234 1,355,829 217,749 1995 1995 (e)
Seneca (g) 204,385 1,235,102 1,439,487 181,322 1996 1996 (e)
Simpsonville (f) 229,205 1,306,064 1,535,269 199,404 1996 1996 (e)
Spartanburg 247,838 1,459,299 1,707,137 153,434 1997 1998 (e)
Union (g) 178,752 1,288,082 1,466,834 186,183 1996 1997 (e)
Tennessee:
Cleveland 389,031 2,240,024 2,629,055 122,545 1997 1998 (e)
Decherd (f) 254,692 1,316,358 1,571,050 172,620 1996 1997 (e)
Gallatin 405,738 2,252,260 2,657,999 74,614 1998 1999 (e)
Johnson City 406,028 2,141,656 2,547,684 230,097 1997 1997 (e)
Knoxville 572,026 3,437,443 4,009,469 116,673 1999 -- (e)
Oakridge 451,045 4,400,227 4,851,272 69,623 1998 1999 (e)
Tullahoma (f) 303,536 1,304,099 1,607,635 161,363 1996 1997 (e)
Construction in progress
Alcoa, TN 427,803 225,422 653,225 0 -- -- --
Bessemer, AL 0 96,408 96,408 0 -- -- --
Columbia, TN 490,427 705,417 1,195,844 0 -- -- --
Crestview, FL 471,436 1,582,235 2,053,671 0 -- -- --
Goldsboro, NC 397,096 394,252 791,348 0 -- -- --
Greeneville, TN 406,210 1,968,500 2,374,710 0 -- -- --
Harrisonburg, VA 434,300 398,525 832,826 0 -- -- --
Henderson, NC 478,688 498,081 976,769 0 -- -- --
Jackson, MS 587,433 625,284 1,212,717 0 -- -- --
Jackson, TN 467,882 1,678,103 2,145,984 0 -- -- --
Jacksonville, FL 680,967 2,537,701 3,218,667 0 -- -- --
Kingsport, TN 425,481 280,627 706,108 0 -- -- --
Lafayette, LA 433,291 79,279 512,573 0 -- -- --
Lakeland, FL 618,636 379,150 997,787 0 -- -- --
Martinsville, VA 414,596 229,663 644,259 0 -- -- --
Newnan, GA 529,377 1,122,648 1,652,025 0 -- -- --
Ormond Beach, FL 507,958 2,583,456 3,091,413 0 -- -- --
Palm Bay, FL 418,745 362,396 781,141 0 -- -- --
Pearl, MS 564,932 2,296,251 2,861,183 0 -- -- --
Pooler, GA 501,223 1,475,308 1,976,531 0 -- -- --
Richmond, KY 607,095 166,184 773,278 0 -- -- --
Shreveport, LA 531,041 151,872 682,913 0 -- -- --
Wilmington, NC 685,078 220,090 905,168 0 -- -- --
Billboards (including CIP) 0 2,603,420 2,603,420 191,720 1999 1999 (e)
Property and equipment held for sale 1,094,514 1,437,617 2,532,131 173,627 1997 1997 (e)
----------- ------------ ------------ -----------
Totals $47,996,547 $273,137,505 $321,134,052 $24,551,080
=========== ============ ============ ===========
</TABLE>
F-35
<PAGE> 109
JAMESON INNS, INC.
NOTES TO SCHEDULE III
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
(a) Reconciliation of real estate
Balance at beginning of year $ 168,880,042 $ 117,515,375 $ 80,816,228
Additions during year:
Improvements 157,106,500 55,844,810 37,373,593
Deletions (4,852,490) (4,480,143) (674,446)
--------------- --------------- ---------------
Balance at end of year $ 321,134,052 $ 168,880,042 $ 117,515,375
=============== =============== ===============
(b) Reconciliation of accumulated depreciation
Balance at beginning of year $ 16,754,843 $ 12,584,189 $ 9,205,591
Depreciation for the year 10,396,468 5,636,079 3,898,091
Retirements (2,600,231) (1,465,425) (519,493)
--------------- --------------- ---------------
Balance at end of year $ 24,551,080 $ 16,754,843 $ 12,584,189
=============== =============== ===============
</TABLE>
(c) The aggregate cost of the land, buildings, and furniture, fixtures and
equipment for federal income tax purposes approximates the book basis.
(d) Depreciation for 1992 and prior additions is computed based on the
following useful lives:
Buildings 31.5 years
Land Improvements 15 years
Furniture, fixtures and equipment 5 years
(e) Depreciation for 1993 and later additions is computed based on the
following useful lives:
Buildings 39 years
Land Improvements 15 years
Furniture, fixtures and equipment 3-5 years
Billboards 10 years
(f) This Inn is one of 27 Inns securing the Company's $33.7 million line of
credit. Amount of debt listed as outstanding is an allocation.
(g) This Inn is one of 14 Inns securing the Company's $17.2 million note
payable. Amount of debt listed as outstanding is an allocation.
(h) Mortgage debt listed includes portion of the $12,115,000 economic
development refunding bonds retired with restricted cash in January
2000.
F-36
<PAGE> 110
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Jameson Inns, Inc.
We have audited the consolidated financial statements of Jameson Inns, Inc. as
of December 31, 1999 and 1998, and for each of the three years in the period
ended December 31, 1999, and have issued our report thereon dated February 8,
2000 (included elsewhere in this Annual Report on Form 10-K). Our audits also
included the financial statement schedule in Item 14(a) of this Annual Report on
Form 10-K. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Atlanta, Georgia
February 8, 2000
F-37
<PAGE> 111
Jameson Hospitality, LLC
Consolidated Financial Statements
Years ended December 31, 1999 and 1998
CONTENTS
Report of Independent Auditors...........................................F-39
Consolidated Financial Statements
Consolidated Balance Sheets..............................................F-40
Consolidated Statements of Operations....................................F-41
Consolidated Statements of Members' Capital (Deficit)....................F-42
Consolidated Statements of Cash Flows....................................F-43
Notes to Consolidated Financial Statements...............................F-45
F-38
<PAGE> 112
Report of Independent Auditors
The Members
Jameson Hospitality, LLC
We have audited the accompanying consolidated balance sheets of Jameson
Hospitality, LLC as of December 31, 1999 and 1998, and the related consolidated
statements of operations, members' capital (deficit) and cash flows for each of
the three years in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Jameson
Hospitality, LLC at December 31, 1999 and 1998, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
Atlanta, Georgia
March 8, 2000
F-39
<PAGE> 113
Jameson Hospitality, LLC
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
--------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 543,282 $1,077,579
Marketable securities 1,013,785 199,529
Accounts receivable 2,630,305 853,720
Accounts receivable from affiliates 7,231,418 2,755,513
Predevelopment costs 288,785 457,213
Prepaid expenses and other assets 363,668 357,975
Inventory 1,256,015 625,989
--------------------------------------
13,327,258 6,327,518
Property and equipment, net 833,585 2,992,093
Leasehold improvements, net 89,828 34,867
Intangibles, net 267,818 22,268
--------------------------------------
$ 14,518,489 $9,376,746
======================================
LIABILITIES AND MEMBERS' CAPITAL (DEFICIT)
Current liabilities:
Subcontractors payable, including retainage of $1,195,267
and $1,104,960 at December 31, 1999 and 1998, respectively $ 3,040,499 $3,106,166
Accounts payable 1,293,239 1,089,067
Lease expense payable 6,941,315 2,289,753
Notes payable, current portion 9,010 650,804
Accrued interest 58,059 22,323
Other accrued liabilities 2,132,566 484,924
--------------------------------------
13,474,688 7,643,037
Deferred gain on sale of asset 883,394 --
Notes payable, long-term portion 315,638 1,664,382
--------------------------------------
Total liabilities 14,673,720 9,307,419
Members' capital (deficit) (155,231) 69,327
--------------------------------------
$ 14,518,489 $9,376,746
======================================
</TABLE>
See accompanying notes.
F-40
<PAGE> 114
Jameson Hospitality, LLC
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
----------------------------------------------------
<S> <C> <C> <C>
Revenues:
Room revenues $ 74,245,709 $37,982,374 $ 26,937,065
Telephone revenues 1,450,448 757,105 604,467
Other inn-related sales 730,866 47,220 46,096
Contract revenues 30,413,710 40,990,447 31,201,627
Billboard rentals 105,877 91,076 84,467
Other income 36,772 6,458 --
Gain on sale of asset 240,545 -- --
----------------------------------------------------
107,223,927 79,874,680 58,873,722
Expenses:
Lease expense 34,612,795 18,229,748 12,966,185
Cost of contract revenues 25,342,725 35,518,450 27,514,582
Room expenses 19,132,033 8,888,441 5,832,763
Utilities 4,029,937 3,346,327 2,283,090
General and administrative 7,995,065 3,886,264 2,700,432
Inn manager salaries 5,039,406 2,510,644 1,865,181
Maintenance 3,303,181 1,366,510 840,093
Advertising 2,706,089 2,195,759 576,516
Insurance 297,100 199,302 123,004
Management fee to affiliate 4,202,961 2,655,334 1,856,370
Prospective site expense 301,401 614,448 4,193
Interest, net of amounts capitalized 17,922 166,416 87,830
Depreciation and amortization 109,316 456,213 260,375
----------------------------------------------------
Total expenses 107,089,931 80,033,856 56,910,614
----------------------------------------------------
Net income (loss) $ 133,996 $ (159,176) $ 1,963,108
====================================================
</TABLE>
See accompanying notes.
F-41
<PAGE> 115
Jameson Hospitality, LLC
Consolidated Statements of Members' Capital (Deficit)
<TABLE>
<CAPTION>
MEMBERS'
CAPITAL
(DEFICIT) COMPREHENSIVE LOSS
---------------------------------------------
<S> <C> <C>
Balance at December 31, 1996 $ 438,217
Capital contributions 198,615
Distributions (670,000)
Net income 1,963,108
--------------
Balance at December 31, 1997 1,929,940
Capital contributions 600,000
Distributions (2,234,718)
Net loss (159,176) $ (159,176)
Unrealized loss on marketable securities (66,719) (66,719)
----------
Comprehensive loss $ (225,895)
-------------- ==========
Balance at December 31, 1998 69,327
Capital contributions 105,764
Distributions (42,723)
Net income 133,996 $ 133,996
Unrealized loss on marketable securities (421,595) (421,595)
----------
Comprehensive loss $ (287,599)
-------------- ==========
Balance at December 31, 1999 $ (155,231)
==============
</TABLE>
See accompanying notes.
F-42
<PAGE> 116
Jameson Hospitality, LLC
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
--------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 133,996 $ (159,176) $ 1,963,108
Adjustments to reconcile net income (loss)
to cash provided by operating activities:
Depreciation and amortization 109,316 456,213 260,375
Bad debt expense 264,684 72,409 46,124
Gain on sale of property and equipment (240,545) -- (96)
Changes in assets and liabilities increasing
(decreasing) cash:
Accounts receivable (775,833) (352,983) (168,469)
Accounts receivable from affiliates (5,220,190) (35,461) (2,661,298)
Predevelopment costs 168,428 (307,853) (64,331)
Costs and estimated earnings in excess
of billings on contracts in progress
-- 98,169 (98,169)
Prepaid advertising (56,190) 145,766 (145,766)
Prepaid expenses and other assets 59,537 (221,311) (77,692)
Inventory (108,876) (147,200) (145,941)
Subcontractors payable (65,667) (130,238) 2,813,020
Accounts payable (471,869) 913,054 (87,697)
Lease expense payable 4,651,562 832,082 773,046
Accrued interest (38,221) (12,697) 33,493
Other accrued liabilities 825,777 94,115 154,536
-------------------------------------------------------
Net cash (used in) provided by
operating activities (764,091) 1,244,889 2,594,243
INVESTING ACTIVITIES
Proceeds from sale of property and equipment 592,707 -- 24,500
Purchase of property and equipment (103,819) (1,476,655) (878,532)
Purchase of Signature assets, net of cash acquired 17,500 -- --
Marketable securities -- (266,248) --
--------------------------------------------------------
Net cash provided by (used in) investing activities 506,388 (1,742,903) (854,032)
</TABLE>
F-43
<PAGE> 117
Jameson Hospitality, LLC
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
-------------------------------------------------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Contributions from members $ 150,095 $ 600,000 $ 198,615
Distributions to members (243,479) (2,234,718) (670,000)
Proceeds from notes payable -- 1,104,415 842,615
Payments on notes payable (183,210) (212,590) (114,377)
-------------------------------------------------------
Net cash (used in) provided by financing activities (276,594) (742,893) 256,853
Net (decrease) increase in cash (534,297) (1,240,907) 1,997,064
Cash at beginning of year 1,077,579 2,318,486 321,422
-------------------------------------------------------
Cash at end of year $ 543,282 $ 1,077,579 $ 2,318,486
=======================================================
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid during the year $ 1,576,626 1,326,782 $ 692,811
=======================================================
NON-CASH ACTIVITY
Unrealized loss on marketable securities $ 421,595 $ 66,719 $ --
=======================================================
Net non-cash items related to merger and
distribution activities $ 156,425 $ -- $ --
=======================================================
</TABLE>
See accompanying notes.
F-44
<PAGE> 118
Jameson Hospitality, LLC
Notes to Consolidated Financial Statements
December 31, 1999
1. BUSINESS AND BASIS OF FINANCIAL STATEMENTS
Jameson Hospitality, LLC (the "Company") leases, operates, and develops Inns
owned by Jameson Inns, Inc. (the "REIT"). Jameson Inns, Inc. is a real estate
investment trust which owns the Jameson Inns and effective May 7, 1999,
Signature Inns properties (the "Inns"). Thomas W. Kitchin is the Chairman and
CEO of Jameson Inns, Inc. and of the Company.
Jameson Development Company, LLC was formed on March 22, 1996 and then changed
its name to Jameson Hospitality, LLC on May 7, 1998. Effective March 31, 1998,
three related companies merged into Jameson Development Company, LLC: Jameson
Operating Company, LLC, Jameson Outdoor Advertising Company II, LLC and Jameson
Aviation Company, LLC. Since these three companies were all wholly-owned by
Thomas W. Kitchin and his spouse, the merger was accounted for similar to a
pooling of interests.
On January 1, 1999, the Company distributed the ownership interest of Jameson
Aviation Company, LLC to its owners. The $200,756 excess of the liabilities over
the assets of Jameson Aviation Company, LLC were recorded as a non-cash
distribution.
On April 2, 1999, the Company completed the sale of the outdoor advertising
assets and certain operations of the Company to the REIT for consideration
totaling approximately $2.4 million. These assets consisted of approximately 100
roadside billboards on which advertising for the Jameson hotel properties and,
in certain instances, other services or products for third parties, is placed.
These billboards were leased to the Company and continue to be used for similar
types of advertising.
On May 7, 1999, the REIT merged with Signature Inns, Inc. As a part of this
transaction, the Company acquired all of the assets and assumed the liabilities
related to operation of the Signature Inn hotel properties, for total cash
consideration of $250,000. The Signature Inn employees became employees of the
Company and the Company entered into a lease with the REIT and began operating
these hotels effective May 7, 1999.
Prior to December 31, 1999, Kitchin Investments, Inc. was wholly-owned by Thomas
W. Kitchin and employed all of the individuals who provide services to both the
Company and the REIT. This company also provided the general office overhead
support for these other companies. Effective December 31, 1999, Kitchin
Investments, Inc. merged into the Company. Due to the common ownership of the
Company and Kitchin Investments, Inc., the merger was accounted for similar to a
pooling of interests.
F-45
<PAGE> 119
Jameson Hospitality, LLC
Notes to Consolidated Financial Statements (continued)
1. BUSINESS AND BASIS OF FINANCIAL STATEMENTS (CONTINUED)
Intercompany transactions among the entities and the divisions included in the
consolidated financial statements have been eliminated. The Company and its
divisions perform the following activities:
- The Jameson Operating division leases the Inns from the REIT
(see Note 3) and operates the Inns in all respects including
staffing, advertising, housekeeping, and routine maintenance.
The Company is the exclusive lessee of Jameson Inns and
Signature Inns. At December 31, 1999 and 1998, the Company
leased 114 Inns (7,300 rooms) and 81 Inns (3,748 rooms),
respectively.
- The Jameson Development division develops Inns and Inn
expansions for the REIT, including identification of suitable
Inn locations, Inn design and configuration, land preparation,
construction, acquisition of initial furniture, fixtures and
equipment, and pre-marketing of properties prior to opening.
At the present time, the Company is the exclusive
developer/contractor for the REIT.
The members have no liability for any debt, obligations, or liabilities of the
Company (beyond his or her respective contributions) or for the acts of omission
of any other member, agent or employee of the Company, except as provided for by
section 14-11-408 of the Georgia Securities Act of 1973, as amended.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
F-46
<PAGE> 120
Jameson Hospitality, LLC
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MARKETABLE SECURITIES
The Company considers all of its marketable securities as available for sale and
hence records them at fair value with changes in unrealized gains or losses
being recorded directly to members' capital. Fair value is based on the closing
price of the securities on the last day of trading in the year.
CONTRACTS
Billings and costs applicable to construction contracts are recognized on the
percentage-of-completion method, measured by the percentage of cost incurred to
date compared to estimated total cost for each contract. Revisions to estimated
contract profits or losses are made in the year in which circumstances requiring
such revisions become known. Any anticipated losses on construction contracts
are charged to operations as soon as such losses can be estimated.
PREDEVELOPMENT COSTS
The Company capitalizes direct costs related to specific future Inn sites when
they are deemed probable and until either the REIT purchases the land and actual
construction begins when the amounts are transferred to construction costs, or
until the site is no longer deemed probable at which time the costs are
expensed. Amounts expensed are reflected as "Prospective Site Expense" in the
accompanying statements of operations.
INVENTORY
Inventory, consisting of room linens and towels, is stated at the lower of cost
(first-in, first-out method) or market. Replacements of inventory are expensed.
F-47
<PAGE> 121
Jameson Hospitality, LLC
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Billboards at December 31, 1998
include direct construction costs and capitalized interest, property taxes and
indirect costs such as salaries relating directly to the construction of
billboards. Interest capitalized during 1998 totaled $3,437. No interest was
capitalized in 1999.
Depreciation is calculated using the straight-line method over 39 years for the
building, using the straight-line method for the billboards with a half year
convention in year of acquisition over the estimated useful life of the asset,
10 years, using the MACRS method over five years for transportation equipment,
and using the MACRS method over three to seven years for furniture, fixtures and
equipment. Leasehold improvements at the Inns are being amortized using the
straight-line method over their estimated useful lives ranging from three to ten
years, not to exceed the remaining term of the lease (see Note 3), and the
corporate office leasehold improvements are being amortized over the life of the
lease.
The Company follows FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. There
were no impairment losses recorded for the periods presented.
F-48
<PAGE> 122
Jameson Hospitality, LLC
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLES
Intangibles consist primarily of the registered trademark, "The Jameson Inn(R)"
and goodwill associated with the Signature Inn transaction in May 1999. The
lease described in Note 3 requires the Company to operate the Inns using the
trademarks and not to use the trademarks (or license its use to any other
parties) for the operation of lodging facilities other than the Inns unless the
REIT does not object to such unrelated use. The REIT has an option to purchase
the The Jameson Inn(R) and Signature Inns(R) trademarks from the Company at the
end of the lease term (or upon the earlier termination of the lease with respect
to all of the Inns) for $25,000 and $50,000, respectively. The intangibles are
being amortized over 20 years. Accumulated amortization totaled $4,044 and
$3,125 as of December 31, 1999 and 1998, respectively.
INCOME TAXES
The Company has elected to be treated as a partnership for federal
and state income tax purposes. Accordingly, the members are to report their
proportionate share of the Company's taxable income or loss in their respective
tax returns; therefore, no provision for income taxes has been included in the
accompanying financial statements.
ADVERTISING
During 1999 and 1998, the Company contracted with an advertising agency for the
production and broadcast or printing of various radio, newspaper and television
ads for the Inns. The Company expenses advertising upon first showing.
F-49
<PAGE> 123
Jameson Hospitality, LLC
Notes to Consolidated Financial Statements (continued)
3. LEASES
In January 1994, the Company entered into a master lease (the "Lease") with the
REIT whereby all of the operating Inns are leased to the Company under the Lease
and future Inns constructed by the REIT during the term of the Lease will be
added to the lease upon completion of each such Inn's construction.
The Jameson and Signature leases, which expire December 31, 2007 and 2012,
respectively, provide for payment of Base Rent plus Percentage Rent. Base Rent,
which is payable monthly, equals $264 and $394 per month for the Jameson Inns
and Signature Inns, respectively, for each rentable room in the Inns at the
beginning of the relevant month.
Percentage Rent, which is payable quarterly, is calculated as a percentage in
excess of Base Rent of the total amount of room rental and other miscellaneous
revenues realized by the Company over the relevant period. For the Jameson Inns,
the percentage is 39% of such revenues up to $22.18 per day per room in 1999
over the period, plus 65% of all additional average daily room rental revenues.
For the Signature Inns, the percentage is 37% of such revenues up to $35.80 per
day per room in 1999 over the period, plus 65% of all additional average daily
room rental revenues.
Total rent for the Jameson Inns for any calendar year may not exceed 47% of
total room rental revenues Jameson Inns for that year. The $22.18 and $35.80 per
room amount, for Jameson Inns and Signature Inns, respectively, used in
calculating percentage rent is subject to adjustment each year based on changes
in the Consumer Price Index and as of January 1, 2000 was adjusted to $23.16 and
$37.38 for Jameson Inns and Signature Inns, respectively.
F-50
<PAGE> 124
Jameson Hospitality, LLC
Notes to Consolidated Financial Statements (continued)
3. LEASES (CONTINUED)
Base rent totaled $20,998,052, $10,501,920 and $7,532,712 in 1999, 1998 and
1997, respectively, and assuming the same number of rooms in operation as at
December 31, 1999, would total $27,898,440 per year until the Lease expires.
Under the Leases, the REIT is required to maintain the structural elements of
each Inn. The Company is required, at its expense, to maintain the Inns
(exclusive of furniture, fixtures and equipment) in good order and repair and to
make nonstructural, foreseen and unforeseen, and ordinary and extraordinary
repairs which may be necessary and appropriate and do not significantly alter
the character or purpose, or significantly detract from the value or operating
efficiencies of the Inns. All alterations, replacements and improvements are
subject to all the terms and provisions of the Lease and become the property of
the REIT upon termination of the Leases.
The Company has agreed that neither it nor any of its affiliates will (i)
operate or manage a hotel property in which the REIT has not invested that is
within a 20-mile radius of an Inn, or (ii) own or have any interest in any hotel
property in which the REIT or an affiliate does not have an interest.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
---------------------------------
<S> <C> <C>
Land $ -- $ 100,000
Building -- 105,706
Billboards, including under construction -- 1,699,908
Transportation equipment -- 1,809,560
Furniture, fixtures and equipment 974,989 94,586
---------------------------------
974,989 3,809,760
Accumulated depreciation (141,404) (817,667)
---------------------------------
$ 833,585 $ 2,992,093
=================================
</TABLE>
F-51
<PAGE> 125
Jameson Hospitality, LLC
Notes to Consolidated Financial Statements (continued)
4. PROPERTY AND EQUIPMENT (CONTINUED)
On April 2, 1999, the Company completed the sale of the outdoor advertising
asset and certain operations of the Company to the REIT. These assets consisted
of approximately 100 roadside billboards on which advertising for the Jameson
hotel properties and, in certain instances, other services or products for third
parties, is placed. Consideration of $2,381,000 paid to the Company consisted of
(i) 72,727 newly issued shares of the Company's Series A Preferred Stock (at
$17.625 per share), (ii) $400,000 in cash, and (iii) the assumption of
indebtedness of approximately $700,000 which is secured by mortgages on the
billboards and the revenues generated therefrom.
During 1999, the Company recognized a gain of $279,704 resulting from sale of
the billboards to the REIT. The remaining gain of $883,394 is being recognized
over the remaining lease period.
5. CONTRACTS
Contracts consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
--------------------------------
<S> <C> <C>
Costs incurred on contracts $25,342,725 $35,518,450
Estimated earnings 5,070,985 5,471,997
--------------------------------
Contract revenues earned 30,413,710 40,990,447
Less: Billings 30,413,710 40,990,447
--------------------------------
Costs and estimated earnings in excess of
billings on contracts in progress $ -- $ --
================================
</TABLE>
The Company records income on construction contracts on the
percentage-of-completion basis. Revisions to estimated contract profits are made
in the year in which circumstances requiring such revisions become known. The
effect of changes in the estimates of contract gross margins decreased net
income for the year ended December 31, 1999 and 1998 by approximately $789,000
and $155,000, respectively.
F-52
<PAGE> 126
Jameson Hospitality, LLC
Notes to Consolidated Financial Statements (continued)
6. NOTES PAYABLE
Notes payable consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
------------------------------
<S> <C> <C>
Mortgage note payable, maturing October 2017, due in monthly installments of
$2,873 of principal and interest with remaining unpaid balances payable in
full on note's maturity date. Interest accrues at prime plus 1.25% (9.50% at
December 1999). This loan is guaranteed by the CEO and President of the
Company. $293,317 $ --
Notes payable, maturing, July 2009. Due in monthly installments of $160 and $265
of principal and interest with remaining unpaid balance payable in full on
note's maturity date. Interest accrues at a 10.00% per annum. 31,331 --
Notes payable to a bank with a term of five years.
The notes were repaid in 1999. -- 1,008,730
Note payable to a financial institution, maturing July 2017. Note was
distributed to the Company members on January 1, 1999 (see Note 1). -- 469,454
$600,000 line of credit. Note was distributed to the
Company members on January 1, 1999 (see Note 1). -- 428,342
Note payable maturing December 2002. The note was repaid - -- 248,804
in 1999.
</TABLE>
F-53
<PAGE> 127
Jameson Hospitality, LLC
Notes to Consolidated Financial Statements (continued)
6. NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
1999 1998
-------------------------------------
<S> <C> <C>
Term note, maturing July 2012. Interest accrued at an initial annual rate of
8.39% and was adjusted annually to equal the weekly average yield on
Treasury securities, adjusted to a constant maturity of five years, plus 2%.
This loan was paid in full in October 1999. -- 159,856
---------------------------------
Total 324,648 2,315,18
Less current portion 9,010 650,804
---------------------------------
$ 315,638 $1,664,382
=================================
</TABLE>
At December 31, 1999 and 1998, $0 and $2,316,000, respectively, of the Company's
net book value of property and equipment collateralized the various notes
payable.
The following table summarizes the scheduled aggregate principal payments for
the notes payable for the five years subsequent to December 31, 1999 and
thereafter:
2000 $ 9,010
2001 9,916
2002 10,912
2003 12,009
2004 13,216
Thereafter 269,585
-------------
$ 324,648
=============
F-54
<PAGE> 128
Jameson Hospitality, LLC
Notes to Consolidated Financial Statements (continued)
7. RELATED PARTY TRANSACTIONS
The Company shares office space and management with Kitchin Investments, Inc.
and the REIT. The Company had a Cost Reimbursement Agreement with Kitchin
Investments, Inc. whereby the Company paid for its share of the use of office
space, office equipment, telephones, file and storage space and other reasonable
and necessary office equipment and facilities and personnel costs. Kitchin
Investments, Inc. charged the Company $4,202,961, $2,655,334 and $1,856,370 in
1999, 1998, and 1997 respectively, pursuant to the Cost Reimbursement Agreement
and such amounts are reflected as management fees in the accompanying statements
of operations. On December 31, 1999, Kitchin Investments, Inc. merged with the
Company and the Cost Reimbursement Agreement was assumed by the Company
effective December 31, 1999.
The Company's construction contracts with the REIT are generally fixed price and
limit the Company's profit on each contract to 10% after considering costs of
construction and certain other amounts. The Company does not believe that there
were amounts in excess of such limitations at December 31, 1999 or 1998.
Although the REIT is the legal borrower of construction loans or related debt,
the Company is responsible for interest due on such financing during the
construction period as a part of its contract. Construction period interest
incurred during 1999, 1998 and 1997, which is included in cost of revenues
earned, totaled approximately $1,596,925, $1,125,935 and $637,290, respectively.
Interest paid includes amounts paid on behalf of the REIT.
F-55
<PAGE> 129
Jameson Hospitality, LLC
Notes to Consolidated Financial Statements (continued)
8. COMMITMENTS AND CONTINGENCIES
The Company leases billboards from the REIT for initial terms of five years.
These leases expire at various dates but generally include 5-year automatic
renewal periods; the leases provide for future minimum payments by the Company
as follows:
Year ending December 31,
2000 $ 562,339
2001 562,339
2002 556,736
2003 555,616
2004 555,616
Thereafter 796,996
----------
$3,589,642
==========
The Company leases billboards from 3rd party companies for terms of 1 to 3
years. These leases expire at various dates then continue on a month-to-month
basis pending renewal or cancellation of the leases. The leases provide for
future minimum payments by the Company as follows:
Year ending December 31,
2000 $ 546,557
2001 105,203
2002 19,968
---------
$ 671,728
=========
From time to time, the Company becomes party to various claims and legal actions
arising during the ordinary course of business. Management, after reviewing with
legal counsel all actions and proceedings, believes that aggregate losses, if
any, would not have a material adverse effect on the Company's financial
position or results of operations.
F-56
<PAGE> 130
Jameson Hospitality, LLC
Notes to Consolidated Financial Statements (continued)
9. YEAR 2000 (UNAUDITED)
A critical business issue has emerged regarding how existing application
software programs and operating systems can accommodate the year 2000 date
value. Many existing application software products in the market place were
designed to accommodate only two-digit date entries. Beginning in the year 2000,
these systems and products must be able to accept four-digit entries to
distinguish years beginning with 2000 from prior years. As a result, computer
systems and software used by many companies have required or still may require
to be upgraded to comply with such "Year 2000" requirements. The Company and the
REIT conducted an assessment of their computer and other operating systems to
identify those which could be affected by the "Year 2000" issue. The assessment
included the review of corporate and hotel applications, hardware, and software
(information technology or "IT"), and non-IT areas such as microprocessors and
embedded chips. Ongoing testing of existing systems, to determine compliance,
were completed by November 1999. Systems that were determined to be
non-compliant were repaired or replaced by November 1999. The remediation phase
included modification to, or replacement of, software and hardware or
microprocessors.
Approximately $50,000 was expended by the Company for Year 2000 remediation and
the costs of the project were funded through operating cash flows of the
Company.
The Company relies on third-party consultants and suppliers for a variety of
corporate and Inn operations. The ability of third parties to adequately address
their Year 2000 issues is outside of our control. There can be no assurance that
the failure of the Company, or such third parties, to adequately address their
respective Year 2000 issues will not have a material adverse effect on our
future financial condition or results of operations. The Company believes they
have an effective program in place which will resolve the Year 2000 issues. Year
2000 risks include failure to obtain successful testing of hardware/software,
failed attempts to obtain vendor compliance, and failure on the part of
suppliers and service providers. The Company believes that under most reasonably
likely worst case scenarios Inn operations could be disrupted, a reduction in
Inn occupancy could occur due to lost reservations, or corporate financial
functions could be impaired.
F-57
<PAGE> 131
Jameson Hospitality, LLC
Notes to Consolidated Financial Statements (continued)
9. YEAR 2000 (UNAUDITED) (CONTINUED)
This event would cause certain processes to revert to manual systems and could
have a material adverse impact on the Company's operating results and financial
position. The Company maintains contingency plans in their normal course of
business designed to be deployed in the event of various potential business
interruptions. Contingency plans were implemented between December 1 and
December 31, 1999, for systems that could not be feasibly repaired or replaced.
No material business disruptions have occurred to date for as a result of Year
2000 issues.
F-58
<PAGE> 132
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on March 30, 2000.
JAMESON INNS, INC.
By: /s/ Craig R. Kitchin
----------------------
Craig R. Kitchin
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Thomas W. Kitchin Chairman of the Board of Directors, March 30, 2000
- ----------------------- Chief Executive Officer (principal
Thomas W. Kitchin executive officer)
/s/ Craig R. Kitchin President and Chief Financial March 30, 2000
- ----------------------- Officer (principal financial officer)
Craig R. Kitchin
/s/ Martin D. Brew Treasurer and Corporate Controller March 30, 2000
- ----------------------- (principal accounting officer)
Martin D. Brew
Director March __, 2000
- -----------------------
Robert D. Hisrich
/s/ Michael E. Lawrence Director March 30, 2000
- -----------------------
Michael E. Lawrence
/s/ Thomas J. O'Haren Director March 30, 2000
- -----------------------
Thomas J. O'Haren
</TABLE>
<PAGE> 1
EXHIBIT 10.30
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made and entered into as of the __ day
of January, 1999, by and among JAMESON OUTDOOR ADVERTISING COMPANY, a Georgia
corporation ("Buyer"), JAMESON INNS, INC., a Georgia corporation and the sole
stockholder of Buyer ("Jameson"), and JAMESON HOSPITALITY, LLC, a Georgia
limited liability company ("Seller").
WITNESSETH:
WHEREAS, Seller is the owner of, among other things, certain outdoor
advertising assets in the form of billboards and other related assets as
described on Exhibit A hereto (the "Assets") which it desires to sell; and
WHEREAS, Buyer desires to acquire the Assets and to assume certain
related liabilities as described on Exhibit B hereto (the "Liabilities");
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, representations and warranties hereinafter set forth, the parties
agree as follows:
1. SALE AND PURCHASE OF ASSETS; ASSUMPTION OF LIABILITIES.
Subject to all of the terms and conditions of this Agreement, as of the closing
date set forth in Section 7 below(the "Closing Date"), Seller shall sell, assign
and transfer to Buyer the Assets and Buyer shall accept such sale, assignment
and transfer and shall assume the Liabilities.
2. PURCHASE PRICE. Subject to adjustment pursuant to Section 7.4
below, the Purchase Price for the Assets shall be as follows:
a. 72,727 newly issued shares of Jameson's 9.25% Series A
Cumulative Preferred Stock, par value $1.00 per share (the "Shares");
and
b. Cash in the amount of Four Hundred Thousand Dollars ($400,000)
in immediately available funds; and
c. Assumption by Buyer of the Liabilities.
3. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby
represents and warrants to Buyer, which representations and warranties shall
survive the Closing (as defined in Section 7 below), as follows:
3.1 Seller is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of
Georgia and has all authority as a limited liability company to own and
use its properties and to carry on its business as now being conducted.
<PAGE> 2
3.2 Seller owns each of the Assets free and clear of all
liabilities, obligations, liens, security interests and encumbrances
except as described on Exhibit B hereto.
3.3 Seller has the power and authority as a limited
liability company to enter into and perform this Agreement and has
taken all necessary actions to carry out the terms hereof and thereof.
3.4 This Agreement has been duly authorized, executed and
delivered by Seller and is a valid obligation of Seller, enforceable in
accordance with its respective terms. Neither the Articles of Formation
or Operating Agreement of Seller nor any other agreement or instrument
to which Seller is a party or by which it or any of the Assets is bound
prohibits, limits or otherwise affects the right, power or authority of
Seller to enter into and perform this Agreement or to consummate the
transactions contemplated herein.
3.5 Neither the execution and delivery of this Agreement
by Seller nor the consummation of the transactions contemplated
hereunder will result in the violation of any term or provision of or
constitute a breach or default under any indenture, mortgage, deed of
trust, license, permit, easement, right of way, lease or other
agreement or instrument to which Seller is a party or by which it or
any of the Assets is bound, including without limitation the ground
leases and other contracts and agreements which are included among the
Assets (the "Contractual Assets").
3.6 Seller is not subject to any order, judgment or
decree, or any other restriction of any kind or character, which would
prevent consummation of the transactions contemplated by this
Agreement.
3.7 Seller has all necessary governmental leases,
licenses, permits and other rights necessary to own and operate the
Assets and such leases, licenses, permits and rights are in full force
and effect. No violations exist or have been recorded in respect of any
governmental license, permit or other right and no proceeding is
pending or threatened with respect to the revocation or limitation of
any such governmental lease, license, permit or other right which would
have an adverse effect on the Assets, and there is no basis or grounds
for any such revocation or license.
3.8 None of the Assets is in violation of any applicable
law, code, rule, regulation, ordinance, license or permit, including
but not limited to those relating to building, zoning or environmental
matters. No notice from any governmental body or other person or entity
has been served upon Seller or upon any of the Assets claiming any
violation of any such law, code, rule, regulation, ordinance, license
or permit, or
2
<PAGE> 3
requiring or calling attention to the need for, any work, repair,
construction, alteration, removal or installation of, on or in
connection with the Assets which has not been fully complied with. No
authorization, approval or consent of any governmental department,
bureau or agency or other public board or authority is required for the
consummation by Seller of the transactions contemplated by this
Agreement.
3.9 There is, directly or indirectly, affecting the
Assets, (i) no suit, action or pending claim, (ii) no investigation or
inquiry or any administrative agency or governmental body and (iii) no
legal, administrative or arbitration proceeding pending or threatened
against Seller or the Assets which would have an adverse effect on the
Assets. There is no outstanding order, writ, injunction or decree of
any court, administrative agency or governmental body or arbitration
tribunal adversely affecting the Assets.
3.10 Each of the Contractual Assets is in full force and
effect and Seller has not received notice of and is not aware of any
default or other occurrence with respect to any Contractual Asset which
would give any party thereto the right, with or without the passage of
time, to terminate such Contractual Asset. No consent of any party
other than Seller is required for the sale and assignment thereof to
Buyer.
3.11 None of the Contractual Assets is the subject of any
breach or payment or other dispute by or among the parties thereto and,
to Seller's knowledge, no condition exists or event has occurred which
could give rise, with or without the passage of time, to such a breach
or dispute.
3.12 All of the representations made and financial and
other data provided by Seller and Seller's representatives to
Interstate/Johnson Lane Corporation ("IJLC") in connection with the
issuance of IJLC's letters to Jameson dated November 3, 1998, and to
Jameson and Buyer dated the date hereof relating to the fairness of the
consideration to be paid by Buyer for the Assets were at the date
provided to IJLC and shall be at the Closing Date true, correct and
complete.
3.13 All of the rental payments payable by Buyer to Seller
under the terms of the Contractual Assets consisting of ground leases
and billboard agreements will constitute "rents from real property" as
defined in section 856(d)(1)(A) of the Internal Revenue Code of 1986,
as amended.
4. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby
represents and warrants to Seller, which representations shall survive the
Closing, as follows:
3
<PAGE> 4
4.1 Buyer is a corporation duly organized validly
existing and in good standing under the laws of the State of Georgia
and has all corporate authority to enter into and perform this
Agreement. Buyer has taken all necessary actions to carry out the terms
hereof.
4.2 This Agreement has been duly authorized, executed and
delivered by Buyer and is a valid obligation of Buyer, enforceable in
accordance with its terms. Neither Buyer's Articles of Incorporation or
Bylaws nor any other agreement or instrument to which Buyer is a party
or by which it is bound prohibits, limits or otherwise affects the
right, power or authority of Buyer to enter into and consummate this
Agreement.
4.3 Neither the execution of this Agreement nor the
consummation of the transactions contemplated hereunder will result in
the violation of any term or provision of, or constitute a default
under, any indenture, mortgage, deed of trust or other agreement or
instrument to which Buyer is a party or by which it is bound.
4.4 Buyer is not subject to any order, judgment or
decree, or any other restriction of any kind or character, which would
prevent consummation of the transactions contemplated by this
Agreement.
5. REPRESENTATIONS AND WARRANTIES OF JAMESON. Jameson hereby
represents and warrants to Seller, which representations shall survive the
Closing, as follows:
5.1 Jameson is a corporation duly organized validly
existing and in good standing under the laws of the State of Georgia
and has all corporate authority to enter into and perform this
Agreement and to issue the Shares. Jameson has taken all necessary
actions to issue the Shares as provided herein.
5.2 This Agreement has been duly authorized, executed and
delivered by Jameson and is a valid obligation of Jameson, enforceable
in accordance with its terms. Neither Jameson's Amended and Restated
Articles of Incorporation, as amended, or Bylaws, as amended, nor any
other agreement or instrument to which Jameson is a party or by which
it is bound prohibits, limits or otherwise affects the right, power or
authority of Jameson to enter into and consummate this Agreement or to
issue the Shares.
5.3 Neither the execution of this Agreement nor issuance
of the Shares will result in the violation of any term or provision of,
or constitute a default under, any indenture, mortgage, deed of trust
or other agreement or instrument to which Jameson is a party or by
which it is bound.
4
<PAGE> 5
5.4 Jameson is not subject to any order, judgment or
decree, or any other restriction of any kind or character, which would
prevent consummation of the transactions contemplated by this Agreement
or issuance of the Shares.
5.5 When issued to Seller in accordance with this
Agreement, the Shares will be duly issued, validly outstanding and
nonassessable capital stock of Jameson subject to the restrictions set
forth in Section 5 below and to those contained in the Designation of
Rights, Preferences and Restrictions of Preferred Stock, Part II.A of
the Articles of Amendment filed by the Jameson on March 13, 1998, with
the Secretary of State of the State of Georgia (the "Designation").
6. INVESTMENT INTENT; RESTRICTIONS ON SHARES.
6.1 Seller represents that it is acquiring the Shares for
purposes of investment only and not with a view to resale or
distribution.
6.2 Seller acknowledges that:
a. The offer and sale of the Shares to Seller have not
been registered under the Securities Act of 1933, as amended
(the "Act"), or any state securities law;
b. The Shares cannot be sold, assigned or transferred by
Seller in any manner without registration under the Act and
applicable state securities laws or in compliance with
exemptions therefrom; and
c. No sale, assignment or transfer of the Shares by
Seller will be valid except pursuant to effective registration
statements under the Act and applicable state securities or an
opinion of counsel satisfactory to Jameson that such
registration is not required.
6.3 Seller further acknowledges that certificates
representing the Shares will bear legends evidencing the
above-described restrictions on the sale, assignment and transfer of
the Shares as well as certain restrictions on sale and ownership of the
Shares prescribed under the Designation.
7. THE CLOSING. The consummation of the transactions described
herein (the "Closing") shall occur at 10:00 a.m. on April 2, 1999, at the
offices of Seller or at such other time and place agreed to in writing by the
parties (the "Closing Date"). Title to and risk of loss, destruction, or damage
to the Assets shall pass to Buyer at the conclusion of the Closing. At the
Closing, the following shall occur:
5
<PAGE> 6
7.1 Buyer shall deliver to Seller:
a. Cash in the amount of $400,000 by check or
other means satisfactory to Seller;
b. A fully executed Assignment and Assumption
in the form of Exhibit C hereto; and
c. A certificate executed by an authorized
officer of Buyer stating that all of the representations and
warranties of Buyer set forth in this Agreement are true and
correct at the time of Closing.
7.2 Seller shall deliver to Buyer:
a. A fully executed Assignment and Assumption
in the form of Exhibit C hereto; and
b. A certificate executed by an authorized
officer of Seller stating that all of the representations and
warranties of Seller set forth in this Agreement are true and
correct at the time of Closing.
7.3 Jameson shall deliver to Seller:
a. Certificates representing the Shares in such
denominations as Seller may designate, such certificates to
bear the legends described in Section 6.3 above; and
b. A certificate executed by an authorized
officer of Seller stating that all of the representations and
warranties of Jameson set forth in this Agreement are true and
correct at the time of Closing.
7.4 The parties shall adjust, apportion, and prorate all
ad valorem taxes on personal property, all real estate taxes, general
and special assessments, municipal improvements liens, liens on
property purchased, and all prepaid expenses, utility charges, rents or
other like charges levied, assessed, or imposed upon any of the Assets
being sold hereunder. Should any such tax, assessment, or charge be
undetermined on the Closing Date, the last determined tax, assessment,
or charge shall be used for the
6
<PAGE> 7
purpose of adjustment. If not finalized at the Closing, all adjustments
shall take place as soon thereafter as is practicable.
8. UNDERSTANDING OF THE PARTIES REGARDING ASSIGNMENT OF RIGHTS
UNDER BILLBOARD AGREEMENTS. The Contractual Assets consist in part of certain
contractual rights of Seller held in its own name or as successor by merger to
certain other entities (Seller and each of such predecessor entities being
referred to as "Jameson"in the Billboard Agreements, as defined herein) under
certain agreements (styled therein and referred to hereinafter as the "Billboard
Agreements") between Seller and/or one of such predecessor entities and a party
denominated as "Advertiser" thereunder. Acknowledging the legal identity in
certain Billboard Agreements of the entity denominated therein as "Jameson" and
the entity denominated as "Advertiser," the parties agree that in the event the
assignment by Seller to Buyer pursuant to this Agreement of Seller's rights as
"Jameson" under the Billboard Agreements is ever challenged or declared void or
invalid as a result of such identity of the parties thereto, Buyer and Seller
shall, effective at the Closing Date, be deemed to have entered de novo into
legally binding agreements having terms and conditions identical to the terms
and conditions of the Billboard Agreements, Buyer having all of the rights,
duties and obligations of "Jameson" thereunder and Seller having all of the
rights, duties and obligations of the "Advertiser."
9. POST-CLOSING ASSISTANCE. After Closing, each of Buyer and
Seller at the request of the other and without further consideration agrees to
execute and deliver at its expense such other instruments of transfer or
assumption and take such other action as reasonably may be requested to
effectively carry out the provisions and intent of this Agreement and to put
Buyer in possession of the Assets.
10. INDEMNIFICATION.
10.1 Buyer shall indemnify, defend, and hold Seller
harmless from and against any and all claims or actions, liabilities,
losses, damages, costs, charges, including reasonable attorneys' fees,
and other expenses of any kind which Seller may incur with respect to
the Assets and which are predicated upon events or occurrences taking
place subsequent to the Closing or due to the breach by Buyer of this
Agreement or any representation or warranty of Buyer herein.
10.2 Seller shall indemnify, defend, and hold Buyer
harmless from and against any and all claims or actions, liabilities,
losses, damages, costs, charges, including reasonable attorneys' fees,
and other expenses of any kind which Buyer may incur with respect to
the Assets and which are predicated upon events or occurrences
7
<PAGE> 8
taking place subsequent to the Closing or due to the breach by Buyer of
this Agreement or any representation or warranty of Buyer herein.
10.2 Seller shall indemnify, defend, and hold Buyer
harmless from and against any and all claims or actions, liabilities,
losses, damages, costs, charges, including reasonable attorneys' fees,
and other expenses of any kind which Buyer may incur with respect to
the Assets and which are predicated upon events or occurrences taking
place prior to the Closing or due to the breach by Seller of this
Agreement or any representation or warranty of Seller herein.
10.3 Jameson shall indemnify, defend, and hold Seller
harmless from and against any and all claims or actions, liabilities,
losses, damages, costs, charges, including reasonable attorneys' fees,
and other expenses of any kind which Seller may incur due to the breach
by Jameson of this Agreement or any representation or warranty of
Jameson herein.
11. BULK SALES ACT. Seller hereby guarantees that the sale
contemplated by this Agreement shall conform to the Bulk Sales Provisions of the
Uniform Commercial Code or other laws or regulations having similar purpose and
therefore agrees to indemnify and hold Buyer harmless from any liability, loss,
damage, cost, charge, or expense of any kind as a result of Seller's breach of
this Section 11. Seller further agrees that the Purchase Price received at the
Closing shall be applied to the satisfaction of any indebtedness to creditors
which is identified in any list of creditors prepared and furnished to Buyer in
compliance with such Bulk Sales laws.
12. SALES TAXES. Any sales, use or transfer taxes which may be
payable in connection with the transfer of the Assets to the Buyer shall be
borne solely by Seller, which shall indemnify and hold Buyer harmless therefrom.
13. PRESERVATION OF ASSETS. Prior to the Closing, Seller shall
preserve the Assets in good condition and in so doing shall exercise its best
efforts to (i) continue Seller's use of the Assets only in the ordinary and
usual course in accordance with its past practice, (ii) maintain and keep in
good repair all of the Assets, (iii) comply with all applicable laws, rules, and
regulations of each federal, state and municipal authority having jurisdiction
over Seller with respect to the Assets, and (iv) maintain Seller's insurance
coverage of the Assets in conformity with past practice.
14. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER. The obligation
of Buyer to purchase the Assets and assume the Liabilities pursuant to this
Agreement shall be subject, at Buyer's option, to the following conditions:
14.1 NO MATERIAL ADVERSE CHANGE. There shall not have
occurred any material adverse change in the condition of the Assets
from the date of this Agreement until the conclusion of the Closing.
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14.2 REPRESENTATIONS AND WARRANTIES OF SELLER TRUE. All
representations, warranties and other statements of Seller contained
herein were true and correct when made and at and as of the Closing
Date shall be true and correct as if made at the time of the Closing.
14.3 CONSENTS AND AMENDMENTS. Seller shall have obtained
all necessary written consents to the transactions contemplated by this
Agreement and any amendments which may be required to any of the
Contractual Assets.
14.4 LITIGATION. On the Closing Date, there shall not be
any pending litigation in any court or any proceedings by or before any
judicial, administrative or governmental commission, board, agency or
other instrumentality adversely affecting the Assets or the
consummation of the transactions contemplated by this Agreement.
14.5 FAIRNESS OPINION. Buyer and Jameson shall have
obtained an opinion of Interstate/Johnson Lane Corporation dated the
Closing Date stating that the consideration payable to Seller in
connection with the transactions contemplated herein is fair, from a
financial point of view, to shareholders of Jameson.
14.6 PERFORMANCE. Seller shall have performed and complied
with all agreements and conditions required by this Agreement to be
performed or complied with by Seller prior to or at the Closing.
15. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. The
obligation of Seller to sell the Assets to Buyer pursuant to this Agreement
shall be subject, at Seller's option, to the following conditions:
15.1 NO MATERIAL ADVERSE CHANGE. There shall not have
occurred any material adverse change in the financial condition or
operations of Buyer or Jameson from the date of this Agreement until
the conclusion of the Closing.
15.2 REPRESENTATIONS AND WARRANTIES OF BUYER AND JAMESON
TRUE. All representations, warranties, and other statements of Buyer
and Jameson contained herein were true and correct when made and at and
as of the Closing Date shall be true and correct as if made at and as
of the Closing Date.
15.3 AMENDMENT TO JAMESON'S AMENDED AND RESTATED ARTICLES
OF INCORPORATION. Jameson shall have filed with the Secretary of State
of the State of Georgia an amendment to Jameson's Amended and Restated
Articles of Incorporation increasing to an aggregate of one million two
hundred seventy-two thousand seven
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<PAGE> 10
hundred twenty-seven (1,272,727) the number of authorized shares of
Jameson's 9.25% Series A Cumulative Preferred Stock, par value $1.00
per share.
15.4 LITIGATION. On the Closing Date, there shall not be
any pending litigation in any court or any proceedings by or before any
judicial, administrative or governmental commission, board, agency or
other instrumentality materially adversely affecting Buyer's or
Jameson's financial condition or operations or the consummation of the
transactions contemplated by this Agreement.
15.5 PERFORMANCE. Buyer and Jameson shall have performed
and complied with all agreements and conditions required by this
Agreement to be performed or complied with by Buyer and Jameson,
respectively, prior to or at the Closing.
16. NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be deemed sufficiently given
if delivered personally or sent by certified mail, return receipt requested,
postage prepaid, addressed as listed below or to such other address as the party
concerned may substitute by notice to the other in accordance with the
provisions of this paragraph.
If to Buyer:
Jameson Outdoor Advertising Company
8 Perimeter Center East
Suite 8050
Atlanta, GA 38346
If to Seller:
Jameson Hospitality, LLC.
8 Perimeter Center East
Suite 8050
Atlanta, GA 38346
If to Jameson:
Jameson Inns, Inc.
8 Perimeter Center East
Suite 8050
Atlanta, GA 38346
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17. ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement and understanding of the parties with respect to the transactions
contemplated hereby. No representation, promise, inducement, or statement of
intention has been made by Buyer, Seller or Jameson which is not embodied in
this Agreement. None of Buyer, Seller or Jameson shall be bound by or liable for
any alleged misrepresentation, promise, inducement or statement of intention not
so set forth.
18. ASSIGNMENTS. Neither this Agreement nor any of the rights or
duties of the parties hereto may be assigned by any party without the consent of
the other parties.
19. AMENDMENT. This Agreement may be changed, modified or amended
only by an instrument in writing duly executed by the parties.
20. WAIVER. No consent or waiver, express or implied, by a party
to or of any breach by another in the performance by such other of its
obligations hereunder shall be deemed or construed to be a consent or waiver to
or of any other breach in the performance by such other party of the same or any
other obligations of such party hereunder. Failure on the part of a party to
complain of any act or failure to act of another, irrespective of how long such
failure continues, shall not constitute a waiver by such party of its rights
hereunder.
21. GOVERNING LAW. This Agreement shall be construed and enforced
in accordance with the laws of the State of Georgia without regard to the
conflict of laws provisions thereof.
22. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which shall
constitute but one and the same instrument.
23. SEVERABILITY. If any term or provision of this Agreement is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the balance of this Agreement shall remain in full force and effect and shall
not be affected, impaired or invalidated thereby.
24. LITIGATION COSTS. If a party commences litigation to enforce
any of the provisions of this Agreement, the nonprevailing party in such
litigation shall reimburse the prevailing party for all reasonable costs and
expenses incurred in the pursuit of such litigation, including reasonable
attorneys' fees.
25. EXPENSES. The parties shall each be responsible for their own
respective costs, expenses and fees (including without limitation attorneys'
fees) incurred in connection with this Agreement and the transactions
contemplated hereby, and agree to indemnify and hold each other harmless from
and against any and all liabilities or claims with respect to such expenses,
costs, or fees.
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26. NO THIRD-PARTY BENEFICIARIES. Except for proper heirs, successors
and permitted assigns, the parties intend that no third party shall have any
rights or claims by reason of this Agreement.
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective representatives, thereunto duly authorized, as of
the day and year first above written.
SELLER:
ATTEST: JAMESON HOSPITALITY, LLC
By:
- ------------------------------ --------------------------------
Secretary Thomas W. Kitchin, President
BUYER:
ATTEST: JAMESON OUTDOOR ADVERTISING COMPANY
By:
- ------------------------------ --------------------------------
Secretary Craig R. Kitchin, President
JAMESON:
ATTEST: JAMESON INNS, INC.
By:
- ------------------------------ --------------------------------
Secretary Craig R. Kitchin, President
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<PAGE> 14
EXHIBIT A
TO
ASSET PURCHASE AGREEMENT
14
<PAGE> 15
EXHIBIT B
TO
ASSET PURCHASE AGREEMENT
15
<PAGE> 16
EXHIBIT C
TO
ASSET PURCHASE AGREEMENT
16
<PAGE> 1
EXHIBIT 10.31
TERM LOAN AGREEMENT
THIS TERM LOAN AGREEMENT ("Agreement"), effective as of the day of
December, 1999, is made by and between FIRST NATIONAL BANK & TRUST, organized
and existing under the laws of the United States of America ("Bank") and
JAMESON INNS, INC., a Georgia corporation, having its principal office at 8
Perimeter Center East, Suite 8050, Atlanta, Georgia 30346-1604 ("Borrower").
RECITALS:
Borrower has applied to the Bank for a loan to be secured by a lien on
assets of the Borrower of even date herewith as evidenced by Borrower's
Mortgage Note ("Note") in the aggregate principal amount of Three Million Seven
Hundred Thousand Dollars ($3,700,000.00), being payable as provided in the
Note;
Payment of the Note is secured by one or more security agreements
evidencing Bank's lien on assets of the Borrower.
NOW THEREFORE, in consideration of the making of this Loan and the
following mutual promises, covenants and conditions, the sufficiency of which
is hereby acknowledged, the parties hereby covenant, agree, warrant and
represent as follows:
PART ONE
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
set forth opposite each:
1.01 A Governing Instruments": The articles or certificates of
incorporation of a corporate Borrower, all amendments thereto, the by-laws, and
resolutions, duly adopted by the board of directors approving the Loan and the
execution and delivery of the Loan Documents.
1.02 "Governmental Authority": The United States of America, the
State of Indiana, the county, township and/or municipality in which the
Property or any portion thereof is located, any political subdivision of any of
them, and any court, agency, department, commission, board, bureau or
instrumentality of any of them.
1.03 "Loan": The Loan consummated of even date herewith from the Bank
to the Borrower, in the Loan Amount, for the Project.
1.04 A Loan Amount: The lesser of the sum of $3,700,000.00 in U.S.
Dollars or seventy-five percent (75%) of the appraised market value of the real
estate that is owned by the Borrower and subject to the mortgage securing this
debt.
<PAGE> 2
1.05 "Loan Commitment": The commitment letter from the Bank to the
Borrower dated October 20, 1999, together with any amendments thereto.
1.06 "Loan Documents": This Agreement, Note, Security Agreements,
Loan Commitment, title insurance policy, Uniform Commercial Code financing
statements (if applicable) executed in connection with the Loan, and all
affidavits, certifications, and other documents and instruments delivered to or
required by the Bank to evidence or secure the Loan.
1.07 "Master Lease": The Master Lease Agreement dated as of May 7,
1999, between Jameson Hospitality, LLC, a Georgia limited liability company,
and, among others, the Borrower as amended and supplemented.
1.08 A Maturity Date: December 31, 2009.
1.09 "Mortgage": The mortgage creating a first and superior lien upon
the Property, and all the improvements thereto, in accordance with the terms of
the mortgage agreement executed and delivered by Borrower to Bank.
1.10 "Project": The refinancing of the real estate and the
improvements constructed thereon of the Carmel, Indiana Signature Inn limited
service hotel, an 81 room limited services hotel located at 10201 N. Meridian
Street, Carmel, Indiana 46032.
1.11 "Property": The real estate and the improvements constructed
thereon owned by the Borrower and generally located at 10201 N. Meridian
Street, Carmel, Indiana 46032.
1.12 "Security Agreement(s)": The Mortgage and any security agreement
executed by the Borrower and delivered to the Bank granting to the Bank a
security interest in the Property, personal property and fixtures owned by the
Borrower and serving as security and collateral for the Loan.
PART TWO
LOAN AND LOAN DOCUMENTS
2.01 THE LOAN. Subject to all the terms, conditions, and provisions
hereof, the Bank hereby agrees to lend to the Borrower, and the Borrower hereby
agrees to borrow from the Bank, the Loan Amount or so much as may be advanced
from time to time and repaid, as provided in the Note, and with all costs and
charges that may become due and owing under any of the Loan Documents.
2.02 RELATIONSHIP OF LOAN AND VARIOUS DOCUMENTS. The Loan is
evidenced by the Note, and repayment of the Note and all other sums due the
Bank under the terms of any of the Loan
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<PAGE> 3
Documents are secured by the Security Agreements, and any other security or
collateral given to the Bank in connection with the Loan.
PART THREE
REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to the Bank as follows, each
representation and warranty being reaffirmed as true and complete on each
submission of a request for disbursement and on each receipt of Loan proceeds:
3.01 ORGANIZATION AND AUTHORITY OF BORROWER AND GUARANTORS. Borrower
is duly organized under the laws of the State of Georgia and is validly
existing and in good standing under all applicable laws of the State of
Indiana.
3.02 EXECUTION AND DELIVERY OF LOAN DOCUMENTS. The execution and
delivery of the Loan Documents executed or delivered by the Borrower and the
consummation of the transactions contemplated thereby: (i) have been duly
authorized by all actions required under the terms and provisions of its
Governing Instruments, the laws of the State of Georgia and any applicable
requirement of a Governmental Authority; (ii) create legal, valid and binding
obligations on the Borrower enforceable in accordance with their terms; (iii)
do not require the approval or consent of any Governmental Authority having
jurisdiction over the Borrower, or the property of it; (iv) do not and will not
constitute a violation of, or default under, the Governing Instruments of the
Borrower or any requirement of a Governmental Authority applicable to the
Borrower; and (v) will not be in contravention of any court or administrative
order or ruling applicable to the Borrower, or the Property, or any mortgage,
indenture, security agreement, agreement, commitment or instrument to which the
Borrower is a party or by which it or its assets are bound, nor create or cause
to be created any mortgage, lien, encumbrance, or charge against the assets of
the Borrower, other than those permitted by the Loan Documents.
3.03 INFORMATION SUPPLIED BY BORROWER. Borrower's applications,
financial statements and all other information heretofore delivered to the Bank
are true and correct in all respects, and fairly present the respective
conditions of the subjects thereof as of the respective dates thereof. No
adverse change has occurred in the conditions reflected therein since the
respective dates thereof and no borrowings, guaranties, or granting of security
interests have been made by the Borrower since the date thereof other than the
borrowings contemplated hereby or approved in writing by the Bank.
3.04 NO PROCEEDINGS. There are no actions, suits or proceedings
pending, or, to the knowledge of the Borrower threatened, against or affecting
the Borrower, or other collateral covered by the Loan Documents, or involving
the validity or enforceability of the Loan Documents or the priority of the
lien created or to be created thereby, at law or in equity, or before or by any
Governmental Authority.
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<PAGE> 4
3.05 APPROVAL OF PROJECTS; COMPLIANCE WITH LAWS. The Project has been
submitted to and approved by the Borrower, the Bank, and, to the extent
required by applicable law or any restrictive covenant, each Governmental
Authority and the beneficiaries of each such covenant, respectively. The
anticipated use of the Property complies with all applicable zoning ordinances,
regulations and restrictive covenants affecting the Property and improvements
and all other requirements of any Governmental Authority, and all requirements
for such use have been satisfied.
3.06 LICENSES; PERMITS. Borrower has obtained from each Governmental
Authority and from each beneficiary of each restrictive covenant all licenses,
permits, authorizations, consents and approvals necessary for the operation of
the Property for its anticipated use, and all such licenses, permits,
authorizations, consents and approvals are in full force and effect. The
operations on the Property will not violate (i) any zoning, building code,
subdivision, or land use ordinance, regulation or law promulgated by any
Governmental Authority, or (ii) any restriction of any kind affecting the
Property.
3.07 NO DEFAULTS. Borrower is not in default under any of the Loan
Documents, and no event has occurred which by notice, the passage of time or
otherwise would constitute an Event of Default under any of the Loan Documents;
Borrower is not in default in the payment of any indebtedness for borrowed
money or under the terms and provisions of any agreement or instrument
evidencing any such indebtedness; and Borrower is not in default with respect
to any order, writ, injunction, decree or demand of any court or any other
requirement of a Governmental Authority.
3.08 ACCESS AND UTILITIES. The Property has adequate rights of access
to public ways and utilities and all wells, septic and sanitary and storm drain
facilities. All other utilities and services necessary or convenient to the
full development, use and enjoyment of the Property are available to the
Property.
3.09 VALID TITLE. Borrower is the true, sole and lawful owner of the
property serving as collateral for the Loan, is lawfully seized and possessed
of the same and has good right, full power and lawful authority to mortgage and
grant liens upon the same and the security interests granted under the Security
Agreements, when properly filed and recorded, will create a valid lien on the
Property.
3.10 RESTRICTIVE COVENANT. Other than existing restrictive covenants,
Borrower shall not subject the Property or any part thereof to any restrictive
covenant (including any restriction or exclusive use provision in any lease or
other occupancy agreement) without the prior written consent of the Bank.
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<PAGE> 5
3.11 ENVIRONMENTAL.
(a) There are no existing or pending requirements of
Governmental Authorities relating to environmental matters requiring any
remedial actions or other work, repairs, construction or capital expenditures
with respect to the Property nor has the Borrower received any notice of any of
the same.
(b) There is no fact pertaining to the physical condition
of either the Property, or the area surrounding the Property (i) which the
Borrower has not disclosed to the Bank in writing prior to the date of this
Agreement, and (ii) which adversely affects or may adversely affect the
Property, or the use, enjoyment or the value thereof, or Borrower's ability to
perform the transactions contemplated by this Agreement.
3.12 USE OF PROCEEDS. The proceeds of the Loan will only be used
directly for the Project.
3.13 COMPLETE INFORMATION. No representation or warranty of the
Borrower contained in any of the Loan Documents, and no statement contained in
any certificate, schedule, list, financial statement or other instrument
furnished to the Bank by or on behalf of the Borrower contains, or will
contain, any untrue statement of a material fact, or omits, or will omit, to
state a material fact necessary to make the statements contained herein or
therein not misleading.
Each of the foregoing representations and warranties shall survive the
making of the Loan and each advance hereunder and thereunder, and the Borrower
hereby agrees to indemnify and hold harmless the Bank from and against any
loss, damage or liability attributable to the breach thereof, including all
expenses and fees (including, but not limited to, reasonable attorneys' fees)
incurred in the defense or settlement of any claim arising therefrom against
the Bank.
PART FOUR
DISBURSEMENTS
4.01 METHOD OF DISBURSING LOAN AMOUNT. Except as otherwise provided
herein, the disbursement of the Loan Amount is to be made to the Borrower
pursuant to this Agreement.
4.02 GENERAL CONDITIONS FOR DISBURSEMENT. The obligation of the Bank
to disburse the Loan Amount is subject to the satisfaction of the following
conditions at the time of closing and at the time of each disbursement:
(A) The Note, in a form reasonably acceptable to the Bank, duly
executed by the Borrower;
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<PAGE> 6
(B) The duly executed Security Agreements, together with such
financing statements, assignments and other instruments as the Bank may
reasonably require to evidence, govern or secure payment of the Note and the
Loan, in a form acceptable to the Bank;
(C) The other Loan Documents in a form reasonably acceptable to the
Bank, duly executed by the Borrower and all other parties thereto other than
the Bank; and
(D) An original policy or policies (or certified copies of
originals) and the endorsements thereto, together with receipts evidencing
payment of the first years premiums, and which provide in addition to any other
reasonable requirements of the Bank, the following coverage in such amounts and
in form and content and issued by a company or companies acceptable to the
Bank: (a) hazard insurance, insuring the Property against loss or damage by
fire, extended casualty, malicious mischief, and other risks of physical loss
in an amount equal to 100% of the replacement value of the Property with no
more than $1,000 deductible for the loss payable for any casualty and with an
agreed value endorsement; (b) commercial general liability coverage, insuring
against claims for bodily injury, death or property damage occurring on or
about the Real Estate in the combined single limit of One Million Dollars
($1,000,000.00) and an aggregate of Three Million Dollars ($3,000,000.00); and
(c) all other insurance coverage and endorsements reasonably required by the
Bank from time to time, including, flood hazards, workers' compensation and
differences in conditions, business interruption, and loss of A rental value.
The insurance policies shall be written in forms, amounts, and by
companies reasonably satisfactory to the Bank. The policies shall also provide
that the obligation of the insurance company shall not be affected or impaired
if the loss is the result of the negligent act of the Borrower or the Bank. The
policies of insurance may not be canceled or modified without thirty (30) days
prior written notice to the Bank. Each policy shall name the Bank as a loss
payee to the extent of its interest. The Bank shall be provided with
certificates of insurance evidencing the insurance coverage. Any monies
received as payment for any loss under any of the insurance policies paid over
to the Bank may be applied, at the option of the Bank, either to the prepayment
of any portion of the Borrower's obligations to the Bank, without premium, or
to the reimbursement of the Borrower for expenses incurred by the Borrower in
the restoration or repair of the Property. Proceeds paid or payable to the
Borrower of the policies of insurance shall, at the sole discretion of the
Bank, be applied to repayment of all amounts due the Bank, repayment of the
Loan, or restoration of the Property in such fashion as the Bank may require.
The Borrower shall give the Bank prompt written notice of any casualty
affecting the Property.
(E) The Bank shall have received audited financial statements of
the Borrower that are current, signed, and prepared according to generally
accepted accounting principal and in a form and with sufficient details to be
reasonably acceptable to the Bank.
(F) No representation or warranty of the Borrower contained herein
or in any of the Loan Documents shall be or have become incorrect or
inaccurate.
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<PAGE> 7
(G) There shall be no breach, default, or event of default under the
terms of any of the Loan Documents, and no event shall exist which by notice,
passage of time or both would constitute an event of default under any of the
Loan Documents.
(H) Bank shall have received any and all affidavits, indemnity
agreements, lien waivers, certificates and other documents that may be required
by the Bank.
(I) All conditions to the obligation of the Bank to make the
disbursement as set forth herein, in the Loan Commitment or elsewhere shall
have been satisfied. The Borrower shall furnish to the Bank a certificate,
dated the date of such advance and executed by such person or persons as the
Bank shall designate and in such detail as the Bank may require, as to the
satisfaction of any one or more of the conditions of this Section.
PART FIVE
COVENANTS
5.01 USE OF LOAN PROCEEDS; OTHER PROJECT FINANCING. Borrower shall
receive the Loan Amount hereunder, shall hold same in trust solely for, and
shall expend same solely for the purpose of paying costs identified with the
Project and shall in no event use any of same for any other reason or purpose.
5.02 TITLE TO AND MAINTENANCE OF COLLATERAL.
A. MAINTENANCE AND USE OF COLLATERAL. Borrower shall at all times
maintain, preserve and keep the Property and all other collateral covered by
the Loan Documents and shall maintain, preserve and keep the same, and each and
every part and parcel thereof, in good repair and in safe condition.
Without limiting the foregoing, the Borrower shall not without the
Bank's prior written approval (i) remodel, add to, reconstruct, improve or
demolish any part of the Property or other collateral covered by the Loan
Documents, except as contemplated by and in accordance with the plans and
specifications; (ii) permit the use or operation of the Property for any
purpose except the use which is presently intended; or (iii) undertake or
suffer any work to be done upon the Property other than routine maintenance and
any work estimated to cost less than Fifty Thousand and no/100 Dollars
($50,000.00).
B. TITLE TO COLLATERAL. Borrower shall not permit any mortgages,
liens, encumbrances or charges upon the Property, improvements, any other
collateral covered by the Loan Documents or any part thereof, except as
permitted by the Loan Documents or as approved by the Bank in writing.
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<PAGE> 8
C. NOTICE OF LIENS. Borrower shall not, without prior written
consent of the Bank, permit to exist any other mortgage lien or encumbrance on
the Property or other collateral covered by the Loan Documents, or otherwise
permit any secondary financing on the Property, including personal property and
fixtures which are owned by the Borrower and used in connection with the
Property.
5.03 INSPECTION, AUDITS AND INFORMATION REGARDING COLLATERAL AND
LOAN. Borrower shall permit the Bank and its duly authorized agents free access
to the Property and shall make available for audit and inspection by the Bank
or its duly authorized agents, from time to time at any reasonable time, all
property, equipment, books, contracts, records, detailed plans, specifications
and other papers relating to the Property or other collateral covered by the
Loan Documents. Borrower shall keep the books and accounts of all operations
relating to the Property at its principal office. Borrower shall promptly
respond to any inquiry from the Bank for information with respect to the
Property, which information is subject to verification by the Bank; provided,
however, that the Bank shall at all times be entitled to rely upon any
statements or representations made by the Borrower or any officer or
representative thereof.
5.04 SECURITY INTEREST. The Borrower shall grant the Bank a security
interest having first priority in all personal property, equipment and fixtures
owned by the Borrower and used in connection with the Property free and clear
of all other security interests or encumbrances. Borrower shall furnish Bank
such evidence as it may reasonably require concerning identification of such
equipment and fixtures.
5.05 LEASES. Borrower shall provide the Bank with copies of all
leases in effect at closing and the form of any lease to be used in connection
with the Property during the term of the Loan. All such leases, to the extent
the Property is covered thereby, upon the Bank's review and written approval,
shall be presently and unconditionally assigned to the Bank as additional
security for the Loan. Upon the Bank's request, Borrower shall provide
subordination agreements with non-disturbance clauses and tenant estoppel
letters from all lessees of the Property, in the form attached hereto as
Exhibit "B".
5.06 AMENDMENT TO MASTER LEASE. The Master Lease shall not be
amended or supplemented, except to add additional properties or to extend the
term thereof, without the written consent of the Bank.
5.07 TRANSFER OF INTERESTS IN BORROWER OR COLLATERAL. Except in the
ordinary course of Borrower's business, the Borrower shall not, without the
Bank's prior written consent, lease, transfer, convey, sell or assign the
Property, any collateral covered by the Loan Documents or any interest therein
or part thereof, or change or alter the ownership thereof. It is expressly
understood and agreed that any such consent by the Bank if given, shall be upon
such terms and conditions as the Bank may in its discretion prescribe,
including but not limited to an increase in the interest rate provided under
the Note, and the payment by the Borrower of any service fee of the Bank.
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5.08 NOTICE OF DEFAULT OR CHANGED CIRCUMSTANCE. Borrower shall
notify the Bank in writing within ten (10) days thereof (a) in the event of any
default by Borrower under any of the Loan Documents, (b) if any representation
contained herein becomes materially incorrect, and (c) if Borrower receives any
notice(s) from a Governmental Authority concerning the Property.
5.09 INSURANCE. The Borrower shall procure and maintain insurance
for such coverage and in such amounts as the Bank may, from time to time,
reasonably require.
5.10 FINANCIAL STATEMENTS. The Borrower shall submit audited
financial statements annually within one hundred twenty (120) days following
the end of each calendar year. With each submission of financial statements,
the Borrower shall execute appropriate certificates certifying that there are
no defaults under any of the Loan Documents. Borrower shall also provide to the
Bank on a quarterly basis profit and loss statements for the Carmel Signature
Inn, prepared internally, in detail reasonably acceptable to the Bank.
5.11 REPLACEMENT FUND. Beginning the tenth (10th) day of the third
month following the month in which the closing occurs, and continuing on the
tenth (10th) day of each calendar quarter thereafter during the term of the
Loan, Borrower shall deposit with the Bank an amount equal to two percent (2%)
of the gross revenues it received during the immediately preceding three (3)
months. These funds shall be held in a regular A money-market savings account
with the Bank and, with the Banks prior written approval, may be withdrawn once
each year on the anniversary date of the Loan. These funds may be used only to
replace existing furniture, fixtures and equipment.
5.12 PROPERTY TAX ESCROW ACCOUNT. Borrower agrees to maintain an
escrow account with the Bank for the payment of property taxes (A Property Tax
Escrow Account). At the closing of the Loan, Borrower shall deposit into the
escrow account an amount equal to one fourth (1/4) of the annual amount of
property taxes as assessed upon the Property. With each monthly payment of the
Loan under the terms of the Note, Borrower shall deposit an amount equal to
one-twelfth (1/12) of the annual amount of property taxes as assessed upon the
Property.
5.13 PRIMARY DEPOSITORY ACCOUNT. Borrower agrees to maintain the
primary depository account for the Carmel Signature Inn with the Bank during
the term of the Loan.
PART SIX
EVENTS OF DEFAULT AND REMEDIES
6.01 EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an event of default:
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A. FAILURE TO PAY INDEBTEDNESS. If the Borrower shall fail to make
payment when due pursuant to the terms of the Note.
B. BREACH OF COVENANT. If the Borrower shall fail to perform,
observe or comply with any of the terms, covenants, conditions or provisions
contained in this Agreement, the Note or any other Loan Documents, or if any
default or event of default occurs under any of the Loan Documents and such
breach is not cured within fifteen (15) days after Bank provides written notice
to Borrower.
C. INACCURATE REPRESENTATION. If at any time any representation or
warranty made by the Borrower in any of the Loan Documents or furnished to the
Bank by or on behalf of the Borrower, shall be or become false, misleading,
incomplete or incorrect. Provided, however, that if any representation or
warranty made to the Bank after the date of closing of this loan shall be or
become false, misleading, incomplete or incorrect, Borrower shall have fifteen
(15) days after the Bank provides written notice of the inaccurate
representation to cure said inaccuracy.
D. ASSIGNMENT. If the Borrower shall agree to, or execute, any
assignment of this Agreement or of any advance hereunder or if the Property
and/or improvements are conveyed or encumbered in any way without the prior
written consent of the Bank.
E. CHANGE IN FINANCIAL CONDITION. If there is any material change
in the financial condition of the Borrower.
F. BANKRUPTCY OF BORROWER. If the Borrower shall file a voluntary
petition in bankruptcy or shall be adjudicated a bankrupt or insolvent.
G. INVOLUNTARY LIENS. If a lien, writ of execution or attachment
or any similar process shall be issued or levied against all or any part of or
interest in the Property, or other collateral covered by the Loan Documents and
such is not released, bonded, satisfied, vacated or stayed within thirty (30)
days after its entry or levy.
H. DESTRUCTION OF PROPERTY. If the Property shall be or has been
destroyed or, in the reasonable judgment of the Bank, materially damaged, and,
in the reasonable judgment of the Bank, the Property cannot be completed or
rebuilt.
I. PRIMARY DEPOSITORY ACCOUNT. If Borrower fails to maintain the
primary depository account for the Carmel Signature Inn at the Bank and such
failure is not cured within ten (10) days after Bank provides written notice to
the Borrower.
J. PROPERTY TAX ESCROW ACCOUNT. If the Borrower fails to maintain
the Property Tax Escrow Account at the Bank as required under the terms of this
Agreement and such failure is not cured within fifteen (15) days after Bank
provides notice of such failure to the Borrower.
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K. VOLUNTARY TERMINATION. If the Borrower requests a termination
of the Loan hereunder or confesses inability to continue performance in
accordance with this Agreement.
6.02 REMEDIES. If any event of default shall occur the Bank, at its
option, may:
A. ACCELERATION OF LOAN. Declare the entire outstanding principal
balance of the Loan together with all interest thereon, to be due and payable
immediately.
B. OTHER REMEDIES. Enforce, or avail itself of any and all
remedies provided at law or in any or all of the Loan Documents.
6.03 REMEDIES CUMULATIVE. All powers and remedies given by this
Agreement to the Bank shall be cumulative and not exclusive of one another or
of any other right or remedy or of any other powers and remedies available to
the Bank, and no delay or omission of the Bank to exercise any right or power
accruing upon any default occurring shall impair any other or subsequent
default or impair any rights or remedies consequent thereto. Every power and
remedy given to the Bank by this Agreement or by law may be exercised from time
to time, and as often as may be deemed expedient.
6.04 ATTORNEYS' FEES. Should the Bank, at its sole option, elect to
employ attorneys at law to represent it in the enforcement of any obligation
undertaken by the Borrower in favor of the Bank, or undertaken by any third
person in favor of the Borrower in connection herewith, or to participate in
any legal proceedings in any way connected herewith, the Borrower does hereby
agree to pay to the Bank the reasonable fees and expenses of the foregoing
attorneys to the extent allowed by law.
6.05 WAIVERS. Borrower does hereby expressly waive in favor of the
Bank and its assigns, to the fullest extent allowed by law, any and all
exemptions from seizure provided by any applicable law, rule or regulation of
any Governmental Authority.
Borrower does hereby also expressly waive any notice of default by the
Bank in connection with any breach of any obligation undertaken by the Borrower
in favor of the Bank except as otherwise provided herein.
PART SEVEN
MISCELLANEOUS
7.01 APPROVAL OF COUNSEL. All documents in connection with the Loan
and all matters of title and survey applicable thereto shall be subject to
approval in form and substance by counsel for the Bank. In this regard, the
Bank shall have the right to require an opinion from counsel for Borrower in a
form, scope and substance reasonably satisfactory to counsel for the Bank as to
the
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<PAGE> 12
legality, validity and binding effect of all documents required in connection
with the Loan and as to such matters as the Bank and its counsel shall deem
appropriate.
7.02 INDEMNIFICATION. The Borrower agrees to indemnify and hold
harmless the Bank from and against any and all claims, liabilities,
obligations, losses, damages, penalties, actions, suits, costs and expenses
(including reasonable fees of counsel and commission payable to brokers or
others) of whatever kind or nature that may be imposed on, incurred by, or
asserted at any time against the Bank in any way relating to or arising in
connection with, the processing of the extension of credit, use, occupation, or
operation of the Property or by virtue of the Loan Documents.
7.03 NO PERMANENT WAIVERS. No waiver at any time of the provisions
or conditions of this Agreement or of any of the other Loan Documents shall be
construed as a waiver of any of the other provisions or conditions hereof or
thereof nor shall a waiver of any provision or condition be construed as a
right to a subsequent waiver of any other provisions or conditions or be
construed as a right to a subsequent waiver of the same provision or condition.
7.04 SEVERABILITY. Unenforceability for any reason against any
person or persons of any provision of this Agreement, or of any of the other
Loan Documents or other agreements between the Borrower and the Bank, shall not
limit or impair the operation or validity of any other provisions of the Loan
Documents or any other such agreement, and shall not impair the operation and
validity of the same provisions against any other person or persons.
7.05 GOVERNING LAW. This Agreement and all the Loan Documents shall
be governed by, and construed in accordance with, the laws of the State of
Indiana.
7.06 TIME OF THE ESSENCE. The parties hereto agree that time is of
the essence to this Agreement and the transaction provided for as contemplated
by this Agreement.
7.07 ASSIGNMENT OF BANK'S INTEREST. It is expressly agreed that any
and all terms of this Agreement, the other Loan Documents and all other
agreements made or executed by the Borrower or others in favor of the Bank, and
all rights, powers, privileges, options and remedies conferred to the Bank
herein and therein, shall inure to and be for the benefit of and may be
exercised by the Bank, its successors and assigns, and, the Bank may, at its
sole discretion, assign all or any part of its interest therein.
7.08 BANK'S RELATIONSHIP TO OTHERS. Bank is not a partner or joint
venturer in any manner whatsoever with the Borrower or any other party in the
Project or the of the Property.
7.09 BORROWER'S SUCCESSORS. All obligations contained in this
Agreement, the other Loan Documents and all other agreements to be observed,
complied with or performed by the Borrower shall be binding upon the Borrower,
and upon its successors and assigns.
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7.10 MODIFICATIONS AND AMENDMENTS. No modification, consent,
amendment or waiver of any provision of this Agreement, nor consent to any
departure by the Borrower therefrom, shall be effective unless the same be in
writing and signed by an authorized officer of the Bank and then shall be
effective only in the specific instance and for the purpose for which given.
7.11 COMPLETE AGREEMENT. This Agreement sets forth the entire and
final understanding of the parties with respect to the subject matter hereof.
All the terms of this Agreement are contractual and not a mere recital. Any and
all prior agreements, understandings and undertakings, whether written or oral,
with respect to the same, or other than same as set forth or recited herein,
are hereby superseded and replaced by this Agreement.
IN WITNESS WHEREOF, the Bank and the Borrower have executed and sealed
this Agreement as of the date first set forth above.
BANK:
FIRST NATIONAL BANK & TRUST
By:
-------------------------------
Title:
----------------------------
Attest:
---------------------------
BORROWER:
JAMESON INNS, INC.
By:
-------------------------------
Title: President
Attest:
---------------------------
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<PAGE> 14
MORTGAGE
THIS INSTRUMENT ("Mortgage") WITNESSES: That JAMESON INNS, INC.
("Mortgagor"), in consideration of One Dollar ($1.00) and other good and
valuable consideration, the receipt of which is hereby acknowledged, hereby
MORTGAGES and WARRANTS and grants a security interest to FIRST NATIONAL BANK &
TRUST, organized and existing under the laws of the United States of America
("Mortgagee"), the real estate and improvements ("Real Estate") located in
Hamilton County, State of Indiana, as more particularly described in Exhibit A,
attached hereto and made a part hereof, together with all right, title and
interest of Mortgagor in and to: (i) All rights, privileges, interests,
tenements, hereditaments, easements and appurtenances in any way now or
hereafter pertaining to the Real Estate ("Easements"); (ii) All buildings and
other improvements of every kind and description now or hereafter placed on the
Real Estate, together with all fixtures, machinery and other articles of
personal property now or hereafter attached to or regularly used in connection
with the Real Estate, and all replacements thereof ("Improvements"); (iii) All
extensions, improvements, betterments, substitutes, replacements, renewals,
additions and appurtenances of or to the Easements or Improvements
("Additions"); (iv) All proceeds, income and profits from the Real Estate,
Easements, Improvements and Additions, including all payments pertaining
thereto made in connection with all leases and agreements affecting the Real
Estate, Easements, Improvements or Additions ("Rents"); and (v) All awards,
payments or proceeds of conversion, whether voluntary or involuntary, of any of
the foregoing, including, without limitation, all insurance, condemnation and
tort claims ("Proceeds"). (Hereinafter, the Real Estate, Easements,
Improvements, Additions, Rents, and Proceeds are referred to together as the
"Mortgaged Property"). Notwithstanding the foregoing, Rents as defined in
clause (iv) above shall also refer to all Base Rent, all Percentage Rent and
all Additional Charges, in each case as generated by the Mortgaged Property and
as the terms Base Rent, Percentage Rent and Additional Charges are defined in
that certain Master Lease Agreement dated as of May 7, 1999, between JAMESON
HOSPITALITY, LLC, a Georgia limited liability company, and, among others, the
Mortgagor, as amended and supplemented (the Master Lease). For this purpose,
Percentage Rent generated by the Mortgaged Property means the difference
between: (i) Percentage Rent due and owing utilizing the Percentage Rent
calculation set forth in Section 3.1(2) of the Master Lease using all Rooms (as
defined in the Master Lease) for the applicable period and (ii) Percentage Rent
due and owing utilizing the Percentage Rent calculation set forth in Section
3.1(2) of the Master Lease using all Rooms for the applicable period, except
those Rooms comprising the Mortgaged Property.
This Mortgage is given to secure performance by Mortgagor of the
covenants and agreements contained in this Mortgage and to secure payment of
(i) the principal of and interest on the indebtedness evidenced by a certain
promissory note ("Note") of even date herewith executed and delivered by
Mortgagor to Mortgagee in the principal sum of Three Million Seven Thousand and
no/100 Dollars ($3,700,000.00), and with interest computed on the unpaid
balance from time to time at the rate set forth therein, and any other amounts
payable to Mortgagee pursuant
<PAGE> 15
to the terms and provisions of the Note ("Primary Debt"); (ii) performance of
all obligations of Mortgagor under a certain Term Loan Agreement (the "Loan
Agreement") by and between Mortgagor and Mortgagee relating to the refinancing
of the Real Estate and improvements thereon or otherwise related to the use of
the loan proceeds evidenced by the Note, and each agreement of Mortgagor
incorporated by reference therein or herein, or contained therein or herein;
(iii) all sums advanced and costs and expenses incurred by Mortgagee which are
made or incurred pursuant to, or allowed by, the terms of this Mortgage and
Note ("Advancements"); (iv) all costs of repossession, collection, disposition
and reasonable attorneys' fees incurred by Mortgagee ("Costs"); (v) all other
indebtedness, obligations and liabilities of Mortgagor to Mortgagee, now
existing or hereafter arising, whether fixed or contingent, direct or indirect,
primary or secondary, joint or several, and regardless of how created or
evidenced ("Additional Liabilities"); and (vi) any and all extensions or
renewals of any of the foregoing indebtedness ("Extensions"). (Hereinafter, the
Primary Debt, the Loan Agreement, Advancements, Costs, Additional Liabilities
and Extensions are referred together as the "Indebtedness").
Mortgagor hereby further covenants with the Mortgagee as follows:
1. PAYMENT OF SUMS DUE. Mortgagor covenants and agrees to promptly
pay the principal of and interest on the Primary Debt and the other
Indebtedness, as and when the payment(s) thereof become due, all without relief
from valuation and appraisement laws and with reasonable attorneys' fees.
2. CARE AND CONDITION OF MORTGAGED PROPERTY. Mortgagor shall (a)
promptly repair, restore or rebuild the Mortgaged Property, or any portion
thereof, which is damaged or destroyed; (b) keep the Mortgaged Property in good
condition and repair, without waste, and free from encroachments and from
mechanic's or materialman's lien or claims for liens not expressly subordinated
to this Mortgage; (c) pay when due any indebtedness which may be secured by a
lien or charge on the Mortgaged Property, whether or not superior to the lien
of this mortgage; (d) comply with all requirements of law and covenants and
restrictions of record applicable to the Mortgaged Property or its use; (e)
permit no change in or alteration of the general nature of the Real Estate and
the Improvements without Mortgagee's prior written consent; and (f) permit
Mortgagee to enter upon and inspect the Mortgaged Property at all reasonable
times.
3. WARRANTIES. Mortgagor covenants and warrants that: (a)
Mortgagor is lawfully seized of the Real Estate in fee simple, has valid and
indefeasible title to the Mortgaged Property and has a good and legal right to
convey and mortgage the Mortgaged Property; (b) the Mortgaged Property is and
will remain free from all liens and encumbrances except only mortgages and
liens in favor of Mortgagee or approved by it; and, (c) Mortgagor will warrant
and defend title to the Mortgaged Property against all claims made thereon.
4. INSURANCE. Mortgagor shall keep the Mortgaged Property insured
against loss of damage as follows: (i) hazard insurance covering the Real
Estate against loss or damage by fire, extended casualty, malicious mischief,
and other risks of physical loss in an amount equal to 100% of the replacement
value of the Real Estate with no more than $1,000 deductible for the loss
payable for any casualty and with an agreed value endorsement; (ii) commercial
general liability coverage insuring against all claims for bodily injury,
death, or property damage occurring on or about the Real Estate in the combined
single limit of One Million Dollars ($1,000,000.00) and an aggregate of Three
Million Dollars ($3,000,000.00); and (iii) all other insurance coverage and
endorsements required by the Bank from time to time, including, flood hazards,
workers' compensation, differences in conditions, business interruption, and
loss of "rental value" (together, the "Required Insurance"). The Required
Insurance shall be written in forms, amounts, and by companies reasonably
satisfactory to Mortgagee, and losses thereunder shall be payable to Mortgagee
pursuant to standard noncontributing mortgage endorsements in favor of
Mortgagee. Upon request of Mortgagee, all policies of Required Insurance,
including additional and renewal policies, shall be deposited with and held by
Mortgagee. Any monies received as payment for any loss under any of the
Required
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<PAGE> 16
Insurance paid over to Mortgagee may be applied, at the option of Mortgagee,
either to the prepayment of any portion, as Mortgagee may select, of the
Indebtedness, without premium, or to the reimbursement of Mortgagor for
expenses incurred by Mortgagor in the restoration or repair of the Mortgaged
Property. Proceeds paid or payable to Mortgagor of the Required Insurance shall
be applied to restoration of the Mortgaged Property in such fashion as
Mortgagee reasonably may require.
Notwithstanding the foregoing, Mortgagee agrees that the insurance
proceeds referred to above shall be applied to the restoration of Improvements
provided that: (i) in Mortgagee's reasonable judgment, (1) there are sufficient
funds available and/or committed, including said insurance proceeds, to
effectuate such restoration completely and (2) the Mortgaged Premises are
generating sufficient income, together with the proceeds of business
interruption insurance (or other funds furnished by Mortgagor to Mortgagee's
reasonable satisfaction) to service monthly debt service on the Note and pay
all operating expenses, (ii) an event of default does not exist under the terms
hereof, the Note, or the Loan Agreement, (iii) Mortgagee shall have approved
the plans and specifications to be used for any restoration involving
structural changes, and (iv) the disbursement of all funds to be used for such
restoration shall be controlled by, and accomplished in a manner satisfactory
to Mortgagee.
5. INDEMNIFICATION, WAIVER OF SUBROGATION AND OFFSET
(a) INDEMNIFICATION. If Mortgagee is made a party defendant
to any proceeding or litigation concerning this Mortgage or the Mortgaged
Property or any part thereof or interest therein, or the occupancy thereof by
Mortgagor, then Mortgagor shall indemnify, defend and hold harmless from all
liability by reason of said litigation, including reasonable attorneys' fees
and expenses incurred by Mortgagee in any such litigation, whether or not any
such litigation is prosecuted to judgment. If Mortgagee commences an action
against Mortgagor to enforce any of the terms hereof, or because of the breach
by Mortgagor of any of the terms hereof, or for the recovery of any sums
secured hereby, Mortgagor shall pay to Mortgagee reasonable attorneys' fees and
expenses, and the right to such attorneys' fees and expenses shall be deemed to
have accrued on the commencement of such action, and shall be enforceable
whether or not such action is prosecuted to judgment. If Mortgagor breaches any
term of this Mortgage, Mortgagee may employ an attorney or attorneys to protect
its rights hereunder, and, in the event of such employment following any breach
by Mortgagor, Mortgagor shall pay Mortgagee reasonable attorneys' fees and
expenses incurred by Mortgagee, whether or not an action is actually commenced
against Mortgagor by reason of the breach.
(b) SUBROGATION. Mortgagor waives any and all right to claim or
recover against Mortgagee, its officers, employees, agents and representatives,
for loss of or damage to Mortgagor, the Mortgaged Property, Mortgagor's
property or to the property of others under Mortgagor's control from any cause
insured against or required to be insured against by the provisions of this
Mortgage.
(c) WAIVER OF OFFSET. All sums payable by Mortgagor shall be
paid without notice, demand, counterclaim, setoff, deduction or defense and
without abatement, suspension, deferment, diminution or reduction, and the
obligations and liabilities of the Mortgagor hereunder shall in no way be
released, discharged or otherwise affected (except as expressly provided
herein) by reason of: (i) any damage to or destruction of or any condemnation
or similar taking of the Mortgaged Property or any part thereof; (ii) any
restriction or prevention of or interference with any use of the Mortgaged
Property or any part thereof; (iii) any title defect or encumbrance or any
eviction from the Mortgaged Property or the Improvements or any part thereof by
title paramount or otherwise; (iv) any bankruptcy, insolvency, reorganization,
composition, adjustment, dissolution, liquidation or other like proceedings
relating to Mortgagor, or any action taken with respect to this Mortgage by any
trustee or receiver of Mortgagor, or by any court, in any such proceedings; (v)
any claim which Mortgagor has or might have against the Mortgagee; (vi) any
default or failure on the part of Mortgagee to perform or comply with any of
the
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<PAGE> 17
terms hereof or of any other agreement with Mortgagor; or (vii) any other
occurrence whatsoever, whether similar or dissimilar to the foregoing; whether
or not Mortgagor shall have notice or knowledge of any of the foregoing. Except
as expressly provided herein, Mortgagor waives all rights now or hereafter
conferred by statute or otherwise to any abatement, suspension, deferment,
diminution or reduction of any sum secured hereby and payable by the Mortgagor.
6. TAXES. Mortgagor shall pay and discharge or cause to be paid
and discharged when due, and before any penalty attaches, all taxes (including
real and personal property taxes), general and special assessments, water and
sewer rents or assessments, and all other governmental and municipal charges
and impositions of any kind imposed upon or assessed against Mortgagor or the
Mortgaged Property, or any part thereof, or arising in respect of the
occupancy, use or possession thereof.
7. PROTECTION OF SECURITY BY MORTGAGEE. Mortgagee may, at
Mortgagee's option, but without any duty or obligation of any sort to do so and
without in any way waiving or relieving any default by Mortgagor, make any
payment and perform any act required of Mortgagor by this Mortgage, including
but not limited to, payment of insurance premiums, taxes, assessments, repair
expenses and prior liens and encumbrances. All expenses so incurred, including
reasonable attorneys' fees, and any other reasonable expenses incurred by
Mortgagee to protect the Mortgaged Property shall constitute Advancements and
shall be immediately due and payable by Mortgagor.
8. CONDEMNATION. If all or any part of the Mortgaged Property, is
taken or damaged pursuant to an exercise, or threat of exercise, of the power
of eminent domain, the entire proceeds of the award or compensation payable in
respect of the part so taken or damaged are hereby assigned to and shall be
paid directly to Mortgagee. The proceeds of any award or compensation actually
received by Mortgagee after deduction therefrom of all costs and expenses
including reasonable attorneys' fees incurred by Mortgagee in connection with
the taking, at Mortgagee's option, shall be applied, without premium, in part
or entirely to payment of the Indebtedness or to restoration of the Mortgaged
Property.
9. DEFAULT AND ACCELERATION. Time is of the essence of this
Mortgage. Upon the occurrence of any "event of default" (as hereinafter
defined), and at any time thereafter, then, in any and every such case, the
entire Indebtedness shall, at the option of Mortgagee, become immediately due
and payable without any notice, presentment, demand, protest, notice of
protest, or other notice of dishonor or demand of any kind, all of which are
hereby expressly waived by Mortgagor, and Mortgagee shall have the right
immediately to foreclose the mortgage lien created by this Mortgage against the
Mortgaged Property, to enforce every other security interest created by this
Mortgage and to institute any action, suit or other proceeding which Mortgagee
may deem necessary or proper for the protection of its interests. The following
shall each constitute an "event of default" for purposes of this Mortgage:
(a) Default: (i) in the payment when due of any of the
indebtedness, or (ii) any event of default under the Loan Agreement and other
documents relating thereto between Mortgagor and Mortgagee and referenced
therein; or (iii) a breach in the performance of any covenant or term of this
Mortgage, the Note, or the Loan Agreement between the Mortgagor and Mortgagee
and documents referenced therein;
(b) If Mortgagor becomes the subject of an order for relief
under the United States Bankruptcy Code (as it now exists or is hereafter
amended the "Bankruptcy Code"), takes any action to obtain relief under the
Bankruptcy Code, files an answer admitting bankruptcy or insolvency or in any
manner is adjudged bankrupt or insolvent;
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<PAGE> 18
(c) Any part of the Mortgaged Property or all or any substantial
part of the Mortgaged Property or assets of Mortgagor is placed in the hands of
any receiver or trustee, or Mortgagor consents, agrees or acquiesces to the
appointment of any receiver or trustee;
(d) Institution of proceedings to enforce or foreclose any other
mortgage or lien upon all or any part of the Mortgaged Property.
(e) Any representations made by Mortgagor in the loan
application shall prove untrue;
(f) Any material deterioration in the financial condition of
Mortgagor; or
(g) Any infirmity of title to the Real Estate and Improvements
which arises after the date of the Note, is not acceptable to Mortgagee and its
counsel, and is not cured within sixty (60) days of written notice thereof to
the Borrower.
10. FORECLOSURE AND APPLICATION OF PROCEEDS. All expenses which may
be paid or incurred by or on behalf of Mortgagee in connection with the
foreclosure of this Mortgage for reasonable attorneys' fees, appraisers' fees,
outlays for documentary and expert evidence, stenographers' charges,
publication costs and costs of procuring all title searches, policies and
examinations and similar data and assurances with respect to title as Mortgagee
reasonably may deem necessary to prosecute such suit shall constitute
Advancements, shall be immediately due and payable by Mortgagor, with interest
thereon as provided in the Note, and shall be allowed and included as
Indebtedness in the judgment for sale. The proceeds of any foreclosure sale of
the Mortgaged Property shall be distributed and applied in the following order
or priority: First, on account of all Advancements incident to the foreclosure
proceedings and all Costs; second, all other items which under the terms of
this Mortgage constitute Indebtedness additional to the Primary Debt; third,
all principal, interest and other amounts remaining unpaid on the Primary Debt;
and fourth, any remainder to the person or persons entitled thereto as
determined by the court in the foreclosure proceedings.
11. FORECLOSURE PROCEEDINGS AND RECEIVER. Upon the commencement of
any proceedings to foreclose this Mortgage, Mortgagee shall be entitled
forthwith to the appointment of a receiver or receivers, as a matter of right,
without the giving of notice to any other party, without regard to the adequacy
or inadequacy of any security for the Indebtedness and without the requirement
of any bond. Mortgagee shall be entitled to recover judgment either before or
after or during the pendency of any proceedings for the enforcement of this
Mortgage. The right of Mortgagee to recover such judgment shall not be affected
by the exercise of any other right, power or remedy for the enforcement of this
Mortgage, or the foreclosure of the lien of this Mortgage.
12. SUBROGATION. To the extent that proceeds of the Note or
advances under this Mortgage are used to pay any outstanding lien, charge or
prior encumbrance against the Mortgaged Property, such proceeds or advances
have been or will be advanced by Mortgagee at Mortgagor's request and Mortgagee
shall be subrogated to any and all rights and liens held by any owner or holder
of such outstanding liens, charges and prior encumbrances, irrespective of
whether said liens, charges or encumbrances are released. Nothing contained
herein shall be construed to obligate Mortgagee to act on any of the matters
set forth herein.
13. NO EXCLUSIVE REMEDY. Each and every right, power and remedy
conferred upon or reserved to Mortgagee in this Mortgage is cumulative and
shall be in addition to every other right, power and remedy given in this
Mortgage or now or hereafter existing at law or in equity. No delay or omission
of Mortgagee in the exercise of any right, power or remedy shall be construed
to be a waiver of any Event of Default or any acquiescence therein.
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<PAGE> 19
14. PROVISIONS SEVERABLE. In the event any one or more of the
provisions of this Mortgage for any reason shall be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Mortgage, but
this Mortgage shall be construed as if such invalid, illegal or unenforceable
provisions had never been contained in this Mortgage.
15. NOTICES. All notices pursuant to this Mortgage shall be in
writing and shall be deemed to have been sufficiently given or served for all
purposes when presented personally or sent by certified United States mail,
addressed to Mortgagor at 8 Perimeter Center East, Suite 850, Atlanta Georgia
30346-1603; and to Mortgagee at 568 East Carmel Drive, Carmel, Indiana 46032,
or at such other place as either party may, by notice in writing, designate as
a place for service of notice.
16. SUCCESSORS AND ASSIGNS. This Mortgage shall (a) run with the
land, (b) apply and extend to, be binding upon and inure to the benefit of
Mortgagor, Mortgagor's administrators, successors and assigns and all persons
claiming under or through Mortgagor, and the word "Mortgagor" shall include all
such persons, and (c) shall apply and extend to, be binding upon and inure to
the benefit of Mortgagee and Mortgagee's successors and assigns. The word
"Mortgagee" shall include the successors and assigns of Mortgagee, and the
holder or holders, from time to time, of the Note and any other Indebtedness
instrument.
17. SECURITY AGREEMENT. This Mortgage also constitutes a security
agreement within the meaning of the Indiana Uniform Commercial Code ("UCC") and
Mortgagor grants to Mortgagee a security interest in any equipment and other
personal property included within the definition of Mortgaged Property.
Accordingly, Mortgagee shall have all of the rights and remedies available to a
secured party under the UCC. Upon the occurrence of an event of default under
this Mortgage, the Mortgagee shall have in addition the remedies provided by
this Mortgage, the right to use any method of disposition of collateral
authorized by the UCC with respect to any portion of the Mortgaged Property
subject to the UCC.
18. NO ADDITIONAL LIEN. Mortgagor covenants not to execute any
mortgage, security agreement, assignment of leases and rentals or other
agreement granting a lien against the interest of Mortgagor in the Mortgaged
Property without the prior written consent of Mortgagee, and then only when the
document granting that lien expressly provides that it shall be subject to the
lien of this Mortgage for the full amount secured by this Mortgage, and shall
also be subject and subordinate to any then existing or future leases affecting
the Mortgaged Property.
19. PROHIBITION OF SALE. Mortgagor shall not sell, convey, transfer
or otherwise dispose of or attempt to sell, convey, transfer or otherwise
dispose of the Mortgagor's interest in the Mortgaged Property unless any such
sale, conveyance, transfer or other disposition receives the prior written
approval from Mortgagee. Any such written approval, if given, shall be upon
such terms and conditions as Mortgagee in its sole discretion prescribes,
including but not limited to an increase in the interest rate provided under
the Note, and the payment by Mortgagor or purchaser of any service fee of
Mortgagee. Except as provided above, in the event the Mortgaged Property is
sold or otherwise transferred by the undersigned, then, notwithstanding the
foregoing, any and all amounts outstanding and due to Mortgagee under the Note,
shall be due and payable to Mortgagee upon such sale or transfer. This
provision shall not bar Mortgagor's performance of the Master Lease as the same
may be amended or supplemented from time to time or prohibit the sale of
personal property, such as room furnishings, by Mortgagor in the ordinary
course of restoration and refurbishment of the Mortgaged Property.
20. REMEDIES UPON DEFAULT. Upon the occurrence of any of the events
of default set forth in any instrument or agreement related to the Indebtedness
secured by this Mortgage, the Mortgagee is authorized to commence foreclosure
proceedings against the Mortgaged Property through judicial proceedings, and in
addition
6
<PAGE> 20
or alternatively to take any other actions permitted under applicable law. The
Mortgaged Property may be sold in one parcel as an entirety or in such parcels,
manner and order as Indiana law allows. The proceeds of such sale shall be
retained by the Mortgagee up to the amounts due it, including costs of the
sale, any environmental investigation and remediation paid for by the
Mortgagee, and reasonable attorneys' fees. By executing this Mortgage, the
Mortgagor waives, in the event of foreclosure of this Mortgage or the
enforcement by the Mortgagee of any other rights and remedies in this Mortgage,
any right otherwise available in respect to marshalling of assets which secure
the Indebtedness or to require the Mortgagee to pursue its remedies against any
such assets.
21. REPRESENTATIONS. Mortgagor represents that it is a corporation
duly organized, existing and in good standing under the laws of its state of
incorporation, and that the execution and delivery of this Mortgage and the
performance of the obligations it imposes are within its corporate powers, have
been duly authorized by all necessary action of its board of directors, and do
not contravene the terms of its articles of incorporation or by-laws. The
Mortgagor represents that the execution and delivery of this Mortgage and the
performance of the obligations it imposes do not violate any law, do not
conflict with any agreement by which it is bound, do not require the consent or
approval of any governmental authority or any third party, and that this
Mortgage is a valid and binding agreement, enforceable in accordance with its
terms, subject to principles of equity, bankruptcy law, and laws affecting
creditor's rights generally. The Mortgagor further represents that all balance
sheets, profit and loss statements, and other financial statements, if any,
furnished to the Mortgagee are accurate and fairly reflect the financial
condition of the organizations and persons to which they apply on their
effective dates, including contingent liabilities of every type, which
financial condition has not changed materially and adversely since those dates.
22. MISCELLANEOUS.
(a) No waiver by the Mortgagee of any right or remedy granted or
failure to insist on strict performance by the Mortgagor shall affect or act as
a waiver of any right or remedy of the Mortgagee, nor affect the subsequent
exercise of the same right or remedy by the Mortgagee for any subsequent
default by the Mortgagor, and all rights and remedies of the Mortgagee are
cumulative.
(b) If there is more than one Mortgagor or obligor the
obligations under this Mortgage shall be joint and several. This Mortgage shall
be governed by Indiana law except to the extent it is preempted by federal law
or regulation.
(c) The captions in this Mortgage are for convenience only and
do not define or limit the provisions of this Mortgage. All changes to this
Mortgage must be in writing signed by Mortgagee and Mortgagor and, if this
Mortgage is recorded, shall not be effective until recorded. Wherever used, the
singular number shall include the plural, the plural the singular, and the use
of any gender shall be applicable to all genders.
(d) This Mortgage sets forth the entire and final agreement and
understanding of the parties with respect to the subject matter hereof. All the
terms of this Mortgage are contractual and not a mere recital. Any and all
prior agreements, understandings and undertakings, whether written or oral,
with respect to the same, or other than same as set forth or recited herein,
are hereby superseded and replaced by this Mortgage.
23. WAIVER OF JURY TRIAL. THE MORTGAGOR AND MORTGAGEE, AFTER
CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES THEIR RIGHT TO A TRIAL BY JURY IN ANY
LITIGATION BASED UPON OR ARISING OUT OF THIS MORTGAGE OR ANY RELATED INSTRUMENT
OR AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS MORTGAGE OR ANY
7
<PAGE> 21
COURSE OF CONDUCT, DEALING, STATEMENTS, WHETHER ORAL OR WRITTEN OR ACTIONS OF
IT. THE MORTGAGOR AND MORTGAGEE SHALL NOT SEEK TO CONSOLIDATE, BY COUNTERCLAIM
OR OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER
ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.
IN WITNESS WHEREOF, Mortgagor has executed this Mortgage this __ day of
December, 1999.
Mortgagor:
JAMESON INNS, INC.
By:
----------------------------------------
Craig R. Kitchin, President
8
<PAGE> 22
STATE OF GEORGIA )
) SS:
COUNTY OF DEKALB )
Before me, a Notary Public in and for said County and State,
personally appeared Craig R. Kitchin, the President of JAMESON INNS, INC.,
who, being first duly sworn, acknowledged execution of the foregoing Mortgage
in such capacity as its voluntary act and deed.
Witness my hand and Notarial Seal this______ day of December, 1999.
My Commission Expires: ------------------------------------------
Notary Public
- ----------------------------
------------------------------------------
Printed Name
My County of Residence:
- ----------------------------
This instrument prepared by Lante K. Earnest, Attorney at Law, TABBERT, HAHN
EARNEST & WEDDLE, P.C., One Indiana Square, Suite 2100, Indianapolis, Indiana
46204. Telephone (317) 639-5444.
9
<PAGE> 23
MORTGAGE NOTE
$3,700,000.00 Dated: December___, 1999
Due: December 31, 2009 (Maturity Date)
FOR VALUE RECEIVED, the undersigned, JAMESON INNS, INC., a Georgia
corporation ("Borrower"), does hereby promise to pay to the order of the FIRST
NATIONAL BANK & TRUST, organized and existing pursuant to the laws of the
United States of America, ("Bank"), or its assigns, at its office in Carmel,
Indiana, or at such other place as Bank may designate in writing, in lawful
money of the United States of America, the principal sum of Three Million Seven
Hundred Thousand and no/100 Dollars ($3,700,000.00), or so much thereof as may
be advanced under the loan agreement of even date herewith to which the
Borrower and the Bank are parties, as the same may hereafter be amended from
time to time (the Loan Agreement) together with all costs and fees provided for
under the Loan Agreement and this Note and all interest accruing on the
outstanding principal balance at the rate of interest set forth below (the Loan
Amount). Interest shall accrue on the outstanding principal balance existing
from time to time at a rate equal to the Prime Rate (as hereinafter defined)
plus one half of one percent (2 %) per annum until paid in full. The interest
rate for the loan will remain fixed during the first twelve (12) month period.
On each subsequent annual anniversary of the loan closing date, until the
maturity of the Note, the interest rate will be adjusted by adding one-half of
one percent (2 %) to the current Prime Rate. A Prime Rate shall mean the Wall
Street Prime Rate, which may or may not be the Banks most favorable lending
rate. In the even that this index is not available, the Bank shall substitute a
comparable rate. Interest is computed on the unpaid principal balance owing on
the basis of the actual number of days elapsed assuming a 360 day year with
twelve (12) months of thirty (30) days each.
The payment of this Note is secured by a Mortgage of even date
herewith, given by the Borrower to the Bank, as the same may be amended or
supplemented from time to time (the A Mortgage), a Security Agreement of even
date herewith, given by the Borrower to the Bank, as the same may be amended
from time to time (Security Agreement), an Assignment of Rents and Leases of
even date herewith, given by the Borrower to the Bank, as the same may be
amended or supplemented from time to time (the Assignment), and certain other
Security Documents as defined in the Loan Agreement as may now or hereafter be
secured and guaranteed pursuant to one or more other mortgages, assignments,
pledges, security agreements, guaranty, agreements, documents or instruments
(all of which are hereinafter referred to as the "Security Documents").
Borrower agrees to pay principal plus interest accrued against the
outstanding loan balance, monthly, on the first day of each month, commencing
on the first day of the month following the date of closing, and continuing
thereafter each month during the term of the loan. The principal payment
portion of monthly payments will be based upon a twenty (20) year amortization
schedule. The entire outstanding principal balance, together with any accrued
unpaid interest plus any unpaid costs and fees due hereunder or under the Loan
Agreement or Security Documents, shall be paid in full on the Maturity Date.
All payments received from Borrower shall be applied first to any sums
<PAGE> 24
then owed by Borrower to Bank under and pursuant to the Security Documents
(defined below), other than principal interest, then to the payment of interest
accrued to the date of receipt of such payment, and the balance, if any, to
principal.
Any payment received from the Borrower more than ten (10) days after
its due date and accepted by the Bank shall bear a late charge equal to five
percent (5%) of the late payment. The late charge shall be immediately due and
payable. The Bank, however, shall be under no obligation to accept any late
payment, and any acceptance by the Bank of a late payment shall not constitute
a waiver of any default by the Borrower or any right or remedy of the Bank.
If default be made in the payment of principal and interest, as herein
provided, when due, or in the performance of any of the terms, agreements,
covenants or conditions contained in the Mortgage, the Loan Agreement or
Security Documents, then, at the time of such event, or at any time thereafter,
so long as the default remains uncured, the entire principal of this Note,
irrespective of the maturity date specified herein, together with reasonable
attorneys' fees incurred in collection or enforcing payment or performance
thereof, with interest from the date of such default on the unpaid principal
balance hereof at the rate specified herein above shall, at the election of
Bank, and without relief from valuation or appraisement laws, become
immediately due and payable. It is understood that time of payment or
performance hereunder is of the essence.
The failure to exercise any option to accelerate shall not constitute
a waiver of the right to exercise the same at any other time.
If Borrower elects to prepay the loan in full or in part during the
first five (5) years of the loan term, the Borrower shall pay a prepayment
premium equal to one percent (1%) of the outstanding loan balance (the
Prepayment Premium). There will be no Prepayment Premium if the Borrower elects
to prepay the loan after the fifth year of the loan term. Any prepayment shall
be applied as provided above and then to required payments in inverse order of
maturity and shall not relieve the Borrower from timely making the next
scheduled payment.
The rights or remedies of Bank as provided in this Note and the
Security Documents shall be cumulative and concurrent, and may be pursued
singly, successively or together. The failure to exercise any such right or
remedy shall in no event be construed as a waiver of the rights to the later
exercise thereof, or the release thereof. The acceptance by Bank of any payment
tendered by the undersigned shall not be deemed a waiver by Bank of any
delinquencies owed Bank by the undersigned, nor shall such acceptance be deemed
a waiver by Bank of any default hereunder. The acceptance of such payment
notwithstanding, Bank shall retain all rights and remedies as herein provided.
In the event of any default under this Note or under the Security
Documents, the undersigned hereby authorizes Bank to apply to any indebtedness
under this Note or the Security Documents, any and all funds received from, or
being held in escrow for the benefit of, the undersigned.
The undersigned and all endorsers, guarantors, sureties, accommodation
parties hereof and all other persons liable or to become liable for all or any
part of this indebtedness, severally waive
2
<PAGE> 25
demand, presentment for payment, notice of dishonor, protest and notice of
protest, and expressly agree that the Note and any payment coming due under it
may be extended or otherwise modified, from time to time without in any way
affecting their liability hereunder.
This Note shall be construed according to and governed by the laws of
the State of Indiana, and any and all disputes hereunder shall be litigated in
courts located in Hamilton County in the State of Indiana.
THE BORROWER AND THE BANK, AFTER CONSULTING OR HAVING HAD THE
OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON
OR ARISING OUT OF THIS NOTE, THE LOAN AGREEMENT, SECURITY DOCUMENTS OR ANY
RELATED INSTRUMENT OR AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS
NOTE OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS, WHETHER ORAL OR WRITTEN OR
ACTIONS OF EITHER OF THEM. NEITHER THE BANK NOR THE BORROWER SHALL SEEK TO
CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL HAS
BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT
BEEN WAIVED.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
date first herein above written.
BORROWER
JAMESON INNS, INC., a Georgia corporation
By:
--------------------------------------
Craig R. Kitchin, President
3
<PAGE> 26
SECURITY AGREEMENT
The undersigned JAMESON INNS, INC., ("Debtor"), grants to FIRST
NATIONAL BANK, & TRUST ("Bank"), a continuing security interest in all fixtures,
furnishings, furniture, equipment, accounts, contract rights, leases and other
personal property owned by Debtor at any time used in connection with the
development of the property described on Exhibit A attached ("Real Estate"),
together with all items and property described in Exhibit B, attached including
all replacements and after-acquired property, accessions, accessories, and
proceeds, including tort claims and insurance and the proceeds therefrom
(collectively "Collateral").
This security interest is given as security in addition to a mortgage
made concurrently and delivered herewith to the Bank on the Real Estate (the
"Mortgage") to secure (i) the payment of a debt concurrently created pursuant to
a loan agreement of even date herewith (the "Loan Agreement") in the original
principal amount of Three Million Seven Hundred Thousand and no/100 Dollars
($3,700,000.00) with interest, as, when, and in the manner set forth in the
Mortgage and in a mortgage note made concurrently herewith (the "Mortgage
Note"), and,(ii) any obligation or liabilities, direct or indirect, absolute or
contingent now existing or hereafter arising from Debtor to the Bank in
connection therewith (collectively "Obligations"), all without relief from
valuation and appraisement laws and with reasonable attorneys' fees and all
costs of collection. Any default under any of the instruments evidencing or
securing the debt and the performance of the obligations of the Debtor shall
also constitute a default under this Security Agreement. Some of the Collateral
may become, or is already, affixed to the Real Estate, and Debtor is the owner
of the Real Estate.
TERMS, CONDITIONS AND AGREEMENTS
1. WARRANTIES AND COVENANTS. Debtor hereby warrants, represents and
covenants that: (a) Debtor will pay the Mortgage Note and all Obligations to the
Bank; (b) the Collateral has been or will be acquired for business use only and
will be security for the Debtor's Obligations, and any and all further advances
that may be made by the Bank to the Debtor during the term of this Security
Agreement, equal with and to the same extent as monies originally advanced; (c)
at Debtor's own expense, the Debtor will maintain comprehensive casualty
insurance on the Collateral against such risks, in such amounts, with such
deductibles and with such companies as may be satisfactory to the Bank. Each
insurance policy shall contain a lender's loss payable endorsement satisfactory
to the Bank and a prohibition against cancellation or amendment of the policy or
removal of the Bank as loss payee without at least thirty (30) days prior
written notice to the Bank; (d) Debtor will provide any information that the
Bank may reasonably request, and will permit the Bank to inspect and copy
Debtor's books and records; (e) the Collateral is fully paid for or will be
fully paid for in a timely manner and the Debtor is, and as to portions of the
Collateral to be acquired after the date hereof will be the sole and lawful
owner of the Collateral free and clear from any adverse lien, security interest,
encumbrances or adverse claim of any kind whatsoever; (f) the security interest
granted herein to the Bank constitutes a first lien; (g) the Collateral shall
continue to be free from all pledges, liens, encumbrances, and security
interests or other claims in favor of others which are prior to the security
<PAGE> 27
interest herein granted to the Bank, and the Debtor will warrant, and, at the
Bank's request, defend the same from all such claims and demands of all persons;
(h) no financing statement or lien instrument covering any portion of the
Collateral has been or will be executed, recorded or filed in favor of anyone
other than the Bank; (i) the Collateral is not, and will not be used or bought
for personal, family or household purposes nor for use in farming operations;
(j) the Debtor's name and address are as stated herein, and that Debtor will
give Bank thirty (30) days' prior written notice of any change in either its
name or its address, and of any other change which could affect the priority of
its security interest; (k) the Debtor shall, upon demand, furnish to the Bank
such further information and shall execute and deliver to the Bank such
financing and continuation statements and other papers, and shall do all such
acts as the Bank may at any time or from time to time request in order to
establish and maintain a perfected security interest in the Collateral (the
Debtor authorizes and appoints the Bank as attorney-in-fact for Debtor to
execute and file on its behalf financing statements relating to the Collateral
which may be signed by the Debtor); (l) the Debtor will not sell, offer to sell,
or otherwise transfer the Collateral, or any interest in the Collateral, without
the prior written consent of the Bank; (m) the Debtor shall keep the Collateral
in good repair and shall not permit the Collateral or any part thereof to be
wasted or destroyed without promptly repairing or replacing the same at its
expense; (n) the Debtor shall not permit the Collateral to be removed from the
Real Estate, except temporarily for repairs or in consequence of replacement;
and shall not use the Collateral in violation of any statute, ordinance or other
applicable law; and (o) the Debtor shall promptly pay, as they become due and
payable all taxes, assessments and other charges validly assessed or imposed
upon the Collateral.
2. CONTINUING SECURITY INTEREST/POSSESSION. The security interest
herein granted shall continue until full performance by Debtor of all conditions
and obligations hereunder. Debtor shall be entitled to possession of the
Collateral until default.
3. INSURANCE. If the Collateral is damaged or destroyed in any
manner, any insurance or other receipts compensating for such loss shall be
payable to the Bank which may, at its option, apply such proceeds either to the
payment of any indebtedness then owed by the Debtor to the Bank, or at the
option of the Bank may be used for the replacement or repair of any such
collateral. The Debtor shall fully insure the Collateral, for the benefit of
both the Bank and the Debtor as follows: (i) hazard insurance covering the Real
Estate against loss or damage by fire, extended casualty, malicious mischief,
and other risks of physical loss in an amount equal to 100% of the replacement
value of the Real Estate and Collateral with no more than $1,000 deductible for
the loss payable for any casualty and with an agreed value endorsement; (ii)
commercially general liability coverage insuring against all claims for bodily
injury, death, or property damage occurring on or about the Real Estate in the
combined single limit of One Million Dollars ($1,000,000.00) and an aggregate of
Three Million Dollars ($3,000,000.00); and (iii) all other insurance coverage
and endorsements required by Bank from time to time, including, flood hazards,
workers' compensation, differences in conditions, business interruption, and
loss of "rental value". Any such policy or policies shall provide for the Bank
<PAGE> 28
to be an additional insured and contain a standard clause providing for
cancellation only upon written notice to the Bank as its interest may appear.
Prior to or concurrently with the Closing, the Bank must receive certificates of
insurance evidencing the insurance policies and the endorsements thereto, which
are reasonably acceptable to the Bank as to form, coverage, amount, insurers and
re-insurers. If the Collateral is damaged or destroyed in any manner, any
insurance or other receipts compensating for such loss shall be payable to the
Bank which may, at its option, apply such proceeds either to the payment of any
indebtedness then owed by the Debtor to the Bank, or at the option of the Bank
may be used for the replacement or repair of any such Collateral.
4. ADVANCEMENT. If the Debtor does not discharge taxes and other
liens, assessments, encumbrances or charges at any time levied or placed on the
Collateral or does not pay premiums for insurance on the Collateral before any
of such charges become delinquent, the Bank may, at its discretion, pay such
charges or insurance. The Bank may, at its discretion, order and pay for the
repair, maintenance and preservation of the Collateral. Upon demand, the Debtor
shall reimburse the Bank for any payment made or expense (including attorneys'
fees and legal expenses) incurred by the Bank pursuant to the foregoing
authorization, together with interest on the amount of such payment or expense
computed at the rate set forth in the Mortgage Note from date of payment. Notice
of acceptance of this Security Agreement by the Bank is waived by Debtor.
5. DEFAULT. Time, and each of the terms, conditions and agreements
are of the essence of this Agreement. Any of the following shall constitute an
event of default under this instrument, and at such time any or all of the
obligations of the Debtor to the Bank, at the option of the Bank and
notwithstanding any time or credit allowed by any instrument evidencing said
obligation, shall be immediately due and payable without notice or demand:
(a) Any default by the Debtor under the terms of the Loan
Agreement, Mortgage Note, the Mortgage, or an event of default as provided in
any other instrument executed by the Debtor concurrently herewith.
(b) The nonpayment or nonperformance of any of the liabilities
or other Obligations of the Debtor under any of the terms and provisions of this
Security Agreement.
(c) The insolvency of the Debtor or its failure or inability to
pay debts as they mature in the ordinary course of business, an assignment by
Debtor for the benefit of its creditors, the appointment of a receiver for
Debtor or the Collateral, or the filing of any petition to adjudicate Debtor as
bankrupt.
<PAGE> 29
(d) Any warranty, representation or statement made or furnished
to the Bank by or on behalf of the Debtor that proves to have been false in any
respect material to the Bank when made or furnished. Provided, however, that if
any representation or warranty made to the Bank after the date of closing of
this loan shall be or become false, misleading, incomplete or incorrect,
Borrower shall have fifteen (15) days after the Bank provides written notice of
the inaccurate representation to cure said inaccuracy.
(e) Loss, theft, substantial damage, destruction, sale or
encumbrance to or of all or any substantial portion of the Collateral, or the
making of any levy, seizure, or attachment of or on the Collateral, except as
otherwise allowed under this Security Agreement.
6. REMEDIES. Upon the occurrence of any default under this
instrument, the Bank, at its option and without notice or demand, may declare
all Obligations of the Debtor secured hereby immediately due and payable, and
shall have all the rights and remedies of a secured party available under
Indiana law. These include, without limitation, each of the following:
(a) Insofar as permitted by law, the Bank may treat the
Collateral as a part of the Real Estate encumbered by the Mortgage and may deal
with the same as a part of this Real Estate. However, this instrument does not
classify as personal property any fixture or property which becomes so affixed
to the Real Estate as to be covered by and subject to the terms of the Mortgage.
(b) The obligations secured by this instrument include
reasonable attorneys' fees and legal expenses incurred by the Bank in pursuing
its rights and remedies under the law and the costs of repair of any physical
injury to the Real Estate, paid or to be paid, for which an owner or
encumbrancer of the Debtor is entitled to be paid for removal of the Collateral
from the Real Estate. Debtor promises to pay all such fees, expenses and costs.
(c) The Bank shall have the rights and remedies provided by law
or this Security Agreement, including but not limited to the right to require
the Debtor to assemble the Collateral and make it available to the Bank at a
place to be designated by the Bank which is reasonably convenient to both
parties, the right to take possession of the Collateral with or without demand
and with or without process of law, and the right to sell and dispose of it and
distribute the proceeds according to law. In connection with the right of the
Bank to take possession of the Collateral, the Bank may take possession of any
other items of property in or on the Collateral at the time of taking
possession, and hold them for the Debtor without liability on the part of the
Bank. If there is any statutory requirement for notice, that requirement shall
be met if the Bank sends notice to the Debtor at least seven (7) days prior to
the date of sale, disposition or other event giving rise to the required notice.
The Debtor shall be liable for any deficiency remaining after disposing of the
Collateral, and waives all valuation and appraisement laws.
<PAGE> 30
(d) Before or after default, at its option, the Bank may take
control of any proceeds, including tort and insurance claims with respect to the
Collateral, and when the Collateral is or becomes an account, chattel paper,
contract right, general intangible or an instrument, it may notify the account
debtor or the obligor to an instrument to make payment to it.
(e) The Debtor shall apply to the debt secured by this
instrument any proceeds it realizes from the Collateral, including insurance and
tort claims with respect thereto. The security interest continues both in the
Collateral and in such proceeds until released or terminated. Authority of the
Debtor to transfer Collateral free of the Bank's interest, settle insurance or
tort claims with respect to the Collateral, or to transfer Collateral without
constituting an event of default shall not be inferred from the fact that this
instrument covers such proceeds, and such authority is not granted by this
instrument. Cash proceeds, including proceeds received from tort or insurance
claims, at the option of the Bank, may be applied pro tanto in satisfaction of
the debt secured by this instrument with either partial acceleration or total
acceleration, or may be expended for repairs or replacement of the Collateral
with either no acceleration or total acceleration.
(f) After default, Debtor agrees to and it does hereby release
and hold harmless the Bank from any and all claims arising out of the lawful
repossession of the Collateral. All rights and remedies of the Bank herein
specified are cumulative and are in addition to, not in limitation of, any
rights and remedies which the Bank may have by law. The Debtor acknowledges the
commercial reasonableness of any public or private sale or lease of the
Collateral or any part thereof if it is preceded by seven (7) days' written
notice to Debtor.
(g) Upon default, the Debtor consents to the appointment of a
Receiver after a hearing preceded by at least five (5) days' written notice. The
Debtor also acknowledges the appropriateness of a temporary restraining order if
it ever permits Collateral to be physically removed from the Real Estate without
the substitution of other Collateral of at least equal value.
7. TRANSFER/ASSIGNMENT. No transfer, renewal, extension or
assignment of this instrument, the obligation secured or any interest hereunder,
and no loss, damage or destruction of the Collateral, and no taking of security
in other collateral, shall release the Debtor from this instrument or the
obligations secured hereunder. All rights of the Bank hereunder shall inure to
the benefit of its successors and assigns, and all obligations of the Debtor
shall bind its successors and assigns.
<PAGE> 31
8. NOTICE. Any notice required to be given by either party to the
other under the provisions of this instrument or under applicable law shall be
sufficient if sent by certified or registered mail addressed to Debtor and the
Bank at the following address:
DEBTOR: Jameson Inns, Inc.
8 Perimeter Center East
Suite 8050
Atlanta, GA 30346-1604
<PAGE> 32
BANK: First National Bank & Trust
568 East Carmel Drive
Carmel, Indiana 46032
or to such new address as shall be supplied in writing by either party to the
other.
9. CHOICE OF LAW AND VENUE. This instrument shall be construed
according to the laws of the State of Indiana, and any and all disputes
hereunder shall be litigated in courts located in Hamilton County in the State
of Indiana.
10. WAIVER. No waiver by the Bank of any default shall operate as a
waiver of any other default or of the same default on a future occasion. No
delay on the part of the Bank in the exercise of any right or remedy shall
operate as a waiver, no single or partial exercise by the Bank of any right or
remedy shall preclude any other exercise of it or the exercise of any other
right or remedy, and no waiver or indulgence by the Bank of any default shall be
effective unless in writing and signed by the Bank, nor shall a waiver on one
occasion be construed as a waiver of that right on any future occasion.
11. FINANCING STATEMENT. A carbon, photographic or other
reproduction of this Security Agreement is sufficient, and can be filed as a
financing statement. The Bank is irrevocably appointed the Debtor's
attorney-in-fact to execute any financing statement on Debtor's behalf covering
the Collateral.
12. WAIVER OF JURY TRIAL. THE DEBTOR AND THE BANK, AFTER CONSULTING
OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN ANY
LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY RELATED INSTRUMENT
OR AGREEMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, OR ANY
COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS BY
AND BETWEEN THE DEBTOR AND THE BANK. THE DEBTOR AND THE BANK SHALL NOT SEEK TO
CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL HAS
BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT
BEEN WAIVED.
DEBTOR ACKNOWLEDGES THAT IT HAS EXECUTED THIS INSTRUMENT AND HAS
RECEIVED A COPY OF THE SAME.
<PAGE> 33
IN WITNESS WHEREOF, the Debtor has caused this instrument to be
executed this day of December, 1999.
JAMESON INNS, INC.
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
<PAGE> 34
EXHIBIT A
<PAGE> 35
EXHIBIT B - Part 1
COLLATERAL DESCRIPTION
The Collateral referred to in this Security Agreement consists of a
continuing security interest in all fixtures, furnishings, furniture, equipment,
accounts, contract rights, leases and other personal property owned by Debtor
and relating to the Real Estate at any time as described below, including all
replacements and after-acquired property, accessions, accessories, and proceeds,
including tort claims and insurance and the proceeds from the following
described property, together with all other personal property and equipment, of
whatever nature or kind, now owned or subsequently acquired by Debtor and
relating to the Real Estate, including all additions, substitutions, accessions,
repairs, replacements and additions thereto (including the proceeds of sales
thereof), whether installed, affixed, attached, kept or situated on, to or at
the Real Estate and improvements, or in the construction thereof, and such
collateral includes but is not limited to:
1. All construction materials, supplies, lumber and all other
materials or equipment delivered to the Real Estate for incorporation or use in
any construction at any time being conducted thereon.
2. All fixtures, fittings, furniture, furnishings, appliances,
apparatus, equipment, and machinery, including without limitation, all gas and
electric fixtures, radiators, heaters, engines and machinery, boilers, ranges,
ovens, elevators and motors, bathtubs, sinks, water closets, basins, pipes,
faucets and other air conditioning, plumbing and heating fixtures, mirrors,
mantles, refrigerating plant, refrigerators, iceboxes, dishwashers, carpeting,
furniture, laundry equipment, cooking apparatus and appurtenances now or
hereafter delivered to the Real Estate and intended to be installed therein; all
other fixtures and personal property of Debtor of whatever kind and nature at
present contained in or hereafter placed in any building standing on the Real
Estate.
3. All of Debtor's interest in the following with respect to the
Real Estate:
A. All existing and future leases to the extent the Real Estate
is covered thereby, rents generated by the Real Estate, issues and profits and
all security deposits from tenants, lessees or other space-occupiers;
B. All contracts and agreements providing for the sale of all
or any part of the Real Estate.
C. All policies of insurance and all proceeds, loss payable
clauses and premium refunds and all claims relating thereto relating to the Real
Estate;
<PAGE> 36
D. All operating or management or supervision agreements to the
extent the Real Estate is covered thereby;
E. All reciprocal easement agreements;
F. All contracts with builders and/or material suppliers as
well as all plans and specifications relating to the Real Estate;
G. Any balance of the deposit account or accounts of Debtor
with the Bank existing from time to time and all property of Debtor coming into
the hands of or under the control of the Bank in any way or in transit to or
from the Bank;
H. Any and all awards or payments including interest thereon
which may be made with respect to the Collateral and Real Estate as a result of
the exercise of the right of eminent domain, the alteration of any streets or
roads and any other damage or injury to or decrease in the value of the Real
Estate.
I. All building and use permits issued by any governmental
agency relating to the Real Estate;
J. All income, rents, issues, profits and proceeds from the
Real Estate, subject however to the right, power and authority conferred upon
Debtor and/or the Bank to collect and apply such income, rents, issues, profits
and proceeds. Rents from or generated by the Real Estate, as used in this item J
and in item 3A above includes all Base Rent, all Percentage Rent and all
Additional Charges, in each case as generated by the Real Estate and as the
terms "Base Rent," "Percentage Rent," and "Additional Charges" are defined in
that certain Master Lease Agreement dated as of May 7, 1999, by and among
Jameson Hospitality, LLC, a Georgia limited liability company, and, among
others, Debtor, as amended and supplemented (the "Master Lease"). For this
purpose, Percentage Rent from or generated by the Real Estate means the
difference between: (i) Percentage Rent due and owing utilizing the Percentage
Rent calculation set forth in Section 3.1(2) of the Master Lease using all Rooms
(as defined in the Master Lease) for the applicable period, and (ii) Percentage
Rent due and owing utilizing the Percentage Rent calculation set forth in
Section 3.1(2) of the Master Lease using all Rooms for the applicable period,
except those Rooms comprising the Real Estate;
<PAGE> 37
K. All of the estate, interest or other claim or demand that
Debtor now has or may hereafter acquire in and to the Collateral and Real Estate
described herein, including without limitation all deposits made with or other
security given to utility companies by Debtor with respect to the Real Estate
and the improvements thereon and all advance payments of insurance premiums made
by Debtor with respect thereto and claims or demands relating to insurance; and
L. Insofar as permitted by applicable law, all licenses,
including but not limited to any operating license, contracts, management
contracts or agreements, franchise agreements, permits, authorizations or
certificates required or used in connection with the ownership of or in the
operation or maintenance of the Collateral and Real Estate and any improvements
constructed thereon.
4. All proceeds of the conversion, voluntary or involuntary, of any
of the foregoing into cash or liquidated claims.
<PAGE> 38
ASSIGNMENT OF RENTS AND LEASES
KNOW ALL MEN BY THESE PRESENTS THAT, JAMESON INNS, INC., a Georgia
corporation (the "Assignor"), in consideration of the mortgage loan being made
by FIRST NATIONAL BANK & TRUST, organized and existing under the laws of the
United States of America ("Assignee") hereby grants, conveys, transfers and
assigns unto the Assignee, its successors and assigns, all the rights, title,
interest and privileges, which the Assignor as Lessor has and may have in the
leases and any subleases now existing or hereafter made and affecting the real
property described in Exhibit "A" attached hereto or any part thereof
("Mortgaged Premises"), including, but not limited to, the following leases (as
used herein the term "leases" shall include subleases):
that certain Master Lease Agreement dated May 7, 1999 by and
between Jameson Hospitality, LLC and, among others,
Jameson Inns, Inc., as amended and supplemented ("Master Lease")
to the extent the Mortgaged Premises is covered thereby
and all leases or rentals, income, profits, or other benefits from all tenants
located upon otherwise arising from or in respect of the Mortgaged Premises or
in any building, structure or improvement located thereon or attached thereto,
whether now existing or hereafter entered into as said leases may have been, or
may from time to time be hereafter amended, modified, extended or renewed,
together with all rents, income and profits due and becoming due therefrom
(collectively, "Leases"). Assignor will, on request of Assignee, execute further
assurances and assignments of any present or future Leases affecting any part of
the Mortgaged Premises.
The Master Lease shall not to be amended or supplemented, except to add
additional properties or extend the term thereof, without the written consent of
the Assignee.
<PAGE> 39
This assignment is made as additional security for the full and
faithful performance of all obligations under a certain Mortgage Note (the
"Note"), a Mortgage (the "Mortgage") and a Security Agreement (the "Security
Agreement") (and all extensions and modifications thereof and supplements
thereto), all of even date herewith, executed by Assignor to Assignee which Note
is in the principal amount of Three Million Seven Hundred Thousand and no/100
Dollars ($3,700,000.00) and which Mortgage and Security Agreement covers the
Mortgaged Premises in Hamilton County, Indiana, and all buildings, structures,
improvements, fixtures and personal property located or to be located thereon or
used in connection therewith, and under the Term Loan Agreement, of even date
herewith between Assignor and Assignee (the "Loan Agreement") (and all
amendments and modifications thereof and supplements thereto). The acceptance of
this assignment and the collection of rents or the payments under the Leases
hereby assigned shall not constitute a waiver of any rights of Assignee under
the terms of said Note, Mortgage and Loan Agreement, and this assignment shall
be in addition to, and not in lieu of, the assignment contained in the Mortgage.
It is expressly understood and agreed by the parties hereto that before an event
of default in the performance of any terms and conditions of the Note, Mortgage,
Security Agreement or Loan Agreement occurs, Assignor shall have the right to
collect said rents, income and profits from the Leases generated by the
Mortgaged Premises and to retain, use and enjoy the same, provided, however,
that even before an event of default in the performance of any of the term and
conditions occurs no rent more than one (l) month in advance shall be collected
or accepted without the prior written consent of the Assignee. Anything to the
contrary notwithstanding, Assignor hereby assigns to Assignee any award made
hereafter to it in any court procedure involving any of the lessees of the
Mortgaged Premises in any bankruptcy, insolvency or reorganization proceedings
in any state or Federal court; and any and all payments made by lessees in lieu
of rent. Assignor hereby appoints Assignee as its irrevocable attorney-in-fact
to appear in any action and/or to collect any such award or payment. Assignor,
in the event of default in the performance of any of the terms and conditions of
the Note, Mortgage, or Loan Agreement hereby authorizes Assignee, at its option,
to enter and take possession of the Mortgaged Premises and to manage and operate
the same, to collect all or any rents generated thereby and from said Leases, to
let or relet the Mortgaged Premises or any part thereof, to cancel and modify
any Leases to the extent the Mortgaged Premises is covered thereby, evict
tenants, bring or defend any suits in connection with the possession of the
Mortgaged Premises in its own name or Assignor's name, make repairs as Assignee
deems appropriate, and perform such other acts in connection with the management
and operation of the Mortgaged Premises as Assignee, in its discretion, may deem
proper. Rents generated by the Mortgaged Premises, as used in the prior sentence
and elsewhere herein, shall include all Base Rent, all Percentage Rent and all
Additional Charges, in each case as generated by the Mortgaged Premises and as
the terms `Base Rent," "Percentage Rent" and "Additional Charges" are defined in
the Master Lease. For this purpose, Percentage Rent generated by the Mortgaged
Premises means the difference between: (i) Percentage Rent due and owing
utilizing the Percentage Rent calculation set forth in Section 3.1(2) of the
Master Lease using all Rooms (as defined in the Master Lease) for the applicable
period, and (ii) Percentage Rent due and owing utilizing the Percentage Rent
calculation set forth in Section 3.1(2) of the Master Lease using all Rooms for
the applicable period, except those Rooms comprising the Mortgaged Premises.
The receipt by Assignee of any rents, issues or profits pursuant to
this instrument after the institution of foreclosure proceedings under the
Mortgage shall not cure such default nor affect such proceedings or any sale
pursuant thereto.
Assignee shall not be under any duty or otherwise be obligated to
perform or discharge any obligation or duty to be performed or discharged by
Assignor under any of said Leases, and Assignor hereby agrees to indemnify
Assignee for, and to save it harmless from, any and all liability arising from
any of said Leases or from this assignment, and this assignment shall not place
responsibility for the control, care, management or repair of the Mortgaged
Premises upon Assignee, or make Assignee responsible or liable for any
negligence in the management, operation, upkeep, repair or control of the
Mortgaged Premises resulting in loss or injury or death to any tenant, licensee,
employee or stranger except to the extent such loss, injury or death is the
result of gross negligence or wilful misconduct by Assignee, its officers,
agents or assigns.
<PAGE> 40
Assignor covenants and represents that said Assignor has full right and
title to assign said Leases and the rents, income and profits due or to become
due thereunder which are generated by the Mortgaged Premises, that the terms of
said Leases to the extent the Mortgaged Premises are covered thereby have not
been changed from the terms in the copies of said Leases submitted to Assignee,
that no other assignment of any interest therein has been made, that there are
no existing defaults under the provisions thereof, and that said Assignor will
not hereafter cancel, surrender or terminate any of said Leases to the extent
the Mortgaged Premises are covered thereby, exercise any option that might lead
to such termination or change, alter or modify them or consent to the release of
any party liable thereunder or to the assignment of the lessee's interest in
them without the prior written consent of Assignee.
Assignor hereby authorizes Assignee to give notice in writing of this
assignment at any time to any tenant under any of said Leases to the extent the
Mortgaged Premises are covered thereby.
Violation of any of the covenants, representations and provisions
contained herein by Assignor shall be deemed a default under the terms of the
Note, the Mortgage and the Loan Agreement. An event of default by Assignor in
the performance of any of the terms and conditions of any of the Leases assigned
herein shall be deemed a default under the terms of the Note, the Mortgage and
the Loan Agreement. Any expenditures made by Assignee in curing such a default
on Assignor's behalf, with interest thereon at the Default Rate set forth in the
Note shall become part of the debt secured by the Mortgage, the Security
Agreement and this Assignment.
The full performance of the Mortgage and the duly recorded release of
the property described therein shall render this assignment void.
The net proceeds collected by Assignee under the terms of this
instrument shall be applied in reduction of the entire indebtedness from time to
time outstanding and secured by the Mortgage.
This assignment applies to and binds the parties hereto and their
respective heirs, administrators, executors, successors and assigns, as well as
any subsequent owner of the Mortgaged Premises.
Although it is the intention of the parties that this instrument shall
be a present assignment, it is expressly understood and agreed, anything herein
contained to the contrary notwithstanding, that Assignee shall not exercise any
of the rights or powers herein conferred upon it until an event of default by
Assignor in the performance of any of the terms and conditions of the Loan
Agreement, Note, Mortgage or any documents securing the Note shall occur, but
upon the occurrence of any such default, Assignee shall be entitled to all the
rights, privileges and benefits of Assignor under said contract.
<PAGE> 41
In connection with the exercise of Assignee's rights as provided herein
Assignor hereby authorizes and directs the tenants under the Leases upon demand
by Assignee to make payment to Assignee of rent and other sums due and to become
due under such Leases generated by the Mortgaged Premises without requiring a
determination of Assignee's right thereto.
Nothing herein contained shall be construed as prohibiting Assignee
from exercising any and all remedies which the Note, the Mortgage, or the Loan
Agreement permits including the right to enter a judgment against Assignor.
In the event any one or more of the provisions contained in this
assignment 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 Assignment, but this Assignment
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
This assignment shall be governed by and construed according to the
laws of the State of Indiana, and any and all disputes hereunder shall be
litigated in courts located in Hamilton County in the state of Indiana.
IN WITNESS WHEREOF, said Assignor, has executed this instrument this
day of December, 1999.
JAMESON INNS, INC.
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
STATE OF GEORGIA )
) SS:
COUNTY OF DEKALB )
Before me, a Notary Public in and for said County and State, personally
appeared Craig R. Kitchen, the President of Jameson Inns, Inc., who, being first
duly sworn, acknowledged execution of the foregoing Mortgage in such capacity as
its voluntary act and deed.
Witness my hand and Notarial Seal this _____ day of December, 1999.
<PAGE> 42
My Commission Expires:
Notary Public
My County of Residence:
Printed Name
This instrument prepared by Lante K. Earnest, Attorney at Law, TABBERT, HAHN
EARNEST & WEDDLE, P.C., One Indiana Square, Suite 2100, Indianapolis, Indiana
46204. Telephone (317) 639-5444.
<PAGE> 1
EXHIBIT 10.32
LOAN AGREEMENT
between
City of Elkhart, Indiana
and
Jameson Inns, Inc.
--------------------------------------
$3,305,000
City of Elkhart, Indiana
Adjustable Rate Economic Development Revenue Refunding Bonds,
Series 1999
(Jameson Inns, Inc. Project)
Dated
as of
December 1, 1999
<PAGE> 2
INDEX
(This Index is not a part of the Agreement
but rather is for convenience of reference only)
<TABLE>
<CAPTION>
Preambles Page
<S> <S> <C>
ARTICLE I DEFINITIONS 1
Section 1.1 Use of Defined Terms 1
Section 1.2 Definitions 1
Section 1.3 Interpretation 4
Section 1.4 Captions and Headings 4
ARTICLE II REPRESENTATIONS, WARRANTIES AND COVENANTS 5
Section 2.1 Representations, Warranties and Covenants of the Issuer 5
Section 2.2 Representations, Warranties and Covenants of the Borrower 6
ARTICLE III ISSUANCE OF THE PROJECT BONDS 8
Section 3.1 Issuance of the Bonds; Application of Proceeds 8
Section 3.2 Investment of Fund Moneys 8
Section 3.3 Rebate Fund 9
ARTICLE IV LOAN BY ISSUER; REPAYMENT OF THE LOAN;
LOAN PAYMENTS AND ADDITIONAL PAYMENTS 10
Section 4.1 Loan Repayment; Delivery of Notes and Letter of Credit 10
Section 4.2 Additional Payments 11
Section 4.3 Place of Payments 11
Section 4.4 Obligations Unconditional 11
Section 4.5 Assignment of Agreement and Revenues 11
Section 4.6 Letter of Credit 12
ARTICLE V ADDITIONAL AGREEMENTS AND COVENANTS 13
Section 5.1 Right of Inspection 13
Section 5.2 Sale, Lease or Grant of Use by Borrower 13
Section 5.3 Indemnification 13
Section 5.4 Borrower Not to Adversely Affect Exclusion from Gross Income
of Interest on Project Bonds 14
Section 5.5 Assignment by Issuer 15
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <S> <C>
Section 5.6 Borrower's Performance Under Indenture 15
Section 5.7 Compliance with Laws 15
Section 5.8 Taxes, Permits, Utility and Other Charges 15
Section 5.9 Continued Existence 15
Section 5.10 Removal of Portions of the Project 15
Section 5.11 Prevailing Wage Rate 16
ARTICLE VI REDEMPTION OF PROJECT BONDS 17
Section 6.1 Optional Redemption 17
Section 6.2 Extraordinary Optional Redemption 17
Section 6.3 Mandatory Redemption of Project Bonds 18
Section 6.4 Actions by Issuer 18
Section 6.5 Required Deposits for Optional Redemption 18
ARTICLE VII EVENTS OF DEFAULT AND REMEDIES 20
Section 7.1 Events of Default 20
Section 7.2 Remedies on Default 21
Section 7.3 No Remedy Exclusive 22
Section 7.4 Agreement to Pay Attorneys' Fees and Expenses 22
Section 7.5 No Waiver 22
Section 7.6 Notice of Default 22
ARTICLE VIII MISCELLANEOUS 23
Section 8.1 Term of Agreement 23
Section 8.2 Notices 23
Section 8.3 Extent of Covenants of the Issuer; No Personal Liability 23
Section 8.4 Binding Effect 23
Section 8.5 Amendments and Supplements 23
Section 8.6 Execution Counterparts 24
Section 8.7 Severability 24
Section 8.8 Governing Law 24
Section 8.9 Amounts Remaining in Funds 24
Exhibit A - PROJECT A-1
Exhibit B - PROJECT SITE B-1
Exhibit C - PROJECT NOTE C-1
</TABLE>
ii
<PAGE> 4
LOAN AGREEMENT
THIS LOAN AGREEMENT is made and entered into as of December 1, 1999
between the City of Elkhart, Indiana, a municipal corporation existing under the
laws of the State of Indiana (the "Issuer"), and Jameson Inns, Inc., a Georgia
Corporation (the "Borrower"), under the circumstances summarized in the
following recitals (the capitalized terms not defined above or in the recitals
being used therein as defined in or pursuant to Article 1 hereof):
A. Pursuant to the provisions of Indiana Code 36-7-11.9 and 12, the Issuer
has heretofore issued the Prior Bonds to provide financing for costs of the
Project, and to reduce the financing costs of the Project the Issuer has now
determined to issue, sell and deliver the Project Bonds and to loan the proceeds
thereof to the Borrower to be used to effect the refunding of the Prior Bonds.
B. The Borrower and the Issuer have full right and lawful authority to
enter into this Agreement and to perform and observe the provisions hereof on
their respective parts to be performed and observed.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto covenant, agree and bind
themselves as follows (provided that any obligation of the Issuer created by or
arising out of this Agreement shall not be a general debt on its part but shall
be payable solely out of the Revenues, as defined in the Indenture):
2 ARTICLE
DEFINITIONS
1.1 Section. Use of Defined Terms . Words and terms defined in the
Indenture shall have the same meanings when used herein, unless the context or
use clearly indicates another meaning or intent. In addition, the words and
terms set forth in Section 1.2 hereof shall have the meanings set forth therein
unless the context or use clearly indicates another meaning or intent.
1.2 Section. Definitions . As used herein:
"Additional Payments" means the amounts required to be paid by the
Borrower pursuant to the provisions of Section 4.2 hereof.
"Agreement" means this Loan Agreement, as amended or supplemented from
time to time.
"Engineer" means an individual or firm acceptable to the Trustee and
qualified to practice the profession of engineering or architecture under the
laws of the State.
iii
<PAGE> 5
1.11 "Event of Default" means any of the events described as an Event of
Default in Section 7.1 hereof.
1.12
1.13 "Force Majeure" means any of the causes, circumstances or events
described as constituting Force Majeure in Section 7.1 hereof.
1.14 "Indenture" means the Trust Indenture, dated as of even date herewith,
between the Issuer and the Trustee, as amended or supplemented from time to
time.
1.15
1.16 "Loan" means the loan by the Issuer to the Borrower of the proceeds
received from the sale of the Project Bonds.
1.17
1.18 "Loan Payment Date" means any date on which any of the Loan Payments
are due and payable, whether at maturity, upon acceleration, call for redemption
or prepayment, or otherwise.
1.19
1.20 "Loan Payments" means the amounts required to be paid by the Borrower
in repayment of the Loan pursuant to the provisions of the Notes and of Section
4.1 hereof.
1.21
1.22 "Notes" means the Project Note and any Additional Notes.
1.23
1.24 "Notice Address" means:
1.25
(a) As to the Issuer: City of Elkhart, Indiana
City Hall
229 South Second St.
Elkhart, IN 46516-3137
Attn: City Attorney
(a) As to the Borrower: Jameson Inns, Inc.
8 Perimeter Center East, #8050
Atlanta, Georgia 30346-1603
Attn: __________
(a) As to the Trustee: Firstar Bank, N.A.
425 Walnut, 6th Floor
P.O. Box 1118
Cincinnati, OH 45201
Attn: Corporate Trust Dept.
(a) As to the Bank: Firstar Bank, N.A.
One Financial Square, Lower Level
Louisville, KY 40202-3322
Attn: John Anfinrud
2
<PAGE> 6
(e) As to the Remarketing Agent, at:
Banc One Capital Markets, Inc.
One Bank One Plaza
Mail Suite IL1-0463
Chicago, IL 60670-0463
Attn: Mr. Michael C. Alandt
or such additional or different address, notice of which is given under Section
8.2 hereof.
"Prior Bonds" means the Issuer's Economic Development Bonds, Series
1986 (Signature Elkhart, Ltd. Project), dated as of December 24, 1986, in the
original principal amount of $3,885,000.
"Prior Bonds Trustee" means Bank One Trust Company, NA, as trustee for
the Prior Bonds.
"Project" means the real and personal property, including undivided
interests or other interests therein, identified in Exhibit A attached hereto as
a part hereof, including the Project Site, or acquired, constructed or installed
as a replacement or substitution therefor or an addition thereto, or as may
result from any revision thereof in accordance with the provisions of this
Agreement.
"Project Bonds" means the City of Elkhart, Indiana Adjustable Rate
Economic Development Revenue Refunding Bonds, Series 1999 (Jameson Inns, Inc.
Project) authorized in the Indenture in the original principal amount of
$3,305,000.
"Project Note" means the promissory note of the Borrower, dated as of
even date with the Project Bonds, in the form attached hereto as Exhibit C and
in the principal amount of $3,305,000 evidencing the obligation of the Borrower
to make Loan Payments.
"Project Site" means the real estate and interests in real estate
constituting the site of the Project, as described in Exhibit B attached hereto
as a part hereof.
"Tax Certificate" means the Tax Compliance Certificate of the Borrower
delivered in connection with the initial issuance and delivery of the Project
Bonds.
"Trustee" means the Trustee at the time acting as such under the
Indenture, originally Firstar Bank, N.A., as Trustee, and any successor Trustee
as determined or designated under or pursuant to the Indenture.
"Unassigned Issuer's Rights" means all of the rights of the Issuer to
receive Additional Payments under Section 4.2 hereof, to be held harmless and
indemnified under Section 5.3 hereof, to be reimbursed for attorney's fees and
expenses under Section 7.4 hereof, and to give or
3
<PAGE> 7
withhold consent to amendments, changes, modifications, alterations and
termination of this Agreement under Section 8.5 hereof.
Section 1.3. Interpretation . Any reference herein to the Issuer, to
the Issuing Authority or to any member or officer of either includes entities or
officials succeeding to their respective functions, duties or responsibilities
pursuant to or by operation of law or lawfully performing their respective
functions.
Any reference to a section or provision of the Constitution of the
State or the Act, or to a section, provision or chapter of the Indiana Code or
to any statute of the United States of America, includes that section,
provision, chapter or statute as amended, modified, revised, supplemented or
superseded from time to time; provided, that no amendment, modification,
revision, supplement or superseding section, provision, chapter or statute shall
be applicable solely by reason of this provision if it constitutes in any way an
impairment of the rights or obligations of the Issuer, the Holders, the Trustee,
the Bank or the Borrower under this Agreement.
Unless the context indicates otherwise, words importing the singular
number include the plural number, and vice versa; the terms "hereof", "hereby",
"herein", "hereto", "hereunder" and similar terms refer to this Agreement; and
the term "hereafter" means after, and the term "heretofore" means before, the
date of delivery of the Project Bonds. Words of any gender include the
correlative words of the other genders, unless the sense indicates otherwise.
Section 1.4. Captions and Headings . The captions and headings in this
Agreement are solely for convenience of reference and in no way define, limit or
describe the scope or intent of any Articles, Sections, subsections, paragraphs,
subparagraphs or clauses hereof.
(End of Article I)
4
<PAGE> 8
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 2.1. Representations, Warranties and Covenants of the Issuer.
The Issuer represents and warrants that:
(a) It is a duly organized and validly existing municipal corporation and
political subdivision under the laws of the State.
(b) It has full legal right, power and authority pursuant to the Act to
finance the Project through the issuance of the Prior Bonds and to refinance the
Project and refund the Prior Bonds through the issuance of the Project Bonds;
has made the necessary findings of public purpose, has given any necessary
notices and has taken all other steps and followed all procedures required by
the Constitution and laws of the State (including the Act) in connection
therewith; and has full legal right, power and authority to (i) enter into this
Agreement, the Bond Purchase Agreement, the Letter of Representations and the
Indenture, (ii) issue, sell and deliver the Project Bonds and (iii) carry out
and consummate all other transactions contemplated by this Agreement, the Bond
Purchase Agreement, the Letter of Representations and the Indenture.
(c) It has duly authorized (i) the execution, delivery and performance of
this Agreement, the Project Bonds, the Bond Purchase Agreement, the Letter of
Representations and the Indenture, and (ii) the taking of any and all such
actions as may be required on the part of the Issuer to carry out, give effect
to and consummate the transactions contemplated by such instruments.
(d) This Agreement, the Bond Purchase Agreement, the Letter of
Representations and the Indenture constitute legal, valid and binding
obligations of the Issuer, enforceable in accordance with their respective
terms; this Agreement, the Bond Purchase Agreement, the Letter of
Representations and the Indenture have been duly authorized and executed by the
Issuer; and, when authenticated by the Trustee in accordance with the provisions
of the Indenture, the Project Bonds will have been duly authorized, executed,
issued and delivered and will constitute legal, valid and binding special
obligations of the Issuer in conformity with the provisions of the Act and the
Constitution of the State.
(e) There is no action, suit, proceeding, inquiry, or investigation at law
or in equity or before or by any court, public board or body, pending or, to the
best of the knowledge of the Issuer, threatened against the Issuer, nor to the
best of the knowledge of the Issuer is there any basis therefor, which in any
manner questions the validity of the Act, the powers of the Issuer referred to
in paragraph (b) above or the validity of any proceedings taken by the Issuer in
connection with the issuance of the Project Bonds or wherein any unfavorable
decision, ruling or finding could materially adversely affect the transactions
contemplated by this Agreement or which, in any way, would adversely affect the
validity or enforceability of the Project Bonds, the Letter of Representations,
the Indenture, the Bond Purchase Agreement or this Agreement (or of any other
instrument required or contemplated for use in consummating the transactions
contemplated thereby and hereby).
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(f) The execution and delivery by the Issuer of this Agreement, the Project
Bonds, the Bond Purchase Agreement, the Letter of Representations and the
Indenture in compliance with the provisions of each of such instruments will not
conflict with or constitute a breach of, or default under, any material
commitment, agreement or other instrument to which the Issuer is a party or by
which it is bound, or under any provision of the Act, the Constitution of the
State or any existing law, rule, regulation, ordinance, judgment, order or
decree to which the Issuer is subject.
(g) The Issuer will do or cause to be done all things necessary, so far as
lawful, to preserve and keep in full force and effect its existence or to assure
the assumption of its obligations under this Agreement, the Indenture, the
Letter of Representations and the Bonds by any successor public body.
Section 2.2. Representations, Warranties and Covenants of the Borrower.
The Borrower represents, warrants and covenants that:
(a) The Borrower is a corporation duly organized and validly existing under
the laws of the State of Georgia and is duly authorized to do business in the
State. The Borrower has full power and authority to execute, deliver and perform
this Agreement, the Bond Purchase Agreement, the Reimbursement Agreement, the
Remarketing Agreement and the Project Note and to enter into and carry out the
transactions contemplated by those documents. That execution, delivery and
performance do not, and will not, violate any provision of law applicable to the
Borrower or its Articles of Incorporation or Bylaws and do not, and will not,
conflict with or result in a default under any agreement or instrument to which
the Borrower is a party or by which the Borrower is bound.
(b) This Agreement, the Bond Purchase Agreement, the Remarketing Agreement,
the Reimbursement Agreement and the Project Note, by proper corporate action,
have been duly authorized, executed and delivered by the Borrower and are valid
and binding obligations of the Borrower.
(c) The Project is owned by the Borrower and is leased to and operated by
Jameson Hospitality, L.L.C. The Project has created or preserved jobs and
employment opportunities within the boundaries of the State and Issuer, and the
Project is and will be operated and maintained in such manner as to conform in
all material respects with all applicable zoning, planning, building,
environmental and other applicable governmental rules and regulations and as to
be consistent with the Act.
(d) The Borrower is not in default in the payment of principal of, or
interest on, any of the Borrower's indebtedness for borrowed money, or in
default under any instrument under which, or subject to which, any indebtedness
has been incurred, and no event has occurred and is continuing under the
provisions of any material agreement involving the Borrower that, with the lapse
of time or the giving of notice, or both, would constitute an event of default
thereunder.
(e) No litigation at law or in equity nor any proceeding before any
governmental agency or
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other tribunal involving the Borrower is pending or, to the knowledge of the
Borrower, threatened, in which any liability of the Borrower is not adequately
covered by insurance and in which any judgment or order would have a material
and adverse effect upon the business or assets of the Borrower or would
materially and adversely affect the Project, the validity of this Agreement, the
Bond Purchase Agreement, the Reimbursement Agreement, the Remarketing Agreement
or the Project Note or the performance of the Borrower's obligations thereunder
or the transactions contemplated hereby.
(f) The Borrower shall not use or operate the Project, or permit the
Project to be used or operated, in any way which would affect the qualification
of the Project under the Act or impair the exclusion from gross income for
federal income tax purposes of the interest on the Project Bonds.
(g) The representations contained in the Tax Certificate (which is
incorporated herein by this reference thereto) are true and correct and the
Borrower will observe the covenants contained therein as fully as if set forth
herein.
(h) The Bank does not control, either directly or indirectly through one or
more intermediaries, the Borrower. Likewise, the Borrower does not control,
either directly or indirectly through one or more intermediaries, the Bank.
"Control" for this purpose has the meaning given to such term in Section 2(a)(9)
of the Investment Company Act of 1940. The Borrower agrees to provide written
notice to the Trustee, the Remarketing Agent, and the Bondholders thirty days
prior to consummation of any transaction that would result in the Borrower
controlling or being controlled by the Bank or any provider of an Alternate
Letter of Credit or Supplemental Credit Facility.
(i) The Borrower represents that the Reimbursement Agreement and the
documents referenced therein constitute the entire agreement between the
Borrower and the Bank respecting the Loan.
(j) The Borrower covenants that it will not take any action, directly or
indirectly (including, but not limited to, any amendment to the Reimbursement
Agreement), nor fail to take any action, directly or indirectly, which would
cause any payment under the Letter of Credit to be a voidable preference under
Section 547 of Title 11 of the United States Code, U.S.C. ss.101 et. seq. (the
"Bankruptcy Code") which is recoverable under Section 550(a) of the Bankruptcy
Code in the event of the filing of a petition in bankruptcy by or against the
Borrower or the Issuer.
(End of Article II)
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ARTICLE III
ISSUANCE OF THE PROJECT BONDS
Section 3.1. Issuance of the Bonds; Application of Proceeds. To provide
funds to make the Loan for purposes of refunding the Prior Bonds and thereby
refinancing costs of the Project, the Issuer will issue, sell and deliver the
Project Bonds upon the order of the Underwriter as provided in the Bond Purchase
Agreement. The Project Bonds will be issued pursuant to the Indenture in the
aggregate principal amount, will bear interest, will mature and will be subject
to redemption as set forth therein. The Borrower hereby approves the terms and
conditions of the Indenture and the Project Bonds, and the terms and conditions
under which the Project Bonds will be issued, sold and delivered.
The proceeds from the sale of the Project Bonds shall be loaned to the
Borrower and paid over to the Trustee which shall deposit them in the Project
Fund as provided in the Indenture. The Trustee is hereby instructed to disburse
the entire balance in the Project Fund to the Prior Bonds Trustee immediately
upon receipt thereof. Such disbursement shall be made in immediately available
funds on the date of the initial delivery of the Project Bonds. Pursuant to the
trust indenture pursuant to which the Prior Bonds were issued, the Prior Bonds
Trustee shall, and is hereby directed to, use the proceeds of the Prior Bonds,
together with other funds provided by the Borrower and available for such
purpose, to effect the redemption of the Prior Bonds in whole.
At the request of the Borrower, and for the purposes and upon
fulfillment of the conditions specified in the Indenture, the Issuer may provide
for the issuance, sale and delivery of Additional Bonds and loan the proceeds
from the sale thereof to the Borrower.
Section 3.2. Investment of Fund Moneys. At the written or oral request
(promptly confirmed in writing) of the Authorized Borrower Representative, any
moneys held as part of the Bond Fund (except moneys held in the Bond Fund from
draws on the Letter of Credit, which moneys shall be held in cash and not
invested), the Project Fund or the Rebate Fund shall be invested or reinvested
by the Trustee in Eligible Investments. The Issuer and the Borrower each hereby
covenants that it will restrict that investment and reinvestment and the use of
the proceeds of the Project Bonds in such manner and to such extent, if any, as
may be necessary, after taking into account reasonable expectations at the time
of delivery of and payment for the Project Bonds, so that the Project Bonds will
not constitute arbitrage bonds under Section 148 of the Code.
The Borrower shall provide the Issuer with, and the Issuer may base its
certifications as authorized by the Bond Legislation on, a certificate of the
Borrower for inclusion in the transcript of proceedings for the Project Bonds,
setting forth the reasonable expectations of the Borrower on the date of
delivery of and payment for the Project Bonds regarding the amount and use of
the proceeds of the Project Bonds and the facts, estimates and circumstances on
which those expectations are based.
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Section 3.3. Rebate Fund. The Borrower agrees to make such payments to
the Trustee as are required of it under Section 5.11 of the Indenture. The
obligation of the Borrower to make such payments shall remain in effect and be
binding upon the Borrower notwithstanding the release and discharge of the
Indenture.
The Borrower and the Issuer each covenants to the owners of the Project
Bonds that, notwithstanding any other provision of this Agreement or any other
instrument, it shall take no action, nor shall the Borrower direct the Trustee
to take or approve the Trustee's taking any action or direct the Trustee to make
or approve the Trustee's making any investment or use of proceeds of the Project
Bonds or any other moneys which may arise out of or in connection with this
Agreement, the Indenture or the Project, which would cause the Project Bonds to
be treated as "arbitrage bonds" within the meaning of Section 148 of the Code.
In addition, the Borrower covenants and agrees to comply with the requirements
of Section 148(f) of the Code as it may be applicable to the Project Bonds or
the proceeds derived from the sale of the Project Bonds or any other moneys
which may arise out of, or in connection with, this Agreement, the Indenture or
the Project throughout the term of the Project Bonds. No provision of this
Agreement shall be construed to impose upon the Trustee any obligation or
responsibility for compliance with arbitrage regulations, except as provided in
the Indenture.
(End of Article III)
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ARTICLE IV
LOAN BY ISSUER; REPAYMENT OF THE LOAN;
LOAN PAYMENTS AND ADDITIONAL PAYMENTS
Section 4.1. Loan Repayment; Delivery of Notes and Letter of Credit.
Upon the terms and conditions of this Agreement, the Issuer will make the Loan
to the Borrower. In consideration of and in repayment of the Loan, the Borrower
shall make, as Loan Payments, payments sufficient in time and amount to pay when
due all Bond Service Charges, all as more particularly provided in the Project
Note and any Additional Note. The Project Note shall be executed and delivered
by the Borrower concurrently with the execution and delivery of this Agreement.
All Loan Payments shall be paid to the Trustee in accordance with the terms of
the Notes for the account of the Issuer and shall be held and applied in
accordance with the provisions of the Indenture and this Agreement. To the
extent of payments made with respect to Bond Service Charges pursuant to draws
upon the Letter of Credit, the Borrower shall receive a credit against its
obligation to make Loan Payments under this Agreement and the Project Note.
In connection with the issuance of any series of Additional Bonds
permitted by the Bank, the Borrower shall execute and deliver to the Trustee an
Additional Note in a form substantially similar to the form of the Project Note.
All such Additional Notes shall: 1.4
(a) provide for payments of interest equal to the payments of interest on
the corresponding Additional Bonds;
(b) require payments of principal and prepayments and any premium equal to
the payments of principal, redemption payments and sinking fund payments and any
premium on the corresponding Additional Bonds;
(c) require all payments on any such Additional Notes to be made no later
than the due dates for the corresponding payments to be made on the
corresponding Additional Bonds; and
(d) contain by reference or otherwise optional and mandatory prepayment
provisions and provisions in respect of the optional and mandatory acceleration
or prepayment of principal and any premium corresponding with the redemption and
acceleration provisions of the corresponding Additional Bonds.
All Notes shall secure equally and ratably all outstanding Bonds,
except that, so long as no Event of Default described in paragraph (a), (b),
(c), (g) or (h) of Section 7.01 of the Indenture has occurred and is continuing,
payments by the Borrower on the Project Note shall be used by the Trustee to
reimburse the Bank for drawings on the Letter of Credit used to pay Bond Service
Charges on the Project Bonds.
Upon payment in full, in accordance with the Indenture, of the Bond
Service Charges on any series of Bonds, whether at maturity or by redemption or
otherwise, or upon provision for the payment thereof having been made in
accordance with the provisions of the Indenture, the
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Note issued concurrently with those corresponding Bonds shall be deemed fully
paid, the obligations of the Borrower thereunder shall be terminated, and any
such Note shall be surrendered by the Trustee to the Borrower, and shall be
canceled by the Borrower.
Except for such interest of the Borrower and the Bank as may hereafter
arise pursuant to Section 5.07 or 5.08 of the Indenture, the Borrower and the
Issuer each acknowledge that neither the Borrower nor the Issuer has any
interest in the Bond Fund and any moneys deposited therein shall be in the
custody of and held by the Trustee in trust for the benefit of the Holders and,
to the extent of amounts due under the Reimbursement Agreement, the Bank.
Section 4.2. Additional Payments. The Borrower shall pay to the Issuer,
as Additional Payments hereunder, within five (5) days after request therefore
made in writing and specifying such costs and expenses with reasonable
particularity any and all costs and expenses actually incurred or to be paid by
the Issuer in connection with the issuance and delivery of the Project Bonds and
Additional Bonds or otherwise related to actions taken by the Issuer under this
Agreement or the Indenture.
The Borrower shall pay to the Trustee its reasonable fees, charges and
expenses for acting as such under the Indenture.
Any payments under this Section not paid when due shall bear interest
at the Interest Rate for Advances.
Section 4.3. Place of Payments. The Borrower shall make all Loan
Payments directly to the Trustee at its Operations Office. Additional Payments
shall be made directly to the person or entity to whom or to which they are due.
Section 4.4. Obligations Unconditional . The obligations of the
Borrower to make Loan Payments, Additional Payments and any payments required of
the Borrower under Section 4.3 hereof shall be absolute and unconditional, and
the Borrower shall make such payments without abatement, diminution or deduction
regardless of any cause or circumstances whatsoever including, without
limitation, any defense, set-off, recoupment or counterclaim which the Borrower
may have or assert against the Issuer, the Trustee, the Bank or any other
Person; provided that the Borrower may contest or dispute the amount of any such
obligation (other than Loan Payments) so long as such contest or dispute does
not result in an Event of Default under the Indenture.
Section 4.5. Assignment of Agreement and Revenues. To secure the
payment of Bond Service Charges, the Issuer shall assign to the Trustee, by the
Indenture, all its right, title and interest in and to the Revenues, the
Agreement (except for Unassigned Issuer's Rights) and the Project Note. The
Borrower hereby agrees and consents to that assignment.
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Section 4.6. Letter of Credit. Simultaneously with the initial delivery
of the Project Bonds pursuant to the Indenture and the Bond Purchase Agreement,
the Borrower shall cause the Bank to issue and deliver to the Trustee the Letter
of Credit, in substantially the form attached to the Reimbursement Agreement and
made a part thereof. The Letter of Credit may be replaced by an Alternate Letter
of Credit complying with the provisions of Section 5.09 of the Indenture.
(End of Article IV)
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ARTICLE V
ADDITIONAL AGREEMENTS AND COVENANTS
Section 5.1. Right of Inspection. Subject to reasonable security and
safety regulations and upon reasonable notice, the Issuer, the Bank and the
Trustee, and their respective agents, shall have the right during normal
business hours to inspect the Project.
Section 5.2. Sale, Lease or Grant of Use by Borrower. With the written
consent of the Bank and subject to any other agreement to which the Borrower is
a party or by which it is bound, the Borrower may sell, lease or grant the right
to occupy and use the Project, in whole or in part, to others, provided that:
(a) No such sale, lease or grant shall relieve the Borrower from the
Borrower's obligations under this Agreement or the Notes;
(b) In connection with any such sale, lease or grant the Borrower shall
retain such rights and interests as will permit the Borrower to comply with the
Borrower's obligations under this Agreement and the Notes;
(c) No such sale, lease or grant shall impair materially the purposes of
the Act to be accomplished by operation of the Project as herein provided or
adversely affect the exclusion from gross income for federal income tax purposes
of the interest on the Bonds. (f)
Section 5.3. Indemnification. The Borrower releases the Issuer from,
agrees that the Issuer shall not be liable for, and shall indemnify the Issuer
against, all liabilities, claims, costs and expenses, including attorneys fees
and expenses, imposed upon, incurred or asserted against the Issuer on account
of: (a) any loss or damage to property or injury to or death of or loss by any
person that may be occasioned by any cause whatsoever pertaining to the
acquisition, construction, installation, equipping, maintenance, operation or
use of the Project; (b) any breach or default on the part of the Borrower in the
performance of any covenant or agreement of the Borrower under this Agreement,
the Reimbursement Agreement, the Project Note or any related document, or
arising from any act or failure to act by the Borrower, or any of the Borrower's
agents, contractors, servants, employees or licensees; (c) the authorization,
issuance, sale, trading, remarketing, redemption or servicing of the Project
Bonds, and the provision of any information or certification furnished in
connection therewith concerning the Project Bonds, the Project, or the Borrower
including, without limitation, the Preliminary Offering Memorandum and the
Offering Memorandum (each as defined in the Bond Purchase Agreement), any
information furnished by the Borrower or the Bank for, and included in, or used
as a basis for preparation of, any certifications, information statements or
reports furnished by the Issuer, and any other information or certification
obtained from the Borrower or the Bank to assure the exclusion of the interest
on the Project Bonds from gross income of the Holders thereof for federal income
tax purposes; (d) the Borrower's failure to comply with any requirement of this
Agreement or the Code pertaining to such exclusion of that interest, including
the covenants in Section 5.4 hereof; and (e) any claim, action or proceeding
brought with respect to the matters
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set forth in (a), (b), (c), or (d) above.
The Borrower agrees to indemnify the Trustee for, and to hold it
harmless against, all liabilities, claims, costs and expenses incurred without
negligence or willful misconduct on the part of the Trustee on account of any
action taken or omitted to be taken by the Trustee in accordance with the terms
of this Agreement, the Bonds, the Reimbursement Agreement, the Letter of Credit,
the Notes or the Indenture, or any action taken at the request of or with the
consent of the Borrower, including the costs and expenses of the Trustee in
defending itself against any such claim, action or proceeding brought in
connection with the exercise or performance of any of its powers or duties under
this Agreement, the Bonds, the Indenture, the Reimbursement Agreement, the
Letter of Credit or the Notes.
In case any action or proceeding is brought against the Issuer or the
Trustee in respect of which indemnity may be sought hereunder, the party seeking
indemnity promptly shall give notice of that action or proceeding to the
Borrower, and the Borrower upon receipt of that notice shall have the obligation
and the right to assume the defense of the action or proceeding; provided, that
failure of a party to give that notice shall not relieve the Borrower from any
of the Borrower's obligations under this Section unless that failure materially
prejudices the defense of the action or proceeding by the Borrower. An
indemnified party at its own expense may employ separate counsel and participate
in the defense. The Borrower shall not be liable for any settlement made without
the Borrower's consent.
The indemnification set forth above is intended to and shall include
the indemnification of all affected officials, directors, officers and employees
of the Issuer and the Trustee, respectively. That indemnification is intended to
and shall be enforceable by the Issuer and the Trustee, respectively, to the
full extent permitted by law.
Section 5.4. Borrower Not to Adversely Affect Exclusion from Gross
Income of Interest on Project Bonds. The Borrower hereby represents that the
Borrower has taken or caused to be taken, and covenants that the Borrower will
take or cause to be taken, all actions that may be required of the Borrower or
any lessee of the Project, alone or in conjunction with the Issuer, for the
interest on the Project Bonds to be and remain excluded from gross income for
federal income tax purposes, and represents that the Borrower has not taken or
permitted to be taken, and covenants that the Borrower will not take or permit
to be taken, any actions that would adversely affect such exclusion under the
provisions of the Code.
If the Borrower becomes aware of any actions or facts which have caused
or will cause the interest on the Project Bonds to be includable in gross income
for federal income tax purposes, the Borrower promptly shall (a) notify the
Trustee and the Remarketing Agent of such actions or facts and (b) take such
steps as are necessary to cause redemption of the Project Bonds in whole at the
earliest practicable date.
Section 5.5. Assignment by Issuer. Except for the assignment of this
Agreement to the Trustee, the Issuer shall not attempt to further assign,
transfer or convey its interest in the
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<PAGE> 18
Revenues or this Agreement or create any pledge or lien of any form or nature
with respect to the Revenues or the payments hereunder.
Section 5.6 . Borrower's Performance Under Indenture . The Borrower has
examined the Indenture and approves the form and substance of, and agrees to be
bound by, its terms. The Borrower, for the benefit of the Issuer and each
Bondholder, shall do and perform all acts and things required or contemplated in
the Indenture to be done or performed by the Borrower. The Borrower is a third
party beneficiary of certain provisions of the Indenture, and Section 8.05 of
the Indenture is hereby incorporated herein by reference.
Section 5.7 . Compliance with Laws . The Borrower shall, throughout the
term of this Agreement, promptly comply or cause compliance in all material
respects with all laws, ordinances, orders, rules, regulations and requirements
of duly constituted public authorities which may be applicable to the Project or
to the repair and alteration thereof, or to the use or manner of use of the
Project or to the Borrower's and any lessee's operations on the Project Site.
Notwithstanding the foregoing, the Borrower shall have the right to contest or
cause to be contested the legality or the applicability of any such law,
ordinance, order, rule, regulation or requirement so long as, in the opinion of
counsel satisfactory to the Trustee and the Bank, such contest shall not in any
way materially adversely affect or impair the obligations of the Borrower
hereunder or any right or interest of the Trustee or the Bank in, to and under
the Indenture or this Agreement.
Section 5.8 . Taxes, Permits, Utility and Other Charges . The Borrower
shall pay and discharge or cause to be paid and discharged, promptly as and when
the same shall become due and payable, all taxes and governmental charges of any
kind whatsoever that may be lawfully assessed against the Issuer, the Trustee,
the Bank or the Borrower with respect to the Project or any portion thereof. The
Borrower may in good faith contest or cause to be contested any such tax or
governmental charge, and in such event may permit such tax or governmental
charge to remain unsatisfied during the period of such contest and may appeal
therefrom unless in the opinion of counsel satisfactory to the Trustee and the
Bank by such action any right or interest of the Trustee or the Bank in, to and
under the Indenture or this Agreement shall be materially endangered or the
Project or any part thereof, shall become subject to imminent loss or
forfeiture, in which event such tax or governmental charge shall be paid prior
to any such loss or forfeiture.
Section 5.9 . Continued Existence . Except as otherwise provided in or
permitted pursuant to the Reimbursement Agreement, or unless otherwise provided
by law, the Borrower shall maintain its existence and continue to be a duly
formed and validly existing corporation under the laws of the State of Georgia.
Section 5.10 . Removal of Portions of the Project . The Borrower shall
have the right, from time to time, subject to the terms of the Reimbursement
Agreement, to remove, substitute or modify any portion of the Project, provided
that such removal, substitution or modification shall not impair the character
of the Project as a "project" within the meaning of the Act. Any such
substituted or modified property shall be included under the terms of this
Agreement as part of the Project.
(End of Article V)
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ARTICLE VI
REDEMPTION OF PROJECT BONDS
Section 6.1 . Optional Redemption. Provided no Event of Default shall
have occurred and be continuing at any time and from time to time, the Borrower
may deliver moneys to the Trustee in addition to Loan Payments or Additional
Payments required to be made and direct the Trustee to use the moneys so
delivered for the purpose of purchasing Project Bonds or of reimbursing the Bank
for drawings on the Letter of Credit used to redeem Project Bonds called for
optional redemption in accordance with the applicable provisions of the
Indenture.
Section 6.2 . Extraordinary Optional Redemption. With the written
consent of the Bank, the Borrower shall have, subject to the conditions
hereinafter imposed, the option to direct the redemption, at a redemption price
of 100% of principal amount and accrued interest, of the entire unpaid principal
balance of the Project Bonds in accordance with the applicable provisions of the
Indenture upon the occurrence of any of the following events:
(a) The Project or Project Site shall have been damaged or destroyed to
such an extent that (1) the Project or Project Site cannot reasonably be
expected to be restored, within a period of three months, to the condition
thereof immediately preceding such damage or destruction or (2) normal use and
operation of the Project or the Project Site is reasonably expected to be
prevented for a period of three consecutive months;
(b) Title to, or the temporary use of, all or a significant part of the
Project or Project Site shall have been taken under the exercise of the power of
eminent domain (1) to such extent that the Project or Project Site cannot
reasonably be expected to be restored within a period of three months to a
condition of usefulness comparable to that existing prior to the taking or (2)
as a result of the taking, normal use and operation of the Project or Project
Site is reasonably expected to be prevented for a period of three consecutive
months;
(c) As a result of any changes in the Constitution of the State, the
constitution of the United States of America, or state or federal laws, or as a
result of legislative or administrative action (whether state or federal) or by
final decree, judgment or order of any court or administrative body (whether
state or federal) entered after the contest thereof by the Issuer, the Trustee
or the Borrower in good faith, this Agreement shall have become void or
unenforceable or impossible of performance in accordance with the intent and
purpose of the parties as expressed in this Agreement, or if unreasonable
burdens or excessive liabilities shall have been imposed with respect to the
Project or Project Site or the operation thereof, including, without limitation,
federal, state or other ad valorem, property, income or other taxes not being
imposed on the date of this Agreement other than ad valorem taxes presently
levied upon privately owned property used for the same general purpose as the
Project or the Project Site; or
(d) Changes in the economic availability of raw materials, operating
supplies, energy sources or supplies, or facilities (including, but not limited
to, facilities in connection with the disposal of Economic wastes) necessary for
the operation of the Project or the Project Site shall have
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<PAGE> 20
occurred or technological or other changes shall have occurred which the
Borrower cannot reasonably overcome or control and which in the Borrower's
reasonable judgment render the operation of the Project or the Project Site
uneconomic.
The Borrower also shall have the option, with the written consent of
the Bank, in the event that title to or the temporary use of a portion of the
Project or the Project Site shall be taken under the exercise of the power of
eminent domain, even if the taking is not of such nature as to permit the
exercise of the redemption option upon an event specified in clause (b) above,
to direct the redemption, at a redemption price of 100% of the principal amount
thereof prepaid, plus accrued interest to the redemption date, of that part of
the outstanding principal balance of the Project Bonds as may be payable from
the proceeds received by the Borrower (after the payment of costs and expenses
incurred in the collection thereof) in the eminent domain proceeding, provided
that the Borrower shall furnish to the Issuer and the Trustee a certificate of
an Engineer stating that (1) the property comprising the part of the Project or
the Project Site taken is not essential to continued operations of the Project
in the manner existing prior to that taking, (2) the Project has been restored
to a condition substantially equivalent to that existing prior to the taking, or
(3) other improvements have been acquired or made which are suitable for the
continued operation of the Project.
To exercise any option under this Section, the Borrower within 90 days
following the event authorizing the exercise of that option, or at any time
during the continuation of the condition referred to in clause (d) of the first
paragraph of this Section, shall give notice to the Issuer and to the Trustee
specifying the date of redemption, which date shall be not more than ninety days
from the date that notice is mailed, and shall make arrangements satisfactory to
the Trustee for the giving of the required notice of redemption.
The rights and options granted to the Borrower in this Section may be
exercised whether or not the Borrower is in default hereunder; provided, that
such default will not relieve the Borrower from performing those actions which
are necessary to exercise any such right or option granted hereunder.
Section 6.3 . Mandatory Redemption of Project Bonds. If, as provided
in the Project Bonds and the Indenture, the Project Bonds become subject to
mandatory redemption, upon the date requested by the Trustee, the Borrower shall
pay to the Trustee moneys sufficient to pay in full the Project Bonds in
accordance with the mandatory redemption provisions relating thereto set forth
in the Indenture.
Section 6.4 . Actions by Issuer. At the request of the Borrower or the
Trustee, the Issuer shall take all steps required of it under the applicable
provisions of the Indenture or the Bonds to effect the redemption of all or a
portion of the Bonds pursuant to this Article VI.
Section 6.5 . Required Deposits for Optional Redemption. Except with
the prior written consent of the Bank (except with respect to mandatory sinking
fund redemptions required by the Indenture), the Trustee shall not give notice
of call to the Holders pursuant to the optional
17
<PAGE> 21
redemption provisions of Section 4.01 of the Indenture and Sections 6.1 and 6.2
hereof unless, prior to the date by which the call notice is to be given, there
shall be on deposit with the Trustee Eligible Funds sufficient to redeem at the
redemption price thereof, including premium (if any) and interest accrued to the
redemption date, all Project Bonds for which notice of redemption is to be
given.
All amounts paid by the Borrower pursuant to this Article which are
used to pay principal of, premium, if any, or interest on the Bonds, or to
reimburse the Bank for moneys drawn under the Letter of Credit and used for any
such purposes, shall constitute prepaid Loan Payments.
(End of Article VI)
18
<PAGE> 22
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
Section 7.1. Events of Default. Each of the following shall be an
Event of Default:
(a) The Borrower shall fail to pay when due any Loan Payment;
(b) Any representation or warranty by the Borrower contained herein or in
any certificate or instrument delivered by the Borrower pursuant hereto or in
connection with the issuance of the Project Bonds or any Additional Bonds is
false or misleading in any material respect;
(c) The Borrower shall fail to observe and perform any other agreement,
term, covenant or condition contained in this Agreement, and the continuation of
such failure for a period of 30 days after notice thereof shall have been given
to the Borrower by the Issuer or the Trustee, or for such longer period as the
Issuer and the Trustee may agree to in writing; provided, that if the failure is
other than the payment of money and is of such nature that it can be corrected
but not within the applicable period, that failure shall not constitute an Event
of Default so long as the Borrower institutes curative action within the
applicable period and diligently pursues that action to completion;
(d) The Borrower shall: (i) admit in writing its inability to pay its debts
generally as they become due; (ii) have an order for relief entered in any case
commenced by or against it under the federal bankruptcy laws, as now or
hereafter in effect; (iii) commence a proceeding under any other federal or
state bankruptcy, insolvency, reorganization or similar law, or have such a
proceeding commenced against it and either have an order of insolvency or
reorganization entered against it or have the proceeding remain undismissed and
unstayed for 90 days; (iv) make an assignment for the benefit of creditors; or
(v) have a receiver or trustee appointed for it or for the whole or any
substantial part of its property;
(e) There shall occur an "Event of Default" as defined in Section 7.01 of
the Indenture.
(f) Notwithstanding the foregoing, if, by reason of Force Majeure, the
Borrower is unable to perform or observe any agreement, term or condition hereof
which would give rise to an Event of Default under subsection (c) hereof
(provided that such failure is other than the payment of money), the Borrower
shall not be deemed in default during the continuance of such inability.
However, the Borrower shall promptly give notice to the Trustee and the Issuer
of the existence of an event of Force Majeure and shall use its best efforts to
remove the effects thereof; provided that the settlement of strikes or other
Economic disturbances shall be entirely within the Borrower's discretion.
The term Force Majeure shall mean, without limitation, the following:
(a) acts of God; strikes; lockouts or other Economic disturbances; acts of
public enemies; orders or restraints of any kind of the government of the United
States of America or of the State
19
<PAGE> 23
or any of their departments, agencies, political subdivisions or officials, or
any civil or military authority; insurrections; civil disturbances; riots;
epidemics; landslides; lightning; earthquakes; fires; hurricanes; tornados;
storms; droughts; floods; arrests; restraint of government and people;
explosions; breakage, malfunction or accident to facilities, machinery,
transmission pipes or canals; partial or entire failure of utilities; shortages
of labor, materials, supplies or transportation; or
(b) any cause, circumstance or event not reasonably within the control of
the Borrower.
The declaration of an Event of Default under subsection (d) above, and the
exercise of remedies upon any such declaration, shall be subject to any
applicable limitations of federal bankruptcy law affecting or precluding that
declaration or exercise during the pendency of or immediately following any
bankruptcy, liquidation or reorganization proceedings.
Section 7.2. Remedies on Default . Whenever an Event of Default shall
have happened and be continuing, any one or more of the following remedial steps
may be taken:
(a) If and only if acceleration of the principal amount of the Bonds has
been declared pursuant to Section 7.03 of the Indenture, the Trustee shall
declare all Loan Payments and Notes to be immediately due and payable, whereupon
the same shall become immediately due and payable;
(b) The Bank or the Trustee may have access to, inspect, examine and make
copies of the books, records, accounts and financial data of the Borrower
pertaining to the Project; and
(c) The Issuer or the Trustee may pursue all remedies now or hereafter
existing at law or in equity to collect all amounts then due and thereafter to
become due under this Agreement, the Letter of Credit or the Notes or to enforce
the performance and observance of any other obligation or agreement of the
Borrower under those instruments.
Notwithstanding the foregoing, the Issuer shall not be obligated to
take any step which in its opinion will or might cause it to expend time or
money or otherwise incur liability unless and until a satisfactory indemnity
bond has been furnished to the Issuer at no cost or expense to the Issuer. Any
amounts collected as Loan Payments or applicable to Loan Payments and any other
amounts which would be applicable to payment of Bond Service Charges collected
pursuant to action taken under this Section shall be paid into the Bond Fund and
applied in accordance with the provisions of the Indenture or, if the
outstanding Bonds have been paid and discharged in accordance with the
provisions of the Indenture, shall be paid as provided in Section 5.08 of the
Indenture for transfers of remaining amounts in the Bond Fund.
The provisions of this section are subject to the further limitation
that the rescission by the Trustee of its declaration that all of the Bonds are
immediately due and payable also shall constitute an annulment of any
corresponding declaration made pursuant to paragraph (a) of this Section and a
waiver and rescission of the consequences of that declaration and of the Event
of
20
<PAGE> 24
Default with respect to which that declaration has been made, provided that
no such waiver or rescission shall extend to or affect any subsequent or other
default or impair any right consequent thereon.
Section 7.3. No Remedy Exclusive. No remedy conferred upon or reserved
to the Issuer or the Trustee by this Agreement is intended to be exclusive of
any other available remedy or remedies, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given under this
Agreement, the Letter of Credit or any Note, or now or hereafter existing at
law, in equity or by statute. No delay or omission to exercise any right or
power accruing upon any default shall impair that right or power or shall be
construed to be a waiver thereof, but any such right and power may be exercised
from time to time and as often as may be deemed expedient. In order to entitle
the Issuer or the Trustee to exercise any remedy reserved to it in this Article,
it shall not be necessary to give any notice, other than any notice required by
law or for which express provision is made herein.
Section 7.4. Agreement to Pay Attorneys' Fees and Expenses. If an
Event of Default should occur and the Issuer or the Trustee should incur fees
and expenses, including attorneys' fees, in connection with the enforcement of
this Agreement, the Letter of Credit or any Note or the collection of sums due
thereunder, the Borrower shall reimburse the Issuer and the Trustee, as
applicable, for the reasonable fees and expenses so incurred upon demand.
Section 7.5. No Waiver. No failure by the Issuer or the Trustee to
insist upon the strict performance by the Borrower of any provision hereof shall
constitute a waiver of their right to strict performance and no express waiver
shall be deemed to apply to any other existing or subsequent right to remedy the
failure by the Borrower to observe or comply with any provision hereof.
The Issuer and the Trustee may waive any Event of Default hereunder
only with the prior written consent of the Bank.
Section 7.6. Notice of Default. The Borrower or the Issuer shall
notify the Trustee and the Bank immediately if it becomes aware of the
occurrence of any Event of Default hereunder or of any fact, condition or event
which, with the giving of notice or passage of time or both, would become an
Event of Default.
(End of Article VII)
21
<PAGE> 25
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Term of Agreement. This Agreement shall be and remain in
full force and effect from the date of initial delivery of the Project Bonds
until such time as all of the Bonds shall have been fully paid (or provision
made for such payment) pursuant to the Indenture and all other sums payable by
the Borrower under this Agreement and the Notes shall have been paid, except for
obligations of the Borrower under Sections 3.3, 4.2, 5.3 and 7.4 hereof, which
shall survive any termination of this Agreement.
Section 8.2. Notices. All notices, certificates, requests or other
communications hereunder shall be in writing and shall be deemed to be
sufficiently given when mailed by registered or certified mail, postage prepaid,
and addressed to the appropriate Notice Address. A duplicate copy of each
notice, certificate, request or other communication given hereunder to the
Issuer, the Borrower, the Bank or the Trustee shall also be given to the others.
The Borrower, the Issuer, the Bank and the Trustee, by notice given hereunder,
may designate any further or different addresses to which subsequent notices,
certificates, requests or other communications shall be sent.
Section 8.3. Extent of Covenants of the Issuer; No Personal Liability.
All covenants, obligations and agreements of the Issuer contained in this
Agreement or the Indenture shall be effective to the extent authorized and
permitted by applicable law. No such covenant, obligation or agreement shall be
deemed to be a covenant, obligation or agreement of any present or future
member, officer, agent or employee of the Issuer or the Issuing Authority in
other than his official capacity, and neither the members of the Issuing
Authority nor any official executing the Bonds shall be liable personally on the
Bonds or be subject to any personal liability or accountability by reason of the
issuance thereof or by reason of the covenants, obligations or agreements of the
Issuer contained in this Agreement or in the Indenture.
Section 8.4. Binding Effect. This Agreement shall inure to the benefit
of and shall be binding in accordance with its terms upon the Issuer, the
Borrower and their respective successors and assigns; provided that this
Agreement may not be assigned by the Borrower (except in connection with a sale,
lease or grant of use pursuant to Section 5.2 hereof) and may not be assigned by
the Issuer except to the Trustee pursuant to the Indenture or as otherwise may
be necessary to enforce or secure payment of Bond Service Charges. This
Agreement may be enforced only by the parties, their assignees and others who
may, by law, stand in their respective places.
Section 8.5. Amendments and Supplements. Except as otherwise expressly
provided in this Agreement, any Note or the Indenture, subsequent to the
issuance of the Project Bonds and prior to all conditions provided for in the
Indenture for release of the Indenture having been met, this Agreement or any
Note may not be effectively amended, changed, modified, altered or terminated
except in accordance with the applicable provisions of Article XI of the
Indenture.
22
<PAGE> 26
Section 8.6. Execution Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be regarded as an original and
all of which shall constitute but one and the same instrument.
Section 8.7. Severability. If any provision of this Agreement, or any
covenant, obligation or agreement contained herein, is determined by a court of
competent jurisdiction to be invalid or unenforceable, that determination shall
not affect any other provision, covenant, obligation or agreement, each of which
shall be construed and enforced as if the invalid or unenforceable portion were
not contained herein. That invalidity or unenforceability shall not affect any
valid and enforceable application thereof, and each such provision, covenant,
obligation or agreement shall be deemed to be effective, operative, made,
entered into or taken in the manner and to the full extent permitted by law.
Section 8.8. Governing Law. This Agreement shall be deemed to be a
contract made under the laws of the State and for all purposes shall be governed
by and construed in accordance with the laws of the State.
Section 8.9. Amounts Remaining in Funds. Any amounts in the Bond Fund
remaining unclaimed by the Holders of Bonds for four years after the due date
thereof (whether at stated maturity, by redemption or pursuant to any mandatory
sinking fund requirements or otherwise), shall be paid to the Borrower; provided
that if the Trustee shall have drawn on the Letter of Credit, and the Bank is
owed any amount by the Borrower pursuant to the Reimbursement Agreement, such
amounts remaining in the Bond Fund shall belong and be paid first to the Bank to
the extent of such unpaid amounts. With respect to that principal of and any
premium and interest on the Bonds to be paid from moneys paid to the Borrower or
the Bank pursuant to the preceding sentence, the Holders of the Bonds entitled
to those moneys shall look solely to the Borrower for the payment of those
moneys.
Further, any amounts remaining in the Bond Fund (subject to any
limitations in the Indenture) and any other special funds or accounts (other
than the Rebate Fund) created under this Agreement or the Indenture after all of
the outstanding Bonds shall be deemed to have been paid and discharged under the
provisions of the Indenture and all other amounts required to be paid under this
Agreement, the Notes and the Indenture have been paid, shall be paid (to the
extent that those moneys are in excess of the amounts necessary to effect the
payment and discharge of the outstanding Bonds) first to the Bank to the extent
that any amount is owed by the Borrower to the Bank under the terms of the
Letter of Credit or Reimbursement Agreement, and then to the Borrower.
(End of Article VIII)
23
<PAGE> 27
IN WITNESS WHEREOF, the Issuer and the Borrower have caused this
Agreement to be duly executed in their respective names, all as of the date
first above written.
CITY OF ELKHART, INDIANA
By:
--------------------------------
Mayor
(Seal)
Attest:
----------------------------
Clerk
24
<PAGE> 28
JAMESON INNS, INC.
By:
--------------------------------
Its: President
25
<PAGE> 29
EXHIBIT A
PROJECT
The economic development facilities consisted of the acquisition,
construction and equipping of a 125-room motel located in the City of Elkhart,
Indiana, located at the intersection of the Indiana East-West Toll Road and
Cassopolis Street.
<PAGE> 30
EXHIBIT B
PROJECT SITE
2
<PAGE> 31
EXHIBIT C
PROJECT NOTE
$3,305,000 December 1, 1999
Jameson Inns, Inc., a Georgia Corporation (the "Borrower"), for value
received, promises to pay to Firstar Bank, N.A., as trustee (the "Trustee")
under the Indenture hereinafter referred to the principal sum of
THREE MILLION THREE HUNDRED FIVE THOUSAND DOLLARS
($3,305,000)
and to pay (i) interest on the unpaid balance of such principal sum from and
after the date of this Note at the interest rate or interest rates borne by the
Project Bonds and (ii) interest on overdue principal, and to the extent
permitted by law, on overdue interest, at the interest rate provided under the
terms of the Project Bonds.
This Note has been executed and delivered by the Borrower pursuant to a
certain Loan Agreement (the "Agreement"), dated as of December 1, 1999, between
the City of Elkhart, Indiana (the "Issuer") and the Borrower. Terms used but not
defined herein shall have the meanings ascribed to such terms in the Agreement
and the Indenture, as defined below.
Under the Agreement, the Issuer has loaned the Borrower the proceeds
received from the sale of $3,305,000 aggregate principal amount of City of
Elkhart, Indiana Adjustable Rate Economic Development Revenue Refunding Bonds,
Series 1999 (Jameson Inns, Inc. Project), dated as of the date of their issuance
(the "Project Bonds"), to be applied to assist the Borrower in the refinancing
of the Project. The Borrower has agreed to repay such loan by making Loan
Payments at the times and in the amounts set forth in this Note. The Project
Bonds have been issued, concurrently with the execution and delivery of this
Note, pursuant to, and are secured by, the Trust Indenture (the "Indenture"),
dated as of December 1, 1999, between the Issuer and the Trustee.
To provide funds to pay the Bond Service Charges on the Project Bonds
as and when due, or to reimburse the Bank for draws under the Letter of Credit
to make such payments, the
2
<PAGE> 32
Borrower hereby agrees to and shall make Loan Payments as follows: (a) on each
Interest Payment Date the amount equal to interest due on the Project Bonds on
such Interest Payment Date, and (b) annually on each December 1, as specified in
Appendix I attached hereto as a part hereof, the amount specified opposite such
date in such Appendix I, pursuant to the mandatory redemption provisions of
Section 4.01 of the Indenture or upon maturity of the Project Bonds (each such
day being a "Loan Payment Date"). In addition, to provide funds to pay the Bond
Service Charges on the Project Bonds as and when due at any other time, the
Borrower hereby agrees to and shall make Loan Payments on any other date on
which any Bond Service Charges on the Project Bonds shall be due and payable,
whether upon acceleration, call for redemption or otherwise.
If payment or provision for payment in accordance with the Indenture is
made in respect of the Bond Service Charges on the Project Bonds from moneys
other than Loan Payments, this Note shall be deemed paid to the extent such
payments or provision for payment of Bond Service Charges has been made. The
Borrower shall receive a credit against its obligation to make Loan Payments
hereunder to the extent of the moneys delivered to the Trustee under and
pursuant to the Letter of Credit for the payment of Bond Service Charges and any
other amounts on deposit in the Bond Fund and available to pay Bond Service
Charges on the Project Bonds pursuant to the Indenture. Subject to the
foregoing, all Loan Payments shall be in the full amount required hereunder.
All Loan Payments shall be payable in lawful money of the United States
of America, in immediately available funds, and shall be made to the Trustee at
its Operations Office for the account of the Issuer, deposited in the Bond Fund
and used as provided in the Indenture.
The obligation of the Borrower to make the payments required hereunder
shall be absolute and unconditional and the Borrower shall make such payments
without abatement, diminution or deduction regardless of any cause or
circumstances whatsoever including, without limitation, any defense, set-off,
recoupment or counterclaim which the Borrower may have or assert against the
Issuer, the Trustee, the Bank or any other person.
This Note is subject to optional, extraordinary optional and mandatory
prepayment, in whole or in part, upon the terms and conditions set forth in
Article VI of the Agreement. Any optional or extraordinary optional prepayment
is also subject to satisfaction of any applicable notice, deposit or other
requirements set forth in the Agreement or the Indenture.
Whenever an Event of Default under Section 7.1 of the Agreement shall
have occurred, the unpaid principal amount of and any premium and accrued
interest on this Note may be declared or may become due and payable as provided
in Section 7.2 of the Agreement; provided that any annulment of a declaration of
acceleration with respect to the Bonds under the Indenture shall also constitute
an annulment of any corresponding declaration with respect to this Note.
<PAGE> 33
IN WITNESS WHEREOF, the Borrower has signed this Note as of the date
first above written.
JAMESON INNS, INC.
By:
-----------------------------------------
President
<PAGE> 34
APPENDIX I
<TABLE>
<CAPTION>
Date Principal Payment
<S> <C>
December 1, 2000 $85,000
December 1, 2001 90,000
December 1, 2002 100,000
December 1, 2003 110,000
December 1, 2004 120,000
December 1, 2005 130,000
December 1, 2006 145,000
December 1, 2007 160,000
December 1, 2008 175,000
December 1, 2009 190,000
December 1, 2010 210,000
December 1, 2011 230,000
December 1, 2012 255,000
December 1, 2013 280,000
December 1, 2014 310,000
December 1, 2015 340,000
December 1, 2016 375,000
</TABLE>
<PAGE> 35
TRUST INDENTURE
between
City of Elkhart, Indiana
and
Firstar Bank, N.A.
as Trustee
----------------------------------------
Securing:
$3,305,000
CITY OF ELKHART, INDIANA
ADJUSTABLE RATE ECONOMIC DEVELOPMENT
REVENUE REFUNDING BONDS,
SERIES 1999
(JAMESON INNS, INC. PROJECT)
----------------------------------------
Dated as of December 1, 1999
----------------------------------------
----------------------------------------
TRUST INDENTURE
<PAGE> 36
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I DEFINITIONS 4
Section 1.01. Definitions 4
Section 1.02. Interpretation 17
Section 1.03. Captions and Headings 17
ARTICLE II AUTHORIZATION AND TERMS OF PROJECT
BONDS; ADDITIONAL BONDS 18
Section 2.01. Authorized Amount of Bonds 18
Section 2.02. Issuance of Project Bonds 18
Section 2.03. Maturity and Interest 19
Section 2.04. Tender Options 21
Section 2.05. Mandatory Tender Upon Conversion to a New Interest Rate Mode 24
Section 2.06. Mandatory Tender Upon Delivery of an Alternate Letter of Credit 25
Section 2.07. Mandatory Tender Upon Expiration of the Letter of Credit 25
Section 2.08. Delivery of Project Bonds 26
Section 2.09. Issuance and Delivery of Additional Bonds 27
ARTICLE III TERMS OF BONDS GENERALLY 29
Section 3.01. Form of Bonds 29
Section 3.02. Variable Terms 29
Section 3.03. Execution and Authentication of Bonds 29
Section 3.04. Source of Payment of Bonds 30
Section 3.05. Payment and Ownership of Bonds 30
Section 3.06. Transfer and Exchange of Bonds 31
Section 3.07. Mutilated, Lost, Wrongfully Taken, Undelivered or Destroyed Bonds 32
Section 3.08. Cancellation of Bonds 33
ARTICLE IV REDEMPTION OF BONDS 34
Section 4.01. Terms of Redemption of Project Bonds 34
Section 4.02. Partial Redemption 36
Section 4.03. Issuer's Election to Redeem 37
</TABLE>
i
<PAGE> 37
TABLE OF CONTENTS
-----------------
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 4.04. Notice of Redemption 37
Section 4.05. Payment of Redeemed Bonds 39
Section 4.06. Variation of Redemption Provisions 39
ARTICLE V PROVISIONS AS TO FUNDS,
PAYMENTS, PROJECT AND AGREEMENT 40
Section 5.01. Creation of Project Fund 40
Section 5.02. Disbursements From and Records of Project Fund 40
Section 5.03. Creation of Bond Fund; Letter of Credit 40
Section 5.04. Creation of Remarketing Reimbursement Fund 43
Section 5.05. Investment of Bond Fund, Project Fund,
Rebate Fund and Remarketing Reimbursement Fund 43
Section 5.06. Moneys to be Held in Trust 44
Section 5.07. Nonpresentment of Bonds 45
Section 5.08. Repayment to the Bank or the Borrower from the Bond Fund 45
Section 5.09. Alternate Letter of Credit 45
Section 5.10. Compliance with Section 148 of the Code 46
Section 5.11. Rebate Fund 46
ARTICLE VI THE TRUSTEE AND REMARKETING AGENT 48
Section 6.01. Trustee's Acceptance and Responsibilities 48
Section 6.02. Certain Rights and Obligations of the Trustee 49
Section 6.03. Fees, Charges and Expenses of Trustee 52
Section 6.04. Intervention by Trustee 52
Section 6.05. Successor Trustee 53
Section 6.06. Appointment of Co-Trustee 53
Section 6.07. Resignation by the Trustee 54
Section 6.08. Removal of the Trustee 54
Section 6.09. Appointment of Successor Trustee 54
Section 6.10. Adoption of Authentication 55
Section 6.11. Dealing in Bonds 55
Section 6.12. Representations, Agreements and Covenants of Trustee 56
Section 6.13. Concerning the Remarketing Agent 56
Section 6.14. Qualifications of Remarketing Agent 56
Section 6.15. Remarketing of Project Bonds 57
Section 6.16. Delivery of Purchased Project Bonds and Remarketing
of Pledged Bonds 59
</TABLE>
ii
<PAGE> 38
TABLE OF CONTENTS
-----------------
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE VII DEFAULT PROVISIONS AND REMEDIES
OF TRUSTEE AND HOLDERS 61
Section 7.01. Defaults; Events of Default 61
Section 7.02. Notice of Default 62
Section 7.03. Acceleration 62
Section 7.04. Other Remedies; Rights of Holders 63
Section 7.05. Right of Holders to Direct Proceedings 64
Section 7.06. Application of Moneys 64
Section 7.07. Remedies Vested in Trustee 65
Section 7.08. Rights and Remedies of Holders 66
Section 7.09. Termination of Proceedings 66
Section 7.10. Waivers of Events of Default 67
ARTICLE VIII SUPPLEMENTAL INDENTURES 68
Section 8.01. Supplemental Indentures Generally 68
Section 8.02. Supplemental Indentures Not Requiring Consent of Holders 68
Section 8.03. Supplemental Indentures Requiring Consent of Holders 69
Section 8.04. Acceptance of Supplemental Credit Facility 71
Section 8.05. Consent of Borrower 71
Section 8.06. Authorization to Trustee; Effect of Supplement 71
Section 8.07. Opinion of Counsel 72
Section 8.08. Modification by Unanimous Consent 72
ARTICLE IX DEFEASANCE 73
Section 9.01. Release of Indenture 73
Section 9.02. Payment and Discharge of Bonds 73
Section 9.03. Survival of Certain Provisions 74
ARTICLE X COVENANTS AND AGREEMENTS
OF THE ISSUER 76
Section 10.01. Covenants and Agreements of the Issuer 76
Section 10.02. Observance and Performance of Covenants, Agreements
Authority and Actions 77
Section 10.03. Payment Solely From Sources Described in Indenture
and Agreement 77
</TABLE>
iii
<PAGE> 39
THIS TRUST INDENTURE (the "Indenture") dated as of December 1, 1999 by
and between the City of Elkhart, Indiana, a municipal corporation existing
under the laws of the State of Indiana (the "Issuer"), and Firstar Bank, N.A.,
Richmond, Indiana, a national banking association operating and duly authorized
to exercise corporate trust powers in the State of Indiana, as trustee (the
"Trustee"), under the circumstances summarized in the following recitals (the
capitalized terms not defined in the recitals and granting clauses being used
therein as defined in Article I hereof):
A. By virtue of the authority of the laws of the State of
Indiana, and particularly Indiana Code 36-7-11.9 and 12, as it may from time to
time be supplemented and amended, and pursuant to the Bond Ordinance referred
to below, the Issuer is authorized to enter into this Indenture and to do or
cause to be done all the acts and things herein provided or required to be
done, to issue the Project Bonds, and to use the proceeds of the Project Bonds
to make a loan that will provide moneys to effect the redemption of the Prior
Bonds which were issued in 1986 to assist in financing the Project, as defined
in the Loan Agreement, which Project created diversification of economic
development and promotion of job opportunities in or near such Issuer;
B. The Issuer has determined to issue and sell the Project Bonds
in the principal amount of $3,305,000 for the purpose described above and to
enter into this Indenture and secure the Bonds by the pledge and assignment of
the Revenues;
C. All acts and conditions required to happen, exist and be
performed precedent to and in the issuance of the Project Bonds and the
execution and delivery of this Indenture have happened, exist and have been
performed, or at the delivery of the Project Bonds will exist, will have
happened and will have been performed (i) to make the Project Bonds, when
issued, delivered and authenticated, valid obligations of the Issuer in
accordance with the terms hereof and (ii) to make this Indenture a valid,
binding and legal trust agreement for the security of the Bonds in accordance
with its terms; and
D. The Trustee has accepted the trusts created by this
Indenture, and in evidence thereof has joined in the execution hereof;
NOW, THEREFORE, THIS INDENTURE WITNESSETH, that to secure the payment
of Bond Service Charges on the Bonds, to secure the performance and observance
of all of the covenants, agreements, obligations and conditions contained
therein and herein, and to declare the terms and conditions upon and subject to
which the Bonds are and are intended to be issued, held, secured and enforced,
and in consideration of the premises and the acceptance by the Trustee of the
trusts created herein and of the purchase and acceptance of the Project Bonds
by the Holders, and for other good and valuable consideration, the receipt of
which is acknowledged, the Issuer has executed and delivered this Indenture and
absolutely assigns hereby to the Trustee, and to its successors in trust, and
its and their assigns, all right, title and interest of the Issuer in and to
(i) the Revenues, including, without limitation, all Loan Payments and other
amounts receivable by or on behalf of the Issuer under the Agreement in respect
of
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repayment of the Loan and all moneys and investments in the Bond Fund and the
Project Fund; (ii) the Agreement, except for the Unassigned Issuer's Rights;
and (iii) the Project Note; all of which the Trustee shall hold subject to the
following:
(a) except as provided otherwise herein, for the equal and proportionate
benefit, security and protection of all present and future Holders of the
Bonds,
(b) for the enforcement of the payment of the principal of and interest
and any premium on the Bonds, when payable, according to the true intent and
meaning thereof and of this Indenture, and
(c) to secure the performance and observance of and compliance with the
covenants, agreements, obligations, terms and conditions of this Indenture;
in each case, without preference, priority or distinction, as to lien
or otherwise, of any one Bond over any other by reason of designation, number,
date of the Bonds or of authorization, issuance, sale, execution,
authentication, delivery or maturity thereof, or otherwise, so that each Bond
and all Bonds shall have the same right, lien and privilege under this
Indenture and shall be secured equally and ratably hereby, it being intended
that the lien and security of this Indenture shall take effect from the date
hereof, without regard to the date of the actual issue, sale or disposition of
the Bonds, as though upon that date all of the Bonds were actually issued, sold
and delivered to purchasers for value; provided, however, that moneys drawn
under the Letter of Credit shall be applied only to the payment of the
principal of and interest on the Project Bonds or the purchase price of the
Project Bonds or Beneficial Ownership Interests; and provided further however,
that
(i) if the principal of the Bonds and the interest due or to become due
thereon together with any premium required by redemption of any of the Bonds
prior to maturity shall be well and truly paid, at the times and in the manner
to which reference is made in the Bonds, according to the true intent and
meaning thereof, or the outstanding Bonds shall have been paid and discharged
in accordance with Article IX hereof, and
(ii) if there shall have been paid (or provided for) to the Issuer, the
Trustee and the Bank, all sums of money due or to become due to them in
accordance with the terms and provisions hereof and of the Loan Agreement, this
Indenture and the rights assigned hereby shall cease, determine and be void,
except as provided in Section 9.03 hereof with respect to the survival of
certain provisions hereof; otherwise, this Indenture shall be and remain in
full force and effect.
All Bonds issued hereunder and secured hereby are to be issued,
authenticated and delivered, and all Revenues assigned hereby are to be dealt
with and disposed of, as provided in this Indenture. The Issuer has agreed and
covenanted, and agrees and covenants with the Trustee and with each and all
Holders, as follows:
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ARTICLE I
DEFINITIONS
Section 1.01. Definitions . In addition to the words and terms defined
elsewhere in this Indenture, the words and terms defined in this Section shall
have the meanings herein specified unless the context or use clearly indicates
another or different meaning or intent. Those words and terms not expressly
defined herein and used herein with initial capitalization where rules of
grammar do not otherwise require capitalization, or which are otherwise defined
terms under the Agreement, as hereinafter defined, shall have the meanings
assigned to them in the Agreement.
"Act" means Indiana Code 36-7-11.9 and 12, as supplemented and
amended.
"Additional Bonds" means Bonds which may be issued under Section 2.09
of this Indenture.
"Additional Notes" means any non-negotiable promissory note or notes,
in addition to the Project Note, delivered by the Borrower to the Trustee in
connection with the issuance of Additional Bonds, as provided in the Agreement.
"Adjustable Rate" means any interest rate to be borne by the Project
Bonds other than the Fixed Interest Rate.
"Agreement" means the Loan Agreement dated as of even date with this
Indenture, between the Issuer and the Borrower, as amended or supplemented from
time to time.
"Alternate Letter of Credit" means an irrevocable letter of credit
authorizing drawings thereunder by the Trustee issued by a bank, a trust
company or other financial institution and meeting the requirements of Section
5.09 hereof, which Alternate Letter of Credit shall be the same in all material
respects (except as to expiration date) as the Letter of Credit.
"Authorized Borrower Representative" means the person designated at
the time pursuant to the Agreement to act on behalf of the Borrower by written
instrument furnished to the Issuer and the Trustee, containing the specimen
signature of such person and signed by any officer of the Borrower. Such
instrument may designate an alternate or alternates.
"Bank" means Firstar Bank, N.A., a national banking association, and
its successors and assigns. Upon issuance and effectiveness of any Alternate
Letter of Credit, "Bank" shall mean the issuer thereof and its successors and
assigns.
"Beneficial Owner" means, with respect to the Project Bonds, a Person
owning a Beneficial Ownership Interest therein, as evidenced to the
satisfaction of the Trustee.
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"Beneficial Ownership Interest" means the beneficial right to receive
payments and notices with respect to the Project Bonds which are held by the
Depository under a book entry system.
"Bond Counsel" means an attorney-at-law or firm of attorneys (other
than an employee of the Borrower but including any law firm serving as counsel
to the Borrower) satisfactory to the Trustee, the Bank and the Issuer and
nationally recognized as experienced in matters relating to the tax exemption
of interest on bonds of states and political subdivisions.
"Bond Fund" means the Bond Fund created in Section 5.03 hereof.
"Bond Legislation" or "Bond Ordinance" means (a) when used with
reference to the Project Bonds, the ordinance providing for their issuance and
approving the Agreement, this Indenture, the Bond Purchase Agreement, the
Letter of Representations and related matters; (b) when used with reference to
an issue of Additional Bonds, the ordinance providing for the issuance of the
Project Bonds, to the extent applicable, and the ordinance providing for the
issuance of the Additional Bonds and approving any amendment or supplement to
the Agreement, any Supplemental Indenture and related matters; and (c) when
used with reference to Bonds when Additional Bonds are outstanding, the
ordinance providing for the issuance of the Project Bonds and the ordinance
providing for the issuance of the then outstanding and the then to be issued
Additional Bonds; in each case as amended or supplemented from time to time.
The Bond Legislation is incorporated herein by reference.
"Bond Purchase Agreement" means, as to the Project Bonds, the Bond
Purchase Agreement dated as of or after the date hereof but prior to the
initial delivery of the Project Bonds, among the Issuer, the Underwriter and
the Borrower and, as to any Additional Bonds, the bond purchase agreement
provided for in the Bond Legislation providing for the issuance of the
Additional Bonds.
"Bond Purchase Date" means any Bond Purchase Date as defined and
provided for in Sections 2.04, 2.05 or 2.06 hereof.
"Bond Service Charges" means, for any series of Bonds, the principal
of, premium, if any, and interest on such Bonds for any period or payable at
any time, whether due on an Interest Payment Date, at maturity or upon
acceleration or redemption.
"Bonds" means the Project Bonds and any Additional Bonds.
"book entry form" or "book entry system" means, with respect to the
Project Bonds, a form or system, as applicable, under which (i) the Beneficial
Ownership Interests may be transferred only through a book entry and (ii)
physical Project Bond certificates in fully registered form are registered only
in the name of a Depository or its nominee as Holder, with the physical Project
Bond certificates "immobilized" in the custody of the Depository. The book
entry system maintained by and the responsibility of the Depository and not
maintained by or the
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responsibility of the Issuer or the Trustee is the record that identifies, and
records the transfer of the interests of, the owners of book entry interests in
the Project Bonds.
"Borrower" means, Jameson Inns, Inc., a Georgia Corporation.
"Business Day" means a day of the year, other than (i) a Saturday,
Sunday, or a legal holiday on which the Drawing Office of the Bank, the
principal office of the Remarketing Agent, or the Operations Office of the
Trustee, is not open for the purpose of conducting substantially all of the
Bank's, the Remarketing Agent's or the Trustee's business activities, or (ii) a
legal holiday on which the principal offices of commercial banks in New York,
New York are closed, or (iii) a day on which The New York Stock Exchange is
closed.
"Clerk" means the Clerk of the Issuer.
"Closing Date" means, with respect to the Project Bonds, the date of
delivery of and payment for the Project Bonds.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time. References to the Code and Sections of the Code include relevant
applicable regulations and proposed regulations thereunder (and under the
related provisions of the Internal Revenue Code of 1954, as amended) and any
successor provisions to those Sections, regulations or proposed regulations.
"Depository" means any securities depository that is a clearing agency
under federal law operating and maintaining, with its participants or
otherwise, a book entry system to record ownership of book entry interests in
Bonds, and to effect transfers of book entry interests in Bonds in book entry
form, and includes and means initially The Depository Trust Company (a limited
purpose trust company), New York, New York.
"Determination of Taxability" means and shall occur when, (i) the
Trustee receives written notice from the Borrower, supported by an opinion of
Bond Counsel, that interest on the Project Bonds is includable in the gross
income of Holders of the Project Bonds for federal income tax purposes or (ii)
the Internal Revenue Service shall claim in writing that interest on the
Project Bonds is includable in the gross income of Holders of the Project Bonds
for federal income tax purposes; provided, that such a claim shall not be
deemed a Determination of Taxability unless the Borrower is afforded reasonable
opportunity (at the Borrower's sole expense and for a period not to exceed 2
years) to pursue any judicial or administrative remedy available to the
Borrower with respect to such claim.
"Direct Participant" means a Participant as defined in the Letter of
Representations.
"Drawing Office" means the office maintained by the Bank or any
affiliate of the Bank at which documents required to effect draws on the Letter
of Credit must be presented, which office is initially located in Louisville,
Kentucky.
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"Eligible Funds" means (i) with respect to funds used to pay principal
and interest on the Bonds, amounts on deposit in a separate account of the Bond
Fund (other than funds derived from a draw on the Letter of Credit) for a
continuous period of 91 consecutive days during which there shall not have
occurred the filing of a voluntary or involuntary petition in bankruptcy under
the United States Bankruptcy Code (as it may be amended from time to time), or
the commencement of a proceeding under any other applicable laws concerning
insolvency, reorganization or bankruptcy, by or against the Borrower or the
Issuer, unless such petition or proceeding shall have been dismissed and such
dismissal shall be final and not subject to appeal, and (ii) with respect to
funds used to pay premium on Bonds, any amount on deposit in the Bond Fund.
"Eligible Investments" means any of the following which at the time
are legal investments under the laws of the State for moneys held hereunder and
then proposed to be invested therein:
(i) Government Obligations;
(ii) bonds, debentures, notes or other evidences of indebtedness
issued by any agency or other governmental or government-sponsored
agencies which may be hereafter created by the United States,
provided, however, that the full and timely payment of the securities
issued by each such agency or government-sponsored agency is secured
by the full faith and credit of the United States;
(iii) certificates of deposit of, or time or demand deposits in,
any bank (including the Trustee and any of its affiliates) or savings
and loan association rated or having securities rated at the time of
purchase in one of the three highest rating categories (without regard
to modifiers) of Moody's or S&P;
(iv) certificates which evidence ownership of the right to the
payment of the principal of and interest on obligations described in
clauses (i) and (ii) of this definition, provided that such
obligations are held in the custody of a bank or trust company
acceptable to the Trustee in a special account separate from the
general assets of such custodian;
(v) obligations which are rated, at the time of purchase, in one
of the two highest rating categories (without regard to modifiers) of
Moody's and the interest on which is not includible in gross income
for federal income tax purposes and the timely payment of the
principal of and interest on which is fully provided for by the
deposit in trust or escrow of cash or obligations described in clauses
(vi) or (ii) of this definition;
(vi) guaranteed investment contracts or other similar financial
instruments with a commercial bank, insurance company or other
financial institution (including the Trustee and any of its
affiliates) whose long term debt obligations are rated, at the time of
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<PAGE> 45
purchase, in one of the two highest rating categories (without regard
to modifiers) by Moody's;
(vii) mutual funds invested primarily in obligations described in
clauses (i), (ii) and (viii) of this definition, including any
proprietary mutual fund of the Trustee for which the Trustee or an
affiliate of the Trustee serves as investment advisor or provides
other services to such mutual fund and receives reasonable
compensation therefor, and rated, at the time of purchase, in one of
the two highest rating categories (without regard to modifiers) by
Moody's;
(viii) repurchase agreements issued by financial institutions
(including the Trustee and any of its affiliates) (a) insured by the
Federal Deposit Insurance Corporation or (b) whose senior debt
obligations at the time of purchase are rated in any of the three
highest rating categories (without regard to modifiers) by Moody's;
provided, such repurchase agreements are subject to perfected security
interests in the investment securities of the kind specified in
paragraphs (i) or (ii) above, which have a fair market value,
exclusive of accrued interest, at least equal to the amount invested
in the repurchase agreement; and provided further (1) the Trustee or a
custodian acting on behalf of the Trustee has possession of the
collateral, (2) the Trustee has a perfected first security interest in
the collateral, (3) the collateral is free and clear of any
third-party liens, (4) failure to maintain the requisite collateral
percentage will require the Trustee to liquidate the collateral, and
(5) the Trustee has received an opinion of counsel that the repurchase
agreement meets the requirements of this subpart (viii); and
(ix) any other security or obligation constituting a permitted
investment under the Act, provided that the Bank and the Borrower
consent to the investment of funds in such security or obligation.
"Event of Default" means an Event of Default hereunder as described in
Section 7.01 hereof.
"Executive" means the Mayor of the Issuer.
"Extraordinary Services" and "Extraordinary Expenses" means all
services rendered and all reasonable expenses properly incurred by the Trustee
under this Indenture, other than Ordinary Services and Ordinary Expenses.
"First Optional Redemption Date" means the December 1 occurring in the
year which is a number of years after the year in which the Fixed Interest Rate
Commencement Date occurs equal to the number of full years between the Fixed
Interest Rate Commencement Date and the maturity date of the Bonds, multiplied
by 1/2 and rounded up to the nearest whole number.
"Five Year Interest Rate" means (a) the rate of interest per annum
determined by the Remarketing Agent, on the Interest Rate Determination Date
immediately preceding the
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<PAGE> 46
applicable Interest Rate Adjustment Date, to be the lowest interest rate, for
the Interest Rate Period commencing on the applicable Interest Rate Adjustment
Date and ending on the May 31 or November 30 nearest to but not later than the
date which is five years from the Interest Rate Adjustment Date, in the
judgment of the Remarketing Agent (taking into consideration current
transactions and comparable securities with which the Remarketing Agent is
involved or of which it is aware and prevailing financial market conditions) at
which, as of such Interest Rate Determination Date, the Project Bonds could be
remarketed at par, plus accrued interest (if any), on the Interest Rate
Adjustment Date for that Interest Rate Period or (b) in the event that the
Remarketing Agent has been removed or has resigned and no successor has been
appointed or the Remarketing Agent has failed to determine the Five Year
Interest Rate for whatever reason, or the Five Year Interest Rate cannot be
determined pursuant to clause (a) for whatever reason, the interest rate then
in effect with respect to the Project Bonds, without adjustment; provided that
in no event shall the Five Year Interest Rate exceed the Maximum Rate.
"Fixed Interest Rate" means (a) the fixed rate of interest per annum
determined by the Remarketing Agent, on the Interest Rate Determination Date
immediately preceding the applicable Interest Period Reset Date, to be the
lowest interest rate, for the period from the Interest Period Reset Date to the
final maturity date of the Project Bonds, in the judgment of the Remarketing
Agent (taking into consideration current transactions and comparable securities
with which the Remarketing Agent is involved or of which it is aware and
prevailing financial market conditions) at which, as of such Interest Rate
Determination Date, the Project Bonds could be remarketed at par, plus accrued
interest (if any), on the Interest Period Reset Date or (b) in the event that
the Remarketing Agent has been removed or has resigned and no successor has
been appointed or the Remarketing Agent has failed to determine the Fixed
Interest Rate for whatever reason, or the Fixed Interest Rate cannot be
determined pursuant to clause (a) for whatever reason, the interest rate then
in effect with respect to the Project Bonds, without adjustment; provided that
in no event shall the Fixed Interest Rate exceed the Maximum Rate.
"Fixed Interest Rate Commencement Date" means the Interest Period
Reset Date from and after which the Project Bonds shall bear interest at the
Fixed Interest Rate, as that date shall be established as provided in Section
2.03 hereof.
"Government Obligations" means (a) direct obligations of the United
States of America for the payment of which the full faith and credit of the
United States of America is pledged, (b) obligations issued by a person
controlled or supervised by and acting as an instrumentality of the United
States of America, the payment of the principal of, premium, if any, and
interest on which is fully guaranteed as a full faith and credit obligation of
the United States of America (including any securities described in (a) or (b)
issued or held in book-entry form on the books of the Department of Treasury of
the United States of America or Federal Reserve Bank), and (c) securities which
represent an interest in the obligations described in (a) and (b) above.
"Holder" or "Holder of a Bond" or "Bondholder" means the Person in
whose name a Bond is registered on the Register.
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"Indirect Participant" means a Person utilizing the book entry system
of the Depository by, directly or indirectly, clearing through or maintaining a
custodial relationship with a Direct Participant.
"Indenture" means this Trust Indenture, as amended or supplemented
from time to time.
"Interest Payment Date" or "Interest Payment Dates" means, (a) as to
the Project Bonds, (i) while the Project Bonds bear interest at the Six Month
Interest Rate, the One Year Interest Rate, the Five Year Interest Rate or the
Fixed Interest Rate, the first day of each June and December, and (ii) while
the Project Bonds bear interest at the Weekly Interest Rate, the One Month
Interest Rate, or the Three Month Interest Rate, the first Business Day of each
month commencing the first Business Day of January, 2000, and (b) as to
Additional Bonds, each date or dates designated as an Interest Payment Date or
Dates in the applicable Supplemental Indenture or Bond Ordinance.
"Interest Period Reset Date" means the date on which the interest rate
on the Project Bonds converts from the Interest Rate Mode applicable to the
Project Bonds prior to such date to a new Interest Rate Mode. An Interest
Period Reset Date shall be the first Business Day of a month; provided that
upon conversion from a Six Month, One Year or Five Year Interest Rate Mode, an
Interest Period Reset Date shall be the first day of a month; and provided
further, that except when converting from a Weekly Interest Rate Mode, an
Interest Period Reset Date may not occur prior to the end of the preceding
Interest Rate Period and shall be the first day or Business Day after the end
of such preceding Interest Rate Period.
"Interest Rate Adjustment Date" means any date on which the interest
rate on the Project Bonds may be adjusted, either as the result of the
conversion of the interest rate on the Project Bonds to a different Interest
Rate Mode, or by adjustment of the interest rate on the Project Bonds within
the applicable Interest Rate Mode. Except as otherwise provided with respect to
an Interest Rate Adjustment Date which is also an Interest Period Reset Date,
an Interest Rate Adjustment Date shall be the first day of the first month of
the Interest Rate Period if the Project Bonds bear interest at the Six Month,
One Year or Five Year Interest Rates; the first Business Day of a month if the
Project Bonds bear interest at the One Month or Three Month Interest Rates; and
if the Project Bonds bear interest at the Weekly Interest Rate, then the
Interest Rate Adjustment Date shall be Wednesday of each week.
"Interest Rate Determination Date" means (i) with respect to the Three
Month Interest Rate, the Six Month Interest Rate, the One Year Interest Rate,
the Five Year Interest Rate and the Fixed Interest Rate, the tenth Business Day
preceding an Interest Rate Adjustment Date, (ii) with respect to the One Month
Interest Rate, the seventh Business Day preceding an Interest Rate Adjustment
Date, and (iii) with respect to the Weekly Interest Rate, not later than 2:00
p.m. according to local time at the Operations Office of the Trustee on Tuesday
of each week, or the next preceding Business Day if such Tuesday is not a
Business Day; provided that upon any conversion to the Weekly Interest Rate
from a different Interest Rate Mode, the first Interest Rate
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<PAGE> 48
Determination Date shall mean not later than 2:00 p.m. according to the local
time at the Operations Office of the Trustee on the Business Day preceding the
Interest Period Reset Date.
"Interest Rate for Advances" means a rate per annum which is equal to
two percent (2.00%) per annum plus the Prime Rate.
"Interest Rate Mode" means any of those modes of interest with respect
to the Project Bonds permitted by this Indenture, specifically, the Weekly
Interest Rate, the One Month Interest Rate, the Three Month Interest Rate, the
Six Month Interest Rate, the One Year Interest Rate, the Five Year Interest
Rate and the Fixed Interest Rate.
"Interest Rate Period" means that period of time for which the
interest rate with respect to the Project Bonds has been determined by the
Remarketing Agent or otherwise as provided in the definition of the applicable
Interest Rate Mode, commencing on the applicable Interest Rate Adjustment Date,
and terminating on the day immediately preceding the following Interest Rate
Adjustment Date.
"Issuer" means the City of Elkhart, Indiana, a municipal corporation
of the State of Indiana.
"Issuing Authority" or "Legislative Authority" means the Common
Council of the Issuer.
"Letter of Credit" means (A) the irrevocable letter of credit to be
issued by the Bank and delivered to the Trustee on the same date as the initial
delivery of the Project Bonds and being an irrevocable obligation to make
payment to the Trustee of up to the amounts therein specified with respect to
(a) the principal amount of the Project Bonds outstanding to enable the Trustee
to pay (i) the principal amount of the Project Bonds when due at maturity or
upon redemption or acceleration, and (ii) an amount equal to the principal
portion of the purchase price of any Project Bonds or Beneficial Ownership
Interests tendered for purchase by the Holders or Beneficial Owners thereof,
plus (b) the amount of interest due on the Project Bonds but not to exceed 45
days' accrued interest (or 195 days interest if the Project Bonds bear interest
at the Six Month Interest Rate, the One Year Interest Rate, the Five Year
Interest Rate or the Fixed Interest Rate) at the Maximum Rate to enable the
Trustee to pay (i) interest on the Project Bonds when due and (ii) an amount
equal to the interest portion, if any, of the purchase price of any Project
Bonds or Beneficial Ownership Interests tendered for purchase by the Holders or
Beneficial Owners thereof; as the same may be transferred, reissued, extended,
amended to change the interest coverage period as contemplated in Section 2.03
hereof, or replaced in accordance with this Indenture, the Reimbursement
Agreement and the Letter of Credit and (B) upon the issuance and effectiveness
thereof, any Alternate Letter of Credit.
"Letter of Credit Termination Date" means the expiration date of the
Letter of Credit (presently December 31, 2002) or of any Alternate Letter of
Credit.
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"Letter of Representations" means the Letter of Representations dated
the Closing Date by and among the Issuer, the Trustee, the Remarketing Agent
and the Depository.
"Loan" means the loan by the Issuer to the Borrower of the proceeds
received from the sale of the Bonds.
"Loan Payments" means the amounts required to be paid by the Borrower
in repayment of the Loan pursuant to the provisions of the Notes and Article IV
of the Agreement.
"Mandatory Bond Purchase Date" means a Mandatory Bond Purchase Date as
defined in Section 2.07 hereof.
"Maximum Rate" means ten percent (10%) per annum.
"Moody's" means Moody's Investors Service, Inc., a Delaware
corporation, and its successors and assigns.
"Notes" means the Project Note and any Additional Notes.
"One Month Interest Rate" means (a) the rate of interest per annum
determined by the Remarketing Agent, on the Interest Rate Determination Date
immediately preceding the applicable Interest Rate Adjustment Date, to be the
lowest interest rate, for the Interest Rate Period commencing on the applicable
Interest Rate Adjustment Date to and including the day preceding the first
Business Day of the next month, in the judgment of the Remarketing Agent
(taking into consideration current transactions and comparable securities with
which the Remarketing Agent is involved or of which it is aware and prevailing
financial market conditions) at which, as of such Interest Rate Determination
Date, the Project Bonds could be remarketed at par, plus accrued interest (if
any), on the Interest Rate Adjustment Date for that Interest Rate Period or (b)
in the event that the Remarketing Agent has been removed or has resigned and no
successor has been appointed, or the Remarketing Agent has failed to determine
the One Month Interest Rate for whatever reason, or the One Month Interest Rate
cannot be determined pursuant to clause (a) for whatever reason, the interest
rate then in effect with respect to the Project Bonds, without adjustment;
provided that in no event shall the One Month Interest Rate exceed the Maximum
Rate.
"One Year Interest Rate" means (a) the rate of interest per annum
determined by the Remarketing Agent, on the Interest Rate Determination Date
immediately preceding the applicable Interest Rate Adjustment Date, to be the
lowest interest rate, for the Interest Rate Period commencing on the applicable
Interest Rate Adjustment Date and ending on the May 31 or November 30 nearest
to but not later than the date which is one year from the Interest Rate
Adjustment Date, in the judgment of the Remarketing Agent (taking into
consideration current transactions and comparable securities with which the
Remarketing Agent is involved or of which it is aware and prevailing financial
market conditions) at which, as of such Interest Rate Determination Date, the
Project Bonds could be remarketed at par, plus accrued interest (if any),
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<PAGE> 50
on the Interest Rate Adjustment Date for that Interest Rate Period or (b) in
the event that the Remarketing Agent has been removed or has resigned and no
successor has been appointed, or the Remarketing Agent has failed to determine
the One Year Interest Rate for whatever reason, or the One Year Interest Rate
cannot be determined pursuant to clause (a) for whatever reason, the interest
rate then in effect with respect to the Project Bonds, without adjustment;
provided that in no event shall the One Year Interest Rate exceed the Maximum
Rate.
"Operations Office" means the office maintained by the Trustee or any
affiliate of the Trustee for payment of Bond Service Charges, which office is
initially located at 425 Walnut, 6th Floor, P.O. Box 1118, Cincinnati, Ohio
45201.
"Ordinary Services" and "Ordinary Expenses" means those services
normally rendered, and those expenses normally incurred, by a trustee under
instruments similar to this Indenture.
"Outstanding Bonds" or "Bonds outstanding" means, as of the applicable
date, all Bonds which have been authenticated and delivered, or which are being
delivered by the Trustee under this Indenture, except:
(a) Bonds canceled upon surrender, exchange or transfer, or canceled
because of payment or redemption on or prior to that date;
(b) Bonds, or the portion thereof, the payment, redemption or purchase for
cancellation of which sufficient money has been deposited and credited with the
Trustee pursuant to this Indenture on or prior to that date for that purpose
(whether upon or prior to the maturity or redemption date of those Bonds);
provided, that if any of those Bonds are to be redeemed prior to their
maturity, notice of that redemption shall have been given or arrangements
satisfactory to the Trustee shall have been made for giving notice of that
redemption, or waiver by the affected Holders of that notice satisfactory in
form to the Trustee shall have been filed with the Trustee;
(c) Bonds, or the portion thereof, which are deemed to have been paid and
discharged or caused to have been paid and discharged pursuant to the
provisions of this Indenture; and
(d) Bonds in lieu of which others have been authenticated under Section
3.07 of this Indenture;
provided that, in determining whether the Holders of the requisite
percentage of Bonds have concurred in any demand, direction, request, notice,
consent, waiver or other action under this Indenture, Bonds, other than Pledged
Bonds, that are owned by the Borrower or any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Borrower shall be disregarded and deemed not to be outstanding for the purpose
of any such determination; provided that for the purposes of determining whether
the Trustee shall be protected in relying on any such direction, consent or
waiver, only such Bonds which the Trustee knows are so owned shall be
disregarded. Bonds so owned that have been pledged in good faith may be regarded
as Outstanding for such purpose, if the pledgee shall establish to the
satisfaction
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of the Trustee the pledgee's right to vote such Bonds and the pledgee is not a
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with the Borrower. In case of a dispute as to such
right, any decision by the Trustee taken upon the advice of counsel shall be
full protection to the Trustee.
"Person" or words importing persons means firms, associations,
corporations, partnerships (including without limitation, general and limited
partnerships), joint ventures, societies, estates, trusts, corporations, public
or governmental bodies, other legal entities and natural persons.
"Pledged Bonds" means Project Bonds or Beneficial Ownership Interests
registered or recorded in the name of the Bank and securing obligations of the
Borrower under the Reimbursement Agreement as provided in Section 6.16 hereof.
"Predecessor Bond" of any particular Bond means every previous Bond
evidencing all or a portion of the same debt as that evidenced by the particular
Bond. For the purposes of this definition, any Bond authenticated and delivered
under Section 3.07 of this Indenture in lieu of a lost, stolen or destroyed Bond
shall, except as otherwise provided in Section 3.07, be deemed to evidence the
same debt as the lost, stolen or destroyed Bond.
"Prime Rate" means a variable per annum rate of interest equal at all
times to the rate of interest established and quoted by the Bank as its "Prime
Rate", such rate to change contemporaneously with each change in such
established and quoted rate, provided that it is understood that the Prime Rate
shall not necessarily be representative of the rate of interest actually charged
by the Bank on any loan or class of loans.
"Prior Bonds" means the Issuer's Economic Development Bonds, Series
1986 (Signature Elkhart, Ltd. Project), dated as of December 1, 1986, in the
original principal amount of $3,885,000.
"Prior Bonds Trustee" means Bank One Trust Company, NA, as trustee for
the Prior Bonds.
"Project Bonds" means the City of Elkhart, Indiana, Adjustable Rate
Economic Development Revenue Refunding Bonds, Series 1999 (Jameson Inns, Inc.
Project), in the original principal amount of $3,305,000 authorized in the Bond
Legislation and Section 2.02 hereof.
"Project Fund" means the Project Fund created pursuant to Section 5.01
hereof.
"Project Note" means the promissory note of the Borrower, dated as of
even date with the Project Bonds initially issued, in the form attached to the
Agreement as Exhibit A and in the principal amount of $3,305,000 evidencing the
obligation of the Borrower to make Loan Payments.
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"Rating Service" means either Moody's or S & P.
"Rebate Fund" means the Rebate Fund created pursuant to Section 5.11
hereof.
"Register" means the books kept and maintained by the Trustee for
registration and transfer of Bonds pursuant to Section 3.06 hereof.
"Regular Record Date" means, with respect to any Bond, the Business Day
next preceding an Interest Payment Date applicable to that Bond.
"Reimbursement Agreement" means the Reimbursement Agreement dated as of
December 1, 1999 between the Bank and the Borrower, as amended and supplemented
from time to time. Upon the issuance of any Alternate Letter of Credit,
"Reimbursement Agreement" shall mean the reimbursement or similar agreement
relating to such Alternate Letter of Credit, entered into between the Borrower
and the issuer of such Alternate Letter of Credit.
"Remarketing Agent" means, initially, Banc One Capital Markets, Inc.,
and any Person meeting the qualifications of Section 6.14 hereof and designated
from time to time to act as Remarketing Agent under Section 6.13 hereof.
"Remarketing Reimbursement Fund" means the Remarketing Reimbursement
Fund created in Section 5.04 hereof.
"Revenues" means (a) the Loan Payments, (b) all of the moneys received
or to be received by the Issuer or the Trustee in respect of repayment of the
Loan, (c) all moneys and investments in the Bond Fund, including without
limitation moneys received by the Trustee under or pursuant to the Letter of
Credit, (d) any moneys and investments in the Project Fund, and (e) all income
and profit from the investment of the foregoing moneys.
"S&P" means Standard & Poor's Ratings Group and its successors and
assigns.
"Six Month Interest Rate" means (a) the rate of interest per annum
determined by the Remarketing Agent, on the Interest Rate Determination Date
immediately preceding the applicable Interest Rate Adjustment Date, to be the
lowest interest rate, for the Interest Rate Period commencing on the applicable
Interest Rate Adjustment Date and ending on the May 31 or November 30 nearest to
but not later than the date which is six months from the Interest Rate
Adjustment Date, in the judgment of the Remarketing Agent (taking into
consideration current transactions and comparable securities with which the
Remarketing Agent is involved or of which it is aware and prevailing financial
market conditions) at which, as of such Interest Rate Determination Date, the
Project Bonds could be remarketed at par, plus accrued interest (if any), on the
Interest Rate Adjustment Date for that Interest Rate Period or (b) in the event
that the Remarketing Agent has been removed or has resigned and no successor has
been appointed, or the Remarketing Agent has failed to determine the Six Month
Interest Rate for whatever reason,
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or the Six Month Interest Rate cannot be determined pursuant to clause (a) for
whatever reason, the interest rate then in effect with respect to the Project
Bonds, without adjustment; provided that in no event shall the Six Month
Interest Rate exceed the Maximum Rate.
"Special Record Date" means, with respect to any Bond, the date
established by the Trustee in connection with the payment of overdue interest on
that Bond pursuant to Section 3.05 hereof.
"State" means the State of Indiana.
"Supplemental Credit Facility" means a credit facility, agreement or
arrangement in addition to the Letter of Credit, including, without limitation,
a bond insurance policy, collateral arrangement, surety bond, standby placement
agreement or similar arrangement the purpose of which is to enhance the credit
of the Project Bonds in order to obtain or maintain a rating on the Project
Bonds.
"Supplemental Indenture" means any indenture supplemental to this
Indenture entered into between the Issuer and the Trustee in accordance with
Article VIII hereof.
"Three Month Interest Rate" means (a) the rate of interest per annum
determined by the Remarketing Agent, on the Interest Rate Determination Date
immediately preceding the applicable Interest Rate Adjustment Date, to be the
lowest interest rate, for the Interest Rate Period commencing on the applicable
Interest Rate Adjustment Date to and including the day preceding the first
Business Day of the March, June, September or December nearest to but not later
than the date which is three months from the Interest Rate Adjustment Date, in
the judgment of the Remarketing Agent (taking into consideration current
transactions and comparable securities with which the Remarketing Agent is
involved or of which it is aware and prevailing financial market conditions) at
which, as of such Interest Rate Determination Date, the Project Bonds could be
remarketed at par, plus accrued interest (if any), on the Interest Rate
Adjustment Date for that Interest Rate Period or (b) in the event that the
Remarketing Agent has been removed or has resigned and no successor has been
appointed, or the Remarketing Agent has failed to determine the Three Month
Interest Rate for whatever reason, or the Three Month Interest Rate cannot be
determined pursuant to clause (a) for whatever reason, the interest rate then in
effect with respect to the Project Bonds, without adjustment; provided that in
no event shall the Three Month Interest Rate exceed the Maximum Rate.
"Trustee" means the Trustee at the time acting as such under this
Indenture, originally Firstar Bank, N.A., Richmond, Indiana, as Trustee, and any
successor Trustee as determined or designated under or pursuant to this
Indenture.
"Unassigned Issuer's Rights" means the Unassigned Issuer's Rights as
defined in the Agreement.
"Underwriter" means Banc One Capital Markets, Inc.
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"Weekly Interest Rate" means (a) the rate of interest per annum
determined by the Remarketing Agent on the Interest Rate Determination Date
immediately preceding the applicable Interest Rate Adjustment Date, to be the
lowest interest rate, for the Interest Rate Period of one week (or less in the
case of any such Interest Rate Period commencing on an Interest Period Reset
Date which is not a Wednesday or ending on the day preceding an Interest Period
Reset Date) commencing on the applicable Interest Rate Adjustment Date, in the
judgment of the Remarketing Agent (taking into consideration current
transactions and comparable securities with which the Remarketing Agent is
involved or of which it is aware and prevailing financial market conditions) at
which, as of such Interest Rate Determination Date, the Project Bonds could be
remarketed at par, plus accrued interest (if any), on the Interest Rate
Adjustment Date for that Interest Rate Period or (b) in the event that the
Remarketing Agent has been removed or has resigned and no successor has been
appointed, or the Remarketing Agent has failed to determine the Weekly Interest
Rate for whatever reason, or the Weekly Interest Rate cannot be determined
pursuant to clause (a) for whatever reason, the interest rate then in effect
with respect to the Project Bonds, without adjustment; provided that in no event
shall the Weekly Interest Rate exceed the Maximum Rate.
Section 1.02 . Interpretation . Any reference herein to the Issuer or
to any officer, employee or official thereof includes entities, officers,
employees or officials succeeding to their respective functions, duties or
responsibilities pursuant to or by operation of law or who are lawfully
performing their functions.
Any reference to a section or provision of the Indiana Constitution or
the Act, or to a section, provision or chapter of the Indiana Code, or to any
statute of the United States of America, includes that section, provision or
chapter as amended, modified, revised, supplemented or superseded from time to
time; provided, that no amendment, modification, revision, supplement or
superseding section, provision or chapter shall be applicable solely by reason
of this paragraph, if it constitutes in any way an impairment of rights or
obligations of the Issuer, the Holders, the Trustee, the Bank, the Remarketing
Agent or the Borrower under this Indenture, the Bond Ordinance, the Bonds, the
Letter of Credit, the Reimbursement Agreement, the Bond Purchase Agreement, the
Notes or any other instrument or document entered into in connection with any of
the foregoing, including without limitation, any alteration of the obligation to
pay Bond Service Charges in the amount and manner, at the times, and from the
sources provided in the Bond Ordinance and this Indenture, except as permitted
herein.
Unless the context indicates otherwise, words importing the singular
number include the plural number, and vice versa. The terms "hereof", "hereby",
"herein", "hereto", "hereunder", "hereinafter" and similar terms refer to this
Indenture; and the term "hereafter" means after, and the term "heretofore" means
before, the date of delivery of this Indenture. Words of any gender include the
correlative words of the other genders, unless the sense indicates otherwise.
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Section 1.03. Captions and Headings. The captions and headings in this
Indenture are solely for convenience of reference and in no way define, limit or
describe the scope or intent of any Articles, Sections, subsections, paragraphs,
subparagraphs or clauses hereof.
ARTICLE II
AUTHORIZATION AND TERMS OF PROJECT BONDS; ADDITIONAL BONDS
Section 2.01. Authorized Amount of Bonds. No Bonds may be issued under
the provisions of this Indenture except in accordance with this Article. The
total authorized principal amount of Project Bonds which shall be issued under
the provisions of this Indenture is $3,305,000. The Issuer may issue, sell and
deliver one or more series of Additional Bonds for the purposes, upon
satisfaction of the conditions and in the manner provided herein.
Section 2.02. Issuance of Project Bonds. It is determined to be
necessary to, and the Issuer shall, issue, sell and deliver $3,305,000 principal
amount of Project Bonds to provide funds to finance the Project. The Project
Bonds shall be designated "City of Elkhart, Indiana Adjustable Rate Economic
Development Revenue Refunding Bonds, Series 1999 (Jameson Inns, Inc. Project)";
shall be issuable, unless a Supplemental Indenture shall have been executed and
delivered pursuant to Section 8.02(g) hereof, only in fully registered form,
substantially as set forth in Exhibit A to this Indenture; shall be numbered in
such manner as determined by the Trustee in order to distinguish each Project
Bond from any other Project Bond; shall be in the denominations of $100,000 and
any integral multiple of $5,000 in excess thereof; shall be subject to optional
and mandatory redemption in the amounts, upon the conditions, and at the times
and prices set forth herein; and shall be dated as of the date of their initial
delivery. Upon any exchange or transfer and surrender of any Project Bond in
accordance with the provisions hereof, the Issuer shall execute and the Trustee
shall authenticate and deliver one or more new Project Bonds in exchange
therefor as provided herein.
The Project Bonds shall be originally issued only to a Depository to
be held in a book entry system and: (i) the Project Bonds shall be registered
in the name of the Depository or its nominee, as Bondholder, and immobilized in
the custody of the Depository; (ii) unless otherwise requested by the
Depository, there shall be a single Bond certificate for each Bond maturity;
and (iii) the Project Bonds shall not be transferable or exchangeable, except
for transfer to another Depository or another nominee of a Depository, without
further action by the Issuer as set forth in the next succeeding paragraph of
this Section. While the Project Bonds are in book entry only form, Project
Bonds in the form of physical certificates shall only be delivered to the
Depository.
So long as a book entry system is in effect for the Project Bonds,
except as hereinafter provided with respect to Beneficial Ownership Interests,
the Issuer and Trustee shall recognize and treat the Depository, or its
nominee, as the Holder of the Project Bonds for all purposes, including payment
of Bond Service Charges, giving of notices, and enforcement of remedies. The
crediting of payments of Bond Service Charges on the Project Bonds and the
transmittal of notices and other communications by the Depository to the Direct
Participants in whose Depository account the Project Bonds are recorded, and
such crediting and transmittal by Direct
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Participants to Indirect Participants or Beneficial Owners and by Indirect
Participants to Beneficial Owners, are the respective responsibilities of the
Depository and the Direct Participants and Indirect Participants and are not
the responsibility of the Issuer or the Trustee; provided, however, that the
Issuer and the Trustee understand that neither the Depository or its nominee
shall provide any consent requested of Holders of Project Bonds pursuant to
this Indenture, and that the Depository will mail an omnibus proxy (including a
list identifying the Direct Participants) to the Issuer which assigns the
Depository's, or its nominee's, voting rights to the Direct Participants to
whose accounts at the Depository the Project Bonds are credited as of the
record date for mailing of requests for such consents. Upon receipt of such
omnibus proxy, the Issuer shall promptly provide such omnibus proxy (including
the list identifying the Direct Participants attached thereto) to the Trustee,
who shall then treat such Direct Participants as Holders of the Project Bonds
for purposes of obtaining any consents pursuant to the terms of this Indenture.
As long as the Project Bonds are registered in the name of a
Depository, or its nominee, the Trustee agrees to comply with the terms and
provisions of the Letter of Representations, including the provisions of the
Letter of Representations with respect to any delivery of the Project Bonds to
the Trustee, which provisions shall supersede the provisions of this Indenture
with respect thereto.
If any Depository determines not to continue to act as a Depository
for the Project Bonds held in a book entry system, the Issuer may attempt to
have established a securities depository/book entry system relationship with
another Depository under this Indenture. If the Issuer does not or is unable to
do so, the Issuer and the Trustee, after the Trustee has made provision for
notification of the Beneficial Owners by appropriate notice to the then
Depository, shall permit withdrawal of the Project Bonds from the Depository
and shall authenticate and deliver Project Bonds certificates in fully
registered form to the assignees of the Depository or its nominee or to the
Beneficial Owners. Such withdrawal, authentication and delivery shall be at the
cost and expense (including costs of printing or otherwise preparing and
delivering such replacement Project Bonds) of the Borrower. Such replacement
Project Bonds shall be in the denominations specified in the first paragraph of
this Section 2.02, with a minimum denomination of $100,000.
Section 2.03. Maturity and Interest . The Project Bonds shall bear
interest from the most recent date to which interest has been paid or duly
provided for or, if no interest has been paid or provided for, from their date
of initial delivery, payable on the first Business Day of January, 2000 and
thereafter on each Interest Payment Date. The Project Bonds shall bear interest
at an Adjustable Rate or the Fixed Rate all as more specifically set forth
hereinafter. The Project Bonds shall mature on December 1, 2016, subject to
prior redemption as set forth in Section 4.01 hereof.
From the date of their initial delivery through Tuesday of the
following week, the interest rate on the Project Bonds shall be that rate per
annum, not to exceed the Maximum Rate, as shall be established in the Bond
Purchase Agreement. Thereafter, except as provided in this
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Section 2.03, the Project Bonds shall bear interest at the Weekly Interest Rate
and, for each succeeding Weekly Interest Rate Period, the interest rate on the
Project Bonds shall be the Weekly Interest Rate for such Weekly Interest Rate
period as established on the Interest Rate Determination Date immediately
preceding the commencement of such Weekly Interest Rate period.
On the first Business Day of February, 2000, and on any Interest Period
Reset Date thereafter, the interest rate on the Project Bonds may be converted
to a different Interest Rate upon receipt by the Trustee and the Remarketing
Agent of a written direction from the Borrower, approved in writing by the Bank,
given on behalf of the Issuer, not less than 45 days prior to such Interest
Period Reset Date, to convert the interest rate on the Project Bonds to an
Interest Rate Mode other than the Interest Rate Mode then in effect. Except when
converting from the Weekly Interest Rate Mode, no Interest Period Reset Date
shall be earlier than the day after the end of the last Interest Rate Period for
the Interest Rate Mode in effect on the date of such direction from the
Borrower, the end of such Interest Rate Period to be determined as if such
direction had not been given. Such direction to convert the interest rate on the
Project Bonds to a different Interest Rate Mode shall be accompanied by (a) an
opinion of Bond Counsel selected by the Borrower delivered to the Issuer, the
Trustee, the Bank and the Remarketing Agent, stating that such conversion to the
specified Interest Rate Mode will not adversely affect the exclusion of the
interest on the Project Bonds from gross income for federal income tax purposes,
(b) a written certificate of the Remarketing Agent stating that the interest
coverage period provided by the Letter of Credit is appropriate for the Interest
Rate Mode directed to be in effect and that the Letter of Credit Termination
Date is no earlier than 15 days after the end of the new Interest Rate Period,
or if the conversion is to the Fixed Interest Rate, that the termination date of
the Letter of Credit is no earlier than 15 days after the First Optional
Redemption Date, and (c) a written certificate of the Remarketing Agent stating
that it has received certifications, opinions or other evidence satisfactory to
it that there has been or will be compliance with any applicable state or
federal securities law requirements. If the Project Bonds bear interest at the
Weekly Interest Rate, the One Month Interest Rate or the Three Month Interest
Rate, the interest coverage period for the Letter of Credit shall be at least 45
days of interest at the Maximum Rate. If the Project Bonds bear interest at the
Six Month Interest Rate, the One Year Interest Rate, the Five Year Interest Rate
or the Fixed Interest Rate, then the interest coverage period for the Letter of
Credit shall be at least 195 days of interest at the Maximum Rate. The Borrower
shall be required to provide a Letter of Credit or an Alternate Letter of Credit
which will provide the appropriate interest coverage. Notwithstanding any
provision of this paragraph, no conversion shall be effective (i) if the
proposed conversion is to a One Year Interest Rate, Five Year Interest Rate or
Fixed Interest Rate and the Borrower makes an election on or prior to the day
immediately succeeding any Interest Rate Determination Date not to proceed with
the proposed conversion or (ii) the Trustee has not received on the effective
date of such conversion an opinion of Bond Counsel to the same effect as
described in clause (a) of this paragraph above. In either such event, the
Interest Rate Mode for the Project Bonds will remain as the Interest Rate Mode
then in effect for the Project Bonds without regard to any proposed conversion
and the Remarketing Agent shall determine the interest rate no later than the
scheduled effective date of the proposed conversion. The Project Bonds will
continue to be
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subject to tender for purchase on the scheduled effective date of the proposed
conversion without regard to the failure of such proposed conversion. If the
Trustee shall have sent any notice to Holders regarding the proposed conversion
then in the event of a failure of such conversion, as specified above, the
Trustee shall promptly notify all Holders of such failure, of the reason for
such failure, and of the continuation of the Interest Rate Mode then in effect.
On each Interest Rate Determination Date, the Remarketing Agent shall
give the Trustee telephonic notice (immediately confirmed in writing) of the
interest rate to be borne by the Project Bonds for the following Interest Rate
Period; provided that if the interest rate is determined pursuant to clause (b)
of the definition of the applicable Interest Rate Mode, on the Interest Rate
Determination Date, the Trustee shall give notice to the Borrower and the Bank
as above provided.
If the interest rate on the Project Bonds is converted to a different
Interest Rate Mode, at least 30 days prior to the Interest Period Reset Date
the Trustee shall notify the Holders of all outstanding Project Bonds by first
class mail that upon such Interest Period Reset Date the Project Bonds shall be
converted to a different Interest Rate Mode, which Interest Rate Mode shall be
specified, and that all Project Bonds and Beneficial Ownership Interests shall
be subject to a mandatory tender pursuant to Section 2.05 hereof, subject to
the right of the Holders or Beneficial Owners to affirmatively elect to waive
the mandatory tender and retain their Project Bonds or Beneficial Ownership
Interests.
Interest shall be calculated on the basis of a 360-day year of twelve
30-day months so long as interest is payable at the Six Month Interest Rate,
the One Year Interest Rate, the Five Year Interest Rate or the Fixed Interest
Rate. Interest shall be calculated on the basis of a year of 365 or 366 days,
as applicable, for the number of days actually elapsed so long as interest is
payable at the Weekly Interest Rate, the One Month Interest Rate or the Three
Month Interest Rate. Interest shall be payable on each Interest Payment Date
for the period commencing on the immediately preceding Interest Payment Date
and to and including the day immediately preceding such payment date. Any
calculation of the interest rate to be borne by the Project Bonds shall be
rounded to the nearest one-hundredth of one percent (0.01%). The computation of
the interest rate on the Project Bonds by the Remarketing Agent or the Trustee,
as applicable, shall be binding and conclusive upon the Borrower, the Bank and
the Holders of the Project Bonds.
Notwithstanding anything to the contrary in this Indenture, nothing in
this Indenture shall require the Bank to extend the expiry date of, or to
increase the interest coverage provided in, the Letter of Credit.
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Section 2.04. Tender Options.
(a) While the Project Bonds bear interest at the One Month Interest Rate,
the Three Month Interest Rate, the Six Month Interest Rate, the One Year
Interest Rate or the Five Year Interest Rate, on each Interest Rate Adjustment
Date (each a "Bond Purchase Date") each Holder and each Beneficial Owner shall
have the option to tender for purchase at 100% of the principal amount thereof,
all of the Project Bonds owned by such Holder, or all Beneficial Ownership
Interests owned by such Beneficial Owner, as applicable, or (in either case)
such lesser principal amount thereof (in denominations of $100,000 or integral
multiples of $5,000 in excess thereof, provided that the untendered portion of
any Project Bond or Beneficial Ownership Interest shall be $100,000 or more in
principal amount) as such Holder or Beneficial Owner, as applicable, may
specify in accordance with the terms, conditions and limitations hereinafter
set forth. The purchase price for each such Project Bond or Beneficial
Ownership Interest, or portion thereof, shall be payable in lawful money of the
United States of America, shall equal the principal amount, or such portion
thereof, to be purchased and shall be paid in full on the applicable Bond
Purchase Date.
(b) While the Project Bonds bear interest at the Weekly Interest Rate,
each Holder and each Beneficial Owner shall have the option to tender for
purchase, at 100% of the principal amount thereof plus accrued interest to the
purchase date (a "Bond Purchase Date"), all of the Project Bonds owned by such
Holder, or all Beneficial Ownership Interests owned by such Beneficial Owner,
as applicable, or (in either case) such lesser principal amount thereof (in
denominations of $100,000 or integral multiples of $5,000 in excess thereof,
provided that the untendered portion of any Project Bond or Beneficial
Ownership Interest shall be $100,000 or more in principal amount) as such
Holder of Beneficial Owner, as applicable, may specify in accordance with the
terms, conditions and limitations hereafter set forth. The purchase price of
each such Project Bond or Beneficial Ownership Interest shall be payable in
lawful money of the United States of America, and shall be paid in full on the
applicable Bond Purchase Date.
(c) To exercise the option granted in Section 2.04(a) hereof, the Holder or
Beneficial Owner, as applicable, shall (1) no earlier than fifteen days before
the Bond Purchase Date and no later than 11:00 a.m. according to the local time
at the Operations Office of the Trustee on the eighth Business Day prior to the
Bond Purchase Date, or in the event the Project Bonds bear interest at the One
Month Interest Rate, the fifth Business Day prior to the Bond Purchase Date,
give notice to the Trustee by telecopy or in writing which states (i) the name
and address of the Holder or Beneficial Owner, as applicable, (ii) the principal
amount, CUSIP number and Bond numbers of the Project Bonds or Beneficial
Ownership Interests to be purchased, (iii) that such Project Bonds or Beneficial
Ownership Interests are to be purchased on such Bond Purchase Date pursuant to
the terms hereof, and (iv) that such notice is irrevocable; (2) in the case of a
Beneficial Owner, provide the Trustee with evidence satisfactory to the Trustee
of such Beneficial Owner's Beneficial Ownership Interest; (3) in the case of a
Holder, no later than 10:00 a.m. according to the local time at the Operations
Office of the Trustee on the seventh day preceding such Bond Purchase Date (or
the next preceding Business Day if such seventh day is not a Business Day), or
in the event the Project Bonds bear interest at the One Month Interest
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Rate, the fourth day preceding such Bond Purchase Date (or the next preceding
Business Day if such fourth day is not a Business Day), deliver to the
Operations Office of the Trustee the Project Bonds to be purchased in proper
form, accompanied by fully completed and executed Instructions to Sell, the
form of which shall be printed on the Project Bonds; and (4) in the case of a
Beneficial Owner, no later than 10:00 a.m. (according to the local time at the
Operations Office of the Trustee) on the Bond Purchase Date, cause the transfer
of the Beneficial Owner's Beneficial Ownership Interest on the records of the
Depository, in accordance with the instructions of the Trustee.
To exercise the option granted in Section 2.04(b) hereof, the Holder or
Beneficial Owner, as applicable shall (1) give notice to the Trustee by telecopy
or in writing which states (i) the name and address of the Holder or Beneficial
Owner, as applicable, (ii) the principal amount, CUSIP number and Bond numbers
of the Project Bonds or Beneficial Ownership Interests to be purchased, (iii)
the date on which such Project Bonds or Beneficial Ownership are to be
purchased, which Bond Purchase Date shall be a Business Day not prior to the
seventh (7th) day and not later than the fifteenth (15th) day next succeeding
the date of giving of such notice to the Trustee and, if the interest rate on
the Project Bonds is to be converted from the Weekly Interest Rate to a new
Interest Rate Mode, is a date prior to the Interest Period Reset Date with
respect to the new Interest Rate Mode, and (iv) that such notice is irrevocable;
(2) in the case of a Beneficial Owner, provide the Trustee with evidence
satisfactory to the Trustee of such Beneficial Owner's Beneficial Ownership
Interest; (3) in the case of a Holder, no later than 10:00 a.m. according to the
local time at the Operations Office of the Trustee on the second Business Day
immediately preceding the applicable Bond Purchase Date, deliver to the
Operations Office of the Trustee the Project Bonds to be purchased in proper
form, accompanied by fully completed and executed Instructions to Sell, the form
of which shall be printed on the Project Bonds; and (4) in the case of a
Beneficial Owner, no later than 10:00 a.m. (according to the local time at the
Operations Office of the Trustee) on the Bond Purchase Date, cause the transfer
of the Beneficial Owner's Beneficial Ownership Interest on the records of the
Depository in accordance with the instructions of the Trustee.
Any Project Bonds for which a notice of tender has been given by the
Holder, shall be deemed to be tendered for remarketing notwithstanding any
failure of delivery of such Project Bonds to the Trustee. Subject to the right
of such Holders to receive the purchase price of such Project Bonds(and subject
to the conditions set forth in Section 3.07 hereof), such Project Bonds shall be
null and void and the Trustee shall authenticate and deliver new Project Bonds
in replacement thereof pursuant to the remarketing of such Project Bonds or the
pledge of such Project Bonds to the Bank in lieu of remarketing such Project
Bonds as described in Section 6.16 hereof. Any Beneficial Owners who have
elected to tender Beneficial Ownership Interests shall be obligated to transfer
such Beneficial Ownership Interests on the records of the Depository.
(d) Upon the giving of the notice pursuant to Section 2.04(c) hereof with
respect to Project Bonds or Beneficial Ownership Interests or portions of
either, the Holder's tender of such Project Bonds or portions thereof or the
Beneficial Owner's tender of Beneficial Ownership Interests or portions thereof
shall be irrevocable. Upon receipt of the Project Bonds, the Trustee shall
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determine whether Instructions to Sell have been properly submitted and its
determination shall be binding. If less than all of a Project Bond so delivered
or deemed tendered is to be purchased, the Trustee shall, pursuant to this
Indenture authenticate one or more Project Bonds in exchange therefor,
registered in the name of such Holder, having the aggregate principal amount
being retained by such Holder, and shall deliver such authenticated Project
Bond or Project Bonds to such Holder.
(e) While tendered Project Bonds are in the custody of the Trustee pending
purchase pursuant hereto, the tendering Holders thereof shall be deemed the
owners thereof for all purposes, and interest accruing on tendered Project
Bonds through the day preceding the applicable Bond Purchase Date is to be paid
from the Bond Fund as if such Project Bonds had not been tendered for purchase.
(f) Notwithstanding anything herein to the contrary, any Project Bond or
Beneficial Ownership Interest or portion thereof tendered under Sections 2.04,
2.05, 2.06 or 2.07 hereof will not be purchased if such Project Bond or portion
thereof matures or is redeemed on or prior to the applicable Bond Purchase
Date.
Section 2.05 . Mandatory Tender Upon Conversion to a New Interest Rate
Mode. If at any time the Issuer at the direction of the Borrower shall convert
the interest rate on the Project Bonds to a different Interest Rate Mode in
accordance with the provisions of Section 2.03 hereof, on the Interest Period
Reset Date upon which such conversion is effective, all Project Bonds and
Beneficial Ownership Interests shall be subject to mandatory tender by the
Holders or Beneficial Owners thereof for purchase on the Interest Period Reset
Date (a "Bond Purchase Date") at a price of 100% of the principal amount thereof
plus accrued interest to such Bond Purchase Date. Notwithstanding such mandatory
tender, any Holder or Beneficial Owner may elect to retain its Project Bonds or
Beneficial Ownership Interests by delivering to the Trustee a written notice no
later than 11:00 a.m. according to the local time at the Operations Office of
the Trustee on the eighth Business Day prior to such Interest Period Reset Date
or by 11:00 a.m. according to the local time at the Operations Office of the
Trustee on the fifth Business Day prior to such Interest Period Reset Date if
the Interest Rate Mode is to be converted to the One Month Interest Rate, which
notice shall state that (a) such Holder or Beneficial Owner realizes that the
Project Bonds are being converted to bear interest at the applicable Interest
Rate Mode, (b) unless the interest rate on the Project Bonds is being converted
to the Weekly Interest Rate, such Holder or Beneficial Owner realizes that the
next Bond Purchase Date upon which the Project Bonds or Beneficial Ownership
Interests may be tendered for purchase is the next Interest Rate Adjustment Date
or, if such Project Bonds are being converted to the Fixed Interest Rate, that
such Project Bonds or Beneficial Ownership Interests may no longer be tendered
for purchase, (c) such Holder or Beneficial Owner realizes that any securities
rating on the Bonds may be withdrawn or lowered, and (d) such Holder or
Beneficial Owner affirmatively elects to hold its Project Bonds or Beneficial
Ownership Interests and receive interest at the applicable Interest Rate Mode.
24
<PAGE> 62
Project Bonds or Beneficial Ownership Interests with respect to which
the Trustee shall not have received the election required by the preceding
paragraph shall be deemed to have been tendered for purposes of this Section
2.05 whether or not the Holders or Beneficial Owners shall have delivered such
Project Bonds or Beneficial Ownership Interests to the Trustee and without
further action by the Beneficial Owners with regard to Beneficial Ownership
Interests. Subject to the right of the Holders or Beneficial Owners of such
Project Bonds or Beneficial Ownership Interests to receive the purchase price of
such Project Bonds or Beneficial Ownership Interests(and subject to the
conditions set forth in Section 3.07 hereof), such Project Bonds or Beneficial
Ownership Interests shall be null and void and the Trustee shall authenticate
and deliver new Project Bonds in replacement thereof or new Beneficial Ownership
Interests shall be recorded on the records of the Depository pursuant to the
remarketing of such Project Bonds or Beneficial Ownership Interests or the
pledge of such Project Bonds or Beneficial Ownership Interests to the Bank in
lieu of remarketing such Project Bonds or Beneficial Ownership Interests as
described in Section 6.16 hereof.
Section 2.07 . Mandatory Tender Upon Delivery of an Alternate Letter of
Credit. If at any time the Borrower shall provide for the delivery to the
Trustee of an Alternate Letter of Credit in accordance with the provisions of
Section 5.09 hereof, on the Replacement Date, as defined in Section 5.09 hereof
(a "Bond Purchase Date"), all Project Bonds and Beneficial Ownership Interests
shall be subject to mandatory tender by the Holders or Beneficial Owners, as
applicable, for purchase at a price of 100% of the principal amount thereof plus
accrued interest to such Bond Purchase Date. At least 45 days prior to a Bond
Purchase Date, if the Project Bonds are then rated by a Rating Agency, the
Trustee shall give notice of the provision of the Alternate Letter of Credit to
each Rating Agency which then has a rating on the Project Bonds. At least 30
days prior to such Bond Purchase Date the Trustee shall notify the Holders of
all outstanding Project Bonds by first class mail that an Alternate Letter of
Credit is to be delivered by the Borrower to the Trustee. Such notice shall
advise the Holders of the Bond Purchase Date, that the requirements of the
Indenture and the Project Bonds relating to Alternate Letters of Credit have
been met, the name of the financial institution issuing the Alternate Letter of
Credit, the rating, if any, on the Project Bonds upon the provision of the
Alternate Letter of Credit and that all Project Bonds and Beneficial Ownership
Interests shall be subject to mandatory purchase from the Holders and Beneficial
Owners thereof, subject to the right of each Holder or Beneficial Owner to
affirmatively elect to waive the mandatory tender for purchase and retain its
Project Bonds or Beneficial Ownership Interests.
Notwithstanding such mandatory tender, any Holder or Beneficial Owner
may elect to retain its Project Bonds or Beneficial Ownership Interests by
delivering to the Trustee a written notice no later than 11:00 a.m. according to
the local time at the Operations Office of the Trustee on the eighth Business
Day prior to such Bond Purchase Date, which notice shall state that (a) such
Holder or Beneficial Owner has received notice of and realizes that the Borrower
is delivering an Alternate Letter of Credit to the Trustee pursuant to Section
5.09 and (b) such Holder or Beneficial Owner affirmatively elects to retain its
Project Bonds or Beneficial Ownership Interests.
25
<PAGE> 63
Project Bonds or Beneficial Ownership Interests with respect to which
the Trustee shall not have received the election required by the preceding
paragraph shall be deemed to have been tendered for purposes of this Section
2.06 whether or not the Holders shall have delivered such Project Bonds to the
Trustee and without further action by the Beneficial Owners with regard to
Beneficial Ownership Interests. Subject to the right of the Holders or
Beneficial Owners of such Project Bonds or Beneficial Ownership Interests to
receive the purchase price of such Project Bonds or Beneficial Ownership
Interests(and subject to the conditions set forth in Section 3.07 hereof), such
Project Bonds or Beneficial Ownership Interests shall be null and void and the
Trustee shall authenticate and deliver new Project Bonds in replacement thereof,
or new Beneficial Ownership Interests shall be recorded on the records of the
Depository, pursuant to the remarketing of such Project Bonds or Beneficial
Ownership Interests or the pledge of such Project Bonds or Beneficial Ownership
Interests to the Bank in lieu of remarketing such Project Bonds or Beneficial
Ownership Interests as described in Section 6.16 hereof.
Section 2.07. Mandatory Tender Upon Expiration of the Letter of Credit.
The Project Bonds and Beneficial Ownership Interests are subject to mandatory
tender in whole on the Interest Payment Date which next precedes the Letter of
Credit Termination Date (the "Mandatory Bond Purchase Date"), for purchase at a
price of 100% of the outstanding principal amount thereof plus accrued interest
to such Mandatory Bond Purchase Date unless, at least 45 days prior to any such
Mandatory Bond Purchase Date, (a) the Bank shall have agreed to an extension or
further extension of the Letter of Credit Termination Date to a date not earlier
than one year from the Letter of Credit Termination Date being extended, or (b)
pursuant to Section 5.09 hereof, the Borrower shall have obtained and delivered
to the Trustee an Alternate Letter of Credit with a termination date not earlier
than one year from the Letter of Credit Termination Date of the Letter of Credit
being replaced. The mandatory tender of Project Bonds or Beneficial Ownership
Interests on a Mandatory Bond Purchase Date may not be waived by the Holders or
Beneficial Owners thereof.
At least 30 days, but not more than 45 days, prior to such Mandatory
Bond Purchase Date pursuant to this Section 2.07, the Trustee shall notify the
Holders of all outstanding Project Bonds by first class mail of the Mandatory
Bond Purchase Date and advise the Holders that all Project Bonds and Beneficial
Ownership Interests shall be subject to mandatory tender on such Mandatory Bond
Purchase Date and that such mandatory tender may not be waived.
Project Bonds or Beneficial Ownership Interests not tendered for
purchase as required by the preceding paragraph shall be deemed to have been
tendered without further action by the Holders or Beneficial Owners thereof,
subject to the right of the Holders or Beneficial Owners of such Project Bonds
or Beneficial Ownership Interests to receive the purchase price of such Project
Bonds or Beneficial Ownership Interests.
Not less than 90 days prior to any Letter of Credit Termination Date,
the Trustee shall provide written notice to the Borrower, the Bank and the
Remarketing Agent of the Letter of Credit
26
<PAGE> 64
Termination Date. Failure of the Trustee to provide notice of the Letter of
Credit Termination Date to the Borrower, the Bank and the Remarketing Agent
shall not affect the Project Bonds being subject to mandatory purchase on any
Mandatory Bond Purchase Date.
Section 2.08. Delivery of Project Bonds. Upon the execution and
delivery of this Indenture, and satisfaction of the conditions established by
the Issuer in the Bond Legislation and in the Bond Purchase Agreement for
delivery of the Project Bonds, the Issuer shall execute the Project Bonds and
deliver them to the Trustee. Thereupon, the Trustee shall authenticate the
Project Bonds and deliver them to (or accept them as custodian for) the
Depository, as directed by the Issuer in accordance with this Section 2.08.
Before the Trustee delivers any Project Bonds, the Trustee shall have
received a request and authorization to the Trustee on behalf of the Issuer,
signed by the Executive, to authenticate and deliver the Project Bonds to the
Depository, upon payment to the Trustee of the amount specified therein, which
amount shall be deposited as provided in Sections 5.01 and 5.03 hereof.
Section 2.09 . Issuance and Delivery of Additional Bonds. At the
request of the Borrower, but subject to the written approval of the Bank, the
Issuer may issue Additional Bonds from time to time for any purpose permitted by
the Act.
Any Additional Bonds shall be on a parity with the Project Bonds
(except with respect to any moneys drawn by the Trustee on the Letter of Credit)
and any Additional Bonds theretofore or thereafter issued and outstanding as to
the assignment to the Trustee of the Issuer's right, title and interest in the
Revenues, the Agreement and the Project Note and the Borrower's right, title and
interest in any Revenues comprised of undisbursed Bond proceeds on deposit in
the Project Fund to provide for payment of Bond Service Charges on the Bonds;
provided, that nothing herein shall prevent payment of Bond Service Charges on
any series of Additional Bonds from (i) being otherwise secured and protected
from sources or by property or instruments not applicable to the Project Bonds
and any one or more series of Additional Bonds, or (ii) not being secured or
protected from sources or by property or instruments applicable to the Project
Bonds or one or more series of Additional Bonds.
Before the Trustee shall authenticate and deliver any Additional Bonds,
the Trustee shall receive the following items:
(a) Original executed counterparts of any amendments or supplements to the
Agreement and the Indenture entered into in connection with the issuance of the
Additional Bonds, which are necessary or advisable, in the opinion of Bond
Counsel, to provide that the Additional Bonds will be issued in compliance with
the provisions of this Indenture.
(b) One or more Additional Notes, as required by the Agreement, in an
aggregate principal amount equal to the aggregate principal amount of the
Additional Bonds.
(c) A copy of the written request from the Borrower to the Issuer for
issuance of the Additional Bonds.
27
<PAGE> 65
(d) A copy of the applicable Bond Ordinance, certified by the Clerk of the
Issuer.
(e) A request and authorization to the Trustee on behalf of the Issuer,
signed by the Executive, to authenticate and deliver the Additional Bonds to,
or on the order of, the purchaser thereof upon payment to the Trustee of the
amount specified therein (including without limitation, any accrued interest),
which amount shall be deposited as provided in the applicable Bond Ordinance or
Supplemental Indenture.
(f) The written opinion of counsel, who may be counsel for the Issuer,
reasonably satisfactory to the Trustee, to the effect that: (i) the documents
submitted to the Trustee in connection with the request then being made comply
with the requirements of this Indenture; (ii) the issuance of the Additional
Bonds has been duly authorized; (iii) all filings required to be made under
Section 10.01 of this Indenture have been made; and (iv) all conditions
precedent to the delivery of the Additional Bonds have been fulfilled.
(g) A written opinion of Bond Counsel (who also may be the counsel to
which reference is made in paragraph (f)), to the effect that: (i) when
executed for and in the name and on behalf of the Issuer and when authenticated
and delivered by the Trustee, those Additional Bonds will be valid and legal
special obligations of the Issuer in accordance with their terms and will be
secured hereunder equally and on a parity (except with respect to any moneys
drawn by the Trustee under the Letter of Credit) with all other Bonds at the
time outstanding hereunder as to the assignment to the Trustee of the Issuer's
right, title and interest in the Revenues, the Agreement and the Bond Fund
(except as to and any provision made by or pursuant to Sections 4.05, 5.06 or
5.07 hereof) and the moneys and investments therein to provide for payment of
Bond Service Charges on the Bonds; and (ii) the issuance of the Additional
Bonds will not result in the interest on the Bonds outstanding immediately
prior to that issuance becoming includable in gross income for purposes of
federal income taxation.
(h) A written opinion of counsel to the Borrower, reasonably satisfactory
to the Trustee, to the effect that the amendments or supplements to each of the
Agreement and any Additional Notes have been duly authorized, executed and
delivered by the Borrower, and that the Agreement, as amended or supplemented,
and any Additional Notes constitute legal, valid and binding obligations of the
Borrower, in accordance with their respective terms, subject to exceptions
reasonably satisfactory to the Trustee for bankruptcy, insolvency and similar
laws and the application of equitable principles.
(i) The written approval of the Bank to the issuance and delivery of the
Additional Bonds.
28
<PAGE> 66
When (i) the documents listed above have been received by the Trustee,
and (ii) the Additional Bonds have been executed and authenticated, the Trustee
shall deliver the Additional Bonds to or on the order of the purchaser thereof,
but only upon payment to the Trustee of the specified amount (including without
limitation, any accrued interest) set forth in the request and authorization to
which reference is made in paragraph (e) above.
(End of Article II)
29
<PAGE> 67
ARTICLE III
TERMS OF BONDS GENERALLY
Section 3.01. Form of Bonds. The Bonds, the certificate of
authentication, the form of assignment and the Instructions to Sell shall be
substantially in the respective forms thereof set forth in Exhibit A to this
Indenture with, in the case of Additional Bonds, any omissions, insertions and
variations which may be authorized or permitted by the Bond Ordinance
authorizing, or the Supplemental Indenture entered into in connection with,
those Additional Bonds, all consistent with this Indenture.
All Bonds, unless a Supplemental Indenture shall have been executed
and delivered pursuant to Section 8.02(g) hereof, shall be in fully registered
form, and, except as provided in Section 3.05 hereof and as provided in
Sections 2.02, 2.04, 2.05, 2.06, 2.07, 6.15 and 6.16 with respect to Beneficial
Ownership Interests, the Holder of a Bond shall be regarded as the absolute
owner thereof for all purposes of this Indenture.
The Bonds of one series shall bear any designations which may be
necessary or advisable to distinguish them from Bonds of any other series. The
Bonds shall be negotiable instruments in accordance with the Act, and shall
express the purpose for which they are issued and any other statements or
legends which may be required by law. Each Bond of the same series shall be of
a single maturity, unless the Trustee shall approve the authentication and
delivery of a Bond of more than one maturity.
Section 3.02. Variable Terms. Subject to the provisions of this
Indenture, each series of Bonds shall be dated, shall mature in the years and
the amounts, shall bear interest at the rate or rates per annum, shall be
payable on the dates, shall be of the denominations, shall be subject to
redemption on the terms and conditions and shall have any other terms which are
set forth or provided for in this Indenture in the case of the Project Bonds,
and in this Indenture, the applicable Bond Ordinance and the Supplemental
Indenture, in the case of any issue of Additional Bonds.
Section 3.03. Execution and Authentication of Bonds. Unless otherwise
provided in the applicable Bond Ordinance, each Bond shall be signed by the
Mayor and attested by the Clerk (provided that such signatures may be
facsimiles), and may bear the seal of the Issuer or a facsimile thereof. In case
any officer whose signature or a facsimile of whose signature appears on any
Bond shall cease to be that officer before the issuance of the Bond, the
officer's signature or the facsimile thereof nevertheless shall be valid and
sufficient for all purposes, the same as if he or she had remained in office
until that time. Any Bond may be executed on behalf of the Issuer by an officer
who, on the date of execution is the proper officer, although on the date of the
Bond that person was not the proper officer.
No Bond shall be valid or become obligatory for any purpose or shall
be entitled to any security or benefit under this Indenture unless and until a
certificate of authentication,
<PAGE> 68
substantially in the form set forth in Exhibit A to this Indenture, has been
signed by the Trustee for that series on behalf of the Trustee. The
authentication by the Trustee upon any Bond shall be conclusive evidence that
the Bond so authenticated has been duly authenticated and delivered hereunder
and is entitled to the security and benefit of this Indenture. The certificate
of the Trustee may be executed by any person authorized by the Trustee, but it
shall not be necessary that the same authorized person sign the certificates of
authentication on all of the Bonds.
Section 3.04. Source of Payment of Bonds. To the extent provided in and
except as otherwise permitted by this Indenture, (i) the Bonds shall be special
obligations of the Issuer and the Bond Service Charges thereon shall be payable
equally and ratably solely from the Revenues, (ii) the payment of Bond Service
Charges on the Bonds shall be secured by the assignment of Revenues hereunder
and by this Indenture, and (iii) payments due on the Bonds also shall be secured
by the Notes, provided, however, that payment of Bond Service Charges on any
series of Additional Bonds may be otherwise secured and protected from sources
or by property or instruments not applicable to the Project Bonds and any one or
more series of Additional Bonds, or not secured and protected from sources or by
property or instruments applicable to the Project Bonds or one or more series of
Additional Bonds. The Bonds and the interest payable thereon do not constitute a
debt or liability of the Issuer, the State or any political subdivision thereof
within the meaning of the provisions of the Constitution or the statutes of the
State, or a pledge of the faith and credit or the taxing power of the Issuer,
the State or any political subdivision thereof, but shall be payable solely from
the funds pledged therefor in accordance with this Indenture.
Section 3.05. Payment and Ownership of Bonds. The principal of and any
premium on any Bond shall be payable when due to a Holder upon presentation and
surrender of such Bond at the Operations Office of the Trustee. Interest on any
Bond shall be paid on each Interest Payment Date by check or draft which the
Trustee shall cause to be mailed on that date to the person in whose name the
Bond (or one or more Predecessor Bonds) is registered at the close of business
on the Regular Record Date applicable to that Interest Payment Date on the
Register at the address appearing therein. Notwithstanding the foregoing and
while the Bonds are held by a Depository interest on any Bond shall be paid by
wire transfer in immediately available funds to the bank account number and
address filed with the Trustee by such Holder. If and to the extent, however,
that the Issuer shall fail to make payment or provision for payment of interest
on any Bond on any Interest Payment Date, that interest shall cease to be
payable by the Issuer to the Person who was the Holder of that Bond (or of one
or more Predecessor Bonds) as of the applicable Regular Record Date; when moneys
become available for payment of the interest, (a) the Trustee shall, pursuant to
Section 7.06(d) hereof, establish a Special Record Date for the payment of that
interest which shall be not more than 15 nor fewer than 10 days prior to the
date of the proposed payment, and (b) the Trustee shall cause notice of the
proposed payment and of the Special Record Date to be mailed by first class
mail, postage prepaid, to such Holder at its address as it appears on the
Register no fewer than 10 days prior to the Special Record Date and, thereafter,
the interest shall be payable to the Persons who are the Holders of such Bonds
(or their respective Predecessor Bonds) at the close of business on the Special
Record Date. Bond Service Charges shall be payable in lawful money of the United
States of America without deduction for the services of the Trustee.
<PAGE> 69
Notwithstanding anything herein to the contrary, when any Bond is
registered in the name of a Depository or its nominee, the principal and
redemption price of and interest on such Bond shall be payable in next day or
federal funds delivered or transmitted to the Depository or its nominee.
Subject to the foregoing, each Bond delivered under this Indenture
upon transfer thereof, or in exchange for or in replacement of any other Bond,
shall carry the rights to interest accrued and unpaid, and to accrue on that
Bond, or which were carried by that Bond.
Except as provided in (i) Sections 2.02, 2.04, 2.05, 2.06, 2.07, 6.15
and 6.16 with respect to Beneficial Ownership Interests, and (ii) this Section
3.05 and the first paragraph of Section 3.07 hereof, (x) the Holder of any Bond
shall be deemed and regarded as the absolute owner thereof for all purposes of
this Indenture, (y) payment of or on account of the Bond Service Charges on any
Bond shall be made only to or upon the order of that Holder or its duly
authorized attorney in the manner permitted by this Indenture, and (z) neither
the Issuer nor the Trustee shall, to the extent permitted by law, be affected
by notice to the contrary. All of those payments shall be valid and effective
to satisfy and discharge the liability upon that Bond, including without
limitation, the interest thereon, to the extent of the amount or amounts so
paid.
Section 3.06. Transfer and Exchange of Bonds. So long as any of the
Bonds remain outstanding, the Issuer will cause books for the registration and
transfer of Bonds, as provided in this Indenture, to be maintained and kept at
the Operations Office of the Trustee.
Subject to the provisions of Section 2.02 hereof, unless otherwise
provided in the applicable Bond Ordinance or Supplemental Indenture, Bonds may
be exchanged, at the option of their Holder, for Bonds of the same series and of
any authorized denomination or denominations in an aggregate principal amount
equal to the unmatured and unredeemed principal amount of, and bearing interest
at the same rate and maturing on the same date or dates as, the Bonds being
exchanged. The exchange shall be made upon presentation and surrender of the
Bonds being exchanged at the Operations Office of the Trustee, together with an
assignment duly executed by the Holder or its duly authorized attorney in any
form which shall be satisfactory to the Trustee.
Subject to the provisions of Section 2.02 hereof, any Bond may be
transferred upon the Register, upon presentation and surrender thereof at the
Operations Office of the Trustee together with an assignment duly executed by
the Holder or its duly authorized attorney in any form which shall be
satisfactory to the Trustee. Upon transfer of any Bond and on request of the
Trustee, the Issuer shall execute in the name of the transferee, and the
Trustee shall authenticate and deliver, a new Bond or Bonds of the same series,
of any authorized denomination or denominations in an aggregate principal
amount equal to the unmatured and unredeemed principal amount of, and bearing
interest at the same rate and maturing on the same date or dates as, the Bonds
presented and surrendered for transfer.
<PAGE> 70
In all cases in which Bonds shall be exchanged or transferred
hereunder, the Trustee shall authenticate and deliver Bonds in accordance with
the provisions of this Indenture. The exchange or transfer shall be made without
charge; provided that the Issuer and the Trustee may make a charge for every
exchange or transfer of Bonds sufficient to reimburse them for any tax or excise
required to be paid with respect to the exchange or transfer. The charge shall
be paid before a new Bond is delivered.
All Bonds issued upon any 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 transfer or
exchange. Neither the Issuer nor the Trustee shall be required to make any
exchange or transfer of a Bond during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
Bonds of such series and ending at the close of business on the day of such
mailing or to transfer or exchange any Bonds selected for redemption, in whole
or in part; provided, however, the foregoing provisions shall not preclude an
exchange or transfer of a Bond in the case of an optional or mandatory tender
under Sections 2.04, 2.05, 2.06 or 2.07 hereof.
In case any Bond is redeemed in part only, on or after the redemption
date and upon presentation and surrender of the Bond, the Issuer shall cause
execution of, and the Trustee shall authenticate and deliver, a new Bond or
Bonds of the same series in authorized denominations in an aggregate principal
amount equal to the unmatured and unredeemed portion of, and bearing interest
at the same rate and maturing on the same date or dates as, the Bond redeemed
in part. Notwithstanding the foregoing, however, if a Depository is the sole
Bondholder, delivery of a notation of partial redemption of Bonds shall be made
in such manner as is mutually agreed upon by the Trustee and the Depository.
Section 3.07. Mutilated, Lost, Wrongfully Taken, Undelivered or
Destroyed Bonds. If any Bond is mutilated, lost, wrongfully taken or destroyed,
or any tendered Bond or Bond deemed to have been tendered is not delivered
pursuant to the terms of this Indenture, in the absence of written notice to the
Issuer and the Trustee that a lost, wrongfully taken or destroyed or undelivered
Bond has been acquired by a bona fide purchaser, the Trustee shall authenticate
and deliver a new Bond of like date, maturity and denomination and of the same
series as the Bond mutilated, lost, wrongfully taken, destroyed or undelivered;
provided, that (i) in the case of any mutilated Bond, the mutilated Bond first
shall be surrendered to the Trustee, (ii) in the case of any lost, wrongfully
taken or destroyed Bond, there first shall be furnished to the Issuer and the
Trustee evidence of the loss, wrongful taking or destruction satisfactory to the
Issuer and the Trustee, together with indemnity to the Issuer, the Trustee, the
Borrower and the Bank satisfactory to each of them, and payment of any out of
pocket costs of the Issuer, and (iii) in the case of any tendered Bond which is
undelivered there shall be satisfactory loss indemnity furnished to the Issuer,
the Trustee, the Borrower and the Bank by the nondelivering Holder.
If any lost, wrongfully taken, undelivered or destroyed Bond shall
have matured, instead of issuing a new Bond, the Authorized Borrower
Representative may direct the Trustee to pay that Bond without surrender
thereof upon the furnishing of satisfactory evidence and indemnity
<PAGE> 71
as in the case of issuance of a new Bond. The Issuer and the Trustee may charge
the Holder of a mutilated, lost, wrongfully taken, undelivered or destroyed
Bond their reasonable fees and expenses in connection with their actions
pursuant to this Section.
Every new Bond issued pursuant to this Section by reason of any Bond
being lost, wrongfully taken, undelivered or destroyed (i) shall constitute, to
the extent of the outstanding principal amount of the Bond lost, taken or
destroyed, a contractual obligation of the Issuer, regardless of whether the
lost, wrongfully taken or destroyed Bond shall be enforceable at any time by
anyone and (ii) shall be entitled to all of the benefits of this Indenture
equally and proportionately with any and all other Bonds issued and outstanding
hereunder.
Section 3.08. Cancellation of Bonds. Except as provided in Section 3.06
hereof, any Bonds surrendered pursuant to this Article for the purpose of
payment or retirement or for exchange, replacement or transfer shall be canceled
upon presentation and surrender thereof to the Trustee.
The Issuer, or the Borrower on behalf of the Issuer, may deliver at
any time to the Trustee for cancellation any Bonds previously authenticated and
delivered hereunder, which the Issuer or the Borrower may have acquired in any
manner whatsoever. All Bonds so delivered shall be canceled promptly by the
Trustee. Certification of the surrender and cancellation shall be made to the
Issuer and the Bank by the Trustee at least once each calendar year. Those
canceled bonds shall be destroyed by the Trustee by shredding or incineration.
The Trustee shall provide certificates describing the destruction of canceled
Bonds to the Issuer, the Borrower and the Bank.
(End of Article III)
<PAGE> 72
ARTICLE IV
REDEMPTION OF BONDS
Section 4.1 . Terms of Redemption of Project Bonds. The Project Bonds
are subject to redemption prior to stated maturity as follows:
(a) Mandatory Sinking Fund Redemption. The Project Bonds are subject to
mandatory redemption pursuant to mandatory sinking fund requirements, at a
redemption price of 100% of the principal amount redeemed plus interest accrued
to the redemption date, on each December 1, commencing December 1, 2000, in the
following principal amounts:
<TABLE>
<CAPTION>
(b)
Date of Principal Principal Amount
Redemption to be Redeemed
----------------- ----------------
<S> <C>
2000 $ 85,000
2001 $ 90,000
2002 $100,000
2003 $110,000
2004 $120,000
2005 $130,000
2006 $145,000
2007 $160,000
2008 $175,000
2009 $190,000
2010 $210,000
2011 $230,000
2012 $255,000
2013 $280,000
2014 $310,000
2015 $340,000
2016 (maturity) $375,000
</TABLE>
The aggregate of the Loan Payments specified in Section 4.1 of the
Agreement, which are to be deposited in the Bond Fund on each Loan Payment Date,
as defined in the Agreement, shall include amounts sufficient to redeem the
principal amount of Project Bonds subject to mandatory redemption pursuant to
mandatory sinking fund requirements (less the amount of any credit as provided
below).
The Issuer, or the Borrower on behalf of the Issuer, shall have the
option to deliver to the Trustee for cancellation Project Bonds in any aggregate
principal amount and to receive a credit against the then current mandatory
sinking fund requirement (and corresponding mandatory redemption obligation) of
the Issuer. That option shall be exercised by the Issuer, or the Borrower on
behalf of the Issuer, on or before the 45th day preceding the applicable
mandatory
<PAGE> 73
sinking fund redemption date, by furnishing the Trustee a certificate, executed
by the Executive or the Authorized Borrower Representative, as the case may be,
setting forth the extent of the credit to be applied with respect to the then
current mandatory sinking fund requirements, and the Project Bonds to be so
credited. If the certificate and the Project Bonds to be credited are not timely
furnished to the Trustee, the mandatory sinking fund requirement (and
corresponding mandatory redemption obligation) shall not be reduced. With the
prior written consent of the Bank, credit against the then current mandatory
sinking fund requirement (and corresponding mandatory redemption obligation)
also shall be received by the Issuer for any Project Bonds which prior thereto
have been redeemed (other than through the operation of the mandatory sinking
fund requirements) or purchased for cancellation and canceled by the Trustee, to
the extent not applied theretofore as a credit against any redemption
obligation.
Except as otherwise provided in the preceding paragraph, each Project
Bond previously redeemed, or purchased and canceled, shall be credited by the
Trustee at 100% of the principal amount thereof against the mandatory sinking
fund requirements (and corresponding mandatory redemption obligations) in
inverse order of the maturity of the mandatory sinking fund requirements.
(b) Mandatory Redemption Upon a Determination of Taxability. Upon the
occurrence of a Determination of Taxability, the Project Bonds are subject to
mandatory redemption in whole at a redemption price equal to 100% of the
outstanding principal amount thereof, plus interest accrued to the redemption
date, at the earliest practicable date selected by the Trustee, after
consultation with the Borrower, but in no event later than 45 days following
receipt by the Trustee of notice of the Determination of Taxability. The
occurrence of a Determination of Taxability with respect to the Project Bonds
will not constitute an Event of Default under this Indenture.
Within five Business Days after receipt by the Trustee of written
notice of a Determination of Taxability, the Trustee shall give written notice
thereof to the Holders of all Project Bonds then outstanding, as shown by the
Register, and shall also give written notice to the Borrower, the Issuer and the
Bank.
(c) Optional Redemption. Unless previously redeemed, the Project Bonds are
subject to redemption (from funds other than those deposited in accordance with
the mandatory sinking fund requirements of this Section 4.01), at the option of
the Issuer, upon the direction of the Borrower (subject to compliance with
Section 4.03 hereof), (1) if the Project Bonds do not bear interest at the Fixed
Interest Rate, in whole or in part (in integral multiples of $5,000, provided
that the unredeemed portion of any Bond redeemed in part shall be $100,000 or
more) on any Interest Payment Date if the Bonds bear interest at the Weekly
Interest Rate, and on any Interest Rate Adjustment Date if the Bonds bear
interest in another Adjustable Interest Rate Mode, in each case at a redemption
price of 100% of the principal amount redeemed plus accrued interest thereon to
the redemption date, and (2) after the Fixed Interest Rate Commencement Date and
on or after the First Optional Redemption Date, in whole or in part (in integral
multiples of $5,000, provided that the unredeemed portion of any Bond redeemed
in part shall be $100,000 or more)
<PAGE> 74
at any time at a redemption price equal to the following percentages of the
principal amount redeemed, plus in each case accrued interest to the date fixed
for redemption.
<TABLE>
<CAPTION>
Redemption Date Optional Redemption Price
- --------------- -------------------------
<S> <C>
First Optional Redemption
Date, through the following
last day of November 103%
First Anniversary of the First
Optional Redemption Date,
through the following
last day of November 102%
Second Anniversary of the
First Optional Redemption
Date, through the following
last day of November 101%
Third Anniversary of the First
Optional Redemption Date and
thereafter 100%
</TABLE>
(d) Extraordinary Optional Redemption. The Project Bonds are also subject
to redemption by the Issuer in the event of the exercise by the Borrower of its
option (subject to compliance with Section 4.03 hereof) to direct that
redemption upon occurrence of any of the events described in Section 6.2 of the
Agreement, (a) at any time in whole, or (b) at any time in part upon the
occurrence of the events permitting such partial redemption, as provided in
Section 6.2 of the Agreement, in each case at a redemption price of 100% of the
principal amount redeemed, plus interest accrued to the redemption date.
(e) Use of Certain Funds to Redeem Project Bonds. Except as provided in
Section 9.02 hereof, the Trustee shall pay the redemption price on all Project
Bonds redeemed under this Section 4.01 in the same manner and from the same
sources as provided in Section 5.03 hereof for the payment of Bond Service
Charges.
Section 4.02 . Partial Redemption. If fewer than all of the outstanding
Bonds of a series that are stated to mature on different dates are called for
redemption at one time, those Bonds which are called shall be called in inverse
order of the maturities of the Bonds of that series to be redeemed. If fewer
than all of the Bonds of a single maturity are to be redeemed, the selection of
Bonds to be redeemed, or portions thereof, in amounts equal to $5,000 or any
integral multiple thereof shall be made by lot by the Trustee in any manner
which the Trustee may determine; provided that the Trustee shall select Project
Bonds for redemption so as to assure that after such redemption no Holder shall
retain Bonds in an aggregate amount less than $100,000; and
<PAGE> 75
provided further that, if less than all of an outstanding Bond of one maturity
in a book entry system is to be called for redemption, the Trustee shall give
notice to the Depository or the nominee of the Depository that is the Holder of
such Bond, and the selection of the beneficial interests in that Bond to be
redeemed shall be at the sole discretion of the Depository and its participants.
In the case of a partial redemption of Bonds by lot each unit of face value of
principal thereof equal to $5,000 (each such $5,000 unit is hereinafter referred
to as a "Unit") shall be treated as though it were a separate Bond in the amount
of such Unit. If it is determined that one or more, but not all of the Units
represented by a Bond are to be called for redemption, then upon notice of
redemption of a Unit or Units of Bonds, the Holder of that Bond shall surrender
the Bond to the Trustee (a) for payment of the redemption price of the Unit or
Units of Bonds called for redemption (including without limitation, the interest
accrued to the date fixed for redemption and any premium), and (b) for issuance,
without charge to the Holder thereof, of a new Bond or Bonds of the same series,
of $100,000 or amounts in excess thereof in such integrals as are permitted
hereunder, aggregating a principal amount equal to the unmatured and unredeemed
portion of, and bearing interest at the same rate and maturing on the same date
as, the Bond surrendered.
Section 4.03. Issuer's Election to Redeem. Except in the case of
redemption pursuant to any mandatory sinking fund requirements or pursuant to
other mandatory redemption provisions hereof, Bonds shall be redeemed only by
written notice from the Issuer to the Trustee and the Bank, given at the
direction of the Borrower, or by written notice from the Borrower to the Trustee
and the Bank on behalf of the Issuer. That notice shall specify the redemption
date and the principal amount of each maturity of Bonds to be redeemed, and
shall be given at least 45 days prior to the redemption date or such shorter
period as shall be acceptable to the Trustee. Except with the prior written
consent of the Bank, in the case of any optional redemption of Project Bonds
pursuant to Section 4.01(c) or (d) hereof (other than any such redemption made
pursuant to the requirements of the Reimbursement Agreement), there shall be
Eligible Funds on deposit with the Trustee prior to the giving of the notice
required by Section 4.04 hereof in an amount which will be sufficient to redeem
at the redemption price thereof and interest accrued to the redemption date, all
of the Project Bonds for which notice of redemption is to be given.
Section 4.04. Notice of Redemption. Unless waived by any Holder of
Bonds to be redeemed, official notice of any such redemption shall be given by
the Trustee on behalf of the Issuer by mailing a copy of an official redemption
notice by first class mail at least 30 days and not more than 60 days prior to
the date fixed for redemption (except in the case of a Section 4.01(b)
redemption, in which case such notice shall be given at least 5 days and not
more than 15 days prior to the date fixed for redemption) to the registered
owner of the Bond or Bonds to be redeemed at the address shown on the Register
or at such other address as is furnished in writing by such registered owner to
the Trustee.
All official notices of redemption shall be dated and shall state:
(1) the redemption date,
<PAGE> 76
(2) the redemption price,
(3) if less than all outstanding Bonds are to be redeemed, the
identification by designation, letters, numbers or other distinguishing marks
(and, in the case of partial redemption, the respective principal amounts) of
the Bonds to be redeemed,
(4) that on the redemption date the redemption price will become due and
payable upon each such Bond or portion thereof called for redemption, and that
interest thereon shall cease to accrue from and after said date, and
(5) the place where such Bonds are to be surrendered for payment of the
redemption price, which place of payment shall be the Operations Office of the
Trustee.
In addition to the foregoing notice, further notice shall be given by
the Trustee as set out below, but no defect in said further notice nor any
failure to give all or any portion of such further notice shall in any manner
defeat the effectiveness of a call for redemption if notice thereof is given as
above prescribed.
1. Each further notice of redemption given hereunder shall contain the
information required above for an official notice of redemption plus (i) the
CUSIP numbers of all Bonds being redeemed; (ii) the date of issue of the Bonds
as originally issued; (iii) the rate of interest borne by each Bond being
redeemed; (iv) the maturity date of each Bond being redeemed; and (v) any other
descriptive information needed to identify accurately the Bonds being redeemed.
2. Except in the case of a mandatory sinking fund redemption pursuant to
Section 4.01(a) hereof, each further notice of redemption shall be sent at least
30 days before the redemption date by registered or certified mail or overnight
delivery service to all registered securities depositories then in the business
of holding substantial amounts of obligations of types comprising the Bonds
(such depositories now being Depository Trust Company of New York, New York,
Midwest Securities Trust Company of Chicago, Illinois, Pacific Securities
Depository Trust Company of San Francisco, California and Philadelphia
Depository Trust Company of Philadelphia, Pennsylvania) and to one or more
national information services that disseminate notices of redemption of
obligations such as the Bonds.
3. Upon the payment of the redemption price of Bonds being redeemed, each
check or other transfer of funds issued for such purpose shall bear the CUSIP
number (if any) identifying, by issue and maturity, the Bonds being redeemed
with the proceeds of such check or other transfer.
Failure to receive notice by mailing or any defect in that notice
regarding any Bond, however, shall not affect the validity of the proceedings
for the redemption of any other Bond.
Notice of any redemption hereunder with respect to Bonds held under a
book entry system shall be given by the Trustee only to the Depository, or its
nominee, as the Holder of such Bonds. Selection of book entry interests in the
Bonds called for redemption is the responsibility
<PAGE> 77
of the Depository and any failure of any Direct Participant, Indirect
Participant or Beneficial Owner to receive such notice and its contents or
effect will not affect the validity of such notice or any proceedings for the
redemption of such Bonds.
Section 4.05. Payment of Redeemed Bonds. Notice having been mailed to
the registered owner of the Bond or Bonds to be redeemed in the manner provided
in Section 4.04 hereof, and, in the event of optional redemption pursuant to
Section 4.01(c) or (d) hereof, upon money being deposited as and if required by
Section 4.03 hereof, the Bonds and portions thereof called for redemption shall
become due and payable on the redemption date, and upon presentation and
surrender thereof at the place or places specified in that notice, shall be paid
at the redemption price, including interest accrued to the redemption date. The
Trustee shall make a drawing under the Letter of Credit to pay the principal of
and interest due on the Project Bonds being redeemed. Any moneys received by the
Trustee from the Borrower which are available to be applied toward the payment
of such principal and interest, shall be paid to the Bank to reimburse the Bank
for any drawing made under the Letter of Credit to pay such principal and
interest.
Subject to the provisions of Section 13.05 hereof, if money for the
redemption of all of the Bonds and portions thereof to be redeemed, together
with interest accrued thereon to the redemption date, is held by the Trustee on
the redemption date, so as to be available therefor on that date and if notice
of redemption has been deposited in the mail to the registered owner of the Bond
or Bonds to be redeemed as aforesaid, then from and after the redemption date
those Bonds and portions thereof called for redemption shall cease to bear
interest and no longer shall be considered to be outstanding hereunder. If those
moneys shall not be so available on the redemption date, or that notice shall
not have been deposited in the mail as aforesaid, those Bonds and portions
thereof shall continue to bear interest, until they are paid, at the same rate
or rates as they would have borne had they not been called for redemption.
All moneys deposited in the Bond Fund and held by the Trustee for the
redemption of particular Bonds shall be held in trust for the account of the
Holders thereof and shall be paid to them, respectively, upon presentation and
surrender of those Bonds, except as provided in Section 3.06 hereof.
Section 4.06. Variation of Redemption Provisions. The provisions of
this Article IV, insofar as they apply to issuance of any series of Additional
Bonds, may be varied by the Supplemental Indenture providing for that series.
(End of Article IV)
<PAGE> 78
ARTICLE V
PROVISIONS AS TO FUNDS,
PAYMENTS, PROJECT AND AGREEMENT
Section 5.01. Creation of Project Fund. There is created by the Issuer
and ordered maintained as a separate deposit account (except when invested as
provided hereinafter) in the custody of the Trustee, a trust fund designated
"City of Elkhart, Indiana - Jameson Inns, Inc. Project Fund". The proceeds of
the Project Bonds shall be deposited therein; provided, however, any proceeds
representing accrued interest on the Project Bonds shall be deposited in the
Bond Fund. Unless otherwise set forth in the applicable Bond Ordinance or
Supplemental Indenture relating to the issuance of a series of Additional Bonds,
there shall be deposited in the Project Fund the proceeds of the sale of any
Additional Bonds, other than any proceeds representing accrued interest which
shall be deposited in the Bond Fund pursuant to Section 5.03 hereof.
If the unexpended proceeds of a prior issue of Bonds remain in the
Project Fund upon the issuance of any Additional Bonds, the Trustee shall
establish a separate subaccount within the Project Fund, for accounting
purposes, for the deposit of the proceeds of the issue of Additional Bonds in
accordance with this Section.
Pending disbursement pursuant to the Agreement, the moneys and Eligible
Investments to the credit of the Project Fund shall constitute a part of the
Revenues assigned to the Trustee as security for the payment of the Bond Service
Charges.
Section 5.02. Disbursements From and Records of Project Fund. Moneys
held in the Project Fund representing proceeds of the sale of the Project Bonds
shall be disbursed by the Trustee in accordance with the provisions of the
Agreement to the Prior Bonds Trustee, to be used together with other moneys
provided by the Borrower to pay and redeem in whole the Prior Bonds.
The Trustee shall cause to be kept and maintained adequate records
pertaining to the Project Fund and all disbursements therefrom. If requested by
the Bank, the Issuer or the Borrower, the Trustee shall file copies of the
records pertaining to the Project Fund and all disbursements from such fund with
the Bank, the Issuer and the Borrower.
Upon the occurrence and continuance of an Event of Default hereunder
because of which the principal amount of the Bonds has been declared to be due
and payable immediately pursuant to Section 7.03 hereof, any moneys remaining in
the Project Fund shall be promptly transferred by the Trustee to the Bond Fund.
Section 5.03. Creation of Bond Fund; Letter of Credit. There is created
by the Issuer and ordered maintained as a separate deposit account (except when
invested as hereinafter set forth) in the custody of the Trustee a trust fund to
be designated "City of Elkhart, Indiana - Jameson Inns, Inc. Bond Fund". Unless
otherwise set forth in the applicable Bond Legislation or Supplemental Indenture
relating to the issuance of a series of Additional Bonds, there shall be
<PAGE> 79
deposited in the Bond Fund (and credited, if required by this Indenture or the
Agreement to appropriate accounts therein), from the proceeds of the sale of the
Bonds, any accrued interest paid by the purchasers of the Bonds.
Except as otherwise provided herein, the Trustee shall deposit in the
Bond Fund upon receipt all Revenues other than Bond proceeds deposited in the
Project Fund, including all moneys received upon drawings made under the Letter
of Credit (except as otherwise provided in Section 6.15 hereof) and any other
amounts which, under the terms of this Indenture, the Notes, the Agreement, the
Reimbursement Agreement, or the Letter of Credit are to be applied to the
payment of Bond Service Charges. Except as provided herein, the Bond Fund (and
accounts therein for which provision is made herein or in the Agreement) and the
moneys and Eligible Investments therein shall be used solely and exclusively for
the payment of Bond Service Charges as they fall due at stated maturity, or by
redemption or pursuant to any mandatory sinking fund requirements or upon
acceleration, all as provided herein and in the Agreement.
The Trustee shall establish separate accounts within the Bond Fund for
each separate series of Bonds. The Trustee shall establish separate subaccounts
within each separate series account in the Bond Fund for each source of deposit
(including any investment income thereon) made into the Bond Fund so that the
Trustee may at all times ascertain the date of deposit, the amounts, and the
source of the funds in each subaccount. Moneys received from drawings on the
Letter of Credit shall be deposited in a separate subaccount and shall never be
commingled with moneys from any other source.
Moneys in the Bond Fund shall be used to pay Bond Service Charges with
respect to the Project Bonds and for the redemption of Project Bonds prior to
maturity and as otherwise provided in this Indenture only in the following
order:
FIRST: Amounts drawn by the Trustee under the Letter of Credit and
deposited into a separate account in the Bond Fund;
SECOND: Any Eligible Funds on deposit in the Bond Fund;
THIRD: Any other amounts available in the Bond Fund.
The Issuer hereby authorizes and directs the Trustee to draw on the
Letter of Credit pursuant to its terms, in the amounts and at the times
necessary to pay Bond Service Charges on the Project Bonds (excluding any
premium) pursuant to this Section 5.03.
The Trustee shall draw upon the Letter of Credit in accordance with the
terms thereof under the following circumstances:
(a) On or before 11:00 a.m., local time at the Drawing Office of the Bank,
on the Business Day prior to any Interest Payment Date or Mandatory Bond
Purchase Date (or the maturity date or any date set for a redemption of Project
Bonds which is not an Interest Payment Date), and on
<PAGE> 80
or before 11:30 a.m. local time at the Drawing Office of the Bank on each Bond
Purchase Date, the Trustee shall determine the amount necessary to make all
required payments of principal and interest on the Project Bonds or purchase
price payments on the next succeeding Interest Payment Date, maturity date,
other redemption date or such Bond Purchase Date or Mandatory Bond Purchase
Date, and shall present to the Bank the required documents under the Letter of
Credit in such amount, so as to permit the timely transfer of funds from the
Bank to the Trustee for payment of interest on the Bonds on each Interest
Payment Date, for payment of the principal of and interest on the Project Bonds
when due, whether at maturity or upon prior redemption, or the payment of the
purchase price of Project Bonds or Beneficial Ownership Interests when due on
the applicable Bond Purchase Date or Mandatory Bond Purchase Date.
(b) Upon acceleration of the Project Bonds upon the occurrence of an Event
of Default under Section 7.01 hereof, the Trustee, on or before 11:00 a.m.,
local time at the Drawing Office of the Bank, on the Business Day prior to the
date on which principal and interest shall be due and payable pursuant to the
declaration of the acceleration of the Project Bonds pursuant to Section 7.03
hereof, shall present to the Bank the required documents under the Letter of
Credit for payment of the entire amount due pursuant to Section 7.03 hereof with
respect to the Project Bonds.
In no circumstances shall the Trustee use moneys drawn on the Letter of
Credit to pay Bond Service Charges on any Additional Bonds, or to pay premium,
if any, on the Project Bonds.
The Trustee shall promptly notify the Borrower by oral or telephonic
communication confirmed in writing if the Bank has not transferred funds in
accordance with the Letter of Credit upon the presentment of any such drawing
certificate.
In calculating the amount to be drawn on the Letter of Credit for the
payment of the purchase price of Project Bonds or Beneficial Ownership Interests
on a Mandatory Bond Purchase Date or for the payment of principal of and
interest on the Project Bonds, whether on an Interest Payment Date, at maturity
or upon redemption or acceleration, the Trustee shall not take into account the
receipt or potential receipt of funds from the Borrower under the Agreement, or
the existence of any other moneys in the Remarketing Reimbursement Fund, the
Project Fund or Bond Fund, but shall draw on the Letter of Credit for the full
amount of such purchase price or the full amount of the principal and interest
coming due on the Project Bonds. If sufficient moneys are available in the
Remarketing Reimbursement Fund to pay the purchase price of the Project Bonds or
Beneficial Ownership Interests tendered for purchase on a Bond Purchase Date,
the Trustee shall not draw on the Letter of Credit but shall forward such
amounts directly to the tendering Holder or Beneficial Owner. The Trustee shall
draw on the Letter of Credit to pay the purchase price of Project Bonds or
Beneficial Ownership Interests tendered for purchase on a Bond Purchase Date
only to the extent that moneys in the Remarketing Reimbursement Fund are
insufficient to purchase the Project Bonds or Beneficial Ownership Interests so
tendered. In calculating the amount, if any, to be drawn on the Letter of Credit
for the purchase of Project Bonds or Beneficial Ownership Interests on a Bond
Purchase Date, the
<PAGE> 81
Trustee shall take into account funds received from the purchasers of tendered
Project Bonds or Beneficial Ownership Interests or from the Remarketing Agent by
11:00 a.m. local time at the Drawing Office of the Bank on such Bond Purchase
Date with respect to the remarketing of such Project Bonds or Beneficial
Ownership Interests or otherwise, and by 11:30 a.m. local time at the Drawing
Office of the Bank on the applicable Bond Purchase Date shall draw on the Letter
of Credit only such amounts as may be necessary to purchase such Project Bonds
or Beneficial Ownership Interests on a Bond Purchase Date after taking into
account all funds received by 11:00 a.m. local time at the Drawing Office of the
Bank on such date which are attributable to the remarketing of such Project
Bonds or Beneficial Ownership Interests. Upon receipt of such moneys from the
Bank, the Trustee shall deposit the amount representing a draw on the Letter of
Credit for the payment of principal and interest on the Project Bonds in a
separate account in the Bond Fund and apply the same only to the payment of such
principal and interest when due on the Project Bonds, shall deposit the amount
representing a draw on the Letter of Credit for the purchase of Project Bonds or
Beneficial Ownership Interests in the Remarketing Reimbursement Fund and
disburse said amount only to the tendering Holders or Beneficial Owners of
Project Bonds or Beneficial Ownership Interests being purchased and, so long as
there does not exist an Event of Default described in Section 7.01(g) herein,
and subject to the prior satisfaction of all Bond Service Charges and purchase
price payments then due or on account of which funds shall have been paid to the
Trustee by the Borrower or shall have been obtained by the Trustee by a drawing
or drawings on the Letter of Credit, by wire transfer shall pay, on behalf of
the Borrower, but only from and to the extent of Loan Payments or any other
moneys available in the Project Fund, the Bond Fund or the Remarketing
Reimbursement Fund any amounts due and payable to the Bank under the
Reimbursement Agreement for any drawing made on the Letter of Credit.
Except as provided in Section 5.07 and 5.08 hereof, neither the Issuer
nor the Borrower shall have any interest in the Bond Fund or the moneys and
Eligible Investments therein, all of which shall be held in trust by the Trustee
for the sole benefit of the Holders and Beneficial Owners and, to the extent of
amounts due under the Reimbursement Agreement, the Bank.
The provisions of this Section are subject to the provisions of Section
9.02 hereof.
Section 5.04. Creation of Remarketing Reimbursement Fund. There is
created by the Issuer and ordered maintained as a separate deposit account in
the custody of the Trustee a trust fund to be designated "City of Elkhart,
Indiana - Jameson Inns, Inc. Remarketing Reimbursement Fund." The Remarketing
Reimbursement Fund shall not be considered a part of the Revenues but shall be
used solely in connection with the remarketing of Project Bonds and Beneficial
Ownership Interests as set forth in Section 6.15 hereof. Certain provisions
regarding the Remarketing Reimbursement fund are set forth in Section 5.03.
Section 5.05. Investment of Bond Fund, Project Fund, Rebate Fund and
Remarketing Reimbursement Fund. Except as hereinafter provided, moneys in the
Bond Fund, the Project Fund and the Rebate Fund shall be invested and reinvested
by the Trustee in Eligible Investments at the oral or written direction of the
Authorized Borrower Representative, but if
<PAGE> 82
oral, confirmed promptly in writing. Investment of moneys in the Bond Fund shall
mature or be redeemable without penalty at the option of the Trustee at the
times and in the amounts necessary to provide moneys to pay Bond Service Charges
as they become due at stated maturity, by redemption or pursuant to any
mandatory sinking fund requirements. Each investment of moneys in the Project
Fund, the Bond Fund and the Rebate Fund shall mature or be redeemable without
penalty at such time as may be necessary to make payments when necessary from
such fund.
Subject to any directions from the Authorized Borrower Representative
with respect thereto, and any restrictions contained in Section 5.11 hereof
relating to the Rebate Fund, from time to time, the Trustee may sell Project
Fund, Rebate Fund and Bond Fund investments and reinvest the proceeds therefrom
in Eligible Investments maturing or redeemable as aforesaid. Any of those
investments may be purchased from or sold to the Trustee, a Remarketing Agent or
any bank, trust company or savings and loan association affiliated with any of
the foregoing. The Trustee shall sell or redeem investments credited to the Bond
Fund at the best price reasonably obtainable to and at the times required for
the purposes of paying Bond Service Charges when due as aforesaid, and shall do
so without necessity for any order on behalf of the Issuer and without
restriction by reason of any order. An investment made from moneys credited to
the Bond Fund, the Project Fund or the Rebate Fund shall constitute part of that
respective fund, and each respective fund shall be credited with all proceeds of
sale and income from investment of moneys credited thereto.
Moneys drawn on the Letter of Credit and deposited in the Bond Fund
shall be deposited in a separate account in the Bond Fund, shall be held in cash
and not be invested and shall be held in such account pending application
pursuant to the terms of Section 5.03 or Section 6.15 hereof. Notwithstanding
any inconsistent or contrary provision hereof, such funds shall be applied only
to the satisfaction of the specific Bond Service Charges for which they were
drawn and any funds not so applied shall be paid to the Bank, subject to the
provisions of Section 5.08 hereof.
Moneys deposited in the Remarketing Reimbursement Fund shall be held in
cash and not invested. Moneys drawn on the Letter of Credit and deposited in the
Remarketing Reimbursement Fund shall be deposited in a separate account therein
and shall be held in such account pending application pursuant to the terms of
Section 5.03 and 6.15 hereof.
Section 5.06. Moneys to be Held in Trust. Except where moneys have been
deposited with or paid to the Trustee pursuant to an instrument restricting
their application to particular Bonds, all moneys required or permitted to be
deposited with or paid to the Trustee under any provision of this Indenture, the
Agreement or the Letter of Credit, and to be used to pay Bond Service Charges,
or the Notes, and any investments thereof, shall be held by the Trustee in
trust. Except (i) for moneys deposited with or paid to the Trustee for the
redemption of Bonds, notice of the redemption of which shall have been duly
given, (ii) for moneys held by the Trustee pursuant to Section 5.07 hereof,
(iii) for moneys in the Remarketing Reimbursement Fund, and (iv) for
<PAGE> 83
moneys held in the Rebate Fund, all moneys described in the preceding sentence
held by the Trustee shall be subject to the lien hereof while so held.
Section 5.07. Nonpresentment of Bonds. In the event that any Bond shall
not be presented for payment when the principal thereof becomes due in whole or
in part, either at stated maturity, by redemption or pursuant to any mandatory
sinking fund requirements, or a check or draft for interest is uncashed, if
moneys sufficient to pay the principal and premium, if any, then due on that
Bond or to pay such check or draft shall have been made available to the Trustee
for the benefit of its Holder, all liability of the Issuer to that Holder for
such payment of the principal and premium, if any, then due on the Bond or
interest on such Bond represented by such check or draft thereupon shall cease
and be discharged completely. Thereupon, it shall be the duty of the Trustee to
hold those moneys, without liability for interest thereon, in a separate account
in the Bond Fund for the exclusive benefit of the Holder, who shall be
restricted thereafter exclusively to those moneys for any claim of whatever
nature on its part under this Indenture or on, or with respect to, the principal
and premium, if any, then due on that Bond or interest on such Bond represented
by such check or draft.
Any of those moneys which shall be so held by the Trustee, and which
remain unclaimed by the Holder of a Bond not presented for payment or check or
draft not cashed for a period of four years after the due date thereof, shall be
paid to the Bank free of any trust or lien unless the Bank shall have confirmed
to the Trustee in writing that no moneys are then due under the Reimbursement
Agreement in which case such moneys shall be paid to the Borrower. Thereafter,
the Holder of that Bond shall look only to the Borrower for payment and then
only to the amounts so received by the Borrower or paid to or on behalf of the
Borrower (including to the Bank pursuant to this paragraph), without any
interest thereon, and the Trustee shall not have any responsibility with respect
to those moneys.
Section 5.08. Repayment to the Bank or the Borrower from the Bond Fund.
Except as provided in Section 5.07 hereof, any amounts remaining in the Bond
Fund (i) after all of the outstanding Bonds shall be deemed paid and discharged
under the provision of this Indenture, and (ii) after payment of all fees,
charges and expenses of the Trustee and of all other amounts required to be paid
under this Indenture, the Agreement and the Notes, shall be paid to the Bank
unless the Bank shall have confirmed to the Trustee in writing that no moneys
are then due under the Reimbursement Agreement in which case such moneys shall
be paid to the Borrower, to the extent that those amounts are in excess of those
necessary to effect the payment and discharge of the outstanding Bonds.
Section 5.09. Alternate Letter of Credit. The Letter of Credit expires
December 31, 2002, or earlier as provided therein.
The Borrower may, at its option, provide for the delivery to the
Trustee of an Alternate Letter of Credit to take effect on a date selected by
the Borrower (the "Replacement Date"). If the Project Bonds are bearing interest
at the Weekly Interest Rate or the Fixed Interest Rate, the Replacement Date may
be any Interest Payment Date selected by the Borrower, provided, however, that
such date allows the Trustee reasonable time to comply with the notice
provisions
<PAGE> 84
of Section 2.06 hereof. If the Project Bonds are bearing interest at
the One Month Interest Rate, the Three Month Interest Rate, the Six Month
Interest Rate, the One Year Interest Rate or the Five Year Interest Rate, the
Replacement Date shall be (i) an Interest Rate Adjustment Date selected by the
Borrower or (ii) the Fixed Interest Rate Commencement Date if the Bonds are to
bear interest at the Fixed Interest Rate (provided, however, that such date
allows the Trustee reasonable time to comply with the notice provisions of
Section 2.06 hereof). The expiration date of the Alternate Letter of Credit
shall be not earlier than the later of the expiration date of the Letter of
Credit being replaced and the date which is fifteen (15) days after the end of
the Interest Rate Period applicable or to be applicable to the Project Bonds, or
if the Project Bonds bear or are to bear interest at the Fixed Interest Rate,
the expiration date of the Alternate Letter of Credit shall be not earlier than
fifteen (15) days after the First Optional Redemption Date. Prior to the
replacement of a Letter of Credit with an Alternate Letter of Credit, the
Trustee shall give notice to the Holders and, if the Project Bonds are then
rated by a Rating Service, to each Rating Service which then has a rating on the
Project Bonds of such event and shall have received the following not less than
forty-five (45) days prior to the Replacement Date:
(A) an opinion of counsel for the issuer of the Alternate Letter
of Credit that it constitutes a legal, valid and binding
obligation of the issuer in accordance with its terms;
(B) an opinion of counsel acceptable to the Trustee to the effect
that payments under the Alternate Letter of Credit will not
constitute voidable preferences in the event of a bankruptcy
of the Borrower;
(C) an opinion of Bond Counsel that such replacement will not
cause interest on the Project Bonds to become includable in
gross income for federal income tax purposes; and
(D) the Alternate Letter of Credit.
Section 5.10. Compliance with Section 148 of the Code. The Trustee
shall cause to be kept and maintained adequate records pertaining to investment
of all proceeds of the Bonds sufficient to permit the Borrower, on behalf of the
Issuer, to determine the amount of rebate, if any, required to be paid to the
United States of America pursuant to Section 148 of the Code.
<PAGE> 85
Section 5.11. Rebate Fund.
(a) The Trustee shall establish and maintain so long as any Bonds are
Outstanding and are subject to a requirement of the Code that arbitrage profits
be rebated to the United States of America, a rebate fund designated "City of
Elkhart, Indiana - Jameson Inns, Inc. Rebate Fund". The Trustee shall make
information regarding the Bonds and investments hereunder available to the
Borrower. The Trustee shall make deposits and disbursements from the Rebate Fund
in accordance with the written instructions received from the Borrower, shall
invest the amounts held in the Rebate Fund pursuant to written instructions from
the Borrower and shall deposit income from such investments immediately upon
receipt thereof in the Rebate Fund. Anything in this Indenture to the contrary
notwithstanding, the immediately preceding sentence of this Indenture and
Subsections (b) and (c) hereof may be superseded or amended by new instructions
delivered by the Borrower and accompanied by an opinion of Bond Counsel
addressed to the Trustee to the effect that the use of the new instructions will
not cause interest on the Bonds to be included in gross income for federal
income tax purposes.
(b) If a deposit to the Rebate Fund is required as a result of the
computations made or caused to be made by the Borrower, the Trustee shall upon
receipt of written direction from the Borrower accept such payment for the
benefit of the Borrower. If amounts in excess of that required to be rebated to
the United States of America accumulate in the Rebate Fund, the Trustee shall
upon written direction from the Borrower transfer such amount to the Borrower.
Records of the determinations required by this Section and the instructions must
be retained by the Trustee until six (6) years after the Bonds are no longer
outstanding.
(c) Not later than thirty (30) days after December 1, ____ (or such other
date as the Borrower may choose, provided the Borrower receives an opinion of
Bond Counsel that such change will not cause interest on the Project Bonds to be
included in gross income for federal income tax purposes) and every five (5)
years thereafter until final retirement of the Project Bonds, upon written
direction from the Borrower, the Trustee shall pay to the United States of
America ninety percent (90%) of the amount required to be on deposit in the
Rebate Fund as of such payment date. Not later than thirty (30) days after the
final retirement of the Bonds, upon written direction from the Borrower the
Trustee shall pay to the United States of America one hundred percent (100%) of
the balance of the amount required to be on deposit in the Rebate Fund or such
lesser amount as the Borrower shall direct.
(End of Article V)
<PAGE> 86
ARTICLE VI
THE TRUSTEE AND REMARKETING AGENT
Section 6.01. Trustee's Acceptance and Responsibilities. The Trustee
accepts the trusts imposed upon it by this Indenture, and agrees to observe and
perform those trusts, but only upon and subject to the terms and conditions set
forth in this Article, to all of which the parties hereto and the Holders agree:
(a) Prior to the occurrence of an Event of Default (as defined in section
7.01 hereof) of which the Trustee has been notified, as provided in paragraph
(f) of Section 6.02 hereof, or of which by that paragraph the Trustee is deemed
to have notice, and after the cure or waiver of all Events of Default which may
have occurred,
(i) the Trustee undertakes to perform only those duties and
obligations which are set forth specifically in this Indenture, and no
duties or obligations shall be implied to the Trustee;
(ii) in the absence of bad faith on its part, the Trustee may rely
conclusively, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this Indenture;
but in the case of any such certificates or opinions which by any
provision hereof are required specifically to be furnished to the
Trustee, the Trustee shall be under a duty to examine the same to
determine whether or not they conform to the requirements of this
Indenture.
(b) In case an Event of Default has occurred and is continuing hereunder
(of which the Trustee has been notified, or is deemed to have notice), the
Trustee shall exercise those rights and powers vested in it by this Indenture
and shall use the same degree of care and skill in their exercise, as a prudent
man acting as a fiduciary would exercise or use under the circumstances.
(c) No provisions of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that:
(i) this subsection shall not be construed to affect the
limitation of the Trustee's duties and obligations provided in
subparagraph (a)(i) of this Section or the Trustee's right to rely on
the truth of statements and the correctness of opinions as provided in
subparagraph (a)(ii) of this Section;
(ii) the Trustee shall not be liable for any error of judgment made
in good faith by any one of its officers, unless it shall be
established that the Trustee was negligent in ascertaining the
pertinent facts;
<PAGE> 87
(iii) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Bank or the Holders of at least a majority in
aggregate principal amount of the Bonds then outstanding relating to
the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred
upon the Trustee, under this Indenture, as provided in Sections 7.04
and 7.05 hereof; and
(iv) no provision of this Indenture shall require the 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 payment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section
6.01.
Section 6.02. Certain Rights and Obligations of the Trustee. Except as
otherwise provided in Section 6.01 hereof:
(a) The Trustee (i) may execute any of the trusts or powers hereof and
perform any of its duties by or through attorneys, agents, receivers or
employees (but shall be answerable therefor only in accordance with the standard
specified above), (ii) shall be entitled to the advice of counsel concerning all
matters of trusts hereof and duties hereunder, and (iii) may pay reasonable
compensation in all cases to all of those attorneys, agents, receivers and
employees reasonably employed by it in connection with the trusts hereof. The
Trustee may act upon the opinion or advice of any attorney (who may be the
attorney or attorneys for the Issuer or the Borrower) approved by the Trustee in
the exercise of reasonable care. The Trustee shall not be responsible for any
loss or damage resulting from any action taken or omitted to be taken in good
faith in reliance upon that opinion or advice.
(b) Except for its certificate of authentication on the Bonds, the Trustee
shall not be responsible for:
(i) any recital in this Indenture or in the Bonds,
(ii) the validity, priority, recording, rerecording, filing or
re-filing of this Indenture or any Supplemental Indenture,
(iii) any instrument or document of further assurance or collateral
assignment,
(iv) any financing statements or amendments thereto,
(v) insurance of the Project or collection of insurance moneys,
<PAGE> 88
(vi) the validity of the execution by the Issuer of this Indenture,
any Supplemental Indenture or instruments or documents of further
assurance,
(vii) the sufficiency of the security for the Bonds issued hereunder
or intended to be secured hereby,
(viii) the value of or title to the Project, or
(ix) the maintenance of the security hereof,
except that, in the event that the Trustee enters into possession of any
property pursuant to any provision of any instrument or document, the Trustee
shall use due diligence in preserving that property. The Trustee shall not be
bound to ascertain or inquire as to the observance or performance of any
covenants, agreements, or obligations on the part of the Issuer or the Borrower
under the Agreement except as set forth herein; but the Trustee may require of
the Issuer or the Borrower full information and advice as to the observance or
performance of those covenants, agreements or obligations. Except as otherwise
provided in Section 7.04 hereof, the Trustee shall have no obligation to observe
or perform any of the duties of the Issuer under the Agreement.
(c) The Trustee shall not be accountable for the application by the
Borrower or any other Person of the proceeds of any Bonds authenticated or
delivered hereunder.
(d) The Trustee shall be protected, in the absence of bad faith on
its part, in acting upon any notice, request, consent, certificate, order,
affidavit, letter, telegram, or other paper or document reasonably believed by
it to be genuine and correct and to have been signed or sent by the proper
Person or Persons. Any action taken by the Trustee pursuant to this Indenture
upon the request or authority or consent of any Person who is the Holder of any
Bonds at the time of making the request or giving the authority or consent,
shall be conclusive and binding upon all future Holders of the same Bond and of
Bonds issued in exchange therefor or in place thereof.
(e) As to the existence or nonexistence of any fact for which the
Issuer, the Borrower or the Bank may be responsible or as to the sufficiency or
validity of any instrument, document, report, paper or proceeding, the Trustee,
in the absence of bad faith on its part, shall be entitled to rely upon a
certificate signed on behalf of the Issuer, the Bank or the Borrower by an
authorized officer or representative thereof as sufficient evidence of the facts
recited therein. Prior to the occurrence of a default or Event of Default
hereunder of which the Trustee has been notified, as provided in paragraph (f)
of this Section, or of which by that paragraph the Trustee is deemed to have
notice, the Trustee may accept a similar certificate to the effect that any
particular dealing, transaction or action is necessary or expedient; provided,
that the Trustee in its discretion may require and obtain any further evidence
which it deems to be necessary or advisable; and, provided further, that the
Trustee shall not be bound to secure any further evidence. The Trustee may
accept a certificate of the officer, or an assistant thereto, having charge of
the appropriate
<PAGE> 89
records, to the effect that legislation has been enacted or adopted by the
Issuer in the form recited in that certificate, as conclusive evidence that the
legislation has been duly enacted or adopted and is in full force and effect.
(f) The Trustee shall not be required to take notice, and shall
not be deemed to have notice, of any default or Event of Default hereunder,
except Events of Default described in paragraphs (a), (b), (c) and (g) of
Section 7.01 hereof, unless the Trustee shall be notified specifically of the
default or Event of Default in a written instrument or document delivered to it
by the Issuer, the Borrower, the Bank, or by the Holders of at least ten percent
(10%) of the aggregate principal amount of the Bonds then outstanding. In the
absence of delivery of a notice satisfying those requirements, the Trustee may
assume conclusively that there is no default or Event of Default, except as
noted above.
(g) At any reasonable time, the Trustee and its duly authorized agents,
attorneys, experts, engineers, accountants and representatives (i) may inspect
and copy fully all books, papers and records of the Issuer pertaining to the
Project, the Letter of Credit and the Bonds, and (ii) may take any memoranda
from and in regard thereto as the Trustee may desire.
(h) The Trustee shall not be required to give any bond or surety with
respect to the execution of these trusts and powers or otherwise in respect of
the premises.
(i) Notwithstanding anything contained elsewhere in this Indenture, the
Trustee may demand any showings, certificates, reports, opinions, appraisals and
other information, and any corporate or partnership action and evidence thereof,
in addition to that required by the terms hereof, as a condition to the
authentication of any Bonds or the taking of any action whatsoever within the
purview of this Indenture, if the Trustee deems it to be desirable for the
purpose of establishing the right of the Issuer to the authentication of any
Bonds or the right of any Person to the taking of any other action by the
Trustee; provided, that the Trustee shall not be required to make that demand.
(j) Before taking action hereunder pursuant to Section 6.04 or Article VII
hereof (with the exception of any action required to be taken under Sections
7.02 or 7.03 hereof and except with respect to drawings made under the Letter of
Credit), the Trustee may, if reasonably necessary, require that a satisfactory
indemnity bond be furnished to it for the reimbursement of all expenses which it
may incur and to protect it against all liability by reason of any action so
taken, except liability which is adjudicated to have resulted from its
negligence or willful misconduct. The Trustee may take action without that
indemnity, and in that case, the Borrower shall reimburse the Trustee for all of
the Trustee's expenses pursuant to Section 6.03 hereof.
(k) Unless otherwise provided herein, all moneys received by the Trustee
under this Indenture shall be held in trust for the purpose for which those
moneys were received, until those moneys are used, applied or invested as
provided herein; provided, that those moneys need not be segregated from other
moneys, except to the extent required by this Indenture or by law. The
<PAGE> 90
Trustee shall not have any liability for interest on any moneys received
hereunder, except to the extent expressly provided herein.
(l) Any legislation enacted or adopted by the Issuer, and any opinions,
certificates and other instruments and documents for which provision is made in
this Indenture, may be accepted by the Trustee, in the absence of bad faith on
its part, as conclusive evidence of the facts and conclusions stated therein and
shall be full warrant, protection and authority to the Trustee for its actions
taken hereunder.
(m) The Trustee shall be entitled conclusively to rely upon the
determination of the interest rates made and delivered to the Trustee by the
Remarketing Agent.
Section 6.03. Fees, Charges and Expenses of Trustee. The Trustee shall
be entitled to payment or reimbursement by the Borrower, as provided in the
Agreement, for reasonable fees and expenses for its Ordinary Services rendered
hereunder and for all advances, counsel fees and other Ordinary Expenses
reasonably and necessarily paid or incurred by it in connection with the
provision of Ordinary Services. For purposes hereof, fees for Ordinary Services
provided for by its standard fee schedule shall be considered reasonable. In the
event that it should become necessary for the Trustee to perform Extraordinary
Services, it shall be entitled to reasonable extra compensation therefor and to
reimbursement for reasonable and necessary Extraordinary Expenses incurred in
connection therewith.
Without creating a default or an Event of Default hereunder, however,
the Borrower may contest in good faith the necessity for any Extraordinary
Service and Extraordinary Expense and the reasonableness of any fee, charge or
expense.
The Trustee shall not be entitled to compensation or reimbursement for
Extraordinary Services or Extraordinary Expenses occasioned by its neglect or
willful misconduct. The payment to which the Trustee is entitled hereunder shall
be made only from (i) the Additional Payments made by the Borrower pursuant to
the Agreement, or (ii) from other moneys available therefor. Any amounts payable
to the Trustee pursuant to this Section 6.03 shall be payable upon demand and
shall bear interest from the date of demand therefor at the Interest Rate for
Advances.
Section 6.04. Intervention by Trustee. The Trustee may intervene on
behalf of the Holders, and shall intervene if requested to do so in writing by
the Holders of at least twenty-five percent (25%) of the aggregate principal
amount of Bonds then outstanding, in any judicial proceeding to which the
Issuer, the Bank or the Borrower is a party and which in the opinion of the
Trustee and its counsel has a substantial bearing on the interests of Holders of
the Bonds. The rights and obligations of the Trustee under this Section are
subject to the approval of that intervention by a court of competent
jurisdiction. The Trustee may require that a satisfactory indemnity bond be
provided to it in accordance with Sections 6.01 and 6.02 hereof before it takes
action under this Section.
<PAGE> 91
Section 6.05. Successor Trustee. Anything herein to the contrary
notwithstanding,
(a) any corporation or association (i) into which the Trustee may be
converted or merged, (ii) with which the Trustee or any successor to it may be
consolidated or (iii) to which it may sell or transfer its assets and trust
business as a whole or substantially as a whole, or any corporation or
association resulting from any such conversion, merger, consolidation, sale or
transfer, ipso facto, shall be and become successor Trustee hereunder and shall
be vested with all of the title to the whole property or trust estate hereunder;
and
(b) that corporation or association shall be vested further, as was its
predecessor, with each and every trust, property, remedy, power, right, duty,
obligation, discretion, privilege, claim, demand, cause of action, immunity,
estate, title, interest and lien expressed or intended by this Indenture to be
exercised by, vested in or conveyed to the Trustee, without the execution or
filing of any instrument or document or any further act on the part of any of
the parties hereto.
Any successor Trustee, however, shall be a trust company or a
commercial bank having the powers of a trust company, authorized to exercise
trust powers in the State, and shall have a reported capital and surplus of not
less than $10,000,000.
Section 6.06. Appointment of Co-Trustee. It is the purpose of this
Indenture that there shall be no violation of any law of any jurisdiction
(including without limitation, the laws of the State) denying or restricting the
right of banks or trust companies to transact business as trustees in that
jurisdiction. It is recognized that, (a) if there is litigation under this
Indenture or other instruments or documents relating to the Bonds and the
Project, and in particular, in case of the enforcement hereof or thereof upon a
default or an Event of Default, or (b) if the Trustee should deem that, by
reason of any present or future law of any jurisdiction, it may not (i) exercise
any of the powers, rights or remedies granted herein to the Trustee, (ii) hold
title to the properties, in trust, as granted herein, or (iii) take any action
which may be desirable or necessary in connection therewith, it may be necessary
that the Trustee appoint an individual or additional institution as a
co-Trustee. The following provisions of this Section are adopted to these ends.
In the event that the Trustee appoints an individual or additional
institution as a co-Trustee, each and every trust, property, remedy, power,
right, duty, obligation, discretion, privilege, claim, demand, cause of action,
immunity, estate, title, interest and lien expressed or intended by this
Indenture to be exercised by, vested in or conveyed to the Trustee shall be
exercisable by, vest in and be conveyed to that co-Trustee, but only to the
extent necessary for it to be so vested and conveyed and to enable that
co-Trustee to exercise it. Every covenant, agreement and obligation necessary to
the exercise thereof by that co-Trustee shall run to and be enforceable by it.
Should any instrument or document in writing from the Issuer reasonably
be required by the co-Trustee so appointed by the Trustee for vesting and
conveying more fully and certainly in and to that co-Trustee those trusts,
properties, remedies, powers, rights, duties, obligations, discretions,
privileges, claims, demands, causes of action, immunities, estates, titles,
interests and
<PAGE> 92
liens, that instrument or document shall be executed, acknowledged
and delivered, but not prepared, by the Issuer. In case any co-Trustee or a
successor to it shall die, become incapable of acting, resign or be removed, all
of the trusts, properties, remedies, powers, rights, duties, obligations,
discretions, privileges, claims, demands, causes of action, immunities, estates,
titles, interests and liens of the co-Trustee shall be exercised by, vest in and
be conveyed to the Trustee, to the extent permitted by law, until the
appointment of a successor to the co-Trustee.
Section 6.07. Resignation by the Trustee. The Trustee may resign at any
time from the trusts created hereby by giving written notice of the resignation
to the Issuer, the Borrower, the Bank and the Remarketing Agent and by mailing
written notice of the resignation to the Holders as their names and addresses
appear on the Register at the close of business fifteen (15) days prior to the
mailing. The resignation shall take effect upon the appointment of a successor
Trustee.
Section 6.08. Removal of the Trustee. The Trustee may be removed at any
time by an instrument or document or concurrent instruments or documents in
writing delivered to the Trustee, with copies thereof mailed to the Issuer, the
Bank, the Remarketing Agent and the Borrower, and signed by or on behalf of the
Holders of at least a majority in aggregate principal amount of the Bonds then
outstanding.
The Trustee also may be removed at any time for any breach of trust or
for acting or proceeding in violation of, or for failing to act or proceed in
accordance with, any provision of this Indenture with respect to the duties and
obligations of the Trustee by any court of competent jurisdiction upon the
application of the Issuer, the Bank or the Holders of not less than twenty
percent (20%) in aggregate principal amount of the Bonds then outstanding under
this Indenture.
Any removal of the Trustee shall take effect upon the appointment of a
successor Trustee.
Section 6.09. Appointment of Successor Trustee. If (i) the Trustee
shall resign, shall be removed, shall be dissolved, or shall become otherwise
incapable of acting hereunder, (ii) the Trustee shall be taken under the control
of any public officer or officers, or (iii) a receiver shall be appointed for
the Trustee by a court, then a successor Trustee shall be appointed by the
Issuer, with the written consent of the Borrower; provided, that if a successor
Trustee is not so appointed within ten (10) days after (a) a notice of
resignation or an instrument or document of removal is received by the Issuer,
as provided in Section 6.07 and 6.08 hereof, respectively, or (b) the Trustee is
dissolved, taken under control, becomes otherwise incapable of acting or a
receiver is appointed, in each case, as provided above, then, so long as the
Issuer shall not have appointed a successor Trustee, the Holders of at least a
majority in aggregate principal amount of Bonds then outstanding may designate a
successor Trustee by an instrument or document or concurrent instrument or
documents in writing signed by or on behalf of those Holders. If no appointment
of a successor Trustee shall be made pursuant to the foregoing provisions of
this Section, the Holder of any Bond outstanding hereunder, the Bank or any
retiring Trustee may apply to any court of competent jurisdiction to appoint a
successor Trustee. Such court may thereupon, after such notice, if any, as such
court may deem proper and prescribe, appoint a successor Trustee.
<PAGE> 93
Every successor Trustee appointed pursuant to this Section shall be a
trust company or a bank having the powers of a trust company and shall have a
reported capital and surplus of not less than $25,000,000 and shall be willing
to accept the trusteeship under the terms and conditions of this Indenture. In
addition, unless an Event of Default hereunder or under the Agreement shall have
occurred and remain uncured, the appointment of any successor Trustee shall be
subject to the written consent of the Borrower, such consent not to be withheld
unreasonably.
Every successor Trustee appointed hereunder shall execute and
acknowledge, and shall deliver to its predecessor, the Issuer, the Bank, the
Remarketing Agent and the Borrower, an instrument or document in writing
accepting the appointment. Thereupon, without any further act, the successor
shall become vested with all of the trusts, properties, remedies, powers,
rights, duties, obligations, discretions, privileges, claims, demands, causes of
action, immunities, estates, titles, interests and liens of its predecessor.
Upon the written request of its successor, the Issuer, the Bank or the Borrower,
the predecessor Trustee (i) shall execute and deliver an instrument or document
transferring to its successor all of the trusts, properties, remedies, powers,
rights, duties, obligations, discretions, privileges, claims, demands, causes of
action, immunities, estates, titles, interests and liens of the predecessor
Trustee hereunder, and (ii) shall take any other action necessary to duly
assign, transfer and deliver to its successor all property (including without
limitation, all securities and moneys and after first deducting any fees and
expenses owed to the Trustee) held by it as Trustee. Should any instrument or
document in writing from the Issuer be requested by any successor Trustee for
vesting and conveying more fully and certainly in and to that successor the
trusts, properties, remedies, powers, rights, duties, obligations, discretions,
privileges, claims, demands, causes of action, immunities, estates, titles,
interests and liens vested or conveyed or intended to be vested or conveyed
hereby in or to the predecessor Trustee, the Issuer shall execute, acknowledge
and deliver that instrument or document.
In the event of a change in the Trustee, the predecessor Trustee shall
cease to be custodian of any moneys which it may hold pursuant to this Indenture
and shall transfer such moneys to the successor Trustee, which shall become
custodian therefor.
Section 6.10. Adoption of Authentication. In case any of the Bonds
shall have been authenticated, but shall not have been delivered, any successor
Trustee may adopt the certificate of authentication of any predecessor Trustee
and may deliver those Bonds so authenticated as provided herein. In case any
Bonds shall not have been authenticated, any successor Trustee may authenticate
those Bonds either in the name of any predecessor or in its own name. In all
cases, the certificate of authentication shall have the same force and effect as
provided in the Bonds or in this Indenture with respect to the certificate of
authentication of the predecessor Trustee.
Section 6.11. Dealing in Bonds. The Trustee, the Bank, their
affiliates, and any directors, officers, partners, employees or agents thereof,
in good faith, may become the owners of Bonds
<PAGE> 94
secured hereby with the same rights which it or they would have hereunder if the
Trustee or the Bank did not serve in those capacities.
Section 6.12. Representations, Agreements and Covenants of Trustee. The
Trustee hereby represents that it is a national banking association duly
organized and validly existing under the laws of the United States and duly
authorized to exercise corporate trust powers in the State, and that it has an
unimpaired reported capital and surplus of not less than $10,000,000. The
Trustee covenants that it will take such action, if any, as is necessary to
remain duly authorized to exercise corporate trust powers and that it will
maintain an unimpaired reported capital and surplus of not less than
$10,000,000. The Trustee accepts and agrees to observe and perform the duties
and obligations of the Trustee to which reference is made in any instrument or
document providing security for any of the Bonds. On or before April 30 of each
year, the Trustee shall provide a written notice to the Issuer specifying the
principal amount of Bonds outstanding as of the preceding December 31.
Section 6.13. Concerning the Remarketing Agent. Banc One Capital
Markets, Inc. is hereby appointed the Remarketing Agent. Any subsequent
Remarketing Agent shall be appointed by the Bank with the consent of the
Borrower and shall meet the qualifications set forth in this Section and Section
6.14 hereof. The Remarketing Agent shall designate to the Trustee its principal
remarketing office and signify its acceptance of the duties and obligations
imposed upon it hereunder by a written instrument of acceptance delivered to the
Issuer, the Bank, the Borrower and the Trustee. In addition, the Remarketing
Agent will agree particularly to:
(a) compute the Weekly Interest Rate, the One Month Interest Rate, the
Three Month Interest Rate, the Six Month Interest Rate, the One Year Interest
Rate, the Five Year Interest Rate and the Fixed Interest Rate, as applicable,
and give notices of such computations to the Trustee on each applicable Interest
Rate Determination Date, all in accordance with this Indenture; and
(b) keep such records relating to its computations of interest rates for
the Project Bonds as shall be consistent with prudent industry practice and to
make such records available for inspection by the Issuer, the Trustee, the Bank
and the Borrower at all reasonable times.
The Remarketing Agent shall be entitled to advice of legal counsel on
any matter relating to the Remarketing Agent's obligations hereunder and shall
be entitled to act upon the opinion of such counsel in the exercise of
reasonable care in fulfilling such obligations.
The Remarketing Agent shall be entitled to appoint additional
co-Remarketing Agents to assist in the performance of the Remarketing Agent's
obligations under this Indenture, and any such appointment shall be effective
without any action by the Issuer, the Borrower or the Bank being necessary;
provided that any such co-Remarketing Agent, shall have a capitalization of at
least $5,000,000, or shall have a line of credit with a commercial bank in the
amount of at least $5,000,000, shall be in conformity with all standards and
requirements of the Municipal Securities Rulemaking Board and the Securities and
Exchange Commission, and shall be authorized by law to perform all the duties
imposed upon it by this Indenture.
<PAGE> 95
Section 6.14. Qualifications of Remarketing Agent. The Remarketing
Agent shall have a capitalization of at least $5,000,000, or have a line of
credit with a commercial bank in the amount of at least $5,000,000 and shall be
authorized by law to perform all the duties imposed upon it by this Indenture.
The Remarketing Agent may at any time resign and be discharged of the duties and
obligations created by this Indenture by giving at least thirty (30) days'
notice of such resignation to the Issuer, the Borrower, the Bank and the
Trustee. The Remarketing Agent may be removed at any time by the Borrower, with
the written consent of the Bank. To effect such removal, the Borrower shall give
at least thirty (30) days' notice of such removal to the Remarketing Agent, the
Issuer, the Bank and the Trustee.
Upon any resignation of the Remarketing Agent, the departing
Remarketing Agent shall pay over, assign and deliver any moneys and Project
Bonds and Beneficial Ownership Interests held by it in such capacity to its
successor or, if there be no successor, to the Trustee.
In the event that the Remarketing Agent shall resign, or be removed or
dissolved, or if the property or affairs of the Remarketing Agent shall be taken
under the control of any state or federal court or administrative body because
of bankruptcy or insolvency, or for any other reason, and the Bank shall not
have appointed a successor Remarketing Agent, the Trustee, notwithstanding the
provisions of the first paragraph of this Section, shall ipso facto be deemed to
be the Remarketing Agent until the appointment by the Borrower of a successor
Remarketing Agent; provided, however, that the Trustee shall not remarket
Project Bonds or Beneficial Ownership Interests or fix the interest rate for the
Project Bonds, but shall be required only to implement the purchase of Project
Bonds and Beneficial Ownership Interests pursuant to a draw on the Letter of
Credit as provided for in Section 5.03 hereof.
The Trustee, within thirty (30) days of the resignation or removal of
the Remarketing Agent or the appointment of a successor Remarketing Agent, shall
give notice thereof by registered or certified mail to the applicable Rating
Service (if the Project Bonds have been rated) and to the registered Holders of
the Project Bonds.
Section 6.15. Remarketing of Project Bonds. No later than 3:00 p.m.
local time at the Operations Office of the Trustee on (a) the eighth Business
Day prior to each Bond Purchase Date while the Project Bonds bear interest at
the Three Month Interest Rate, the Six Month Interest Rate, the One Year
Interest Rate or the Five Year Interest Rate, or (b) the sixth calendar day
prior to each Bond Purchase Date or the next succeeding Business Day if such
sixth day is not a Business Day while the Project Bonds bear interest at the
Weekly Interest Rate, or (c) the fifth Business Day prior to each Bond Purchase
Date while the Project Bonds bear interest at the One Month Interest Rate, the
Trustee shall give notice to the Remarketing Agent by telephone or telecopy,
confirmed on the same day in writing, which states (i) the name and address of
each Holder or Beneficial Owner which has given notice of exercise of an option
with respect to such Bond Purchase Date as provided in paragraph (c) of Section
2.04 hereof, and the principal amount of Project Bonds or Beneficial Ownership
Interests to be tendered by such Holder or Beneficial Owner or deemed tendered
by such Holder, and (ii) the aggregate principal amount of
<PAGE> 96
Project Bonds or Beneficial Ownership Interests which are deemed to be tendered
pursuant to Sections 2.05 or 2.06 hereof. Additionally, no later than 1:00 p.m.
local time at the Operations Office of the Trustee on the eighth Business Day or
the fifth Business Day, whichever is applicable, prior to each Bond Purchase
Date upon which there is a mandatory tender of Project Bonds or Beneficial
Ownership Interests pursuant to Sections 2.05 or 2.06 hereof, the Trustee shall
give notice to the Remarketing Agent by telephone, telecopy or in writing, which
states the aggregate principal amount of Project Bonds with respect to which the
Trustee has not received an election to retain pursuant to Sections 2.05 or 2.06
hereof.
Based upon such notices from the Trustee, the Remarketing Agent shall
use its best efforts to sell all Project Bonds or Beneficial Ownership
Interests, as applicable, tendered pursuant to Sections 2.04, 2.05 and 2.06
hereof for settlement on the applicable Bond Purchase Date. Except as
hereinafter provided, any such sale shall be at such rate of discount or premium
as, in the judgment of the Remarketing Agent, having due regard to prevailing
financial market conditions, shall be necessary.
The Remarketing Agent shall have the right to remarket any Project
Bonds or Beneficial Ownership Interests (or portion thereof) tendered pursuant
to Sections 2.04, 2.05 or 2.06 hereof; provided, however, that no such Bond or
Beneficial Ownership Interest shall be remarketed at a price less than 100% of
the principal amount thereof plus accrued interest (if any) without the prior
written consent of the Borrower and the Bank. The Remarketing Agent shall have
the right to purchase any Project Bond and Beneficial Ownership Interest
tendered or deemed tendered pursuant to Sections 2.04, 2.05 or 2.06 hereof at
100% of the principal amount thereof, and to thereafter sell such Project Bond
or Beneficial Ownership Interest. Any such purchase shall constitute a
remarketing hereunder.
The Remarketing Agent shall not remarket any Project Bond or Beneficial
Ownership Interest to the Issuer, the Borrower, any guarantor of the Bonds
(excluding the Bank) or any person which is an "insider" of the Issuer, the
Borrower or any such guarantor within the meaning of the United States
Bankruptcy Code.
No later than 11:00 a.m. according to the local time at the Drawing
Office of the Bank on each Bond Purchase Date, the Remarketing Agent shall pay
to the Trustee, in immediately available funds, the proceeds theretofore
received by the Remarketing Agent from the remarketing of Project Bonds and
Beneficial Ownership Interests tendered for purchase on such Bond Purchase Date;
provided, that the Remarketing Agent may use its best efforts to cause the
purchasers of the remarketed Project Bonds and the Beneficial Ownership
Interests to pay the purchase price plus accrued interest (if any) to the
Trustee in immediately available funds. The proceeds from the remarketing of the
Project Bonds and Beneficial Ownership Interests shall be segregated from any
funds of the Borrower or the Issuer and shall in no case be considered to be or
be assets of the Borrower or the Issuer.
There shall be deposited in the Remarketing Reimbursement Fund, on each
Bond Purchase Date, the remarketing proceeds received by the Trustee pursuant to
this Section plus, if
<PAGE> 97
necessary, any moneys from a draw on the Letter of Credit to be used to pay the
purchase price of tendered Project Bonds and Beneficial Ownership Interests
required to be purchased on such Bond Purchase Date. There shall also be
deposited in the Remarketing Reimbursement Fund, on each Mandatory Bond Purchase
Date, the moneys drawn on the Letter of Credit to be used to pay the purchase
price of Project Bonds and Beneficial Ownership Interests required to be
purchased on such Mandatory Bond Purchase Date. The Trustee shall use the
amounts deposited in the Remarketing Reimbursement Fund to pay the purchase
price of tendered Project Bonds and Beneficial Ownership Interests. If the
Trustee fails to receive moneys pursuant to a draw properly made on the Letter
of Credit to pay the purchase price of tendered Project Bonds or Beneficial
Ownership Interests, (a) any amount paid by the Bank on such draw shall be
deposited in the Bond Fund and (b) pursuant to Section 7.03 hereof, the Trustee
shall declare the Bonds to be due and payable.
Section 6.16. Delivery of Purchased Project Bonds and Remarketing of
Pledged Bonds. On or before the Business Day next preceding each Bond Purchase
Date, the Remarketing Agent, by telephonic advice, shall notify the Trustee and
the Bank of (i) the principal amount of Project Bonds or Beneficial Ownership
Interests to be sold by the Remarketing Agent pursuant to Section 6.15 hereof
and the purchase price, names, addresses and social security numbers or other
tax identification numbers of the proposed purchasers thereof and (ii) the
principal amount of Project Bonds or Beneficial Ownership Interests tendered for
purchase on such Bond Purchase Date which will not be sold by the Remarketing
Agent pursuant to Section 6.15 hereof. Such telephonic advice shall be confirmed
by written notice delivered or mailed on the same date as the telephonic advice.
Project Bonds and Beneficial Ownership Interests purchased by the
Trustee on a Bond Purchase Date shall be delivered as follows:
(a) Project Bonds sold by the Remarketing Agent pursuant to Section 6.15
hereof shall be delivered to the purchasers thereof. With respect to Beneficial
Ownership Interests sold by the Remarketing Agent pursuant to Section 6.15
hereof, the Remarketing Agent and the Trustee shall take such actions as may be
necessary to reflect the transfer of such Beneficial Ownership Interests to the
purchasers thereof in the book entry system maintained by the Depository.
(b) Project Bonds and Beneficial Ownership Interests not sold by the
Remarketing Agent pursuant to Section 6.15 hereof shall be held as Pledged
Bonds, by the Trustee, as agent for the Bank (provided that if the Project Bonds
are then held in book entry form, the interest of the Trustee in the Pledged
Bonds, as agent for the Bank, shall be recorded through the Depository and no
physical delivery of the Pledged Bonds shall be required), subject to any
instructions from the Bank to deliver the Pledged Bonds to the Bank (or to
record evidence of the Bank's book entry interest therein) and to the pledge in
favor of the Bank created pursuant to the provisions of the Reimbursement
Agreement. Any Pledged Bonds held by the Trustee shall not be released or
transferred except to the Bank or to the Remarketing Agent at the written
direction of the Bank as provided in the last paragraph of this Section.
<PAGE> 98
Project Bonds or Beneficial Ownership Interests (other than Pledged
Bonds) delivered as provided in this Section shall be registered (or recorded
through the Depository) in the manner directed by the recipient thereof. Pledged
Bonds shall be registered (or recorded through the Depository) in the name of
the Bank or its designee, as requested by the Bank.
The Remarketing Agent shall use its best efforts to remarket Pledged
Bonds, provided, however, that the Remarketing Agent shall not remarket Pledged
Bonds tendered as a result of a mandatory tender pursuant to Section 2.07 hereof
prior to receiving written notice from the Trustee that the Letter of Credit or
any Alternate Letter of Credit has been replaced with an Alternate Letter of
Credit which satisfies the requirements of Section 5.09 hereof. Upon the
remarketing of the Pledged Bonds, the Remarketing Agent shall notify the Bank,
the Trustee and the Borrower of such remarketing, the name, address and social
security or other tax identification number of the purchaser, and the date (the
"Placement Date") that the purchaser shall deliver the purchase price to the
Trustee or the Remarketing Agent by 11:00 a.m. local time at the Operations
Office of the Trustee. The Placement Date shall be at least two Business Days
after the date the notice of the purchase is given by the Remarketing Agent.
No later than 11:00 a.m. according to the local time at the Operations
Office of the Trustee on each Placement Date, the Remarketing Agent shall pay to
the Trustee, in immediately available funds, the proceeds theretofore received
by the Remarketing Agent from the remarketing of Pledged Bonds on such Placement
Date; provided, that the Remarketing Agent may use its best efforts to cause the
purchasers of the remarketed Pledged Bonds to pay the purchase price plus
accrued interest (if any) to the Trustee in immediately available funds. The
proceeds from the remarketing of the Pledged Bonds shall be segregated from any
funds of the Borrower or the Issuer and shall in no case be considered to be or
be assets of the Borrower or the Issuer. The Trustee shall deposit such funds in
the Remarketing Reimbursement Fund and shall pay the Bank such funds by wire
transfer on the Placement Date. The Bank shall deliver any Pledged Bonds held by
the Bank (or evidence of book entry interests in such Pledged Bonds) which have
been so remarketed to the Trustee against payment on the Placement Date. With
respect to any Pledged Bonds not so held by the Bank, the Bank shall direct the
Trustee to release such Pledged Bonds which have been so remarketed to the
Remarketing Agent against payment therefor on the Placement Date. On the
Placement Date, the Trustee shall authenticate and deliver, if applicable, new
Bonds in replacement of the remarketed Pledged Bonds to the purchasers thereof.
(End of Article VI)
<PAGE> 99
ARTICLE VII
DEFAULT PROVISIONS AND REMEDIES
OF TRUSTEE AND HOLDERS
Section 7.01. Defaults; Events of Default. The occurrence of any of the
following events is defined as and declared to be and to constitute an Event of
Default hereunder:
(a) Failure to pay when due any interest on any Bond;
(b) Payment of the principal of or any premium on any Bond shall not be
made when and as that principal or premium shall become due and payable, whether
at stated maturity, by redemption, pursuant to any mandatory sinking fund
requirements, by acceleration or otherwise;
(c) Failure to pay on a Bond Purchase Date or Mandatory Bond Purchase Date
amounts due to the Holder of any Project Bonds or the Beneficial Owner of any
Beneficial Ownership Interests tendered or deemed tendered to the Trustee
pursuant to Section 2.04, 2.05, 2.06 or 2.07 hereof;
(d) Failure by the Issuer to observe or perform any other covenant,
agreement or obligation on its part to be observed or performed contained in
this Indenture or in the Bonds, which failure shall have continued for a period
of 30 days after written notice, either by registered or certified mail, to the
Issuer, the Bank and the Borrower specifying the failure and requiring that it
be remedied, which notice may be given by the Trustee in its discretion and
shall be given by the Trustee at the written request of the Bank or the Holders
of not less than 25 percent in aggregate principal amount of Bonds then
outstanding;
(e) The occurrence and continuation of an Event of Default as defined in
Section 7.1 of the Agreement;
(f) Receipt by the Trustee of a written notice from the Bank that an Event
of Default has occurred and is continuing under the Reimbursement Agreement and
directing the Trustee to accelerate the maturity of the Project Bonds;
(g) Failure of the Bank to honor any drawing properly made in accordance
with the terms of the Letter of Credit;
(h) The Bank shall: (i) commence a proceeding under any Federal or state
insolvency, reorganization or similar law, or have such a proceeding commenced
against it and either have an order of insolvency or reorganization entered
against it or have the proceeding remain undismissed and unstayed for 90 days;
or (ii) have a receiver, conservator, liquidator or trustee appointed for it or
for the whole or any substantial part of its property; and
<PAGE> 100
(i) Receipt by the Trustee of written notice from the Bank by the fifth
Business Day following the honoring of an interest drawing on the Letter of
Credit that the amount available to be drawn by the Trustee under the Letter of
Credit has not been reinstated to an amount not less than 100% of the
outstanding principal of, plus 45 days' interest on the Project Bonds (or 195
days' interest on the Project Bonds if the Interest Rate Mode on the Project
Bonds is six months or longer) computed at the Maximum Rate.
The term "default" or "failure" as used in this Article means (i) a
default or failure by the Issuer in the observance or performance of any of the
covenants, agreements or obligations on its part to be observed or performed
contained in this Indenture or in the Bonds, or (ii) a default or failure by the
Borrower under the Agreement, in either case, exclusive of any period of grace
or notice required to constitute a default or failure an Event of Default, as
provided above or in the Agreement.
The provisions of paragraph (h) above are subject to the conditions
that (1) none of the acts or circumstances specified therein shall constitute an
Event of Default if the Borrower, within sixty (60) days thereafter, provides an
Alternate Letter of Credit meeting the requirements of Section 5.09 hereof and
the Trustee shall have complied with the mandatory tender notice provisions of
Section 2.06 hereof and (2) the declaration of an Event of Default due to any of
the acts or circumstances specified therein, and the exercise of remedies upon
any such declaration, shall be subject to any applicable limitations of
bankruptcy, insolvency or receivership laws applicable to the Bank affecting or
precluding such declaration or exercise during the pendency of or immediately
following any bankruptcy, insolvency, receivership, liquidation or
reorganization proceedings.
Section 7.02. Notice of Default. If an Event of Default shall occur,
within five (5) days of obtaining knowledge of such Event of Default, the
Trustee shall give written notice of the Event of Default, by registered or
certified mail, to the Issuer, the Borrower, the Bank and the Remarketing Agent
for the Bonds.
Section 7.03. Acceleration. Upon the occurrence of an Event of Default
as specified in paragraphs (a), (b), (c), (f), (g), or (i) of Section 7.01
hereof, the Trustee shall declare, by a notice in writing delivered to the
Issuer and the Borrower, the principal of all Bonds then outstanding (if not
then due and payable), together with interest accrued thereon, to be due and
payable immediately. Upon the occurrence of any other Event of Default (except
an Event of Default as specified in paragraph (h) of Section 7.01 hereof), the
Trustee shall, upon the written direction of the Bank, declare by a notice in
writing delivered to the Issuer and the Borrower the principal of all Bonds then
outstanding (if not then due and payable), together with interest accrued
thereon, to be due and payable immediately. Upon the occurrence of an Event of
Default described in paragraph (h) of Section 7.01 hereof, if there is not then
existing an Event of Default described in paragraphs (a), (b), (c), (f), (g) or
(i) of Section 7.01 hereof, then the Trustee, without the consent of the Bank,
may, and upon the written request of the Holders of not less than 25% in
aggregate principal amount of Bonds then outstanding shall, declare the
principal of all Bonds then outstanding, together with the interest accrued
thereon, to be due and payable immediately.
<PAGE> 101
Any such declaration shall be by notice in writing to the Issuer, the
Holders, the Bank, the Remarketing Agent and the Borrower, and, upon said
declaration, principal and interest on all Bonds shall become and be immediately
due and payable. The Trustee immediately upon such declaration shall give
written notice thereof to the Holders. Such notice shall specify the date on
which payment of principal and interest shall be tendered to the Holders of the
Bonds. Interest shall accrue to the payment date determined by the Trustee
(which date shall be within the period for which principal and interest on the
Bonds is covered by the amounts available under the Letter of Credit) pursuant
to such declaration or the actual payment date, if later. Upon any declaration
of acceleration hereunder, the Trustee shall immediately exercise such rights as
it may have under the Agreement and the Notes to declare all payments thereunder
to be immediately due and payable and, pursuant to paragraph (b) in Section 5.03
hereof, shall draw upon the Letter of Credit to the full extent permitted by the
terms thereof.
Section 7.04. Other Remedies; Rights of Holders. With or without taking
action under Section 7.03 hereof, upon the occurrence and continuance of an
Event of Default, the Trustee may pursue any other available remedy to enforce
the payment of Bond Service Charges or the observance and performance of any
other covenant, agreement or obligation under this Indenture, the Agreement, the
Notes or any other instrument providing security, directly or indirectly, for
the Bonds, provided that the Trustee shall not pursue any such remedy without
the prior written consent of the Bank so long as no Event of Default described
in Section 7.01(g) or (h) has occurred and is continuing.
If, upon the occurrence and continuance of an Event of Default, the
Trustee is required so to do by the Holders of at least a majority in aggregate
principal amount of Bonds outstanding or by the Bank (if no Event of Default
under Section 7.01(g) or (h) has occurred and is continuing), the Trustee
(subject to the provisions of Sections 6.01 and 6.02 hereof and particularly
subparagraph 6.01(c)(iv) and Subsection 6.02(j) of those Sections) shall
exercise any rights and powers conferred by this Section and by Section 7.03
hereof. Anything in this or the next succeeding paragraph to the contrary
notwithstanding, so long as no Event of Default under Section 7.01(g) or (h)
hereof has occurred and is continuing, the Bank shall have the exclusive right
to give any such directions to the Trustee.
No remedy conferred upon or reserved to the Trustee (or to the Holders)
by this Indenture is intended to be exclusive of any other remedy. Each remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or otherwise to the Trustee or to the Holders now or hereafter
existing.
No delay in exercising or omission to exercise any remedy, right or
power accruing upon any default or Event of Default shall impair that remedy,
right or power or shall be construed to be a waiver of any default or Event of
Default or acquiescence therein. Every remedy, right and power may be exercised
from time to time and as often as may be deemed to be expedient.
<PAGE> 102
No waiver of any default or Event of Default hereunder, whether by the
Trustee or by the Holders, shall extend to or shall affect any subsequent
default or Event of Default or shall impair any remedy, right or power
consequent thereon.
As the assignee of all right, title and interest of the Issuer in and
to the Agreement (except for the Unassigned Issuer's Rights), the Trustee is
empowered to enforce each remedy, right and power granted to the Issuer under
the Agreement.
Section 7.05. Right of Holders to Direct Proceedings. Anything to the
contrary in this Indenture notwithstanding, the Holders of at least a majority
in aggregate principal amount of Bonds then outstanding shall have the right at
any time to direct, by an instrument or document or instruments or documents in
writing executed and delivered to the Trustee, the method and place of
conducting all proceedings to be taken in connection with the enforcement of the
terms and conditions of this Indenture or any other proceedings hereunder;
provided, that (i) any direction shall not be other than in accordance with the
provisions of law and of this Indenture, (ii) the Trustee shall be indemnified
as provided in Sections 6.01 and 6.02 hereof, (iii) the Trustee may take any
other action which it deems to be proper and which is not inconsistent with the
direction, and (iv) anything in the foregoing to the contrary notwithstanding,
so long as no Event of Default under Section 7.01(g) or (h) hereof has occurred
and is continuing, the Bank shall have the exclusive right to give any such
directions to the Trustee.
Section 7.06. Application of Moneys. All moneys received by the Trustee
after acceleration of the maturity of the Bonds and derived from any drawing
made upon the Letter of Credit shall be applied by the Trustee to and only to
the payment of principal of or interest on the Project Bonds. Subject to the
foregoing, after payment of any costs, expenses, liabilities and advances paid,
incurred or made by the Trustee in the collection of moneys pursuant to any
right given or action taken under the provisions of this Article or the
provision of the Agreement or the Notes (including without limitation,
reasonable attorneys' fees and expenses, except as limited by law or judicial
order or decision entered in any action taken under this Article VII) and all
fees owing to the Trustee for Ordinary or Extraordinary Services and Expenses,
and all amounts owed to the Issuer pursuant to the Unassigned Issuer's Rights,
all moneys received by the Trustee, shall be applied as follows, subject to any
provision made pursuant to Sections 4.05, 5.06 or 5.07 hereof:
(a) Unless the principal of all of the Bonds shall have become, or shall
have been declared to be, due and payable, all of those moneys shall be
deposited in the Bond Fund and shall be applied;
First -- To the payment to the Holders entitled thereto of all
installments of interest then due on the Bonds, in the order of the dates of
maturity of the installments of that interest, beginning with the earliest date
of maturity and if the amount available is not sufficient to pay in full any
particular installment, then to the payment thereof ratably, according to the
amounts due on that installment, to the Holders entitled thereto, without any
discrimination or privilege, except as to any difference in the respective rates
of interest specified in the Bonds; and
<PAGE> 103
Second -- To the payment to the Holders entitled thereto of the unpaid
principal of any of the Bonds which shall have become due (other than Bonds
previously called for redemption for the payment of which moneys are held
pursuant to the provisions of this Indenture), whether pursuant to any mandatory
sinking fund requirements, in the order of their due dates, beginning with the
earliest due date, with interest on those Bonds from the respective dates upon
which they become due at the rates specified in those Bonds, and if the amount
available is not sufficient to pay in full all Bonds due on any particular date,
together with that interest, then to the payment thereof ratably, according to
the amounts of principal due on that date, to the Holders entitled thereto,
without any discrimination or privilege, except as to any difference in the
respective rates of interest specified in the Bonds.
(b) If the principal of all of the Bonds shall have become due or shall
have been declared to be due and payable pursuant to this Article, all of those
moneys shall be deposited into the Bond Fund and shall be applied to the payment
of the principal and interest then due and unpaid upon the Bonds, without
preference or priority of principal over interest, of interest over principal,
of any installment of interest over any other installment of interest, or of any
Bond over any other Bond, ratably, according to the amounts due respectively for
principal and interest, to the Holders entitled thereto, without any
discrimination or privilege, except as to any difference in the respective rates
of interest specified in the Bonds.
(c) If the principal of all of the Bonds shall have been declared to be due
and payable pursuant to this Article, and if that declaration thereafter shall
have been rescinded and annulled under the provisions of Section 7.10 hereof,
subject to the provisions of paragraph (b) of this Section in the event that the
principal of all of the Bonds shall become due and payable later, the moneys
shall be deposited in the Bond Fund and shall be applied in accordance with the
provisions of Article V hereof.
(d) Whenever moneys are to be applied pursuant to the provisions of this
Section, those moneys shall be applied at such times, and from time to time, as
the Trustee shall determine, having due regard to the amount of moneys available
for application and the likelihood of additional moneys becoming available for
application in the future. Whenever the Trustee shall direct the application of
those moneys, it shall fix the date upon which the application is to be made,
and upon that date, interest shall cease to accrue on the amounts of principal,
if any, to be paid on that date, provided the moneys are available therefor. The
Trustee shall give notice of the deposit with it of any moneys and of the fixing
of that date, all consistent with the requirements of Section 3.05 hereof for
the establishment of, and for giving notice with respect to, a Special Record
Date for the payment of overdue interest. The Trustee shall not be required to
make payment of principal of and any premium on a Bond to the Holder thereof,
until the Bond shall be presented to the Trustee for appropriate endorsement or
for cancellation if it is paid fully, subject to the provisions of Section 3.06
hereof.
Section 7.07. Remedies Vested in Trustee. All rights of action
(including without limitation, the right to file proof of claims) under this
Indenture or under any of the Bonds may be enforced by the Trustee without the
possession of any of the Bonds or the production thereof in any trial
<PAGE> 104
or other proceeding relating thereto. Any suit or proceeding instituted by the
Trustee shall be brought in its name as Trustee without the necessity of joining
any Holders as plaintiffs or defendants. Any recovery of judgment shall be for
the benefit of the Holders of the outstanding Bonds, subject to the provisions
of this Indenture.
Section 7.08. Rights and Remedies of Holders. A Holder shall not have
any right to institute any suit, action or proceeding for the enforcement of
this Indenture, for the execution of any trust hereof, or for the exercise of
any other remedy hereunder, unless:
(a) there has occurred and be continuing an Event of Default of which the
Trustee has been notified, as provided in paragraph (f) of Section 6.02 hereof,
or of which it is deemed to have notice under that paragraph,
(b) the Holders of at least twenty-five percent (25%) in aggregate
principal amount of Bonds then outstanding shall have made written request to
the Trustee and shall have afforded the Trustee reasonable opportunity to
proceed to exercise the remedies, rights and powers granted herein or to
institute the suit, action or proceeding in its own name, and shall have offered
indemnity to the Trustee as provided in Sections 6.01 and 6.02 hereof, and
(c) the Trustee thereafter shall have failed or refused to exercise the
remedies, rights and powers granted herein or to institute the suit, action or
proceeding in its own name.
At the option of the Trustee, that notification (or notice), request,
opportunity and offer of indemnity are conditions precedent in every case, to
the institution of any suit, action or proceeding described above. Anything in
the foregoing to the contrary notwithstanding, no Holder of any Bond shall have
any right to institute any suit, action or proceeding at law or in equity for
the enforcement of this Indenture or for the execution of any trust hereof or
for the appointment of a receiver or any other remedy hereunder unless an Event
of Default under Section 7.01(g) or (h) hereof shall have occurred and be
continuing.
No one or more Holders of the Bonds shall have any right to affect,
disturb or prejudice in any manner whatsoever the security or benefit of this
Indenture by its or their action, or to enforce, except in the manner provided
herein, any remedy, right or power hereunder. Any suit, action or proceedings
shall be instituted, had and maintained in the manner provided herein for the
benefit of the Holders of all Bonds then outstanding. Nothing in this Indenture
shall affect or impair, however, the right of any Holder to enforce the payment
of the Bond Service Charges on any Bond owned by that Holder at and after the
maturity thereof, at the place, from the sources and in the manner expressed in
that Bond.
Section 7.09. Termination of Proceedings. In case the Trustee shall
have proceeded to enforce any remedy, right or power under this Indenture in any
suit, action or proceedings, and the suit, action or proceedings shall have been
discontinued or abandoned for any reason, or shall have been determined
adversely to the Trustee, the Issuer, the Trustee, the Bank and the Holders
shall be restored to their former positions and rights hereunder, respectively,
and all rights,
<PAGE> 105
remedies and powers of the Trustee shall continue as if no suit, action or
proceedings had been taken.
Section 7.10. Waivers of Events of Default. Except as hereinafter
provided, at any time, in its discretion, the Trustee, but only with the express
written consent of the Bank, other than in the case of an Event of Default
described in Section 7.01(a), (b), (c), (g) or (h) hereof, may waive any Event
of Default hereunder and its consequences and may rescind and annul any
declaration of maturity of principal of the Bonds. The Trustee shall do so upon
the written request of the Bank (other than in the case of an Event of Default
described in Section 7.01 (a), (b), (c), (g) or (h) hereof). Notwithstanding the
foregoing, prior to waiving any Event of Default described in Section 7.01(f) or
(i) hereof, the Trustee shall have received written confirmation from the Bank
that the Letter of Credit has been reinstated to an amount not less than 100% of
the outstanding principal of, plus 45 days interest (or 195 days interest if the
Interest Rate Mode on the Project Bonds is six months or longer) on, the Project
Bonds computed at the Maximum Rate.
There shall not be so waived, however, any Event of Default described
in paragraphs (a), (b), (c), (g) or (h) of Section 7.01 hereof or any
declaration of acceleration in connection therewith rescinded or annulled except
with the written consent of the Holders of all Bonds then outstanding and of the
Bank. In the case of the waiver or rescission and annulment, or in case any
suit, action or proceedings taken by the Trustee on account of any Event of
Default shall have been discontinued, abandoned or determined adversely to it;
the Issuer, the Trustee, the Bank and the Holders shall be restored to their
former positions and rights hereunder, respectively. No waiver or rescission
shall extend to any subsequent or other Event of Default or impair any right
consequent thereon.
(End of Article VII)
<PAGE> 106
ARTICLE VIII
SUPPLEMENTAL INDENTURES
Section 8.01. Supplemental Indentures Generally. The Issuer and the
Trustee may enter into indentures supplemental to this Indenture, as provided in
this Article and pursuant to the other provisions therefor in this Indenture.
Section 8.02. Supplemental Indentures Not Requiring Consent of Holders.
Without the consent of, or (except as provided in Section 8.04 hereof) notice
to, any of the Holders, the Issuer and the Trustee, but with the prior consent
of the Bank and the Borrower, may enter into indentures supplemental to this
Indenture which shall not, in the opinion of the Issuer and the Trustee, be
inconsistent with the terms and provisions hereof for any one or more of the
following purposes:
(a) To cure any ambiguity, inconsistency or formal defect or omission in
this Indenture;
(b) To grant to or confer upon the Trustee for the benefit of the
Holders any additional rights, remedies, powers or authority that lawfully may
be granted to or conferred upon the Holders or the Trustee;
(c) To assign additional revenues under this Indenture;
(d) To accept additional security and instruments and documents of further
assurance with respect to the Project;
(e) To add to the covenants, agreements and obligations of the Issuer under
this Indenture, other covenants, agreements and obligations to be observed for
the protection of the Holders, or to surrender or limit any right, power or
authority reserved to or conferred upon the Issuer in this Indenture including,
without limitation, the limitation of rights of redemption so that in certain
instances Bonds of different series will be redeemed in some prescribed
relationship to one another for the protection of the Holders of a particular
series of Bonds;
(f) To evidence any succession to the Issuer and the assumption by its
successor of the covenants, agreements and obligations of the Issuer under this
Indenture, the Agreement and the Bonds;
(g) To permit the exchange of Bonds, at the option of the Holder or Holders
thereof, for coupon Bonds of the same series payable to bearer, in an aggregate
principal amount not exceeding the unmatured and unredeemed principal amount of
the Predecessor Bonds, bearing interest at the same rate or rates and maturing
on the same date or dates, with coupons attached representing all unpaid
interest due or to become due thereon if, in the opinion of Bond Counsel
selected by the Borrower and acceptable to the Trustee, that exchange would not
result in the interest on any of the Bonds outstanding becoming subject to
federal income taxation;
<PAGE> 107
(h) To permit the Trustee to comply with any obligations imposed upon it by
law;
(i) To specify further the duties and responsibilities of, and to define
further the relationship between, the Trustee and the Remarketing Agent;
(j) To achieve compliance of this Indenture with any applicable federal
securities or tax law;
(k) To evidence the appointment of a new Remarketing Agent;
(l) To make necessary or advisable amendments or additions in connection
with the issuance of Additional Bonds in accordance with Section 2.09 hereof as
do not adversely affect the Holders of outstanding Bonds;
(m) To permit any other amendment which, in the judgment of the Trustee, is
not to the prejudice of the Trustee or the Holders including, but not limited
to, changes required in order to obtain or maintain a rating on any series of
Bonds from a Rating Service; and
(n) To accept a Supplemental Credit Facility as provided in Section 8.04
hereof.
The Trustee may also accept, without the consent of or notice to any
of the Holders, an Alternate Letter of Credit or any amendments to the Letter of
Credit necessary to continue the effectiveness of the Letter of Credit as
originally intended or which in the judgment of the Trustee are not to the
prejudice of the Holders.
The provisions of Subsections 8.02(h) and (j) hereof shall not be
deemed to constitute a waiver by the Trustee, the Issuer or any Holder of any
right which it may have in the absence of those provisions to contest the
application of any change in law to this Indenture or the Bonds.
Section 8.03. Supplemental Indentures Requiring Consent of Holders.
Exclusive of Supplemental Indentures to which reference is made in Section 8.02
hereof and subject to the terms, provisions and limitations contained in this
Section, and not otherwise, with the consent of the Holders of not less than a
majority in aggregate principal amount of the Bonds at the time outstanding,
evidenced as provided in this Indenture, with the consent of the Borrower and
the Bank, the Issuer and the Trustee may execute and deliver Supplemental
Indentures adding any provisions to, changing in any manner or eliminating any
of the provisions of this Indenture or any Supplemental Indenture or restricting
in any manner the rights of the Holders. Nothing in this Section or Section 8.02
hereof shall permit, or be construed as permitting:
(a) without the consent of the Holder of each Bond so affected and the
Bank, (i) an extension of the maturity of the principal of or the interest on
any Bond, (ii) a reduction in the principal amount of any Bond or the rate of
interest or premium thereon, or (iii) a reduction in the amount or extension of
the time of paying of any mandatory sinking fund requirements, or
<PAGE> 108
(b) without the consent of the Holders of all Bonds then
outstanding and the Bank, (i) the creation of a privilege or priority of any
Bond or Bonds over any other Bond or Bonds, or (ii) a reduction in the aggregate
principal amount of the Bonds required for consent to a Supplemental Indenture.
If the Issuer shall request that the Trustee execute and deliver any
Supplemental Indenture for any of the purposes of this Section, upon (i) being
satisfactorily indemnified with respect to its expenses in connection therewith,
and (ii) receipt of the Borrower's and Bank's consent to the proposed execution
and delivery of the Supplemental Indenture, the Trustee shall cause notice of
the proposed execution and delivery of the Supplemental Indenture to be mailed
by first class mail, postage prepaid, to all Holders of Bonds then outstanding
at their addresses as they appear on the Register at the close of business on
the fifteenth day preceding that mailing.
The Trustee shall not be subject to any liability to any Holder by
reason of the Trustee's failure to mail, or the failure of any Holder to
receive, the notice required by this Section. Any failure of that nature shall
not affect the validity of the Supplemental Indenture when there has been
consent thereto as provided in this Section. The notice shall set forth briefly
the nature of the proposed Supplemental Indenture and shall state that copies
thereof are on file at the Operations Office of the Trustee for inspection by
all Holders.
If the Trustee shall receive, within a period prescribed by the Issuer,
of not less than sixty (60) days, but not exceeding one year, following the
mailing of the notice, an instrument or document or instruments or documents, in
form to which the Trustee does not reasonably object, purporting to be executed
by the Holders of at least a majority in aggregate principal amount of the Bonds
then outstanding (which instrument or document or instruments or documents shall
refer to the proposed Supplemental Indenture in the form described in the notice
and specifically shall consent to the Supplemental Indenture in substantially
that form), the Trustee shall, but shall not otherwise, execute and deliver the
Supplemental Indenture in substantially the form to which reference is made in
the notice as being on file with the Trustee, without liability or
responsibility to any Holder, regardless of whether that Holder shall have
consented thereto.
Any consent shall be binding upon the Holder of the Bond giving the
consent and, anything herein to the contrary notwithstanding, upon any
subsequent Holder of that Bond and of any Bond issued in exchange therefor
(regardless of whether the subsequent Holder has notice of the consent to the
Supplemental Indenture). A consent may be revoked in writing, however, by the
Holder who gave the consent or by a subsequent Holder of the Bond by a
revocation of such consent received by the Trustee prior to the execution and
delivery by the Trustee of the Supplemental Indenture. At any time after the
Holders of the required percentage of Bonds shall have filed their consents to
the Supplemental Indenture, the Trustee shall make and file with the Issuer a
written statement that the Holders of the required percentage of Bonds have
filed those consents. That written statement shall be conclusive evidence that
the consents have been so filed.
<PAGE> 109
If the Holders of the required percentage in aggregate principal amount
of Bonds outstanding shall have consented to the Supplemental Indenture, as
provided in this Section, no Holder shall have any right (a) to object to (i)
the execution or delivery of the Supplemental Indenture, (ii) any of the terms
and provisions contained therein, or (iii) the operation thereof, (b) to
question the propriety of the execution and delivery thereof, or (c) to enjoin
or restrain the Trustee or the Issuer from that execution or delivery or from
taking any action pursuant to the provisions thereof.
Section 8.04. Acceptance of Supplemental Credit Facility. Upon the
request of the Borrower, the Trustee will accept a Supplemental Credit Facility
presented by the Borrower in order to obtain or maintain a rating on the Bonds,
provided the Trustee is provided with the following:
(a) An opinion of Bond Counsel selected by the Borrower and acceptable to
the Trustee to the effect that acceptance of the proposed Supplemental Credit
Facility will not impair the exemption of interest on the Bonds from Federal
income taxation;
(b) Written evidence reasonably satisfactory to the Trustee, that
upon issuance and delivery of the Supplemental Credit Facility, the Bonds will
be rated by a Rating Agency in one of its three highest rating categories; and
(c) The written consent of the entity which will be the Bank after
the acceptance of such Supplemental Credit Facility.
Notice of the proposed delivery of any Supplemental Credit Facility
shall be given by the Trustee to the Bondholders at least 30 days prior to the
effectiveness of such Supplemental Credit Facility. Such notice shall specify
the issuer of the Supplemental Credit Facility and the proposed effective date.
Upon the effectiveness of the Supplemental Credit Facility, the Trustee shall
mail notice to each Bondholder confirming that the Supplemental Credit Facility
has been delivered and is effective.
Section 8.05. Consent of Borrower. Anything contained herein to the
contrary notwithstanding, a Supplemental Indenture executed and delivered in
accordance with this Article VIII shall not become effective unless and until
the Borrower shall consent in writing to the execution and delivery of that
Supplemental Indenture.
Section 8.06. Authorization to Trustee; Effect of Supplement. The
Trustee is authorized to join with the Issuer in the execution and delivery of
any Supplemental Indenture in accordance with this Article and to make the
further agreements and stipulations which may be contained therein. Thereafter,
(a) that Supplemental Indenture shall form a part of this Indenture;
<PAGE> 110
(b) all terms and conditions contained in that Supplemental
Indenture as to any provision authorized to be contained therein shall be deemed
to be a part of the terms and conditions of this Indenture for any and all
purposes;
(c) this Indenture shall be deemed to be modified and amended in
accordance with the Supplemental Indenture; and
(d) the respective rights, duties and obligations under this Indenture of
the Issuer, the Borrower, the Trustee, the Bank, the Remarketing Agent and all
Holders of Bonds then outstanding shall be determined, exercised and enforced
hereunder in a manner which is subject in all respects to those modifications
and amendments made by the Supplemental Indenture.
Express reference to any executed and delivered Supplemental Indenture
may be made in the text of any Bonds issued thereafter, if that reference is
deemed necessary or desirable by the Trustee or the Issuer. A copy of any
Supplemental Indenture for which provision is made in this Article shall be
mailed by the Trustee to the Remarketing Agent. The Trustee shall not be
required to execute any Supplemental Indenture containing provisions adverse to
the Trustee.
Section 8.07. Opinion of Counsel. The Trustee shall be entitled to
receive, and shall be fully protected in relying upon, the opinion of any
counsel approved by it as conclusive evidence that (i) any proposed Supplemental
Indenture complies with the provisions of this Indenture, and (ii) it is proper
for the Trustee to join in the execution of that Supplemental Indenture under
the provisions of this Article. That counsel may be counsel for the Issuer or
the Borrower.
Section 8.08. Modification by Unanimous Consent. Notwithstanding
anything contained elsewhere in this Indenture, the rights and obligations of
the Issuer and of the Holders, and the terms and provisions of the Bonds and
this Indenture or any Supplemental Indenture, may be modified or altered in any
respect with the consent of (i) the Issuer, (ii) the Holders of all of the Bonds
then outstanding, (iii) the Bank, (iv) the Borrower, and (v) if such
modifications or alterations contain provisions adverse to the Trustee, the
Trustee.
(End of Article VIII)
<PAGE> 111
ARTICLE IX
DEFEASANCE
Section 9.01. Release of Indenture. If (i) the Issuer shall pay all of
the outstanding Bonds, or shall cause them to be paid and discharged, or if
there otherwise shall be paid to the Holders of the outstanding Bonds all Bond
Service Charges due or to become due thereon, and (ii) provision also shall be
made for the payment of all other sums payable hereunder or under the Agreement
and the Notes, then this Indenture shall cease, determine and become null and
void (except for those provisions surviving by reason of Section 9.03 hereof in
the event the Bonds are deemed paid and discharged pursuant to Section 9.02
hereof), and the covenants, agreements and obligations of the Issuer hereunder
shall be released, discharged and satisfied.
Thereupon, and subject to the provisions of Section 9.03 hereof, if
applicable,
(i) the Trustee shall release this Indenture (except for those
provisions surviving by reason of Section 9.03 hereof), and shall
execute and deliver to the Issuer any instruments or documents in
writing as shall be requisite to evidence that release and discharge or
as reasonably may be requested by the Issuer, and
(i) the Trustee shall assign and deliver to the Issuer any
property subject at the time to the lien of this Indenture which then
may be in its possession, except amounts in the Bond Fund required (a)
to be paid to the Bank under Section 5.08 hereof, or (b) to be held by
the Trustee under Section 5.07 hereof or otherwise for the payment of
Bond Service Charges.
Section 9.02. Payment and Discharge of Bonds. All or any part of the
Bonds shall be deemed to have been paid and discharged within the meaning of
this Indenture, including without limitation, Section 9.01 hereof, if:
(a) the Trustee shall have received, in trust for and irrevocably committed
thereto, sufficient moneys which are Eligible Funds or the proceeds of drawings
under the Letter of Credit used to make such payment, or other moneys if
accompanied by an opinion of bankruptcy counsel in a form acceptable to the
Trustee and the Rating Service (if any) for the Bonds, or
(b) the Trustee shall have received, in trust for and irrevocably committed
thereto, noncallable Government Obligations (purchased with Eligible Funds or
the proceeds of drawings under the Letter of Credit, or other moneys if
accompanied by an opinion of bankruptcy counsel in a form acceptable to the
Trustee and the Rating Service (if any) for the Bonds) which are certified by an
independent public accounting firm of national reputation to be of such
maturities or redemption dates and interest payment dates, and to bear such
interest, as will be sufficient together with any moneys to which reference is
made in subparagraph (a) above, without further investment or reinvestment of
either the principal amount thereof or the interest earnings therefrom (which
earnings are to be held likewise in trust and so committed, except as provided
<PAGE> 112
herein), for the payment of all Bond Service Charges on those Bonds, on and to
the next Interest Rate Adjustment Date, or prior redemption date, as the case
may be; provided, if any of those Bonds are to be redeemed prior to the maturity
thereof, notice of that redemption shall have been duly given or irrevocable
provision satisfactory to the Trustee shall have been duly made for the giving
of that notice; and further provided that no Bonds, or any part thereof, shall
be deemed to have been paid and discharged within the meaning of this Section
9.02 (i) if the Interest Rate Mode of such Bonds is other than the Fixed
Interest Rate, unless such Bonds are to be redeemed on or prior to the next
Interest Rate Adjustment Date for such Bonds and notice of that redemption shall
have been duly given or irrevocable provision satisfactory to the Trustee shall
have been duly made for the giving of that notice, or (ii) if the Interest Rate
Mode of such Bonds is a Weekly Interest Rate.
Notwithstanding anything herein to the contrary, if any Bonds are then
rated by a Rating Service, no such Bonds shall be deemed to have been paid and
discharged by reason of any deposit pursuant to paragraphs (a) and/or (b) above
(other than any deposit of moneys, or Government Obligations purchased with
moneys, which are the proceeds of drawings under the Letter of Credit) unless
each such Rating Service shall have confirmed in writing to the Trustee that its
rating will not be withdrawn or lowered as the result of any such deposit.
Any moneys held by the Trustee in accordance with the provisions of
this Section may be invested by the Trustee only in noncallable Government
Obligations having maturity dates, or having redemption dates which, at the
option of the Holder of those obligations, shall be not later than the date or
dates at which moneys will be required for the purposes described above. To the
extent that any income or interest earned by, or increment to, the investments
held under this Section is determined from time to time by the Trustee to be in
excess of the amount required to be held by the Trustee for the purposes of this
Section, that income, interest or increment shall be transferred at the time of
that determination in the manner provided in Section 5.08 hereof for transfers
of amounts remaining in the Bond Fund.
If any Bonds shall be deemed paid and discharged pursuant to this
Section 9.02, then within fifteen (15) days after such Bonds are so deemed paid
and discharged the Trustee shall cause a written notice to be given to each
Holder thereof as shown on the Register on the date on which such Bonds are
deemed paid and discharged. Such notice shall state the numbers of the Bonds
deemed paid and discharged or state that all Bonds of a particular series are
deemed paid and discharged, set forth a description of the obligations held
pursuant to subparagraph (b) of the first paragraph of this Section 9.02 and
specify any date or dates on which any of the Bonds are to be called for
redemption pursuant to notice of redemption given or irrevocable provisions made
for such notice pursuant to the first paragraph of this Section 9.02.
Section 9.03. Survival of Certain Provisions. Notwithstanding the
foregoing, any provisions of the Bond Legislation and this Indenture which
relate to the maturity of Bonds, interest payments and dates thereof, optional
and mandatory redemption provisions, credit against mandatory sinking fund
requirements, exchange, transfer and registration of Bonds, replacement of
mutilated, destroyed, lost or stolen Bonds, the safekeeping and cancellation of
Bonds, non-
<PAGE> 113
presentment of Bonds, the holding of moneys in trust, the Rebate Fund, and
repayments to the Bank from the Bond Fund, and the duties of the Trustee and the
Remarketing Agent, in connection with all of the foregoing, shall remain in
effect and be binding upon the Trustee, the Remarketing Agent and the Holders
notwithstanding the release and discharge of this Indenture. The provisions of
this Article and Section 6.03 hereof shall survive the release, discharge and
satisfaction of this Indenture.
(End of Article IX)
<PAGE> 114
ARTICLE X
COVENANTS AND AGREEMENTS
OF THE ISSUER
Section 10.1. Covenants and Agreements of the Issuer. In addition to
any other covenants and agreements of the Issuer contained in this Indenture or
the Bond Ordinance, the Issuer further covenants and agrees with the Holders and
the Trustee as follows:
(a) Payment of Bond Service Charges. The Issuer will pay all Bond
Service Charges, or cause them to be paid, solely from the sources provided
herein, on the dates, at the places and in the manner provided in this
Indenture.
(b) Revenues and Assignment of Revenues. The Issuer will not assign the
Revenues or create or authorize to be created any debt, lien or charge thereon,
other than the assignment thereof under this Indenture.
(c) Recordings and Filings. At the direction and expense of the Borrower,
the Issuer will cause this Indenture, and any related instrument or documents
relating to the assignment made by it under this Indenture to secure the Bonds,
to be recorded and filed in the manner and in the places (if any) which may be
required by law in order to preserve and protect fully the security of the
Holders and the rights of the Trustee hereunder.
Not more than once every five (5) years the Trustee may reasonably
request at Borrower's expense an opinion of counsel, addressed to the Issuer and
the Trustee stating that based upon the law in effect on the date of such
opinion no filing, registration or recording and no refiling, reregistration or
rerecording of any agreement or instrument, including any financing statement or
amendments thereto, or any continuation statements or instruments of a similar
character relating to the pledges and assignments made by the Issuer or the
Borrower to secure the Bonds, is required by law, in order to fully preserve and
protect the security of the Trustee and the rights of the Trustee under the
Indenture, or if such filing, registration, recording, refiling, reregistration
or rerecording is necessary, setting forth the requirements in respect thereto.
The Borrower, with such assistance and cooperation from the Issuer as the
Borrower may reasonably request, shall take or cause to be taken all actions
necessary to satisfy any such requirements. Promptly after any filing,
registration, recording, refiling, reregistration or rerecording of any such
agreement or instrument, the Trustee may request at Borrower's expense an
opinion of counsel on behalf of the Issuer and the Trustee to the effect that
such filing, registration, recording, refiling, reregistration or rerecording
has been duly accomplished and setting forth the particulars thereof. The
Trustee shall be reimbursed by the Borrower for the reasonable fees paid in
connection with such opinions of counsel.
(d) Inspection of Books. All books, instruments and documents in the
Issuer's possession relating to the Project and the Revenues shall be open to
inspection and copying (at the expense of the Person making such copies) at all
times during the Issuer's regular business hours by any
<PAGE> 115
accountants or other agents of the Trustee, the Borrower or the Bank which the
Trustee, the Borrower or the Bank may designate from time to time.
(e) Register. At reasonable times and under reasonable regulations
established by the Trustee, the Register may be inspected and copied (at the
expense of the Person making such copies) by the Borrower, by the Bank, or by
Holders of twenty-five percent (25%) or more in aggregate principal amount of
the Bonds then outstanding, or a designated representative thereof.
(f) Rights and Enforcement of the Agreement. The Trustee may enforce, in
its name or in the name of the Issuer, all rights for and on behalf of the
Holders, except for Unassigned Issuer's Rights, and may enforce all covenants,
agreements and obligations of the Borrower under and pursuant to the Agreement,
regardless of whether the Issuer is in default in the pursuit or enforcement of
those rights, covenants, agreements or obligations. The Issuer, however, will do
all things and take all actions on its part necessary to comply with covenants,
agreements, obligations, duties and responsibilities on its part to be observed
or performed under the Agreement, and will take all actions within its authority
to keep the Agreement in effect in accordance with the terms thereof.
(g) Federal Tax Exemption. The Issuer covenants that it (i) will take, or
require to be taken, all actions that may be required of the Issuer for the
interest on the Bonds to be and remain excluded from gross income for federal
income tax purposes and (ii) will not take or authorize to be taken any actions
that would adversely affect that exclusion under the provisions of the Code.
Section 10.02. Observance and Performance of Covenants, Agreements,
Authority and Actions. The Issuer will observe and perform faithfully at all
times all covenants, agreements, authority, actions, undertakings, stipulations
and provisions to be observed or performed on its part under the Agreement, the
Indenture, the Bond Ordinance and the Bonds which are executed, authenticated
and delivered under this Indenture, and under all proceedings of the Issuer
pertaining thereto. The Issuer represents and warrants that:
(a) It is duly authorized by te laws of the State, particularly and without
limitation the Act, to issue the Project Bonds, to execute and deliver this
Indenture, the Agreement and the Bond Purchase Agreement and to provide the
security for payment of the Bond Service Charges in the manner and to the extent
set forth in this Indenture.
(b) All actions required on its part to be performed for the issuance, sale
and delivery of the Project Bonds and for the execution and delivery by the
Issuer of this Indenture, the Agreement and the Bond Purchase Agreement have
been or will be taken duly and effectively.
(c) The Project Bonds will be valid and enforceable special limited
obligations of the Issuer according to their terms.
Section 10.03. Payment Solely From Sources Described in Indenture and
Agreement . The Issuer shall not be required to pay any Bond Service Charges or
any other charges, fees or
<PAGE> 116
expenses in connection with the Bonds, this Indenture, the Agreement, the Letter
of Credit or the enforcement of any rights and remedies exercised by parties
other than the Issuer under the Bonds, this Indenture, the Agreement or the
Letter of Credit from any funds or sources other than those provided under this
Indenture and the Agreement.
(End of Article X)
<PAGE> 117
ARTICLE XI
AMENDMENTS TO THE AGREEMENT,
THE NOTES AND THE LETTER OF CREDIT
Section 11.01. Amendments Not Requiring Consent of Holders. Without the
consent of or notice to the Holders, the Issuer and the Trustee, with the
written consent of the Bank, may consent to any amendment, change or
modification of the Agreement, a Note, or the Letter of Credit as may be
required (i) by the provisions of the Agreement, a Note, the Letter of Credit or
this Indenture, (ii) in connection with the issuance of any Additional Bonds
under this Indenture, (iii) for the purpose of curing any ambiguity,
inconsistency or formal defect or omission in the Agreement, a Note, the Letter
of Credit or the Indenture, (iv) in connection with an amendment or to effect
any purpose for which there could be an amendment of this Indenture pursuant to
Section 8.02 hereof, or (v) in connection with any other change therein which is
not to the prejudice of the Trustee or the Holders of the Bonds, in the judgment
of the Trustee; provided that if the Bonds of any series are then rated by a
Rating Service, no amendment, change or modification of the Letter of Credit
shall be consented to by the Issuer or the Trustee unless such Rating Service
shall have confirmed in writing that such rating will not be reduced or
withdrawn if such amendment, change or modification is made.
Section 11.02. Amendments Requiring Consent of Holders. Except for the
amendments, changes or modifications contemplated by Section 11.01 hereof,
neither the Issuer nor the Trustee shall consent to:
(a) any amendment, change or modification of the Agreement, a Note, or the
Letter of Credit which would change the amount or times as of which Loan
Payments or drawings on the Letter of Credit are required to be paid, without
the giving of notice as provided in this Section of the proposed amendment,
change or modification and receipt of the written consent thereto of the Bank
and the Holders of all of the then outstanding Bonds affected by such amendment,
change or modification, or
(b) any other amendment, change or modification of the Agreement, a Note or
the Letter of Credit without the giving of notice as provided in this Section of
the proposed amendment, change or modification and receipt or the written
consent thereto of the Bank and the Holders of at least a majority in aggregate
principal amount of Bonds then outstanding affected by such amendment, change or
modification.
The consent of such Holders shall be obtained as provided in Section
8.03 hereof with respect to Supplemental Indentures.
<PAGE> 118
If the Issuer and the Borrower shall request at any time the consent of
the Trustee to any proposed amendment, change or modification of the Agreement,
a Note or the Letter of Credit contemplated in subparagraph (a) or (b), upon
receipt of the written consent of the Bank thereto and upon being indemnified
satisfactorily with respect to expenses, the Trustee shall cause notice of the
proposed amendment, change or modification to be provided in the manner which is
required by Section 8.03 hereof with respect to notice of Supplemental
Indentures. This notice shall set forth briefly the nature of the proposed
amendment, change or modification and shall state that copies of the instrument
or document embodying it are on file at the Operations Office of the Trustee for
inspection by all Holders.
(End of Article XI)
<PAGE> 119
ARTICLE XII
MEETINGS OF HOLDERS
Section 12.01. Purposes of Meetings. A meeting of the Holders of Bonds
may be called at any time and from time to time pursuant to the provisions of
this Article XII, to the extent relevant to the Holders of all of the Bonds or
of Bonds of that series, as the case may be, to take any action (i) authorized
to be taken by or on behalf of the Holders of any specified aggregate principal
amount of the Bonds, or of that series, (ii) under any provision of this
Indenture or (iii) authorized or permitted by law.
Section 12.02. Call of Meetings. The Trustee may call at any time a
meeting of Holders pursuant to Section 12.01 hereof to be held at any reasonable
time and place the Trustee shall determine. Notice of such meeting, setting
forth the time, place and generally the subject thereof, shall be mailed by
first class mail, postage prepaid, not fewer than fifteen (15) nor more than
ninety (90) days prior to the date of the meeting to the Holders at their
addresses as they appear on the Register on the fifteenth day preceding such
mailing, which fifteenth day preceding the mailing shall be the record date for
the meeting.
If at any time the Issuer, the Borrower, the Bank or the Holders of at
least twenty-five percent (25%) in aggregate principal amount of the Bonds, or
if applicable, the affected series of Bonds, then outstanding, shall have
requested the Trustee to call a meeting of Holders, by written request setting
forth the purpose of the meeting, and the Trustee shall not have mailed the
notice of the meeting within twenty (20) days after receipt of the request, then
the Issuer, the Borrower, the Bank or the Holders of Bonds in the amount above
specified may determine the time and the place of the meeting and may call the
meeting to take any action authorized in Section 12.01 hereof by mailing notice
thereof as provided above.
Any meetings of Holders of Bonds affected by a particular matter shall
be valid without notice if the Holders of all Bonds, or if applicable, the
affected series of Bonds, then outstanding are present in person or by proxy, or
if notice is waived before or after the meeting by the Holders of all Bonds, or
if applicable, the affected series of Bonds, outstanding who were not so present
at the meeting, and if the Issuer, the Borrower, the Bank and the Trustee are
either present by duly authorized representatives or have waived notice, before
or after the meeting.
Section 12.03. Voting. To be entitled to vote at any meeting of
Holders, a Person shall (a) be a Holder of one or more outstanding Bonds, or if
applicable, of the affected series of Bonds, as of the record date for the
meeting as determined above, or (b) be a person appointed by an instrument or
document in writing as proxy by a person who is a Holder as of the record date
for the meeting, of one or more outstanding Bonds, or, if applicable, of the
affected series of Bonds. Each Holder or proxy shall be entitled to one vote for
each $100,000 principal amount of Bonds held or represented by it.
<PAGE> 120
The vote upon any resolution submitted to any meeting of Holders shall
be by written ballots on which shall be subscribed the signatures of the Holders
of Bonds or of their representatives by proxy and the identifying number or
numbers of the Bonds held or represented by them.
Section 12.04. Meetings. Notwithstanding any other provision of this
Indenture, the Trustee may make any reasonable regulations which it may deem to
be advisable for meetings of Holders, with regard to:
(a) proof of the holding of Bonds and of the appointment of proxies,
(b) the appointment and duties of inspectors of votes,
(c) recordation of the proceedings of those meetings,
(d) the execution, submission and examination of proxies and other evidence
of the right to vote, and
(e) any other matters concerning the conduct, adjournment or reconvening of
meetings which it may think fit.
The Trustee shall appoint a temporary chair of the meeting by an
instrument or document in writing, unless the meeting shall have been called by
the Issuer, the Borrower, the Bank or by the Holders, as provided in Section
12.02 hereof, in which case the Issuer, the Bank, the Borrower or the Holders
calling the meeting, as the case may be, shall appoint a temporary chair in like
manner. A permanent chair and a permanent secretary of the meeting shall be
elected by vote of the Holders of at least a majority in principal amount of the
Bonds represented at the meeting and entitled to vote.
The only Persons who shall be entitled to be present or to speak at any
meeting of Holders shall be the Persons entitled to vote at the meeting and
their counsel, any representatives of the Trustee and its counsel, any
representatives of the Issuer and its counsel, any representatives of the
Borrower and its counsel, any representatives of the Bank and its counsel and
any representatives of the Remarketing Agent and its counsel.
Section 12.05. Miscellaneous . Nothing contained in this Article XII
shall be deemed or construed to authorize or permit any hindrance or delay in
the exercise of any right or rights conferred upon or reserved to the Trustee or
to the Holders under any of the provisions of this Indenture or of the Bonds by
reason of any call of a meeting of Holders or any right conferred expressly or
impliedly hereunder to make a call.
(End of Article XII)
<PAGE> 121
ARTICLE XIII
MISCELLANEOUS
Section 13.01. Limitation of Rights. With the exception of rights
conferred expressly in this Indenture, nothing expressed or mentioned in or to
be implied from this Indenture or the Bonds is intended or shall be construed to
give to any Person other than the parties hereto, the Borrower, the Remarketing
Agent, the Bank and the Holders of the Bonds any legal or equitable right,
remedy, power or claim under or with respect to this Indenture or any covenants,
agreements, conditions and provisions contained herein. This Indenture and all
of those covenants, agreements, conditions and provisions are intended to be,
and are, for the sole and exclusive benefit of the parties hereto, the Borrower,
the Bank, the Remarketing Agent, the Beneficial Owners and the Holders of the
Bonds, as provided herein. Notwithstanding any provisions hereof to the
contrary, the Bank shall not have any rights hereunder, including, without any
limitation, any right to give any direction or to give or withhold consent,
unless (i) the Letter of Credit is in full force and effect and no Event of
Default has occurred and is continuing under paragraphs (g) or (h) of Section
7.01 hereof or (ii) amounts are owed to the Bank for reimbursement of drawings
under the Letter of Credit.
Section 13.02. Severability. In case any section or provision of this
Indenture, or any covenant, agreement, stipulation, obligation, act or action,
or part thereof, made, assumed, entered into or taken under this Indenture, or
any application thereof, is held to be illegal or invalid for any reason, or is
inoperable at any time, that illegality, invalidity or inoperability shall not
affect the remainder thereof or any other section or provision of this Indenture
or any other covenant, agreement stipulation, obligation, act or action, or part
thereof, made, assumed, entered into or taken under this Indenture, all of which
shall be construed and enforced at the time as if the illegal, invalid or
inoperable portion were not contained therein.
Any illegality, invalidity or inoperability shall not affect any legal,
valid or operable section, provision, covenant, agreement, stipulation,
obligation, act, action, part or application, all of which shall be deemed to be
effective, operative, made, assumed, entered into or taken in the manner and to
the full extent permitted by law from time to time.
Section 13.03. Notices. Except as provided in Section 7.02 hereof or
elsewhere herein, it shall be sufficient service or giving of any notice,
request, complaint, demand or other instrument or document, if it is duly mailed
by first class mail or delivered. Notices to the Issuer, the Bank, the Borrower,
the Remarketing Agent and the Trustee shall be addressed as follows:
<PAGE> 122
(a) If to the Issuer, at:
City of Elkhart, Indiana
City Hall
229 South Second Street
Elkhart, IN 46516-3137
Attn: City Attorney
(b) If to the Borrower, at:
Jameson Inns, Inc.
8 Perimeter Center East, #8050
Atlanta, GA 30346-1603
Attn: ______________
(c) If to the Trustee, at:
Firstar Bank, N.A.
425 Walnut, 6th Floor
P.O. Box 1118
Cincinnati, OH 45201
Attn: Corporate Trust Dept.
(d) If to the Bank, at:
Firstar Bank, N.A.
One Financial Square, Lower Level
Louisville, KY 40202-3322
Attn: John Anfinrud
(e) If to the Remarketing Agent, at:
Banc One Capital Markets, Inc.
One Bank One Plaza
Mail Suite IL1-0463
Chicago, IL 60670-0463
Attn: Mr. Michael C. Alandt
<PAGE> 123
Duplicate copies of each notice, request, complaint, demand or other instrument
or document given hereunder to any of such parties also shall be given to the
others. The foregoing parties may designate, by written notice given hereunder,
any further or different addresses to which any subsequent notice, request,
complaint, demand or other instrument or document shall be sent.
In connection with any notice mailed pursuant to the provisions of this
Indenture, a certificate of the Trustee, the Issuer, the Bank, the Borrower, the
Remarketing Agent or the Holders of the Bonds, whichever or whoever mailed that
notice, that the notice was so mailed shall be conclusive evidence of the proper
mailing of the notice.
Section 13.04. Suspension of Mail. If because of the suspension of
delivery of first class mail, or for any other reason beyond its control, the
Trustee or any other Person shall be unable to mail by the required class of
mail any notice required to be mailed by the provisions of this Indenture, the
Trustee or any other Person shall give such notice in such other manner as in
the judgment of the Trustee or such Person shall most effectively approximate
mailing thereof, and the giving of the notice in that manner for all purposes of
this Indenture shall be deemed to be in compliance with the requirement for the
mailing thereof. Except as otherwise provided herein, the mailing of any notice
shall be deemed complete upon deposit of that notice in the mail and giving of
any notice by any other means of delivery shall be deemed complete upon receipt
of the notice by the delivery service.
Section 13.05. Payments Due on Saturdays, Sundays and Holidays. If any
Interest Payment Date, Bond Purchase Date, Mandatory Bond Purchase Date, date of
maturity of the principal of any Bonds, or date fixed for the redemption of any
Bonds is not a Business Day, then payment of interest, principal and any
redemption premium or any purchase price payment need not be made by the Trustee
on that date, but that payment may be made on the next succeeding Business Day
with the same force and effect as if that payment were made on the Interest
Payment Date, Bond Purchase Date, Mandatory Bond Purchase Date, date of maturity
or date fixed for redemption, and no interest shall accrue for the period after
that date; provided, however, if the Project Bonds bear interest at any of the
Weekly Interest Rate, the One Month Interest Rate or the Three Month Interest
Rate, interest shall accrue from the scheduled date of purchase of Project Bonds
or Beneficial Ownership Interests or from the scheduled date of any maturity or
redemption due date of the Project Bonds until the Business Day on which such
payment is made.
Section 13.06. Instruments of Holders. Any writing, including without
limitation, any consent, request, direction, approval, objection or other
instrument or document, required under this Indenture to be executed by any
Holder may be in any number of concurrent writings of similar tenor and may be
executed by that Holder in person or by an agent or attorney appointed in
writing. Proof of (i) the execution of any writing, including without
limitation, any consent, request, direction, approval, objection or other
instrument or document, (ii) the execution of any writing appointing any agent
or attorney, and (iii) the ownership of Bonds, shall be sufficient for any of
the purposes of this Indenture, if made on the following manner, and if so made,
shall be conclusive in favor of the Trustee with regard to any action taken
thereunder, namely:
<PAGE> 124
(a) The fact and date of the execution by any person of any writing may be
proved by the certificate of any officer in any jurisdiction, who has power by
law to take acknowledgments within the jurisdiction, that the person signing the
writing acknowledged that execution before that officer, or by affidavit of any
witness to that execution;
(b) The fact of ownership of Bonds shall be proved by the Register
maintained by the Trustee.
Nothing contained herein shall be construed to limit the Trustee to the
foregoing proof, and the Trustee may accept any other evidence of the matters
stated therein which it deems to be sufficient. Any writing, including without
limitation, any consent, request, direction, approval, objection or other
instrument or document, of the Holder of any Bond shall bind every further
Holder of the same Bond, with respect to anything done or suffered to be done by
the Issuer, the Trustee, the Bank, the Borrower or the Remarketing Agent
pursuant to that writing.
Section 13.07. Priority of this Indenture. The Indenture shall be
superior to any liens which may be placed upon the Revenues or any other funds
or accounts created pursuant to this Indenture.
Section 13.08. Extent of Covenants; No Personal Liability. All
covenants, stipulations, obligations and agreements of the Issuer contained in
this Indenture are and shall be deemed to be covenants, obligations and
agreements of the Issuer to the full extent authorized by the Act and permitted
by the Constitution of the State. No covenant, stipulation, obligation or
agreement of any present or future member, officer, agent or employee of the
Issuer or the Issuing Authority shall be enforceable against such member,
officer, agent or employee of the Issuer or the Issuing Authority in anything
other than that person's official capacity. Neither the members of the Issuing
Authority nor any official of the Issuer executing the Bonds, this Indenture,
the Agreement or any amendment or supplement hereto or thereto shall be liable
personally on the Bonds or subject to any personal liability or accountability
by reason of the issuance or execution hereof or thereof.
No recourse shall be had for the payment of the principal of or premium
or interest on any of the Bonds or for any claim based thereon or upon any
obligation, covenant or agreement in this Indenture contained against any past,
present or future officer, member, employee or agent of the Issuer, or the
Issuing Authority as such, either directly or through the Issuer, under any rule
of law or equity, statute or constitution, or by the enforcement of any
assessment or penalty or otherwise, and all such liability of any such officers,
members, employees or agents as such is hereby expressly waived and released as
a condition of and consideration for the execution of this Indenture and the
issuance of such Bonds.
Section 13.09. Rating Categories. Except as otherwise expressly
provided herein, any reference herein to a rating category established by a
Rating Service shall mean such category without regard to any modification
thereof by the addition of a plus or minus sign or a number indicating relative
standing within such category.
<PAGE> 125
Section 13.10. Binding Effect. This Indenture shall inure to the
benefit of and shall be binding upon the Issuer and the Trustee and their
respective successors and assigns, subject, however, to the limitations
contained herein.
Section 13.11. Counterparts. This Indenture may be executed in any
number of counterparts, each of which shall be regarded as an original and all
of which shall constitute but one and the same instrument.
Section 13.12. Governing Law. This Indenture and the Bonds shall be
deemed to be contracts made under the laws of the State and for all purposes
shall be governed by and construed in accordance with the laws of the State.
(End of Article XIII)
<PAGE> 126
IN WITNESS WHEREOF, the Issuer and the Trustee, as Trustee, have
executed this Trust Indenture all as of the date first above written.
CITY OF ELKHART, INDIANA
By:
----------------------------------
Mayor
(Seal)
Attest:
--------------------------
Clerk
<PAGE> 127
FIRSTAR BANK, N.A., as Trustee
By:
Its:
<PAGE> 128
TABLE OF CONTENTS
-----------------
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE XI AMENDMENTS TO THE AGREEMENT,
THE NOTES AND THE LETTER OF CREDIT 79
Section 11.01. Amendments Not Requiring Consent of Holders 79
Section 11.02. Amendments Requiring Consent of Holders 79
ARTICLE XII MEETINGS OF HOLDERS 81
Section 12.01. Purposes of Meetings 81
Section 12.02. Call of Meetings 81
Section 12.03. Voting 81
Section 12.04. Meetings 82
Section 12.05. Miscellaneous 82
ARTICLE XIII MISCELLANEOUS 83
Section 13.01. Limitation of Rights 83
Section 13.02. Severability 83
Section 13.03. Notices 83
Section 13.04. Suspension of Mail 85
Section 13.05. Payments Due on Saturdays, Sundays and Holidays 85
Section 13.06. Instruments of Holders 85
Section 13.07. Priority of this Indenture 86
Section 13.08. Extent of Covenants; No Personal Liability 86
Section 13.09. Rating Categories 86
Section 13.10. Binding Effect 87
Section 13.11. Counterparts 87
Section 13.12. Governing Law 87
</TABLE>
iv
<PAGE> 129
ESCROW DEPOSIT AGREEMENT
DATED DECEMBER 22, 1999
BY AND AMONG
JAMESON INNS, INC.
ATLANTA, GEORGIA
CITY OF ELKHART, INDIANA
ELKHART, INDIANA
BANK ONE TRUST COMPANY, NA
AS ESCROW TRUSTEE
AND
BANK ONE TRUST COMPANY, NA
AS PRIOR TRUSTEE
<PAGE> 130
ESCROW DEPOSIT AGREEMENT
This Escrow Deposit Agreement, dated December 22, 1999 (the "Escrow
Deposit Agreement"), by and among Jameson Inns, Inc., a corporation duly
organized and existing under the laws of the State of Georgia (the "Company"),
the City of Elkhart, Indiana (the "Issuer"), Bank One Trust Company, NA,
(successor in interest to The Indiana National Bank) as trustee (the "Prior
Trustee") under a Trust Indenture dated as of December 1, 1986 (the "Prior
Indenture") from the Issuer and Bank One Trust Company, NA, as escrow trustee
(the "Escrow Trustee").
WITNESSETH:
WHEREAS, the Issuer is authorized under Indiana Code 36-7-11.9 and -12,
as amended (collectively, the "Act"), among other things, to issue revenue bonds
and to lend the proceeds therefrom for the purpose of financing and refinancing
the cost of construction and equipping of industrial development projects and
vests the Issuer with powers that may be necessary to enable it to accomplish
such purposes; and
WHEREAS, the Issuer has heretofore executed and delivered the Prior
Indenture for the purpose of providing for the issuance of its Economic
Development Revenue Bonds, Series 1986 (Signature Elkhart Ltd. Project) issued
in the original principal amount of $3,885,000, $3,305,000 of which are now
outstanding (the "Series 1986 Bonds");
WHEREAS, which Series 1986 Bonds maturing after December 1, 1999 (the
"Refunded Bonds") are being refunded by the hereinafter described Series 1999
Bonds and are being defeased by cash; and
WHEREAS, the net proceeds from the issuance and sale of the Series 1986
Bonds were used by the predecessor to the Company to finance or refinance
acquisition, construction and equipping of their existing facilities; and
WHEREAS, the Company has determined that it is in its best interests to
refund the Refunded Bonds in order to achieve a debt service savings; and
WHEREAS, the Issuer is issuing its Adjustable Rate Economic Development
Revenue Refunding Bonds, Series 1999 (Jameson Inns, Inc. Project) in the
aggregate principal amount of $3,305,000 (the "Series 1999 Bonds"), under and
pursuant to the terms of a Trust Indenture dated as of December 1, 1999 (the
"Indenture") from the Issuer to Firstar Bank, N.A., as Trustee (the "Trustee");
and
1
<PAGE> 131
WHEREAS, the Issuer intends to lend the proceeds of the Series 1999
Bonds pursuant to the provisions of a Loan Agreement dated as of December 1,
1999 (the "Loan Agreement") to the Company to refund the Refunded Bonds; and
WHEREAS, the Company has determined to provide for the payment of the
Refunded Bonds by depositing with the Escrow Trustee the proceeds of the Series
1999 Bonds sufficient to pay, without consideration of the reinvestment thereof,
when due upon redemption of the principal of, interest on and premium, if any,
on the Refunded Bonds as described on Exhibit B;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants hereinafter set forth, the parties hereto agree as follows:
Section 1. Receipt of Documents by Escrow Trustee; Incorporation by Reference.
Receipt of true and correct copies of the Prior Indenture, the Loan Agreement,
Mortgage and Security Agreement dated as of December 1, 1986, between the
Company and the Issuer (the "Prior Loan Agreement"), the Indenture and the Loan
Agreement is hereby acknowledged by the Escrow Trustee, and reference herein to
or citation herein of any provision of said documents shall be deemed to be
incorporated as part hereof in the same manner and with the same effect as if
they were fully set forth herein.
Section 2. Creation of Escrow Fund. There is hereby created and established with
the Escrow Trustee a special and irrevocable trust fund designated the "Jameson
Inns, Inc. Escrow Fund" (the "Escrow Fund") to be held in the custody of the
Escrow Trustee as a trust fund for the benefit of the holders of the Refunded
Bonds separate and apart from other funds of the Company or the Issuer, if any,
or of the Escrow Trustee. The Escrow Fund will contain the cash and the
Governmental Obligations deposited pursuant to Section 3 hereof, which are,
without consideration of the reinvestment thereof, at least sufficient to pay
when due upon redemption the principal of, premium, if any, on and interest on
the Refunded Bonds as described on Exhibit B.
Section 3. (a) Funding of the Escrow Fund; Purchase of Governmental Obligations.
(a) Concurrently with the execution of this Escrow Deposit Agreement there is
herewith deposited with the Escrow Trustee immediately available moneys in the
amount of $3,350,659.72, $3,305,000 of which is from proceeds of the Series 1999
Bonds (the "Series 1999 Proceeds"), $7,798.10 of which is released from the
Interest Fund under the Prior Indenture, $1,195.27 of which is released from the
Bond Fund under the Prior Indenture, and $36,666.35 of which is released from
the Debt Service Reserve Fund under the Prior Indenture (collectively, the
"Prior Bond Proceeds" and with the cash and Series 1999 Proceeds collectively,
the "Proceeds").
(b) The Escrow Trustee acknowledges receipt of the Proceeds and agrees to
immediately invest $____________ of the Proceeds in the Governmental Obligations
described in Exhibit A and to deposit such Governmental Obligations in the
Escrow Fund. The Escrow Trustee will hold $______ of the Proceeds as cash.
2
<PAGE> 132
Section 4. Transfers of Funds; Redemption of Refunded Bonds;
Publication of Notice of Redemption. Simultaneously with the issuance of the
Series 1999 Bonds and the creation of the Escrow Fund, the Company shall direct
the Prior Trustee to transfer certain moneys, investments, or other securities
held by the Prior Trustee under the Prior Indenture for deposit with the Escrow
Trustee. The Issuer and the Company hereby instruct the Escrow Trustee to call
the Refunded Bonds for redemption on January 21, 2000, and send the Notice of
Redemption attached hereto as Exhibit C as required by the Prior Indenture.
Section 5. Irrevocable Trust; Application of Escrow Fund. The deposit
of the moneys and Governmental Obligations in the Escrow Fund shall constitute
an irrevocable deposit of said moneys and Governmental Obligations, which,
together with the interest earned thereon and any increment thereto, shall be
held in trust for the benefit of the holders of the Refunded Bonds and shall be
applied solely to the payment of the principal of, premium, if any, and interest
on the Refunded Bonds as described in Exhibit B, with any excess to be applied
as provided in Section 8 hereof.
Section 6. Acceptance of Trust; Investment Powers; Substituted
Governmental Obligations.
(b) The Escrow Trustee hereby accepts the moneys and Governmental
Obligations deposited in the Escrow Fund pursuant to this Escrow Deposit
Agreement. The Escrow Trustee shall apply the moneys and Governmental
Obligations deposited in the Escrow Fund together with any increment thereto and
interest earned thereon, in accordance with the provisions hereof.
(c) The Escrow Trustee hereby accepts the trusts imposed upon it by this
Escrow Deposit Agreement and agrees to perform these trusts as a corporate
trustee ordinarily would perform such trusts under a corporate indenture. The
Escrow Trustee may execute any of the trusts or powers hereof and perform any of
its duties by or through attorneys, agents, receivers or employees but shall not
be answerable for the conduct of the same if appointed in accordance with the
standard specified above, and shall be entitled to advice of counsel concerning
all matters of trusts hereof and the duties hereunder, and may in all cases pay
such reasonable compensation to all such attorneys, certified public
accountants, agents, receivers and employees as may reasonably be employed in
connection with the trusts hereof. The Escrow Trustee may act upon the opinion
or advice of any attorney (who may be the attorney or attorneys for the
Company). The Escrow Trustee shall not be responsible for any loss or damage
resulting from any action or non-action in good faith in reliance upon such
opinion or advice. To the extent permitted by law, the Company shall defend,
indemnify and hold the Escrow Agent and the holders of the Refunded Bonds
harmless from all claims, demands and actions resulting from or arising out of
any alleged deficiency in the Escrow Fund which is not caused by gross
negligence or willful misconduct of the Escrow Agent. This indemnity shall
survive the termination of this Escrow Agreement.
<PAGE> 133
(c) The Escrow Trustee shall have no power or duty to invest any moneys
held hereunder except for the purchase of the Governmental Obligations described
in Exhibit A.
Section 7. Payment of Refunded Bonds. On or before the payment dates
for the Refunded Bonds, the Escrow Trustee shall transfer to the Prior Trustee
funds sufficient to pay interest on, premium, if any, on and principal of the
Refunded Bonds as more specifically described on Exhibit B hereto.
Section 8. Application of Escrow Fund after Payment of Refunded Bonds.
After payment of the principal of, premium, if any, and interest on the Refunded
Bonds as indicated on Exhibit B, all remaining moneys and Governmental
Obligations, if any, together with any increment thereto and interest earned
thereon, in the Escrow Fund, shall be paid over promptly by the Escrow Trustee
to the Company. An amount sufficient to pay, when presented for payment, the
Refunded Bonds which have not been presented for payment when due, including
amounts currently held for such purposes, shall be held by the Prior Trustee
under and pursuant to the requirements of the Prior Indenture.
Section 9. Lien of Holders of Refunded Bonds on Escrow Fund; Obligation
of Issuer. The trusts created hereby shall be irrevocable and the holders of the
Refunded Bonds shall have, and are hereby granted, an express first lien and
security interest and the Escrow Trustee and the holders of the Series 1999
Bonds and all other bonds issued under the Bond Indenture shall have, and are
hereby granted, an express second lien and security interest on all moneys and
Governmental Obligations, including any increment thereto and the interest
earned thereon, in the Escrow Fund until applied in accordance with this Escrow
Deposit Agreement. The Refunded Bonds shall remain an obligation of the Issuer
in accordance with the Prior Indenture but shall only be payable from the Escrow
Fund.
Anything in this Escrow Deposit Agreement to the contrary
notwithstanding, the performance by the Issuer of all duties and obligations
imposed upon it hereby, the exercise by it of all powers granted to it
hereunder, the carrying out of all covenants, agreements and promises made by it
hereunder, and the liability of the Issuer for all warranties and other
covenants hereunder, shall be special and limited obligations of the Issuer,
payable solely from and secured exclusively by the Escrow Fund. Neither this
Escrow Deposit Agreement, nor the obligations of the Issuer hereunder, shall be
in any respect a general obligation of the Issuer, the State of Indiana (the
"State") or any political subdivision thereof, nor shall this Escrow Deposit
Agreement, or the obligations of the Issuer hereunder, be payable in any manner
from revenues raised by taxation. Neither this Escrow Deposit Agreement, nor the
obligations of the Issuer hereunder, shall constitute nor give rise to any
pecuniary liability of the Issuer, the State or any political subdivision
thereof, or a charge against the general credit or taxing powers of the Issuer,
the State or any political subdivision thereof. Neither this Escrow Deposit
Agreement, nor the obligations of the Issuer hereunder, shall constitute an
indebtedness of the Issuer, the State or any political subdivision thereof
within any constitutional or statutory limitation.
<PAGE> 134
No recourse shall be had for any claim based on this Escrow Deposit
Agreement against any past, present or future member, officer, agent, servant or
employee of the Issuer, or any incorporator, member, officer, agent, employee,
director or trustee of any successor body, as such, either directly or through
the Issuer or any successor body, under any constitutional provision, stature or
rule of law or by the enforcement of any assessment or penalty or otherwise, all
such liability and all such claims being hereby expressly waived and released as
a condition of, and as consideration for, the execution of this Escrow Deposit
Agreement. Specifically, the members, officers, employees, agents, servants of
the Issuer are not subject to personal liability or accountability by reason of
any act authorized under the Act, including without limitation the execution of
this Escrow Deposit Agreement.
Section 10. Fees of Prior Trustee and Escrow Trustee. In consideration
of the services rendered and to be rendered by the Escrow Trustee and Prior
Trustee under this Escrow Deposit Agreement, the Company will pay to the Escrow
Trustee and Prior Trustee their proper fees and expenses for duties to be
performed hereunder. Neither the Escrow Trustee nor the Prior Trustee shall have
any lien whatsoever upon any of the amounts in the Escrow Fund for the payment
of any further fees and expenses. The Escrow Trustee and the Prior Trustee agree
not to use the amounts in the Escrow Fund for fees and expenses or in any manner
except as expressly set forth in the Escrow Deposit Agreement.
Section 11. Termination of Escrow Deposit Agreement. This Escrow
Deposit Agreement shall terminate when Refunded Bonds have been paid and
discharged in full in accordance with this Escrow Deposit Agreement and the
Prior Indenture, and any remaining moneys and Governmental Obligations together
with any increment thereto and interest earned thereon in the Escrow Fund have
been paid over by the Escrow Trustee to the Company.
Section 12. Tax Covenant. Each of the Company, the Prior Trustee and
the Escrow Trustee covenants and agrees that the proceeds from the sale of the
Series 1999 Bonds, any moneys attributable to the proceeds of the Series 1986
Bonds, amounts received from the investment of the proceeds of the Series 1999
Bonds and the Series 1986 Bonds and any other amounts treated as proceeds of the
Series 1999 Bonds under the provisions of the Internal Revenue Code of 1954, as
amended, and the Internal Revenue Code of 1986, as amended (collectively, the
"Code"), or any of the regulations and rules adopted pursuant thereto shall not
be invested or otherwise used in a manner which would cause the Series 1999
Bonds or the Series 1986 Bonds to be "arbitrage bonds" within the meaning of
Section 148 of the Code and such regulations or rules adopted pursuant to the
Code as may be applicable.
Section 13. Irrevocable Agreements and Amendments. This agreement is
made for the benefit of the Company and the holders from time to time of the
Refunded Bonds and it shall not be revoked, repealed, altered or amended without
the written consent of all such holders, the Prior Trustee, the Escrow Trustee,
the Issuer, and the Company; provided, however, that the Company, the Issuer,
the Prior Trustee and the Escrow Trustee may, without the consent of, or notice
to, such holders amend this Escrow Deposit Agreement or enter into such
agreements
<PAGE> 135
supplemental to this Escrow Deposit Agreement, as shall not materially adversely
affect the rights of such holders, for any one or more of the following
purposes:
(i) to cure any ambiguity or formal defect or omission in the
Escrow Deposit Agreement,
(ii) to grant to, or confer upon, the Escrow Trustee or the Prior
Trustee for the benefit of the holders of the Series 1986
Bonds, any additional right, remedies, powers or authority
that may lawfully be granted to or conferred upon, the Escrow
Trustee or the Prior Trustee for the benefit of the holders of
the Refunded Bonds,
(iii) to include under this Escrow Deposit Agreement additional
funds, securities or properties.
Section 14. Severability. If any one or more of the covenants or
agreements provided in this Escrow Deposit Agreement on the part of the parties
to be performed should be determined by a court of competent jurisdiction to be
contrary to law, such covenant or agreement shall be deemed and construed to be
severable from the remaining covenants and agreements herein contained and shall
in no way affect the validity of the remaining provisions of this Escrow Deposit
Agreement.
Section 15. Successor Escrow Trustee. It is understood that the Escrow
Trustee reserves the right to resign as Escrow Trustee at any time by giving
written notice of its resignation, specifying the effective date thereof, to
each other party hereto. Within thirty (30) days after receiving the aforesaid
notice, the other party or parties hereto shall appoint a successor Escrow
Trustee to which the Escrow Trustee may distribute the property then held
hereunder. If a successor Escrow Trustee has not been appointed and has not
accepted such appointment by the end of such thirty (30) day period, the Escrow
Trustee may apply to a court of competent jurisdiction for the appointment of a
successor Escrow Trustee.
Section 16. Counterparts; Headings. This Escrow Deposit Agreement may
be executed in several counterparts, all or any of which shall be regarded for
all purposes as an original and shall constitute and be but one and the same
instrument. For purposes of the Indiana Uniform Commercial Code, however, the
original of this instrument held by the Escrow Trustee shall be deemed and
treated as the only original counterpart hereof. The paragraph headings used in
this instrument are for convenience of reference only.
<PAGE> 136
IN WITNESS WHEREOF, the parties hereto have each caused this Escrow
Deposit Agreement to be executed by their duly authorized officers as of the
date first above written.
JAMESON INNS, INC.
By
ATTEST:
By
<PAGE> 137
CITY OF ELKHART, INDIANA
By:
ATTEST:
By
<PAGE> 138
BANK ONE TRUST COMPANY, NA
as Prior Trustee
By:
ATTEST:
By
BANK ONE TRUST COMPANY, NA
as Escrow Trustee
By:
ATTEST:
By
<PAGE> 139
EXHIBIT A
GOVERNMENTAL OBLIGATIONS
<TABLE>
<CAPTION>
Type of Maturity First Interest Par Purchase
Security Date Payment Date Amount Price
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US T-Bill 1/20/00 1/20/00 $3,364,000 $3,350,002.02
</TABLE>
<PAGE> 140
EXHIBIT B
REFUNDED BONDS PRINCIPAL, INTEREST
AND PREMIUM PAYMENTS
Interest: $ 45,659.72
Principal: 3,305,000.00
Premium: -0-
<PAGE> 141
EXHIBIT C
NOTICE OF REDEMPTION
Owners of the $3,305,000 in aggregate principal amount of the City of
Elkhart, Indiana Economic Development Revenue Bonds, Series 1986 (Signature
Elkhart Ltd. Project), dated December 1, 1986, maturing after December 1, 1999
(the "Bonds"), are hereby notified that all such outstanding Bonds will be
redeemed upon presentation at the principal corporate trust office of Bank One
Trust Company, NA, Indianapolis, Indiana, on January 21, 2000, at 100% of face
value, plus accrued interest to January 21, 2000. All such Bonds being redeemed
on January 21, 2000, shall cease to bear interest on January 21, 2000.
Dated this 22nd day of December, 1999.
BANK ONE TRUST COMPANY, NA, as
Trustee
By:
Title:
<PAGE> 142
IRREVOCABLE LETTER OF CREDIT
FIRSTAR BANK, N.A.
Global Services Division
425 Walnut Street, 2nd floor
Cincinnati, OH 45202
Dated: December 22, 1999
Irrevocable Letter of Credit No. _________
Beneficiary:
Applicant:
Firstar Bank, N.A., as Trustee Jameson Inns, Inc.
425 Walnut Street, 6th Floor 8 Perimeter Center, Suite 8050
Cincinnati, Ohio 45202 Atlanta, Georgia 30346-1603
Amount: $3,346,312
Expiration Date: December 31, 2002
Ladies and Gentlemen:
FIRSTAR BANK, N.A. (sometimes hereinafter referred to as the "Bank")
hereby establishes in your favor for the benefit of the Bondholders for the
account of Jameson Inns, Inc. (the "Corporation"), its Irrevocable Letter of
Credit (this "Letter of Credit") in a maximum amount of up to Three Million
Three Hundred Forty-six Thousand Three Hundred Twelve Dollars ($3,346,312) (as
more fully described below) effective immediately and expiring at 4:00 p.m.,
Cincinnati, Ohio time, on December 31, 2002 (the "Expiration Date"), or if the
Expiration Date is not a business day (as hereinafter defined) on the next
succeeding business day, unless terminated earlier in accordance with the
provisions hereof or unless extended by us.
This Letter of Credit is being issued in connection with that certain
Trust Indenture (the "Indenture") between the City of Elkhart, Indiana (the
"Issuer"), and you dated as of the 22nd day of December, 1999, as amended, to
authorize, issue and sell certain Adjustable Rate Economic Development Revenue
Refunding Bonds, Series 1999 (Jameson Inns, Inc. Project) (the "Bonds"), in the
aggregate principal amount of $3,305,000, the payment of which is secured by,
among other things, this Letter of Credit. All capitalized terms used but not
defined herein shall have the meanings ascribed thereto in the Indenture.
<PAGE> 143
As used in this Letter of Credit, the term "Business Day" shall mean a
day of the year, other than (a) a Saturday, (b) a Sunday, (c) a day on which
banks located in any city in which the principal office of the Trustee or our
principal offices are located are required or authorized by law to remain closed
and (d) a day on which The New York Stock Exchange is closed.
You, as Trustee pursuant to the Indenture, are hereby irrevocably
authorized to draw on us, for the account of the Corporation, in accordance with
the terms and conditions hereof and subject to increases and reductions in
amounts as hereinafter set forth, an aggregate amount not exceeding Three
Million Three Hundred Forty-six Thousand Three Hundred Twelve Dollars
($3,346,312) (the "Stated Amount"), of which (A) an aggregate amount not
exceeding $3,305,000.00 may be drawn upon for payment of the unpaid principal
amount of the Bonds or the portion of the purchase price corresponding to the
principal amount of the Bonds or Beneficial Ownership Interests (as hereinafter
defined), and (B) an aggregate amount not exceeding $41,312.00 may be drawn upon
for payment of up to 45 days accrued interest on the Bonds or the portion of the
purchase price of the Bonds or Beneficial Ownership Interests corresponding to
accrued interest. All drawings under this Letter of Credit will be paid with our
own funds and not with funds of the Corporation, the Issuer or any other person,
and prior to any reimbursement thereof.
Funds under this Letter of Credit are only available to you against
your sight draft(s) drawn on us, substantially in the form of Exhibit 1 hereto,
stating on their face: "Drawn under FIRSTAR BANK, N.A. Letter of Credit No.
_______" and upon your presenting to us one or more of the following written
certificates:
(A) If the drawing is made with respect to the payment of the principal
amount of and accrued interest on the Bonds or Beneficial Ownership Interests
delivered to you for purchase pursuant to Sections 2.04 or 2.05 of the
Indenture, but not for purchases under Sections 2.06 or 2.07 of the Indenture, a
written certificate signed by you in the form of Exhibit 2 attached hereto
appropriately completed;
(B) If the drawing is being made for a payment of interest on the
Bonds, a written certificate signed by you in the form of Exhibit 3 attached
hereto appropriately completed;
(C) If the drawing is being made for the payment of principal of the
Bonds due upon redemption, acceleration or scheduled maturity, a written
certificate signed by you in the form of Exhibit 4 attached hereto appropriately
completed; or
(D) If the drawing is being made with respect to the payment of the
principal amount of and accrued interest on the Bonds or Beneficial Ownership
Interests delivered to you for purchase under Sections 2.06 or 2.07 of the
Indenture, a written certificate signed by you in the form of Exhibit 5 attached
hereto appropriately completed.
Presentation of such draft(s) and certificate(s) shall be made on a
business day at our office located at Firstar Bank, N.A., Global Services
Division, 425 Walnut Street, 2nd floor, Cincinnati, OH 45202, or any other place
which may be designated by us by written notice delivered to you. If we receive
any of your drafts drawn hereunder at such office, all in strict
<PAGE> 144
conformity with the terms and conditions of this Letter of Credit, on or prior
to the termination hereof, we will honor the same and make payment hereunder. If
requested by you, payment may be made by deposit of such funds into a designated
bank account that you maintain. If demand for payment is made by you hereunder
at or prior to 11:00 A.M. (Cincinnati, Ohio time) on a Business Day, and
provided that such demand for payment and the drawing certificate presented in
connection therewith conform in all particulars to the terms and conditions
hereof, payment shall be made to you of the amount demanded, in immediately
available funds, on or prior to 11:00 A.M. (Cincinnati, Ohio time) on the next
succeeding Business Day. If demand for payment is made by you hereunder at or
prior to 10:30 A.M. (Cincinnati, Ohio time) on a Business Day relating to a
certificate in the form of Exhibit 2 or Exhibit 5 attached hereto, and provided
that such demand for payment and the drawing certificate presented in connection
therewith conform in all particulars to the terms and conditions hereof, payment
shall be made to you of the amount demanded, in immediately available funds on
the same Business Day.
Upon receipt from you of a written certificate signed by you in the
form of Exhibit 6 attached hereto appropriately completed, stating that a
payment of principal of the Bonds has been made from funds other than amounts
drawn under this Letter of Credit, in accordance with the terms of the
Indenture, the Stated Amount of this Letter of Credit shall be reduced by the
amount of the reduction set forth in such certificate. Drawings in respect of
payments hereunder honored by us shall not, in the aggregate, exceed the Stated
Amount, as the Stated Amount may have been reinstated by us as set forth below.
Upon payment of a drawing hereunder, the Stated Amount of this Letter of Credit
shall be reduced by the amount of such payment except as follows:
(a) Immediately after we honor your demand under this Letter of
Credit accompanied by a certificate in the form of Exhibit 2
attached hereto, an amount equal to such payment shall be
automatically reinstated to the amount of this Letter of
Credit; and
(b) Five Business Days after we honor your demand under this
Letter of Credit accompanied by a ____________________
certificate in the form of Exhibit 3 hereto, an amount equal
to such payment shall be automatically reinstated to the
amount of this Letter of Credit unless (i) you shall have
received our notice to you by hand delivery, telecopy or
registered mail prior to the end of such five Business Day
period that (x) we have not been reimbursed for such payment
in accordance with the terms of the Reimbursement Agreement
dated as of December 22, 1999 between the Borrower and us (the
"Reimbursement Agreement") or (y) any Other Event of Default
under the Reimbursement Agreement has occurred and is
continuing, and as a consequence thereof there shall be no
such reinstatement, or (ii) the fifth Business Day after such
presentation would be after the expiration date of this Letter
of Credit.
Reductions in the Stated Amount which are the result of payments under
the Letter of Credit honoring a demand accompanied by a certificate in the form
of Exhibit 4 hereto or in the form of Exhibit 5 hereto shall not be reinstated.
<PAGE> 145
The Stated Amount shall be reduced upon our receipt of a certificate in
the form of Exhibit 6 hereto and such reduction shall not be subject to
reinstatement.
Only you, as Trustee, or your transferee pursuant to the terms of this
Letter of Credit, may make a drawing under this Letter of Credit. Upon the
payment to you, as Trustee, of the amount specified in a draft drawn hereunder,
we will be fully discharged of our obligation under this Letter of Credit with
respect to such draft and shall not thereafter be obligated to make any further
payments under this Letter of Credit in respect of such draft to you or any
other person who may have made to you or makes to you a demand for payment of
principal of or interest on any Bond. By paying to you an amount demanded in
such draft we make no representation as to the correctness of the amount
demanded in such draft.
This Letter of Credit applies only to the payment of principal of the
Bonds, and up to 45 days' interest accruing on the Bonds on or prior to the
expiration of this Letter of Credit and does not apply to any interest that may
accrue thereon or any principal that may be payable with respect thereto after
such date.
This Letter of Credit shall automatically terminate without any action
or notice and shall be delivered to us for cancellation upon the earliest of:
(i) the honoring of the final drawing not subject to reinstatement available to
be made hereunder; (ii) our receipt of a written certificate signed by your
officer and an officer of the Corporation in the form of Exhibit 7 hereto
appropriately completed, stating that: (a) no Bonds are Outstanding within the
meaning of the Indenture; and (b) such officers are duly authorized to sign such
certificate on behalf of you and the Corporation, respectively; (iii) our
receipt of a written certificate signed by your officer and an authorized
officer of the Corporation in the form of Exhibit 8 hereto appropriately
completed, stating that: (a) an Alternate Letter of Credit (as defined in the
Indenture) has been accepted by the Trustee, and (b) such officers are duly
authorized to sign such certificate on behalf of you and the Corporation; or
(iv) the occurrence of the Expiration Date.
Pursuant to the terms of the Reimbursement, on September 15, 2002 and
thereafter on September 15 of each year, the Expiration Date of this Letter of
Credit may be extended in our sole discretion for an additional period of one
year from the date of expiry then in place, provided that the Corporation has
delivered to us a written request for such extension by no later than December
31 of the year prior to the year in which this Letter of Credit will expire
(assuming an Expiry Date of December 31). Written notice of our decision
regarding the Corporation's request shall be delivered to the Corporation and to
you not later than two (2) months following our receipt of the financial
statements required to be delivered by the Corporation pursuant to Section
8.13(i) of the Reimbursement Agreement. Failure on our part to give notice
within such time period shall be deemed denial of the extension request.
As used herein, "Beneficial Ownership Interest" means the beneficial
right to receive payments and notices with respect to the Bonds which are held
by the Depository (as defined in the Indenture) under a book entry system. As
used herein, "Beneficial Owner" means with respect to the Bonds, a person (as
defined in the Indenture) owning a Beneficial Interest therein, as evidenced to
your satisfaction.
<PAGE> 146
This Letter of Credit is subject to the "Uniform Customs and Practice
for Documentary Credits, 1993 Revision, International Chamber of Commerce
Publication No. 500" (the "Uniform Customs"). This Letter of Credit shall be
deemed to be made under the laws of the State of Indiana, and shall, as to
matters not governed by the Uniform Customs, be governed by and construed in
accordance with the laws of the State of Indiana.
Communications with respect to this Letter of Credit shall be in
writing and shall be addressed to us at Global Services Division, 425 Walnut
Street, 2nd floor, Cincinnati, Ohio 45202, specifically referring to the number
of this Letter of Credit. We will address all communications with respect to
this Letter of Credit to the Trustee at the address set forth on the front page
hereof or to such other address as the Trustee may direct in writing.
In accordance with Article 48 of the Uniform Customs, this Letter of
Credit is transferable in its entirety to any transferee who has succeeded you
as Trustee under the Indenture. Each letter of credit issued upon any such
transfer may be successively transferred. Transfer of the available balance
under this Letter of Credit to such transferee shall be effected by the
presentation to us of this Letter of Credit accompanied by a certificate
substantially in the form of Exhibit 9 attached hereto and payment of a transfer
fee equal to .25% of the Stated Amount then available for draw. Following such
presentation, and as soon as this original Letter of Credit is returned to us
and we have been paid our customary fee, we shall forthwith transfer the same to
your transferee or, if so requested by your transferee, issue an irrevocable
letter of credit to your transferee with provisions therein consistent with
those of this Letter of Credit.
This Letter of Credit sets forth in full our undertaking and shall not
in any way be modified, amended, amplified or limited by reference to any
document, instrument or agreement referred to herein (including, without
limitation, the Bonds and the Indenture), except only the certificate(s) and the
draft(s) referred to herein; and any such reference shall not be deemed to
incorporate herein by reference any document, instrument or agreement except for
such certificate(s) and such draft(s).
Very truly yours,
FIRSTAR BANK, N.A.
By:
-----------------------------------------
Its:
----------------------------------
By:
-----------------------------------------
Its:
----------------------------------
<PAGE> 147
EXHIBIT 1
SIGHT DRAFT
----------------------
Pay on sight to the order of: ________________ U.S. ________________ Dollars
(U.S. $_____).
Charge to account of Jameson Ins, Inc.
Drawn under FIRSTAR BANK, N.A. Letter of Credit No. ________.
TO: FIRSTAR BANK, N.A.
Global Services Division
425 Walnut Street, 2nd floor
Cincinnati, Ohio 45202
The sum drawn does not exceed the difference between (I) the maximum
aggregate amount to be drawn under the Letter of Credit less (II) the aggregate
amount of all previous drawings made under the Letter of Credit which have not
been reinstated pursuant to the terms thereof.
FIRSTAR BANK, N.A., as Trustee
By:
-----------------------------------------
Its:
-----------------------------------------
By:
-----------------------------------------
Its:
-----------------------------------------
<PAGE> 148
EXHIBIT 2
CERTIFICATE FOR DRAWING UNDER
SECTIONS 2.04 OR 2.05 OF INDENTURE
Re: Firstar Bank Irrevocable Letter of Credit No. _____
The undersigned hereby certifies to Firstar Bank, N.A. (the "Bank")
with reference to Irrevocable Letter of Credit No. _____ (the "Letter of
Credit"; the terms "Bonds," "Indenture," "Stated Amount," "Beneficial Owner" and
"Beneficial Ownership Interest" used herein shall have their respective meanings
set forth in the Letter of Credit) that:
1. The undersigned is the Trustee under the Indenture.
2. The undersigned is making this demand for payment under the
Letter of Credit with respect to the payment of the principal
amount of and accrued interest on the Bonds or Beneficial
Ownership Interests delivered to the Trustee for purchase in
accordance with sections 2.04 or 2.05 (but not 2.06 or 2.07)
of the Indenture.
3. The principal amount of Bonds or Beneficial Ownership
Interests which are to be purchased and with respect to the
payment of which the Trustee does not have available amounts
pursuant to section 6.15 of the Indenture, or otherwise, that
are to be applied to such payment prior to moneys demanded
under the Letter of Credit is $____________.
4. The accrued interest on the Bonds or Beneficial Ownership
Interests referred to in paragraph 3 above and with respect to
the payment of which the Trustee does not have available
amounts pursuant to section 6.15 of the Indenture, or
otherwise, that are to be applied to such payment prior to
moneys demanded under the Letter of Credit is $__________.
5. The sum of the amounts set forth in paragraphs 3 and
4 above is $_________ and is the amount of the drawing with
respect to this Certificate.
6. Immediately upon your payment of the amount demanded hereby,
such Bonds or Beneficial Ownership Interests will be held by
us, as your agent and for your benefit as Beneficial Owner,
pending your further instructions to the undersigned.
7. The amount hereby demanded was computed in accordance with the
Indenture and does not exceed the Stated Amount.
<PAGE> 149
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Certificate as of this ______ day of ____________, _____.
FIRSTAR BANK, NA,
as Trustee
By:
-----------------------------------------
Its:
--------------------------------------
<PAGE> 150
EXHIBIT 3
CERTIFICATE FOR INTEREST DRAWING
Re: Firstar Bank Irrevocable Letter of Credit No. _____
The undersigned hereby certifies to Firstar Bank, N.A. (the "Bank")
with reference to Irrevocable Letter of Credit No. _____ (the "Letter of
Credit"; the terms "Bonds," "Business Day," "Indenture" and "Stated Amount" used
herein shall have their respective meanings set forth in the Letter of Credit)
that,
1. The undersigned is the Trustee under the Indenture.
2. The undersigned is making a demand for payment under the
Letter of credit with respect to the payment of interest on
the Bonds.
3. The amount of interest on the Bonds which is due and payable,
or will be due and payable within two Business Days after the
date hereof, is $__________, and the amount of the drawing
with respect to this Certificate does not exceed such amount.
4. The amount hereby demanded was computed in accordance with the
Indenture and does not exceed the Stated Amount,
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Certificate as of the _______ day of ____________, _____.
FIRSTAR BANK, NA,
as Trustee
By:
-----------------------------------------
Its:
--------------------------------------
<PAGE> 151
EXHIBIT 4
CERTIFICATE FOR PRINCIPAL DRAWING UPON
REDEMPTION, ACCELERATION OR SCHEDULED MATURITY
Re: Firstar Bank, N.A. Irrevocable Letter of Credit No. _____
The undersigned hereby certifies to Firstar Bank, N.A. (the "Bank")
with reference to Irrevocable Letter of Credit No. _____ (the "Letter of
Credit"; the terms "Bonds," "Business Day," "Indenture" and "Stated Amount" used
herein shall have their respective meanings set forth in the Letter of Credit)
that:
1. The undersigned is the Trustee under the Indenture.
2. The undersigned is making a demand for payment under the
Letter of Credit with respect to the payment of principal of
the Bonds.
3. The amount of principal of the Bonds which is due and payable,
or will be due and payable within two Business Days after the
date hereof, is $__________, and is the amount of the drawing
with respect to this Certificate.
4. The amount hereby demanded was computed in accordance with the
Indenture and does not exceed the stated Amount.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Certificate as of the _______ day of ____________, _____.
FIRSTAR BANK, NA,
as Trustee
By:
-----------------------------------------
Its:
--------------------------------------
<PAGE> 152
EXHIBIT 5
CERTIFICATE FOR DRAWING UNDER SECTIONS 2.06 AND 2.07 OF THE
INDENTURE
Re: Firstar Bank, N.A. Irrevocable Letter of Credit No. _____
The undersigned hereby certifies to Firstar Bank, N.A. (the "Bank")
with reference to Irrevocable Letter of Credit No. _____ (the "Letter of
Credit"; the terms "Bonds," "Indenture," "Stated Amount," "Beneficial Owner" and
"Beneficial Ownership Interest" used herein shall have their respective meanings
set forth in the Letter of Credit) that:
1. The undersigned is the Trustee under the Indenture.
2. The undersigned is making this demand for payment under the
Letter of Credit with respect to the payment of the principal
amount of and accrued interest on the Bonds or Beneficial
ownership interests delivered to the Trustee for purchase in
accordance with sections 2.06 or 2.07 of the Indenture.
3. The principal amount of Bonds or Beneficial Ownership
interests which are to be purchased is $__________.
4. The accrued interest on the Bonds or Beneficial Ownership
Interests referred to in paragraph 3 above is $__________.
5. The sum of the amounts set forth in paragraphs 3 and 4 above
is $__________ and is the amount of the drawing with respect
to this Certificate.
6. Immediately upon your payment of the amount demanded hereby,
such Bonds or Beneficial ownership Interests will be held by
us, as your agent and for your benefit as Beneficial Owner,
pending your further instructions to the undersigned.
7. The amount hereby demanded was computed in accordance with the
Indenture and does not exceed the Stated Amount.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Certificate as of the _______ day of ____________, _____.
FIRSTAR BANK, NA,
as Trustee
By:
-----------------------------------------
Its:
--------------------------------------
<PAGE> 153
EXHIBIT 6
CERTIFICATE OF REDUCTION IN STATED AMOUNT
FIRSTAR BANK, N.A.
Global Services Division
425 Walnut Street, 2nd floor
Cincinnati, Ohio 45202
Re: FIRSTAR BANK, N.A. Irrevocable Letter of Credit No. _____
Ladies and Gentlemen:
The undersigned, a duly authorized officer of FIRSTAR BANK, N.A., as
Trustee (the "Trustee"), hereby certifies to FIRSTAR BANK, N.A. (the "Bank")
with reference to FIRSTAR BANK, N.A. irrevocable ________ (the "Letter of
Credit," the capitalized terms defined therein and not defined herein being used
as therein defined) issued by the Bank in favor of the Trustee that:
(1) The Trustee is the Trustee under the Indenture for the holders of
the Bonds.
(2) On the date hereof, a payment or a credit towards payment of
principal on the Bonds in the amount of $_______ has been made from funds other
than amounts drawn under the Letter of Credit in accordance with the terms of
the Indenture.
(3) In accordance with the Letter of Credit, upon your receipt of this
certificate, the Stated Amount of the Letter of Credit is reduced by
$________________, which amount equals the sum of: (i) the amount of principal
so paid, plus (ii) 45 days' interest on such amount of principal. You may adjust
your records accordingly.
IN WITNESS WHEREOF, the Trustee has executed and delivered this
certificate as of the ______ day of ___________________.
FIRSTAR BANK, N.A., as Trustee
By:
-----------------------------------------
Its:
-----------------------------------------
By:
-----------------------------------------
Its:
-----------------------------------------
<PAGE> 154
EXHIBIT 7
CERTIFICATE THAT NO BONDS ARE OUTSTANDING
FIRSTAR BANK, N.A.
Global Services Division
425 Walnut Street, 2nd floor
Cincinnati, Ohio 45202
Re: FIRSTAR BANK, N.A.
Irrevocable Letter of Credit No. _____
Ladies and Gentlemen:
The undersigned, a duly authorized officer of FIRSTAR BANK, N.A., as
Trustee (the "Trustee"), and a duly authorized officer of Jameson Inns, Inc.
(the "Corporation"), hereby certify to FIRSTAR BANK, N.A. (the "Bank") with
reference to FIRSTAR BANK, N.A. irrevocable ______ (the "Letter of Credit," the
capitalized terms defined therein and not defined herein being used as therein
defined) issued by the Bank in favor of the Trustee that:
(1) The Trustee is the Trustee under the Indenture for the holders of
the Bonds.
(2) No Bonds are outstanding within the meaning of the Indenture.
(3) The undersigned officers are duly authorized to sign this
certificate on behalf of the Trustee and on behalf of the Corporation,
respectively.
Pursuant to the Indenture, we are delivering herewith the Letter of
Credit for cancellation.
<PAGE> 155
IN WITNESS WHEREOF, the Trustee and the Corporation have executed and
delivered this certificate as of the ______ day of ___________________.
FIRSTAR BANK, N.A., as Trustee
By:
-----------------------------------------
Its:
-----------------------------------------
By:
-----------------------------------------
Its:
-----------------------------------------
JAMESON INNS, INC.
By:
-----------------------------------------
Title:
-------------------------------------
<PAGE> 156
EXHIBIT 8
CERTIFICATE OF ACCEPTANCE OF ALTERNATE LETTER OF CREDIT
FIRSTAR BANK, N.A.
Global Services Division
425 Walnut Street, 2nd floor
Cincinnati, Ohio 45202
Re: FIRSTAR BANK, N.A.
Irrevocable Letter of Credit No. _____
Ladies and Gentlemen:
The undersigned, a duly authorized officer of FIRSTAR BANK, N.A., as
Trustee (the "Trustee"), and a duly authorized officer of Jameson Inns, Inc.
(the "Corporation"), hereby certify to FIRSTAR BANK, N.A. (the "Bank") with
reference to FIRSTAR BANK, N.A. irrevocable ________ (the "Letter of Credit,"
the capitalized terms defined therein and not defined herein being used therein
defined) issued by the Bank in favor of the trustee that:
(1) The Trustee is the Trustee under the Indenture for the holders of
the Bonds.
(2) An Alternate Letter of Credit (as defined in the Indenture) has
been accepted by the Trustee.
(3) The date on which such Alternate Letter of Credit becomes the
"Letter of Credit" for all purposes under the Indenture is ______________.
(4) The undersigned officers are duly authorized to sign this
certificate on behalf of the Trustee and on behalf of the Corporation,
respectively.
<PAGE> 157
IN WITNESS WHEREOF, the Trustee and Corporation have executed and
delivered this certificate as of the _____ day of _________________.
FIRSTAR BANK, N.A., as Trustee
By:
-----------------------------------------
Its:
-----------------------------------------
By:
Its:
JAMESON INNS, INC.
By:
-----------------------------------------
Title:
--------------------------------------
<PAGE> 158
EXHIBIT 9
CERTIFICATE OF TRANSFER OF
LETTER OF CREDIT TO SUCCESSOR TRUSTEE
For value received, the undersigned beneficiary hereby irrevocably
transfers to:
-------------------------------------
(Name of Transferee)
-------------------------------------
(Address)
as Successor Trustee under the Indenture (as defined in the above-referenced
Letter of Credit) all rights of the undersigned beneficiary to draw under the
above Letter of Credit in its entirety.
By this transfer, all rights of the undersigned beneficiary in such
Letter of Credit are transferred to the transferee and the transferee shall have
the sole rights as beneficiary thereof, including sole rights relating to any
amendments whether increases or extensions or other amendments and whether now
existing or hereafter made. All amendments are to be advised direct to the
transferee without necessity of any consent of or notice to the undersigned
beneficiary.
The original Letter of Credit (and any amendments thereto) is returned
herewith, and we ask you to endorse the transfer on the reverse thereof, and
forward it direct to the transferee with your customary notice of transfer.
SIGNATURE AUTHENTICATED Yours very truly,
FIRSTAR BANK, NA,
as trustee
- --------------------------------
(Bank)
By:
- -------------------------------- ----------------------------------
(Authorized Signature) Its
-------------------------------
<PAGE> 159
REIMBURSEMENT AGREEMENT
BETWEEN
JAMESON INNS, INC.
AND
FIRSTAR BANK, N.A.
DATE
DECEMBER 22, 1999
<PAGE> 160
REIMBURSEMENT AGREEMENT
THIS REIMBURSEMENT AGREEMENT is entered into as of the 22nd day of
December, 1999 by and between JAMESON INNS, INC. as borrower (the "Borrower")
and FIRSTAR BANK, N.A., a national banking association (the "Bank").
1. Definitions And Accounting Terms.
1.1 Defined Terms. As used in this Reimbursement
Agreement, the following, terms shall have the meaning set forth respectively
after each:
"Agreement" means this Reimbursement Agreement,
either as originally executed or as it may from time to time be supplemented or
amended.
"ALTA Policy" means the policy of title insurance
covering the Property required pursuant to Section 5.1.1(f) of this Agreement.
"Bond Documents" means all of the instruments and
agreements which may be executed from time to time by the Issuer, the Trustee
and/or the Borrower in connection with the Bonds, including without limitation
the following, as from time to time supplemented or amended:
(i) the Trust Indenture;
(ii) the Bonds;
(iii) the Letter of Representations; and
(iv) the Bond Purchase Agreement.
"Bond Purchase Agreement" means the certain Bond
Purchase Agreement dated the 22nd day of December, 1999 among the Issuer, the
Borrower and the Underwriter, as from time to time supplemented or amended with
the written consent of the Bank.
"Bond Proceeds" means the proceeds from the sale of
the Bonds.
"Bonds" means the Series 1999 Bonds issued pursuant
to and in the form incorporated in the Trust Indenture for the purpose of
refunding and retiring prior bonds.
"Borrower" means Jameson Inns, Inc., a Georgia
corporation.
"Borrower's Representative" means each of one or
more Persons authorized in Writing from time to time by the Borrower, with the
approval of the Bank, to deliver certificates and other documents, instruments
and material to the Bank pursuant to this Agreement.
<PAGE> 161
"Business Day" means any day of the year, other than
(a) a Saturday, (b) a Sunday, (c) a day on which commercial banks located in
the cities in which the principal corporate trust office of the Trustee or the
principal offices of the Bank are located are required or authorized by law to
remain closed; or (d) a day on which the New York Stock Exchange is closed.
"Closing Date" means December 22, 1999.
"Default Interest Rate" means a fluctuating rate per
annum (computed on the basis of a year of 360 days but calculated on the actual
number of days outstanding) equal to two percent (2%) per annum in excess of
the Prime Rate.
"Depository" means any securities depository that is
a clearing agency under federal law operating and maintaining, with its
participants or otherwise, a book entry system to record ownership of book
entry interests in the Bonds, and to effect transfers of book entry interests
in Bonds, and includes and means initially The Depository Trust Company (a
limited purpose trust company), New York, New York.
"Event of Default" means each of those events so
designated in Article 10 of this Agreement.
"Financing Statements" means the UCC-1 financing
statements covering the Personal Property in which security interests are
created pursuant to the Letter of Credit Documents required pursuant to Section
4.1(c) of this Agreement, as from time to time supplemented or amended.
"Fiscal Quarter" means any fiscal quarter of the
Fiscal Year of the Borrower.
"Fiscal Year" means the fiscal year of the Borrower.
"Improvements" means the improvements now or
hereafter located on the Property.
"Issuer" means City of Elkhart, Indiana.
"Firstar" means Firstar Bank N.A., a National
Banking Association and issuer of the Letter of Credit.
"Letter of Credit" means the letter of credit to be
issued by the Bank pursuant to this Agreement, either as originally executed or
as it may from time to time be modified, extended, renewed or replaced by
Firstar.
"Letter of Credit Documents" means, collectively,
this Agreement and the Security Documents, as from time to time supplemented or
amended with the written consent of the Bank.
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<PAGE> 162
"Letter of Representations" means the Letter of
Representations from the Issuer, the Trustee, the Registrar (as defined in the
Trust Indenture) and the Paying Agent (as defined in the Trust Indenture) to
the Depository, as supplemented and amended from time to time.
"Mortgage" means the Mortgage, Assignment of Rents
and Security Agreement dated as of the 22nd day of December, 1999 from the
Borrower in favor of Firstar Bank, N.A.
"Other Loan Documents" shall mean any and all
documents evidencing or securing any indebtedness whatsoever from Borrower to
Firstar, including loans unrelated to the Project or Property described in the
Security Documents.
"Permitted Encumbrances" means exceptions nos.
_____, _____, in Schedule B of that certain commitment for title insurance from
Lawyers Title Insurance Company dated November 16, 1999.
"Person" means and includes an individual,
corporation, partnership, limited liability company, trust, unincorporated
organization or association and a government or any department or agency
thereof.
"Personal Property" means all of the Borrower's
right, title and interest in and to all furnishings, fixtures or equipment now
owned or hereafter acquired, located on, or used in connection with, the
Property; all permits, licenses and approvals necessary to operate the Project;
and all of the Borrower's accounts arising from all the rents, payments for the
use of rooms or facilities, payments for lodging and all other revenues of the
Project, including those now due, past due, or to become due, by virtue of any
lease, license or other agreement for the occupancy or use of all, or any
portion, of the Project.
"Required Account" means the Jameson Inns, Inc.
Account to be established and maintained with the Bank, pursuant to Section
5.1.1(q) and 8.14 hereof.
"Prime Rate" means the per annum interest rate
established by FIRSTAR BANK, N.A. from time to time as such bank's prime rate,
whether or not such rate is publicly announced. The Prime Rate may not be the
lowest interest rate charged by FIRSTAR BANK, N.A. for commercial or other
extensions of credit. Subject to any minimum or maximum rate limitations
specified by applicable law, the Prime Rate will automatically and immediately
change from time to time effective as of the effective date of each such change
in the prime commercial rate of such bank.
"Project" means the Property, the Project Facilities
and the Personal Property, which are owned and operated by the Borrower.
"Property" means the Signature Inn located at
___________ in Elkhart, Indiana , being the land described on Exhibit B
together with all buildings and improvements
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<PAGE> 163
located thereon, all appurtenant rights and privileges and all personal
property, furniture, fixture and equipment used in connection with the
operation of the Signature Inn, all as more particularly described in the
Mortgage.
"Security Documents" means, collectively, the
Mortgage, Assignment of Rents and Security Agreement, the Assignment of Leases
and Rents, the Financing Statements, the Subordination of Master Lease, and any
other deed of trust, mortgage, security agreement, financing statement,
guaranty or assignment now, heretofore or hereafter executed to secure the
obligations of the Borrower under this Agreement, in each case either as
originally executed or as the same may from time to time be supplemented or
amended with the written consent of the Bank.
"Trustee" means Firstar Bank, N.A. a national
banking association with an office located in Cincinnati, Ohio, and its
successors and assigns, as trustee under the Trust Indenture.
"Trust Indenture" means the Trust Indenture dated as
of the 22nd day of December, 1999, as amended, executed and delivered by the
Issuer and the Trustee, as from time to time supplemented or amended.
1.2 Use of Defined Terms. Any defined term used in the
plural shall refer to all members of the relevant class, and any defined term
used in the singular shall refer to any number of the members of the relevant
class.
1.3 Accounting Terms. All accounting terms not
specifically defined in this Agreement shall be construed in conformity with,
and all financial data required to be submitted by this Agreement shall be
prepared in conformity with GAAP.
1.4 Exhibits. All Exhibits to this Agreement, either as
now existing or as the same may from time to time be supplemented or amended,
are incorporated herein by this reference.
2. Bonds. The Borrower has entered into the Bond Documents in
order to cause the issuance of the Bonds, so that the Bond Proceeds could be
used to refund and retire prior bonds.
3. Letter of Credit. The Borrower has requested the Bank to
issue an irrevocable letter of credit in the form attached hereto as Exhibit
"A" in an aggregate amount not exceeding Three Million Three Hundred Forty Six
Thousand Three Hundred Twelve Dollars ($3,346,312), of which an amount not
exceeding $3,305,000 shall be available to pay the principal amount of the
Bonds, and an amount not exceeding $41,312 shall be available to pay for
interest accrued on the Bonds for up to a maximum of 45 days at the actual
interest rates on the Bonds, all as more particularly provided in the Letter of
Credit. The Bank is willing to issue the Letter of Credit on the terms and
conditions contained in this Agreement and the other Letter of Credit
Documents.
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<PAGE> 164
4. Letter of Credit Documents.
4.1 Security Documents. In consideration of the Bank's
entry into this Agreement and the other Letter of Credit Documents, and as
security for the prompt payment when due of all sums of principal, purchase
price and interest advanced by the Bank pursuant to the Letter of Credit as
well as for payment of any other sums owing pursuant to this Agreement or any
of the other Letter of Credit Documents, together with any and all extensions,
renewals, modifications and amendments thereof and as security for the
performance and observance of all of the covenants, agreements and conditions
contained in the Letter of Credit, this Agreement and all of the other Letter
of Credit Documents, and as security for Borrower's performance of all
obligations under the Other Loan Documents, the Borrower shall, at its sole
expense, execute and deliver or cause to be executed and delivered to the Bank
and record or cause to be recorded, if appropriate, the following documents,
each of which shall be in such form and content, and executed by such persons
and/or entities, as the Bank shall in its reasonable discretion require:
(a) the Mortgage, Assignment of Rents and Security
Agreement;
(b) the Assignment of Leases and Rents;
(c) the Financing Statements;
(d) Environmental Indemnity Agreement;
(e) Assignment and Subordination of Master Lease
Agreement.
4.2 Other Documents and Actions. The Borrower agrees to
execute, acknowledge and/or deliver or cause to be executed, acknowledged
and/or delivered to the Bank such other instruments, agreements and documents,
and to take such actions, upon request by the Bank, as the Bank may reasonably
require in order to carry out the purposes of this Agreement and the other
Letter of Credit Documents, and the transactions contemplated thereby, to
effect the cross-default and cross collateralization arrangements with respect
to the Other Loan Documents, and to protect and/or further the validity,
priority and/or enforceability of the Security Documents or subject to the
Security Documents and the security interests thereby created, any property,
together with any renewals, additions, substitutions, replacements or
betterments thereto, intended by the terms of this Agreement or the other
Letter of Credit Documents to be covered by the Security Documents.
4.3 Right of Set-Off Against the Borrower; Additional
Collateral.
(a) Upon the occurrence and during the
continuance of any Event of Default hereunder, the Bank is hereby authorized at
any time and from time to time, without prior notice to the Borrower (any such
notice being expressly waived by the Borrower) and to the fullest extent
permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by the Bank to or for the credit or the account
of the Borrower, against any and all of the obligations of the Borrower now or
hereafter existing under this Agreement or the Letter of Credit Documents,
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<PAGE> 165
irrespective of whether or not the Bank shall have made any demand hereunder
and although such obligations may be unmatured.
(b) The Bank agrees promptly to notify the Borrower
after any such set-off and application, provided that the failure to give such
notice shall not affect the validity of such set-off and application. The
rights of the Bank under this Section 4.3 are in addition to other rights and
remedies (including, without limitation, other rights of set-off) which the
Bank may have.
5. Conditions to Issuance, Closing and Post-Closing Conditions.
5.1 Conditions to Issuance. The obligation of the Bank
to issue the Letter of Credit is subject to the following conditions precedent,
unless specifically waived in writing by the Bank:
5.1.1 The Bank shall have received all the following,
each of which shall be in form and substance satisfactory to the Bank:
(a) manually executed counterparts of the
Letter of Credit Documents and the fees and expenses required by Section 6.1 of
this Agreement to be paid on the date of issuance of the Letter of Credit;
(b) all the opinions, certificates, and other
documents specified in, or requested by the Bank pursuant to the Letter of
Credit Documents;
(c) a written opinion of counsel for the
Borrower in form and substance satisfactory to the Bank;
(d) a written opinion of counsel, in form
and substance satisfactory to the Bank, opining as to exclusion of interest on
the Bonds from income for federal income tax purposes and covering such matters
relating to the Bond Documents as may be required by the Bank;
(e) a current survey (or current
certification of an existing survey) of the Property certified to the Bank and
the title insurance company issuing, the ALTA Policy issued by a registered
surveyor in conformity with the Bank's survey requirement standards attached
hereto and locating the buildings on the Property, all access roads, easements
and other encumbrances set forth in the ALTA Policy;
(f) (i) a commitment for a standard ALTA 1970
Form B mortgagee title insurance policy with 1984 revisions, in form and
substance and issued by a title insurance company satisfactory to the Bank, an
insured closing letter from the title insurance company regarding the title
agent, together with satisfactory evidence of reinsurance of a portion of the
title insurance company's obligations under the final policy of title insurance
if required by the Bank in its discretion, naming the Bank as insured in a
policy amount of not less than $3,346,312 reflecting the Borrower's marketable
title in and to the Project, insuring the validity
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<PAGE> 166
and first priority of the Bank's Mortgage or Deed of Trust and containing only
exceptions acceptable to the Bank; and (ii) after closing and recording, a
final policy of title insurance on the ALTA 1970 (Revised 1984) form naming the
Bank as insured, containing no exceptions for filed or unfiled mechanics' or
materialmen's liens, the rights of parties in possession or as to matters of
survey, together with such other endorsements and coverages as may from time to
time be required by the Bank, and insuring the Mortgage as a valid first lien
on the Project, subject only to Permitted Encumbrances, all in conformity to
the Bank's title insurance requirements;
(g) policies or certificates of: (i)
liability insurance with respect to the Project, naming the Bank as an
additional insured, in amounts and with a company or companies satisfactory to
the Bank; and (ii) fire and extended coverage insurance for the Project, in
amounts and issued by a company or companies satisfactory to the Bank and
written or endorsed as to make losses, if any, payable to the Bank, in addition
to the Borrower, as their respective interests may appear, together with
evidence of the obligation of the insurance company or companies not to cancel
such policies without first giving written notice thereof to the Bank at least
30 days in advance of such cancellation, in accordance with the Bank's
insurance requirements and the other insurance requirements set forth in the
Mortgage;
(h) evidence satisfactory to the Bank that
there is satisfactory ingress to and egress from the Property;
(i) evidence satisfactory to the Bank
indicating that no portion of the Property is located in a flood hazard area
designated by the U.S. Department of Housing and Urban Development, receipt of
which by the Bank is hereby acknowledged;
(j) receipt with respect to the Project of:
(i) a current zoning letter from the appropriate governmental authority
indicating the final and unappealable zoning classification of the Project, a
copy of the applicable portion of the zoning code indicating the permitted uses
and restrictions in such zoning classification, and a certificate of the
Borrower or the Borrower's engineer, that the Project is in compliance
therewith; (ii) evidence of the availability of public water, sewer and all
other utilities necessary for the use and operation of the Project and that the
capacities of each such utility are sufficient to adequately service the
Project; and (iii) copies of all governmental approvals required to occupy and
operate the Project;
(k) receipt of (i) an ACSM 1527-E "Phase
I" environmental report in conformity with the Bank's Phase I environmental
report requirements for the Project addressed to the Bank prepared by a
licensed environmental engineering firm acceptable to the Bank, which report
must indicate to the Bank's satisfaction that the Project is free from
hazardous substance contamination and (ii) such other evidence of compliance of
the Project with applicable federal, state and local environmental laws,
regulations and requirements as the Bank may require, receipt of which by the
Bank is hereby acknowledged;
(l) receipt with respect to the Borrower
of: (i) a current certified copy of its Articles of Incorporation, as amended,
certified by the Secretary of the State of Georgia; (ii) a validity of existing
corporation certificate from the Secretary of the State of
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<PAGE> 167
Georgia; (iii) a copy of its Bylaws, as amended, certified by its Secretary or
Assistant Secretary; and (iv) a certificate of foreign corporation admitted to
do business in Kentucky and Indiana;
(m) receipt of certified copies of the
resolution of the Board of Directors of the Borrower authorizing the execution
and delivery of the Letter of Credit Documents, which resolution shall
designate the names of the officers of the Borrower authorized to execute such
documents;
(n) the financial statements of the Borrower
for the fiscal year ended the 31st day of December, 1998, and for the second
quarter period ended the 30th day of June, 1999, in form and substance
satisfactory to the Bank;
(o) a transcript of the Bond Documents;
(p) an appraisal of the Project with a
minimum fair market value of $____________, which has been reviewed by the Bank
and accepted by the Bank in its discretion;
(q) Borrower must have on deposit with Bank
a sum not less than $500,000, $250,000 of which must be in a non-interest
bearing account (amounts required to be on deposit pursuant to other
Reimbursement Agreements and loan transactions between Bank and Borrower
(including any subsidiary of Borrower) may be included in determining whether
these minimum deposit requirements are met.); and
(r) such additional certificates, documents,
consents or opinions, in form and substance satisfactory to the Bank, as the
Bank may reasonably request.
5.2 Confirmation of Filing. The Bank shall have received
confirmation to its satisfaction that the Letter of Credit Documents have been
duly executed, acknowledged, delivered and recorded or filed, as appropriate.
6. Reimbursement and Other Payments; Extension.
6.1 Reimbursement and Other Payments. The Borrower hereby
agrees to pay to the Bank or as directed by the Bank:
(a) on the date of any Principal Drawing or
Interest Drawing (as such terms are defined in the Letter of Credit), but only
after the Bank has paid the related drawing under the Letter of Credit, a sum
equal to the amount of such Principal Drawing or Interest Drawing plus the sum
of One Hundred Dollars ($100) for each Drawing made on the Letter of Credit;
(b) on demand, all reasonable amounts expended,
advanced or incurred by the Bank to satisfy any obligation of the Borrower
under this Agreement or any other Letter of Credit Document or to enforce the
rights of the Bank under this Agreement or any other Letter of Credit Document
or Bond Document (including without limitation any costs incurred by the Bank
in connection with any insolvency or bankruptcy proceeding affecting the
Borrower
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<PAGE> 168
or any of the Security Documents), which amounts will include all court costs,
reasonable attorneys' fees, fees of auditors and accountants and investigation
expenses reasonably incurred by the Bank in connection with any such matters;
(c) on demand, except as otherwise provided
herein, interest on any and all amounts unpaid by the Borrower to the Bank when
due under this Agreement or any other Letter of Credit Document from the date
such amounts become due until paid in full at the Default Interest Rate;
(d) on demand, any other amounts owing to the
Bank by the Borrower under this Agreement or any of the other Letter of Credit
Documents;
(e) on the date of issuance of the Letter of
Credit: (i) a commitment fee of 1/2 of one percent of the amount available for
draw under the Letter of Credit; (ii) all attorneys' fees and out-of-pocket
expenses incurred by the Bank, Bank counsel, and bond counsel in connection
with the negotiation, preparation and execution of this Agreement, the Letter
of Credit and any and all of the other Letter of Credit Documents and security
documents in connection therewith, and any amendment to the Bond Documents or
consents or waivers hereunder or thereunder; (iii) fees and charges of Moody's
Investors Service in connection with rating of the Letter of Credit; and (iv)
all fees, charges or taxes for the recording or filing of Security Documents
paid by the Bank and for issuance of a policy of title insurance; and
(f) for each year that the Letter of Credit
remains in effect, the Borrower will pay to the Bank, as compensation to it,
for the one-year period commencing on the date of issuance and each anniversary
thereof (a "Fee Period") an annual fee (the "Annual Fee") equal to one and
25/100 percent (1.25%) of the undrawn amount available to be drawn under the
Letter of Credit on such date (which amount will take into account all
reductions or increases in such undrawn amount through such date and will be
computed on the basis of a year of 360 days but calculated on the actual number
of days the Letter of Credit will be outstanding)(the "Undrawn Amount"),
payable as follows: (i) one and 25/100 of one percent (1.25%) of the Undrawn
Amount payable on each January 1, commencing January 1, 2000. The Bank shall
submit invoices to the Borrower for the fees due under this Section 6.1(f).
6.2 Payments. All payments by the Borrower to the Bank
hereunder shall be made in lawful currency of the United States of America and
in immediately available funds before 2:00 p.m., Louisville, Kentucky time on
the date when such payment is due at the office of the Bank at One Financial
Square, Louisville, Kentucky 40202-3322, Attention: John Anfinrud, or at such
other location as the Bank shall designate to the Borrower from time to time in
writing. Any payment received and accepted by the Bank after such time shall be
considered for all purposes (including the calculation of interest, to the
extent permitted by law) as having been made on the Bank's next following
business day (as defined in the Letter of Credit).
If the date for any payment hereunder falls on a
day that is not a business day, then for all purposes of this Agreement the
same shall be deemed to have fallen on the next following business day, and
such extension of time shall in such case be included in the computation of
payments of interest.
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<PAGE> 169
6.3 Increased Costs Due to Change in Law. If any change
in any law or regulation or in the interpretation thereof by any court or
administrative agency shall either (i) impose, modify or deem applicable to the
Bank any reserve requirement, special deposit requirement or similar
requirement against or in connection with the Letter of Credit issued by the
Bank, or (ii) subject the Bank to any tax, charge, fee, deduction or
withholding of any kind in connection with the Letter of Credit (other than
changes in the rates of income taxation generally applicable to the Bank); or
(iii) impose any condition upon or cause in any manner the addition of any
supplement to or increase of any kind to the capital or cost base of the Bank
for issuing or maintaining the Letter of Credit that results in an increase in
the capital requirement supporting either the Letter of Credit; or (iv) impose
upon, modify, require, make or deem applicable to the Bank any capital
requirement, increases capital requirement or similar requirement, such as
deeming the Letter of Credit to be assets held by the Bank for capital adequacy
calculation or other purposes and the result of the events described in (i),
(ii), (iii) or (iv) shall be to increase the cost in any way to the Bank of
issuing or maintaining the Letter of Credit or to reduce the amount payable by
the Borrower hereunder or to reduce the return on capital, as a consequence of
issuing or maintaining the Letter of Credit, to a level below that which the
Bank could have achieved but for such results, in any case by such amount as
the Bank in its discretion appropriate, then and in such event, (a) the Bank
shall so notify the Borrower, and (b) upon receipt of such notice from the
Bank, the Borrower shall promptly (i) pay to the Bank from time to time as
specified by the Bank additional amounts which shall be sufficient to
compensate the Bank for such increased costs, together with interest on each
such amount for the period from the date of such notice until payment in full
thereof at the Default Interest Rate or (ii) cause the original Letter of
Credit to be delivered to the Bank and cause the Trustee to release Bank from
any and all obligations under the Letter of Credit. The Borrower shall cause
the Bank to be reimbursed for any additional costs for items described in (i)
through (iv) above prior to the time the original Letter of Credit is delivered
to the Bank and a release is obtained from Trustee . The Bank (as the case may
be) shall provide the Borrower with a certificate regarding a claim for costs
under this Section 6.3 and Borrower may have opportunity to review the same. A
certificate setting forth in reasonable detail a claim for increased cost under
this Section 6.3 incurred by the Bank as a result of any such event and
submitted by the Bank to the Borrower, shall be prima facie evidence, absent
manifest error, as to the amount thereof.
6.4 Obligations Absolute. The obligations of the
Borrower under this Agreement shall be absolute, unconditional and irrevocable,
and shall be paid and performed strictly in accordance with the terms of this
Agreement, under all circumstances whatsoever, including, without limitation,
the following circumstances:
(a) any lack of validity or enforceability of
the Letter of Credit, or any of the Letter of Credit Documents or the Bond
Documents or any other agreement or instrument related thereto;
(b) any amendment or waiver of, or any consent to
or departure from, the terms of the Letter of Credit or any of the Letter of
Credit Documents or the Bond Documents or any other agreement or instrument
related thereto;
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<PAGE> 170
(c) the existence of any claim, set-off, defense
or other right which the Borrower may have at any time against the Trustee, any
beneficiary or any transferee of the Letter of Credit (or any Person for whom
the Trustee, any such beneficiary or any such transferee may be acting), the
Bank or any other Person, whether in connection with this Agreement, the Letter
of Credit, any of the other Letter of Credit Documents, the Bonds, the Other
Loan Documents or any other agreement or instrument related thereto, or in
connection with the Project or any unrelated transaction;
(d) any statement, draft or any other document
presented under the Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect, or any statement therein being untrue or
inaccurate in any respect whatsoever (except to the extent acceptance or
reliance upon any such statement, draft or other document is a result of the
Bank's gross negligence or willful misconduct);
(e) the surrender or impairment of any security
for the performance or observance of the terms of this Agreement, any of the
other Letter of Credit Documents or any other agreement related thereto; or
(f) any other circumstance, happening or
omission whatsoever, whether or not similar to any of the foregoing, provided,
that such circumstance, happening or omission is not a result of the Bank's
gross negligence or willful misconduct.
6.5 Termination and Extension of Letter of Credit. The
Letter of Credit shall terminate in accordance with the terms and conditions of
the Letter of Credit; provided, however, that, subject to such terms and
conditions, the Expiration Date, as set forth in the Letter of Credit, may be
extended pursuant to, and otherwise in accordance with, the following terms and
conditions:
(a) On September 15, 2002, and on each successive
September 15 thereafter, if the Extension Request (as hereinafter described)
shall have theretofore been timely delivered by the Borrower to the Bank, the
Expiration Date may be extended for one full year in the sole discretion of the
Bank. If the Expiration Date is so extended, the Trustee shall, not later than
thirty (30) days after the effective date of the extension, surrender the
outstanding Letter of Credit to the Bank and accept, upon such surrender, a
substitute irrevocable letter of credit in the form of Exhibit A to this
Agreement, dated the date of such substitution and having an Expiration Date
which is one year later than the Expiration Date, but otherwise having terms
identical to the surrendered Letter of Credit. In lieu of surrendering the
Letter of Credit and accepting a substitute therefor, the Trustee may accept a
written notice of extension from the Bank notifying the Trustee that the Bank
has extended the Expiration Date for a period of one year.
(b) Not later than December 31, 2001, and,
provided the Borrower has theretofore timely given the Bank the Extension
Request, not later than December 31 in each subsequent year, the Borrower may
request in writing given by the Borrower to the Bank (the "Extension Request")
that the Expiration Date be extended in accordance with paragraph (a) of this
Section 6.5. The Bank agrees to give the Borrower written notice of its
decision regarding
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such request no more than two (2) months after the Bank's receipt of the
financial statements required to be delivered by the Borrower pursuant to
Section 8.14(i) of this Agreement. Provided, however, that notwithstanding the
foregoing, any extension of the Letter of Credit must be in a writing delivered
to the Borrower in order to become effective.
6.6 Reinstatement. In the event of an Interest Drawing,
the Stated Amount shall automatically be reinstated in the amount of the
related Interest Drawing at the close of business on the tenth day following
the date of such drawing unless the Bank shall have delivered to the Trustee a
notice in the form of Exhibit 5 to the Letter of Credit in the event the Bank
has not been reimbursed for such drawing or an Event of Default has occurred
under this Agreement and is continuing.
7. Representations and Warranties by the Borrower. As a
material inducement to the Bank's entry into this Agreement and the
transactions contemplated hereby, the Borrower represents and warrants to the
Bank that:
7.1 Organization of the Borrower. The Borrower (a) is a
corporation duly organized and validly existing in good standing under the laws
of the State of Georgia, (b) has all requisite power and authority to conduct
its business and to own its properties, (c) is duly qualified to do business in
every jurisdiction in which the nature of business conducted by it makes such
qualification necessary or where failure to so qualify would have a material
adverse effect on its business or financial condition or its performance of its
obligations under the Letter of Credit Documents or Bond Documents and (d)
possesses all material regulatory licenses, approvals and professional
accreditations needed to operate its businesses and is in good standing with
respect thereto and no circumstances are known to Borrower to have occurred or
to be pending that could jeopardize the foregoing.
7.2 Execution, Delivery and Performance of Letter of
Credit Documents and Bond Documents.
7.2.1 The Borrower has all requisite power and
authority to execute and deliver, and to perform all of its obligations under,
the Letter of Credit Documents and the Bond Documents to which it is a party.
7.2.2 The execution and delivery by the Borrower
of, and the performance by the Borrower of all of its obligations under, each
Letter of Credit Document and Bond Document to which it is a party have been
duly authorized by all necessary corporate action of the Borrower and do not
and will not:
(a) require any consent or approval not
heretofore obtained of any directors, shareholders or officers of the Borrower;
(b) violate any provision of, or require
any consent not heretofore obtained under the Articles of Incorporation or
Bylaws, as amended, of the Borrower or actions or resolutions of the
shareholders or directors of the Borrower;
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(c) result in or require the creation or
imposition of any mortgage, deed of trust, pledge, lien, security interest,
claim, charge, right of others, or other encumbrance of any nature (other than
as contemplated under the Letter of Credit Documents or the Bond Documents)
upon or with respect to any property or assets now owned or leased or hereafter
acquired by the Borrower;
(d) violate any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
presently in effect having applicability to the Borrower; or
(e) result in a breach of or constitute
a default under, or cause or permit the acceleration of any obligation owed
under, any indenture or loan or credit agreement, lease, or other instrument to
which the Borrower or any Guarantor (if any) is a party or by which the
Borrower or any of its property or assets, is bound or affected.
7.2.3 At the time of execution of this Agreement,
the Borrower is not in default in any respect that is materially adverse to the
interests of the holders of the Letter of Credit Documents or the Bond
Documents or that would have any material adverse effect on the financial
condition of the Borrower, or the conduct of the Borrower's business, under any
law, rule, regulation, order, writ, judgment, injunction, decree,
determination, award, indenture, agreement, lease or instrument described in
Section 7.2.2(d) or Section 7.2.2(e), above.
7.2.4 No authorization, consent, approval, order,
license, exemption from, or filing or registration or qualification with, any
court or governmental department, public body, authority, commission, board,
bureau, agency, or instrumentality, not heretofore obtained or which will have
been obtained prior to the issuance of the Letter of Credit is or will be
required to authorize, or is otherwise required in connection with the
following:
(a) the execution and delivery by the Borrower
of, and the performance by the Borrower of all of its obligations under, the
Letter of Credit Documents and the Bond Documents; or
(b) the creation of the liens, security
interests, or other charges or encumbrances described in the Letter of Credit
Documents or the Bond Documents.
7.2.5 Each of the Letter of Credit Documents and
the Bond Documents, when executed and delivered, will constitute the legal,
valid, and binding obligations of the Borrower (to the extent the Borrower is a
party thereto or obligated thereunder), enforceable against the Borrower in
accordance with its terms, except to the extent that its enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
and equitable principles in effect from time to time affecting the rights of
creditors generally as such laws and insolvency, reorganization, or moratorium
relate to the Borrower, and subject to limitations which may be imposed on
equitable remedies.
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7.2.6 The officers of the Borrower executing the
Letter of Credit Documents and the Bond Documents to which it is a party on
behalf of the Borrower are fully authorized to do so.
7.3 Financial Statements. The financial statements of the
Borrower and its Affiliates for its fiscal year ending December 31, 1998, a
copy of which has been delivered to the Bank, fairly present the assets,
liabilities, capital and surplus and statements of income and expense of the
Borrower on a consolidated basis as of the date thereof, all in conformity with
generally accepted accounting principles consistently applied.
7.4 No Material Adverse Change. There has been no
material adverse change in the business or condition, financial or otherwise,
of the Borrower or the Affiliates since the date of the financial statements
described in Section 7.3 above.
7.5 Tax Liability. The Borrower has filed all tax returns
(federal, state and local) required to be filed and has paid all taxes shown
thereon to be due and all property taxes due, including interest and penalties,
if any; provided, however, that the Borrower shall be required to pay and
discharge any such tax so long as the legality thereof shall be promptly and
actively contested in good faith and by appropriate proceedings. The Borrower
and the Affiliates has established and will maintain adequate reserves for tax
liabilities, if any (including any tax liabilities contested pursuant to this
Section 7.5).
7.6 Compliance with Laws. Each of the Borrower and the
Affiliates is and shall remain in compliance in all material respects with all
laws, regulations and requirements applicable to its business, and has obtained
all authorizations, consents, approvals, orders, licenses, exemptions from, and
has accomplished all filings or registrations or qualifications with, any court
or governmental department, public body, authority, commission, board, bureau,
agency or instrumentality, that are necessary for the transaction of its
business.
7.7 Litigation. Except as disclosed on Schedule 7.7 to
this Agreement, there are no material actions, suits, or proceedings pending or
threatened against or affecting the Borrower, or the property or assets of the
Borrower, before any court or governmental department, public body, authority,
commission, board, bureau, agency or instrumentality other than those actions,
suits or proceedings which have already been disclosed to the Bank in writing.
7.8 Statements. Any certificate or written statement or
the most recent projections furnished prior to the issuance of the Letter of
Credit by the Borrower to the Bank or to the Trustee or any other Person in
connection with the negotiation of this Agreement or any of the other Letter of
Credit Documents or the Bond Documents or the transactions contemplated thereby
to the best knowledge of the Borrower after reasonable inquiry does not contain
any untrue statement of a material fact and does not omit any material fact
necessary to make the statements contained herein or therein, in the light of
the circumstances under which it was made, not misleading.
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7.9 Pension Plan Liabilities. No pension plan for the
benefit of the employees of the Borrower or its Affiliates ("Pension Plan") has
been terminated; the Borrower has not incurred any liability to the Pension
Benefit Guaranty Corporation other than for required insurance premiums which
have been paid when due; no Reportable Event described in Section 4043
("Reportable Event") of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") or in the regulations issued thereunder, or other event or
condition which presents a risk of termination of any Pension Plan by the
Pension Benefit Guaranty Corporation has occurred; the Borrower has not
withdrawn from any pension plan prescribed in Section 4001(a)(3) of ERISA, as
amended by the Multiemployer Pension Plan Amendment Act of 1980, as amended
("Multiemployer Plan") in a complete withdrawal or a partial withdrawal; and no
Pension Plan, and no other employee pension benefit plan described in Section 3
of ERISA to which the Borrower is a party, has engaged in a transaction
prohibited under Sections 406 or 407 of ERISA or under Section 4975 of the
Internal Revenue Code of 1986, as amended.
7.10 Environmental Matters. Other than the conditions
disclosed in a certain report dated December 22, 1998, prepared by EMG, Inc., a
copy of which report having been given to the Bank prior to the date hereof,
the Borrower (a) has no actual knowledge of the permanent placement, burial or
disposal of any Hazardous Substances (as hereinafter defined) on any real
property owned, leased, or used by the Borrower including, but not limited to,
the Project (the "Premises"), of any spills, releases, discharges, leaks, or
disposal of Hazardous Substances that have occurred or are presently occurring
on, under, or onto the Premises, or of any spills, releases, discharges, leaks
or disposal of Hazardous Substances that have occurred or are occurring off the
Premises as a result of the Borrower's improvement, operation, or use of the
Premises which would result in non-compliance with any of the Environmental
Laws (as hereinafter defined); (b) is and has been in compliance with all
applicable Environmental Laws; (c) knows of no pending or threatened
environmental civil, criminal or administrative proceedings against the
Borrower relating to Hazardous Substances; (d) knows of no facts or
circumstances that would give rise to any future civil, criminal or
administrative proceeding against the Borrower relating to Hazardous
Substances; and (e) will not permit any of its employees, agents, contractors,
subcontractors, or any other person occupying or present on the Premises to
generate, manufacture, store, dispose or release on, about or under the
Premises any Hazardous Substances which would result in the Premises not
complying with the Environmental Laws.
As used herein, "Hazardous Substances" shall mean
and include petroleum products and byproducts and all hazardous and toxic
substances, wastes, materials, compounds, pollutants and contaminants
(including, without limitation, asbestos, polychlorinated biphenyls, and
petroleum products) which are included under or regulated by the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
ss.9601, et seq., the Toxic Substances Control Act, as amended, 15 U.S.C.
ss.2601, et seq., the Resource Conservation and Recovery Act, as amended, 42
U.S.C. ss.6901, et seq., the Water Quality Act of 1987, as amended, 33 U.S.C.
ss.1251, et seq., and the Clean Air Act, as amended, 42 U.S.C. ss.7401, et
seq., and any other federal, state or local statute, ordinance, law, code,
rule, regulation or order regulating or imposing liability (including strict
liability) or standards of conduct regarding Hazardous Substances (hereinafter
the "Environmental Laws"), but does not include such substances as are
permanently incorporated into a structure or any part thereof in such a
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way as to preclude their subsequent release into the environment, or the
permanent or temporary storage or disposal of household hazardous substances by
the Borrower, and which are thereby exempt from or do not give rise to any
violation of the Environmental Laws.
The Borrower hereby indemnifies the Bank and
holds the Bank harmless from and against any loss, damage, cost, expense or
liability (including strict liability) directly or indirectly arising out of,
or attributable to, the generation, storage, release, threatened release,
discharge, disposal or presence of Hazardous Substances on, under or about the
Premises (whether by the Borrower, or any employees, agents, contractors or
subcontractors of the Borrower, or any predecessor in title or any third
persons occupying or present on the Premises), or the breach of any of the
representations and warranties regarding the Premises, including, without
limitation: (a) those damages or expenses arising under the Environmental Laws;
(b) the costs of any repair, cleanup or detoxification of the Premises,
including the soil and ground water thereof, and the preparation and
implementation of any closure, remedial or other required plans; (c) damage to
any natural resources; and (d) all reasonable costs and expenses incurred by
the Bank in connection with clauses (a), (b) and (c) including, but not limited
to, reasonable attorneys' fees.
The indemnification provided for herein shall
not apply to any losses, liabilities, damages, injuries, expenses or costs
which: (i) arise from the gross negligence or willful misconduct of the Bank,
or (ii) relate to Hazardous Substances placed or disposed of on the Premises
after the Bank acquires title to the Premises through foreclosure or otherwise.
8. Affirmative Covenants of the Borrower. For so long as any
obligation of the Borrower in connection with the Bond Documents, this
Agreement or any of the other Letter of Credit Documents remains outstanding,
the Borrower, to the extent applicable, shall, unless the Bank otherwise
consents in writing:
8.1 Protection of Lien on the Project. Maintain the lien
created by the Security Documents as a first lien, subject only to Permitted
Encumbrances, upon the Property, the Personal Property, and all revenues, rents
receivables or accounts from the operation of the Property and take such
actions and execute and deliver to the Bank such instruments and documents as
the Bank may reasonably require from time to time in connection therewith.
8.2 Insurance. Insure, or cause to be insured, the
Project in accordance with and comply with the insurance provisions of the
Mortgage.
8.3 Compliance with Property Requirements. Comply with
all conditions, covenants, restrictions, easements, reservations, rights,
rights of way and all applicable laws, ordinances, regulations, use permits,
occupancy permits, building permits and other requirements, including without
limitation those affecting or relating to the Property, or the Borrower's or
the Guarantors' operations thereon.
8.4 Books and Records. Maintain full and complete books
of account and other records reflecting the results of the operations (in
conjunction with any other ventures as well as specifically with respect to the
Project) in accordance with generally accepted accounting
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principles applied on a consistent basis, and provide to the Bank, promptly
after request by the Bank therefor, such financial statements and other
information pertaining to the Borrower and the assets and operations of the
Borrower as the Bank may from time to time request. The Bank and its duly
authorized agents shall have the right to examine and make copies of all of the
books and records of the Borrower at reasonable times and at reasonable
intervals.
8.5 Notice of Litigation. Give notice to the Bank,
within 10 days of learning thereof, of any of the following:
(a) any litigation materially affecting or
relating to the Project;
(b) any dispute between the Borrower or any
Guarantor and any municipal or other governmental authority relating to the
Project, the adverse determination of which might materially affect the
Project; and
(c) any threat or commencement of proceedings
in condemnation or eminent domain relating to the Project.
8.6 Notice of Certain Events. Promptly notify the Bank
if (a) the Borrower learns of the occurrence of any event which constitutes,
or will, with the passage of time or the giving of notice or both, constitute
an Event of Default or a default under this Agreement or any of the other
Letter of Credit Documents or any of the Bond Documents, together with a
detailed statement by the Borrower specifying the nature thereof and what
action the Borrower is taking or proposes to take with respect thereto, or (b)
the Borrower receives any notice from, or the taking of any other action by,
the holder of any promissory note, debenture or other evidence of indebtedness
of the Borrower or of any security (as defined in the Securities Act of 1933,
as amended) of the Borrower with respect to a claimed default, together with a
detailed statement by the Borrower specifying the notice given or other action
taken by such holder and the nature of the claimed default and what action the
Borrower is taking or proposes to take with respect thereto, or (c) the
Borrower learns of the existence of any legal, judicial or regulatory
proceedings affecting the Borrower or any of its properties or assets in which
the amount involved is material and is not covered by insurance or which, if
adversely determined, would cause a material, adverse change in the business,
prospects, profits, properties, assets or condition (financial or otherwise) of
the Borrower, or (d) there shall occur or exist any other event or condition
causing a material adverse change in the business, prospects, profits,
properties, assets or condition (financial or otherwise) of the Borrower.
8.7 Opinions and Notices. Deliver to the Bank,
concurrently with the delivery thereof to the Trustee, a copy of each opinion
of counsel and notice given pursuant to the Bond Documents, addressed to the
Bank.
8.8 Defaults of Others. Use their best efforts to cure
or cause to be cured all defaults of the Trustee under the Bond Documents, if
economically practical and/or required in order to avoid an Event of Default
under the Bonds.
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8.9 Security of Project. Take such measures to prevent
waste and protect the physical security of the Project as the Bank may
reasonably deem advisable.
8.10 ERISA. With respect to the pension plans of the
Borrower, if any: (a) at all times make prompt payment of contributions
required to meet the minimum funding standards set forth in Section 302 through
305 of ERISA with respect to any such plan, (b) promptly, after the filing
thereof, furnish to the Bank copies of each annual report required to be filed
pursuant to Section 103 of ERISA in connection with any such plan for the plan
year, including any certified financial statements or actuarial statements
required pursuant to said Section 103, (c) notify the Bank immediately of any
fact, including, but not limited to, any "Reportable Event," as that term is
defined in Section 4043 of ERISA, arising in connection with the plan which
might constitute grounds for termination thereof by the Pension Benefit
Guaranty Corporation or for the appointment by the appropriate United States
District Court of a trustee to administer the plan, (d) notify the Bank of any
"Prohibited Transaction" as that term is defined in Section 406 of ERISA, (e)
not engage in any such Prohibited Transaction and (f) not terminate any such
plan in a manner which could result in the imposition of a lien on the property
of the Borrower pursuant to Section 4068 of ERISA.
8.11 Payment of Taxes and Claims. Pay before they become
delinquent (a) all taxes, assessments and governmental charges or levies
imposed upon it or its property; and (b) all claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords, bailees and other like persons
which, if unpaid, might result in the creation of a lien or encumbrance upon
its property, provided that items of the foregoing description need not be paid
while being contested in good faith and by appropriate proceedings and provided
further that adequate book reserves have been established with respect thereto
and provided further that the title of the Borrower and the Guarantors to, and
their right to use, their property is not materially adversely affected
thereby.
8.12 Maintenance of Property and Existence. The Borrower
shall (a) maintain its properties in good condition and make all renewals,
replacements, additions, betterments and improvements thereto which are deemed
necessary by the Borrower; (b) maintain, with financially sound and reputable
insurers, insurance with respect to its properties and businesses against such
casualties and contingencies, of such types (including but not limited to fire
and casualty, public liability, products liability, larceny, embezzlement or
other criminal misappropriation insurance) as are commonly maintained by
reasonably prudent operators of similar properties; (c) keep true books of
records and accounts in which full and correct entries will be made of all its
business transactions, and reflect in its financial statements adequate
accruals and appropriations to reserves; (d) do or cause to be done all things
necessary (i) to preserve and keep in full force and effect the existence,
rights and franchises of the Borrower, and (ii) to maintain the status of the
Borrower as a corporation duly organized, validly existing and in good standing
under the laws of the state of its formation; (e) not acquire, incur or assume
directly or indirectly, any material contingent liability in connection with
the release of any toxic or hazardous waste or substance into the environment,
or dispose of, or allow to be disposed of, or otherwise release hazardous or
toxic substances or solid wastes on or into any of the real property of the
Borrower, and (f) not be in material violation of any laws, ordinances, or
governmental rules and regulations or fail to obtain any licenses, permits,
franchises or other
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governmental authorizations necessary to the ownership of their properties or
to the conduct of their businesses, which violation or failure to obtain might
materially and adversely affect the businesses, prospects, profits, properties
or condition (financial or otherwise) of the Borrower.
8.13 Financial Statements of Borrower and Affiliates.
Deliver to the Bank (i) within 120 days after the end of each fiscal year of
the Borrower an audited financial statement of the Borrower, on a consolidated
basis, prepared in accordance with generally accepted accounting principles
consistently applied, containing a balance sheet, statements of income and
surplus, statements of cash flows and reconciliation of capital accounts
certified in form satisfactory to the Bank by independent certified public
accountants acceptable to the Bank, (ii) within 30 days of filing with the
Internal Revenue Service, a copy of the federal income tax return(s) of the
Borrower, and (iii) within 30 days after the end of each quarter, (A) financial
statements of the Borrower in form acceptable to the Bank, including a balance
sheet and statement of income and surplus, certified by the chief financial
officer of the Borrower to be prepared on a consolidated basis in accordance
with GAAP, and (B) a certificate in form acceptable to the Bank, certified by
the chief financial officer of the Borrower, that the Borrower and the
Guarantors are in full compliance with all of the terms and provisions of the
Letter of Credit Documents and the Bond Documents.
8.14 Required Deposits. Borrower shall maintain accounts
on deposit with Bank in an amount not less than $500,000, $250,000 of which
must be in a non-interest bearing account. Amounts deposited pursuant to other
Reimbursement Agreements or other Loan Agreements between Bank and Borrower
dated in December, 1999 may be included in determining whether these minimum
deposit requirements are met.
8.15 Subordination of Operating Leases. The Master Lease
Agreement with respect to the Project with Jameson Hospitality, LLC. must be
subordinated to the lien of the Mortgage under a Subordination Agreement in
form and substance satisfactory to the Bank. All rents, revenues, receivables
and accounts from or attributable to the operation of the Project must be
assigned to Borrower by Jameson Hospitality, LLC. as security for the
performance of Jameson Hospitality, LLC's obligations under the Master lease
Agreement and Borrower must assign its interest in the revenues, rents,
receivables and accounts to Bank to secure Borrower's obligations under the
Letter of Credit Documents and Security Documents.
9. Negative Covenants of the Borrower. For so long as any
obligation of the Borrower in connection with the Bond Documents, this
Agreement or any of the other Letter of Credit Documents remains outstanding,
the Borrower shall not, unless the Bank otherwise consents in writing:
9.1 Liens and Encumbrances.
(a) Negative Pledge of Assets. Cause or permit
or agree or consent to cause or permit in the future (upon the happening of a
contingency or otherwise), any of its property, whether now owned or hereafter
acquired, to be subject to a lien or encumbrance except:
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<PAGE> 179
(i) liens securing taxes, assessments
or governmental charges or levies
or the claims or demands of
materialmen, mechanics, carriers,
warehousemen, landlords and other
like persons provided the payment
thereof is not at the time required
by Section 8.12;
(ii) liens incurred or deposits made in
the ordinary course of business in
connection with workmen's
compensation, unemployment
insurance, social security and
other like laws;
(iii) attachment, 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;
(iv) inchoate liens arising under ERISA
to secure the contingent liability
of the Borrower;
(v) the Permitted Encumbrances; and
(vi) liens, security interests and
mortgages in favor of the Bank
securing Borrowers obligations
under other Reimbursement
Agreements between Borrower and
Bank dated December, 1999.
(b) Negative Pledge with respect to
Subsidiaries and Affiliates. Cause or permit or agree or consent to cause or
permit in the future (upon the happening of a contingency or otherwise), any
pledge of its controlling or ownership interest or any other corporation or
entity over which the Borrower has direct or indirect control.
(c) Other Negative Pledge Agreements. Grant or
agree to provide in the future (upon the happening of a contingency or
otherwise), a "negative pledge" or other covenant or agreement similar to the
agreement contained in this Section 9.1 in favor of any other lender, creditor
or third party.
9.2 Transfers of Project or Bond Document Obligations.
Except as provided in the Mortgage, assign or delegate any of the obligations
of the Borrower under the Bonds, this Agreement or any of the other Letter of
Credit Documents or Bond Documents, or sell, lease, exchange, convey, mortgage,
assign, pledge, encumber or otherwise transfer the Project or any interest
therein except for (a) dispositions of personal property permitted pursuant to
Section 9.6 hereof, (b) the Permitted Encumbrances, (c) leases permitted
pursuant to Section 9.3 hereof, (d) easements, licenses, rights of way or title
restrictions granted pursuant to Section 9.4 hereof, and (e) transfers of
portions of the Property as provided in the Mortgage other than with the
express
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prior written consent of the Bank, which consent may be granted or withheld in
its sole discretion.
9.3 Leases. Enter into any leases or other agreements
pursuant to which any person other than Jameson Hospitality, Inc. is given any
right to occupy any portion of the Project (subject to the requirement for
subordination of the Jameson Hospitality, Inc. leases).
9.4 Easements. Grant, convey or cause to be effective
any easement, license, right of way, or title restriction or limitation
affecting the Property or any portion of the same without the express prior
written consent of the Bank (which consent shall not be unreasonably withheld);
provided, however, that the Borrower may grant routine easements which are
reasonably necessary and required by governmental or quasi-governmental
entities or utility companies for the furnishing of utilities or services to
the Property without the requirement of such consent by the Bank, so long as
such easements shall not materially weaken, diminish or impair the security of
the Mortgage or interfere with the intended use of the Property.
9.5 Amendments to Documents. Enter into or agree to any
amendment, change or modification of, or any waiver of any provision of, or
grant any consent in respect of, the Trust Indenture, the Bonds or any other
Letter of Credit Document or Bond Document.
9.6 Removal of Personal Property. Remove or permit the
removal from the Property of any items of Personal Property other than in
accordance with the provisions of the Mortgage. Borrower may transfer title to
Personal Property, subject to the security interest of the Bank, to Borrower's
affiliate who is the lessee of the Property if necessary to comply with
regulations applicable to the ownership of personal property by real estate
investment trusts. The Borrower shall keep detailed records of each such
removal, substitution, sale or other disposition and make such records
available to the Bank upon its request from time to time, and shall execute and
deliver to the Bank such instruments and documents as the Bank may require in
connection with the attachment and perfection of the security interest of the
Bank in and to any new or replacement items of Personal Property.
9.7 Sale of Assets, Merger, Subsidiaries and Tradenames
of the Borrower. Except in the ordinary course of business, sell, lease,
transfer or otherwise dispose of, any of its assets, provided that the
foregoing restriction does not apply to the sale of assets for a cash
consideration to one or more persons if the value of all assets so sold in one
twelve-month period (with the assets being valued at the greater of net book or
fair market value) does not exceed $500,000. The Borrower shall not, without
the prior written consent of the Bank, consolidate with or merge into any other
entity, or permit any other entity to consolidate with or merge into it. The
Borrower shall not create or acquire any subsidiaries or conduct business under
any tradename without the prior written consent of the Bank, which consent
shall not be unreasonably withheld.
9.8 Other Borrowings and Contingent Liabilities. Borrow
money secured by the Project or guarantee, endorse, or otherwise become surety
for or upon the obligations of others, except by endorsement of negotiable
instruments for deposit or collection in the ordinary course of business.
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9.9 Ownership and Management. Cause, permit, suffer or
sustain a change in control or a material change in the management or ownership
of the Borrower without the prior written consent of the Bank. A "material
change in management" shall be deemed to occur upon the resignation or
termination of a majority of Borrower's Board of Directors within any rolling
twelve-month period.
10. Events of Default and Remedies Upon Default.
10.1 Events of Default. The occurrence of any one or more
of the following whatever the reason therefor, shall constitute an Event of
Default hereunder:
(a) The Borrower shall fail to pay any amount
of principal, interest or any other sum owing under the Bonds, the Project
Note, the Trust Indenture, this Agreement or any other Letter of Credit
Document on the due date thereof or within any grace period specifically
provided for in the applicable document; or
(b) The Borrower shall fail to perform or
observe any other term, covenant or agreement contained in this Agreement or in
any other Letter of Credit Document on its part to be performed or observed and
such failure shall continue for a period of thirty (30) days after written
notice of such failure by the Bank to the Borrower, as applicable; or
(c) The Borrower shall fail to perform or
observe any term, covenant or agreement contained in (i) Section 8.2 or 8.3 of
this Agreement and such failure shall continue for a period of thirty (30)
days, or (ii) in the Mortgage; or
(d) The occurrence of an Event of Default (as
that term is defined in the Trust Indenture) under the Trust Indenture or the
occurrence of an event of default under the terms of any other Bond Document or
any Letter of Credit Document, or the obligation to make payment on the Bonds
is accelerated for any reason; or
(e) The Borrower shall fail to perform or
observe any term, covenant or agreement contained in any of the Bond Documents
on its part to be performed or observed and the continuance thereof through the
expiration of any applicable grace period provided in the Bond Documents; or
(f) Any covenant, representation or warranty in
any of the Letter of Credit Documents or Bond Documents or in any certificate,
agreement, instrument or other document made or delivered pursuant to or in
connection with any of the Letter of Credit Documents or Bond Documents proves
to have been incorrect in any material respect when made; or
(g) Final judgment for the payment of money to
any Person other than the Bank shall be rendered against the Borrower and not
covered by any insurance policy in place, in excess of $250,000, net of any
reimbursement to which the Borrower may be entitled,
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and the same shall remain undischarged for a period of thirty (30) consecutive
days during which execution shall not be effectively stayed; or
(h) The Borrower shall fail to pay any
indebtedness owing to any Person other than the Bank totaling in the aggregate
in excess of $250,000 for borrowed money owing by the Borrower, or any interest
or premium thereon, beyond any applicable period of grace after such
indebtedness, interest or premium is due, whether such indebtedness shall
become due by scheduled maturity, by required prepayment, by acceleration, by
demand or otherwise (provided, however, that the Borrower may contest in good
faith and by appropriate proceedings any disputed indebtedness, so long as the
Borrower has notified the Bank of such dispute and contest and provided further
that adequate book reserves have been established with respect thereto and
provided further that the Borrower's title to, and its right to use, its
property is not materially adversely affected thereby), or the Borrower shall
fail to perform beyond any period of grace with respect thereto any term,
covenant or agreement on their part to be performed under any agreement or
instrument evidencing or securing or relating to such indebtedness owing by the
Borrower or any Guarantor, when required to be performed, if, in each case, the
effect of such failure is to accelerate, or to permit the holder or holders of
such indebtedness or the trustee or trustees under any such agreement or
instrument to accelerate, the maturity of such indebtedness, unless such
failure to perform shall be waived in writing, by the holder or holders of such
indebtedness or such trustee or trustees; or
(i) The Borrower shall (i) apply for or consent
to the appointment of a receiver, trustee, liquidator or custodian, (ii) admit
in writing its inability to pay its debts generally as they become due, (iii)
make a general assignment for the benefit of creditors, (iv) be adjudicated
bankrupt or insolvent, (v) commence a voluntary case under the federal
bankruptcy laws of the United States of America or file a voluntary petition or
answer seeking reorganization, an arrangement with creditors or an order for
relief or seek to take advantage of any insolvency law or file an answer
admitting the material allegations of a petition filed against the Borrower in
any bankruptcy, reorganization or insolvency proceeding; or action shall be
taken by the Borrower for the purpose of effecting any of the foregoing, or
(vi) if without the application, approval or consent of the Borrower, a
proceeding shall be instituted in any court of competent jurisdiction, under
any law relating to bankruptcy, insolvency, reorganization, dissolution,
winding up, liquidation, a composition or arrangement with creditors, a
readjustment of debts, the appointment of a trustee, receiver, liquidator or
custodian or the like of the Borrower, or of all or any substantial part of the
assets of the Borrower, or other like relief in respect thereof under any
bankruptcy or insolvency law, and, if such proceeding is being contested by the
Borrower in good faith, the same shall (A) result in the entry of an order for
relief or any such adjudication or appointment or (B) continue undismissed,
pending and unstayed, for any period of 60 consecutive days; or
(j) The Project suffers a loss by fire or other
casualty and Borrower does not comply with all the terms and provisions of
Sections 1.3 and 1.5 of the Mortgage regarding insurance, restoration or
repair, and deposit of the excess of the cost of restoration over the available
insurance proceeds.
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(k) The Project, or any material portion
thereof, is subject to a condemnation proceeding and such proceeding would give
Bank the option to accelerate the Indebtedness (as defined in the Mortgage)
under the terms of Section 1.4 of the Mortgage; or
(l) The Borrower defaults under the terms and
provisions of any other obligation owed to the Bank by the Borrower pursuant to
reimbursement agreements entered into in connection with the issuance of
letters of credit to provide credit enhancement for refunding bonds issued by
the Cities of Terra Haute, IN, Florence, KY or Jefferson County, KY or the
occurrence of a default under any mortgage, security agreement, assignment or
document or instrument evidencing or securing such obligation and the
continuance thereof through the expiration of any applicable grace period
provided in such document or instrument, or a default by Borrower under any
note evidencing or creating any indebtedness secured by mortgages encumbering
Signature Inns owned by the Borrower or its affiliates in South Bend, IN,
Muncie, IN, Kokomo, IN or Evansville, IN or defaults in any mortgage, security
agreement, assignment of leases and rents or assignment and subordination of
master lease entered into in connection with said notes; or
10.2 Remedies Upon Default. Upon the occurrence of any
Event of Default, the Bank may, at its option, do any or all of the following:
(a) Declare the principal of all amounts owing
under this Agreement and the other Letter of Credit Documents (including all
obligations secured by the Security Documents) and all other indebtedness of
the Borrower to the Bank, together with interest thereon, to be forthwith due
and payable, regardless of any other specified maturity or due date, without
notice of default, presentment or demand for payment, protest or notice of
nonpayment or dishonor, or other notices or demands of any kind or character
other than notice of Bank's exercise of the rights and remedies described in
this Section 10.2, and without the necessity of prior recourse to any security;
(b) Implement any remedies available to the
Bank under or in connection with the Bond Documents, including without
limitation instructing the Trustee, in the Bank's sole discretion, to
accelerate the maturity of or issue a notice of mandatory tender of the Bonds
and causing and paying a full or partial drawing under the Letter of Credit
(whether or not any amounts have previously been paid under the Letter of
Credit) and exercising all of the rights and remedies available to the Bank in
connection therewith;
(c) If the Event of Default may be cured by the
Bank by taking actions or making payments of money, the Bank shall have the
right (but not the obligation) to take such actions (including without
limitation the retention of attorneys and the commencement or prosecution of
actions on its own behalf or on behalf of the Borrower), make such payments and
pay for the costs of such actions (including without limitation attorneys' fees
and court costs) from its own funds; provided, that the taking of such actions
at the Bank's expense or the making of such payments by the Bank out of the
Bank's own funds shall not be deemed to cure such Event of Default, and the
same shall not be so cured unless and until the Borrower shall have reimbursed
the Bank for such payment, together with interest at the Default Interest Rate
from the date of such payment until the date of reimbursement. If the Bank
advances its own funds for
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such purposes, such funds shall be secured by the Security Documents,
notwithstanding that such advances may cause the total amount advanced
hereunder to exceed the amount committed to be advanced pursuant to this
Agreement, and the Borrower shall immediately upon demand reimburse the Bank
therefore with interest at the Default Interest Rate from the date of such
advance until the date of reimbursement; and
(d) Exercise any and all of its rights under
the Letter of Credit Documents or the Bond Documents, or otherwise as a secured
creditor, including, without limitation, foreclosing on any security, and
exercising any other rights with respect to security whether under the Security
Documents or any other agreement or as provided by law, all in such order and
in such manner as the Bank in its sole discretion may determine.
10.3 Cumulative Remedies; No Waiver. All remedies of the
Bank provided for herein are cumulative and shall be in addition to any and all
other rights and remedies provided in the Letter of Credit, the Security
Documents, the Bond Documents or any of the Letter of Credit Documents, or
provided by law from time to time. The exercise of any right or remedy by the
Bank hereunder shall not in any way constitute a cure or waiver of default
hereunder or under the Letter of Credit, the Security Documents, the Bond
Documents, or any of the Letter of Credit Documents, nor invalidate any notice
of default or any act done pursuant to any such notice, nor prejudice the Bank
in the exercise of any rights hereunder or under the Letter of Credit, the
Security Documents, the Bond Documents or the Letter of Credit Documents,
unless in the exercise of said right, the Bank realizes all amounts owed to it
under the Letter of Credit, this Agreement, the Security Documents, the Bond
Documents and the Letter of Credit Documents and all Events of Default are
cured. No waiver by the Bank of any default or breach by the Borrower hereunder
shall be implied from any omission by the Bank to take action on account of
such default if such default persists or is other than the default expressly
made the subject of the waiver. Any such express waiver shall be operative only
for the time and to the extent therein stated. Any waiver of any covenant, term
or condition contained herein shall not be construed as a waiver of any
subsequent breach of the same covenant, term or condition. The consent or
approval by the Bank to or of any act by the Borrower shall not be deemed to
waive or render unnecessary consent or approval to or of any subsequent act.
11. Miscellaneous.
11.1 Actions. The Bank shall have the right to commence,
appear in and defend any action or proceeding affecting the rights or duties of
the Borrower hereunder, or the payment of any funds, and in connection
therewith the Bank may pay necessary expenses, employ counsel and pay
reasonable attorneys' fees. The Borrower agrees to pay to the Bank, on demand,
all costs and expenses incurred by the Bank in connection therewith, including
without limitation reasonable attorneys' fees, together with interest from the
date of demand at the Default Interest Rate. The Borrower's obligation to repay
such expenses shall be secured by the Security Documents.
11.2 Nonliability of the Bank. The Borrower acknowledges
and agrees that:
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<PAGE> 185
(a) The Bank shall not be responsible or liable
to the Borrower for the use which may be made of the Letter of Credit or for
any acts or omissions of the Trustee and any beneficiary or transferee in
connection therewith;
(b) The Bank shall not be responsible or liable
to the Borrower for the validity, sufficiency or genuineness of documents
(except as to the Bank's signatures thereon), or of any endorsements thereon,
even if such documents should in fact prove to be in any or all respects
invalid, insufficient, inaccurate, fraudulent, or forged (except to the extent
acceptance or reliance upon such documents is a result of the Bank's gross
negligence or willful misconduct); and
(c) The Bank shall not be responsible or liable
to the Borrower as a result of any circumstances in any way related to the
making or failure to make payment under the Letter of Credit, other than as a
result of the gross negligence or willful misconduct of the Bank.
11.3 No Representations by the Bank. By accepting or
approving anything required to be observed, performed or fulfilled, or to be
given to the Bank pursuant to this Agreement or any of the other Letter of
Credit Documents or Bond Documents, including any certificate, statement of
profit and loss or other financial statement, survey, appraisal or insurance
policy, the Bank shall not be deemed to have warranted or represented the
sufficiency, legality, effectiveness or legal effect of the same, or of any
term, provision or condition thereof, and such acceptance or approval thereof
shall not be or constitute any warranty or representation to anyone with
respect thereto by the Bank. The Bank may accept documents in connection with
the Letter of Credit or any of the other Letter of Credit Documents or Bond
Documents which appear on their face to be in order, without responsibility for
further investigation, regardless of any notice or information to the contrary.
11.4 No Third Parties Benefited. This Agreement is made
for the purpose of defining and setting forth certain obligations, rights and
duties of the Borrower and the Bank in connection with the Letter of Credit. It
is made for the sole protection of the Borrower and the Bank, and the Bank's
successors and assigns. No other Person shall have any rights of any nature
hereunder or by reason hereof, except to the extent that the Trustee is
expressly granted rights hereunder.
11.5 Indemnity by the Borrower. The Borrower hereby
indemnifies and holds harmless the Bank and the Participants and their
respective directors, officers, agents and employees (collectively the
"indemnitees") from and against:
(a) any and all claims, demands, actions or
causes of action that are asserted against any indemnitee by any Person if the
claim, demand, action or cause of action directly or indirectly relates to a
claim, demand, action or cause of action that the Person has or asserts against
the Borrower, whether in connection with the Letter of Credit, the Bonds, any
of the Bond Documents, any of the Letter of Credit Documents or this Agreement,
or otherwise;
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<PAGE> 186
(b) any and all claims, demands, actions or
causes of action that are asserted against any indemnitee by any Person and
arising from or in connection with (i) any statement or omission by Borrower,
its agents or employees, actual or alleged, in the Bond Documents, or (ii) any
breach or default, actual or alleged, of the representations, warranties,
covenants, conditions or agreements of Borrower, its agents or employees
contained in this Agreement or any of the other Letter of Credit Documents or
in any of the Bond Documents; and
(c) any and all liabilities, losses, costs or
expenses (including court costs and attorneys' fees) that any indemnitee
suffers or incurs as a result of the assertion of any claim, demand, action or
cause of action specified in Section 11.5(a) or Section 11.5(b) of this
Agreement.
Any obligation or liability of the Borrower to any
indemnitee as provided in this Section 11.5 shall be secured by the Security
Documents. The indemnity contained in this Section 11.5 shall not extend to any
claims, demands, actions, causes of action, liabilities, losses, costs or
expenses which result solely from the negligence or willful misconduct of the
Bank.
11.6 Commissions. The Borrower hereby indemnifies and
holds the Bank harmless from any responsibility, cost and/or liability,
including any attorneys' fees incurred, in connection with any claim by any
Person for the payment of any commission, charge or brokerage fee in connection
with the Bonds or any of the other transactions contemplated in connection with
this Agreement arising by virtue of any action taken, directly or indirectly,
by the Borrower.
11.7 Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the Borrower and the Bank and their respective
successors and assigns. The Bank is authorized in its sole discretion to
participate interests in the Letter of Credit and security therefor to
Participants.
11.8 Execution in Counterparts. This Agreement and any
other Letter of Credit Document may be executed in any number of counterparts
and any party hereto or thereto may execute any counterpart, each of which when
executed and delivered will be deemed to be an original and all of which
counterparts of this Agreement or any other Letter of Credit Document, as the
case may be, taken together will be deemed to be but one and the same
instrument. The execution of this Agreement or any other Letter of Credit
Document by any party hereto or thereto will not become effective until
counterparts hereof or thereof, as the case may be, have been executed by all
the parties hereto or thereto.
11.9 Prior Agreements; Amendments; Consents. This
Agreement contains the entire agreement between the Bank and Borrower with
respect to the subject matter hereof, and all prior negotiations,
understandings and agreements with respect thereto are superseded by this
Agreement. No amendment, modification, supplement, termination or waiver of any
provision of this Agreement or any of the Letter of Credit Documents, and no
consent to any departure by the Borrower therefrom, may in any event be
effective unless in writing signed by the Bank, and then only in the specific
instance and for the specific purpose given.
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<PAGE> 187
11.10 Cumulative Remedies; No Waiver. The rights, powers
and remedies of the Bank under the Letter of Credit Documents are cumulative
and not exclusive of any right, power or remedy provided by law or equity or
otherwise. No failure or delay on the part of the Bank in exercising any right,
power or remedy may be, or may be deemed to be, a waiver thereof; nor may any
single or partial exercise of any right, power or remedy preclude any other or
further exercise of any other right, power or remedy.
11.11 Inclusion of Expenditures in Indebtedness. Except as
otherwise provided herein, all sums paid or expended by the Bank under the
terms of this Agreement shall bear interest at the Default Interest Rate, from
the date such sums are paid or expended, shall be secured by the Security
Documents and shall be immediately due and payable by the Borrower upon demand.
11.12 Survival of Representations and Warranties. All
representations and warranties of the Borrower contained herein or in any other
Letter of Credit Document will survive the delivery of the Letter of Credit,
and are material and have been or will be relied upon by the Bank,
notwithstanding any investigation made by the Bank or on behalf of the Bank.
For the purpose of the foregoing, all statements contained in any certificate,
agreement or other writing delivered by or on behalf of the Borrower pursuant
hereto or pursuant to any other Letter of Credit Document or in connection with
the transactions contemplated hereby or thereby shall be deemed to be
covenants, representations and warranties of the Borrower contained herein or
in the other Letter of Credit Documents, as the case may be.
11.13 Notices. All notices, requests, demands, directions
and other communications provided for in this Agreement and under any of the
other Letter of Credit Documents must be in writing and must be mailed,
telegraphed, delivered or sent by telex, telecopy or cable to the appropriate
party at its address as follows:
If to the Borrower:
JAMESON INNS, INC.
Suite 8050
8 Perimeter Center East
Atlanta, Georgia 30346-1603
Attn: Mr. Craig R. Kitchin
President/CFO
If to the Bank:
With respect to Letter of Credit
administration:
FIRSTAR BANK, N.A.
Global Services Division
425 Walnut Street, 2nd floor
Cincinnati, Ohio 45202
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<PAGE> 188
with a copy to
Mr. John Anfinrud
Commercial Real Estate Dept.
Firstar Bank, N.A.
One Financial Square
Louisville, KY 40202
With respect to all Trustee matters:
FIRSTAR BANK, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
Attn: Mr. Robert Jones
Addresses for purposes of notice may be changed from time to time by written
notice sent to the other party in accordance with this Section 11.13. Any
notice, request, demand, direction or other communication given by telegram,
telex, telecopy or cable must be confirmed within 24 hours by letter mailed or
delivered to the appropriate party at such party's respective address. If any
notice, request, demand, direction or other communication is given by mail it
will be effective upon the earlier of (a) three (3) days after the postmark
date of mailing in the U.S. Mail, certified or registered mail, return receipt
requested postage prepaid; (b) the date after delivery to an overnight courier;
or (c) actual receipt, if given by telecopy or personal delivery.
11.14 Further Assurances. The Borrower shall, at its
expense and without expense to the Bank, do, execute and deliver such further
acts and documents as the Bank from time to time reasonably requires for the
purpose of assuring and confirming unto the Bank the rights hereby created or
intended now or hereafter so to be, or for carrying out the intention or
facilitating the performance of the terms of any Letter of Credit Document, or
for assuring the validity of any security interest or lien under any Security
Document.
11.15 Governing Law. This Agreement shall be governed by,
and construed and in accordance with, the laws of the state of Indiana.
11.16 Severability of Provisions. Any provision in any
Letter of Credit Document that is held to be inoperative, unenforceable or
invalid shall be inoperative, unenforceable or invalid without affecting the
remaining provisions, and to this end the provisions of all Letter of Credit
Documents are declared to be severable.
11.17 Headings. Article and section headings in this
Agreement are included for convenience of reference only and are not part of
this Agreement for any other purpose.
11.18 Time of the Essence. Time is of the essence for all
purposes under this Agreement and the other Letter of Credit Documents.
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<PAGE> 189
11.19 WAIVER OF JURY TRIAL. THE BANK AND THE BORROWER,
WAIVE ANY RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION
BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY RELATED INSTRUMENT OR
AGREEMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREBY, OR ANY COURSE OF
CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF EITHER OF
THEM WITH RESPECT THERETO. NEITHER THE BORROWER NOR THE BANK SHALL SEEK TO
CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL HAS
BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT
BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY
RESPECT OR RELINQUISHED BY EITHER THE BORROWER OR THE BANK EXCEPT BY A WRITTEN
INSTRUMENT EXECUTED BY BOTH OF THEM.
IN WITNESS WHEREOF, the Borrower has caused this Agreement to be
executed on its behalf by its duly authorized representative and the Bank has
caused this Agreement to be executed on its behalf by its duly authorized
officer as of the date first above written.
FIRSTAR BANK, N.A. JAMESON INNS, INC.
By: By:
---------------------------- ----------------------------------
Title: Title:
------------------------- -----------------------------
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<PAGE> 190
EXHIBIT "A"
IRREVOCABLE LETTER OF CREDIT
FIRSTAR BANK, N.A.
Global Services Division
425 Walnut Street, 2nd floor
Cincinnati, OH 45202
Dated:
----------------
Irrevocable ________ of Credit No. [_________]
Beneficiary:
Applicant:
Firstar Bank, N.A., as Trustee Jameson Inns, Inc.
425 Walnut Street, 6th Floor 8 Perimeter Center, Suite 8050
Cincinnati, Ohio 45202 Atlanta, Georgia 30346-1603
Amount: $3,346,312
Expiration Date: December 31, 2002
Ladies and Gentlemen:
FIRSTAR BANK, N.A. (sometimes hereinafter referred to as the "Bank")
hereby establishes in your favor for the benefit of the Bondholders for the
account of Jameson Inns, Inc. (the "Corporation"), its Irrevocable Letter of
Credit (this "Letter of Credit") in a maximum amount of up to Three Million
Three Hundred Forty-six Thousand Three Hundred Twelve Dollars ($3,346,312) (as
more fully described below) effective immediately and expiring at 4:00 p.m.,
Cincinnati, Ohio time, on December 31, 2002 (the "Expiration Date"), or if the
Expiration Date is not a business day (as hereinafter defined) on the next
succeeding business day, unless terminated earlier in accordance with the
provisions hereof or unless extended by us.
This Letter of Credit is being issued in connection with that certain
Trust Indenture (the "Indenture") between the City of Elkhart, Indiana (the
"Issuer"), and you dated as of the 22nd
By: And:
----------------------------- ------------------------------
Authorized Signature Authorized Signature
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<PAGE> 191
day of December, 1999, as amended, to authorize, issue and sell certain
Economic Development Revenue Refunding Bonds, Series 1999 (Jameson Inns, Inc.)
(the "Bonds"), in the aggregate principal amount of $3,305,000, the payment of
which is secured by, among other things, this Letter of Credit. All capitalized
terms used but not defined herein shall have the meanings ascribed thereto in
the Indenture.
As used in this Letter of Credit, the term "Business Day" shall mean a
day of the year, other than (a) a Saturday, (b) a Sunday, (c) a day on which
banks located in any city in which the principal office of the Trustee or our
principal offices are located are required or authorized by law to remain
closed and (d) a day on which The New York Stock Exchange is closed.
You, as Trustee pursuant to the Indenture, are hereby irrevocably
authorized to draw on us, for the account of the Corporation, in accordance
with the terms and conditions hereof and subject to increases and reductions in
amounts as hereinafter set forth, an aggregate amount not exceeding Three
Million Three Hundred Forty-six Thousand Three Hundred Twelve Dollars
($3,346,312) (the "Stated Amount"), of which (A) an aggregate amount not
exceeding $3,305,000 may be drawn upon for payment of the unpaid principal
amount of the Bonds or the portion of the purchase price corresponding to the
principal amount of the Bonds or Beneficial Ownership Interests (as hereinafter
defined), and (B) an aggregate amount not exceeding $41,312 may be drawn upon
for payment of up to 45 days accrued interest on the Bonds or the portion of
the purchase price of the Bonds or Beneficial Ownership Interests corresponding
to accrued interest. All drawings under this Letter of Credit will be paid with
our own funds and not with funds of the Corporation, the Issuer or any other
person, and prior to any reimbursement thereof.
Funds under this Letter of Credit are only available to you against
your sight draft(s) drawn on us, substantially in the form of Exhibit 1 hereto,
stating on their face: "Drawn under FIRSTAR BANK, N.A. Letter of Credit No.
[_______]" and upon your presenting to us one or more of the following written
certificates:
(A) If the drawing is made with respect to the payment of the
principal amount of and accrued interest on the Bonds or Beneficial Ownership
Interests delivered to you for purchase pursuant to Sections 2.04 or 2.05 of
the Indenture, but not for purchases under Sections 2.06 or 2.07 of the
Indenture, a written certificate signed by you in the form of Exhibit 2
attached hereto appropriately completed;
(B) If the drawing is being made for a payment of interest on the
Bonds, a written certificate signed by you in the form of Exhibit 3 attached
hereto appropriately completed;
By: And:
----------------------------- ------------------------------
Authorized Signature Authorized Signature
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<PAGE> 192
(C) If the drawing is being made for the payment of principal of
the Bonds due upon redemption, acceleration or scheduled maturity, a written
certificate signed by you in the form of Exhibit 4 attached hereto
appropriately completed; or
(D) If the drawing is being made with respect to the payment of
the principal amount of and accrued interest on the Bonds or Beneficial
Ownership Interests delivered to you for purchase under Sections 2.06 or 2.07
of the Indenture, a written certificate signed by you in the form of Exhibit 5
attached hereto appropriately completed.
Presentation of such draft(s) and certificate(s) shall be made on a
business day at our office located at Firstar Bank, N.A., Global Services
Division, 425 Walnut Street, 2nd floor, Cincinnati, OH 45202, or any other
place which may be designated by us by written notice delivered to you. If we
receive any of your drafts drawn hereunder at such office, all in strict
conformity with the terms and conditions of this Letter of Credit, on or prior
to the termination hereof, we will honor the same and make payment hereunder.
If requested by you, payment may be made by deposit of such funds into a
designated bank account that you maintain. If demand for payment is made by you
hereunder at or prior to 11:00 A.M. (Cincinnati, Ohio time) on a Business Day,
and provided that such demand for payment and the drawing certificate presented
in connection therewith conform in all particulars to the terms and conditions
hereof, payment shall be made to you of the amount demanded, in immediately
available funds, on or prior to 11:00 A.M. (Cincinnati, Ohio time) on the next
succeeding Business Day. If demand for payment is made by you hereunder at or
prior to 10:30 A.M. (Cincinnati, Ohio time) on a Business Day relating to a
certificate in the form of Exhibit 2 or Exhibit 5 attached hereto, and provided
that such demand for payment and the drawing certificate presented in
connection therewith conform in all particulars to the terms and conditions
hereof, payment shall be made to you of the amount demanded, in immediately
available funds on the same Business Day.
Upon receipt from you of a written certificate signed by you in the
form of Exhibit 6 attached hereto appropriately completed, stating that a
payment of principal of the Bonds has been made from funds other than amounts
drawn under this Letter of Credit, in accordance with the terms of the
Indenture, the Stated Amount of this Letter of Credit shall be reduced by the
amount of the reduction set forth in such certificate. Drawings in respect of
payments hereunder honored by us shall not, in the aggregate, exceed the Stated
Amount, as the Stated Amount may have been reinstated by us as set forth below.
Upon payment of a drawing hereunder, the Stated Amount of this Letter of Credit
shall be reduced by the amount of such payment except as follows:
(a) Immediately after we honor your demand under this Letter of
Credit accompanied by a certificate in the form of Exhibit 2
attached hereto, an amount equal to such
By: And:
----------------------------- ------------------------------
Authorized Signature Authorized Signature
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<PAGE> 193
payment shall be automatically reinstated to the amount of
this Letter of Credit; and
(b) Five Business Days after we honor your demand under this
Letter of Credit accompanied by a certificate in the form of
Exhibit 3 hereto, an amount equal to such payment shall be
automatically reinstated to the amount of this Letter of
Credit unless (i) you shall have received our notice to you
by hand delivery, telecopy or registered mail prior to the
end of such five Business Day period that (x) we have not
been reimbursed for such payment in accordance with the terms
of the Reimbursement Agreement dated as of December 22, 1999
among the Borrower and us (the "Reimbursement Agreement") or
(y) any Other Event of Default under the Reimbursement
Agreement has occurred and is continuing, and as a
consequence thereof there shall be no such reinstatement, or
(ii) the fifth Business Day after such presentation would be
after the expiration date of this Letter of Credit.
Reductions in the Stated Amount which are the result of payments under
the Letter of Credit honoring a demand accompanied by a certificate in the form
of Exhibit 4 hereto or in the form of Exhibit 5 hereto shall not be reinstated.
The Stated Amount shall be reduced upon our receipt of a certificate
in the form of Exhibit 6 hereto and such reduction shall not be subject to
reinstatement.
Only you, as Trustee, or your transferee pursuant to the terms of this
Letter of Credit, may make a drawing under this Letter of Credit. Upon the
payment to you, as Trustee, of the amount specified in a draft drawn hereunder,
we will be fully discharged of our obligation under this Letter of Credit with
respect to such draft and shall not thereafter be obligated to make any further
payments under this Letter of Credit in respect of such draft to you or any
other person who may have made to you or makes to you a demand for payment of
principal of or interest on any Bond. By paying to you an amount demanded in
such draft we make no representation as to the correctness of the amount
demanded in such draft.
This Letter of Credit applies only to the payment of principal of the
Bonds, and up to 45 days' interest accruing on the Bonds on or prior to the
expiration of this Letter of Credit and does not apply to any interest that may
accrue thereon or any principal that may be payable with respect thereto after
such date.
This Letter of Credit shall automatically terminate without any action
or notice and shall be delivered to us for cancellation upon the earliest of:
(i) the honoring of the final drawing not subject to reinstatement available to
be made hereunder; (ii) our receipt of a written certificate
By: And:
----------------------------- ------------------------------
Authorized Signature Authorized Signature
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<PAGE> 194
signed by your officer and an officer of the Corporation in the form of Exhibit
7 hereto appropriately completed, stating that: (a) no Bonds are Outstanding
within the meaning of the Indenture; and (b) such officers are duly authorized
to sign such certificate on behalf of you and the Corporation, respectively;
(iii) our receipt of a written certificate signed by your officer and an
authorized officer of the Corporation in the form of Exhibit 8 hereto
appropriately completed, stating that: (a) an Alternate Letter of Credit (as
defined in the Indenture) has been accepted by the Trustee, and (b) such
officers are duly authorized to sign such certificate on behalf of you and the
Corporation; or (iv) the occurrence of the Expiration Date.
Pursuant to the terms of the Reimbursement Agreement, on September 15,
2002 and thereafter on September 15 of each year, the Expiration Date of this
Letter of Credit may be extended in our sole discretion for an additional
period of one year from the date of expiry then in place, provided that the
Corporation has delivered to us a written request for such extension by no
later than December 31 of the year prior to the year in which this Letter of
Credit will expire (assuming an Expiry Date of December 31). Written notice of
our decision regarding the Corporation's request shall be delivered to the
Corporation and to you not later than two (2) months following our receipt of
the financial statements required to be delivered by the Corporation pursuant
to Section 8.13(i) of the Reimbursement Agreement. Failure on our part to give
notice within such time period shall be deemed denial of the extension request.
As used herein, "Beneficial Ownership Interest" means the beneficial
right to receive payments and notices with respect to the Bonds which are held
by the Depository (as defined in the Indenture) under a book entry system. As
used herein, "Beneficial Owner" means with respect to the Bonds, a person (as
defined in the Indenture) owning a Beneficial Interest therein, as evidenced to
your satisfaction.
This Letter of Credit is subject to the "Uniform Customs and Practice
for Documentary Credits, 1993 Revision, International Chamber of Commerce
Publication No. 500" (the "Uniform Customs"). This Letter of Credit shall be
deemed to be made under the laws of the State of Indiana, and shall, as to
matters not governed by the Uniform Customs, be governed by and construed in
accordance with the laws of the State of Indiana.
Communications with respect to this Letter of Credit shall be in
writing and shall be addressed to us at Global Services Division, 425 Walnut
Street, 2nd floor, Cincinnati, Ohio 45202, specifically referring to the number
of this Letter of Credit. We will address all communications with respect to
this Letter of Credit to the Trustee at the address set forth on the front page
hereof or to such other address as the Trustee may direct in writing.
In accordance with Article 48 of the Uniform Customs, this Letter of
Credit is transferable in its entirety to any transferee who has succeeded you
as Trustee under the
By: And:
----------------------------- ------------------------------
Authorized Signature Authorized Signature
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<PAGE> 195
Indenture. Each letter of credit issued upon any such transfer may be
successively transferred. Transfer of the available balance under this Letter
of Credit to such transferee shall be effected by the presentation to us of
this Letter of Credit accompanied by a certificate substantially in the form of
Exhibit 9 attached hereto and payment of a transfer fee equal to .25% of the
Stated Amount then available for draw. Following such presentation, and as soon
as this original Letter of Credit is returned to us and we have been paid our
customary fee, we shall forthwith transfer the same to your transferee or, if
so requested by your transferee, issue an irrevocable letter of credit to your
transferee with provisions therein consistent with those of this Letter of
Credit.
This Letter of Credit sets forth in full our undertaking and shall not
in any way be modified, amended, amplified or limited by reference to any
document, instrument or agreement referred to herein (including, without
limitation, the Bonds and the Indenture), except only the certificate(s) and
the draft(s) referred to herein; and any such reference shall not be deemed to
incorporate herein by reference any document, instrument or agreement except
for such certificate(s) and such draft(s).
Very truly yours,
FIRSTAR BANK, N.A.
By:
----------------------------------------
Its:
---------------------------------
By:
----------------------------------------
Its:
---------------------------------
By: And:
----------------------------- ------------------------------
Authorized Signature Authorized Signature
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<PAGE> 196
EXHIBIT 1
SIGHT DRAFT
----------------------
Pay on sight to the order of: ________________ U.S. ________________ Dollars
(U.S. $_____).
Charge to account of Jameson Inns, Inc.
Drawn under FIRSTAR BANK, N.A. Letter of Credit No. [________].
TO: FIRSTAR BANK, N.A.
Global Services Division
425 Walnut Street, 2nd floor
Cincinnati, Ohio 45202
The sum drawn does not exceed the difference between (I) the maximum
aggregate amount to be drawn under the Letter of Credit less (II) the aggregate
amount of all previous drawings made under the Letter of Credit for which
FIRSTAR BANK, N.A. has not reinstated, as certified to us in any Certificate of
Nonreinstatement heretofore delivered by you.
FIRSTAR BANK, N.A., as Trustee
By:
------------------------------
Its:
------------------------------
By:
------------------------------
Its:
------------------------------
By: And:
----------------------------- ------------------------------
Authorized Signature Authorized Signature
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<PAGE> 197
EXHIBIT 2
CERTIFICATE FOR DRAWING UNDER
SECTIONS 2.04 OR 2.05 OF INDENTURE
(TENDER OPTIONS FOR CHANGE IN INTEREST RATE OR CHANGE IN
INTEREST RATE MODE)
Re: Firstar Bank Irrevocable Letter of Credit No. _____
The undersigned hereby certifies to Firstar Bank, N.A. (the "Bank")
with reference to Irrevocable Letter of Credit No. _____ (the "Letter of
Credit"; the terms "Bonds," "Indenture," "Stated Amount," "Beneficial Owner" and
"Beneficial Ownership Interest" used herein shall have their respective meanings
set forth in the Letter of Credit) that:
1. The undersigned is the Trustee under the Indenture.
2. The undersigned is making this demand for payment under the
Letter of Credit with respect to the payment of the principal
amount of and accrued interest on the Bonds or Beneficial
Ownership Interests delivered to the Trustee for purchase in
accordance with sections 2.04 or 2.05 (but not 2.06 or 2.07)
of the Indenture.
3. The principal amount of Bonds or Beneficial Ownership
Interests which are to be purchased and with respect to the
payment of which the Trustee does not have available amounts
pursuant to section 6.15 of the Indenture, or otherwise, that
are to be applied to such payment prior to moneys demanded
under the Letter of Credit is $____________.
4. The accrued interest on the Bonds or Beneficial Ownership
Interests referred to in paragraph 3 above and with respect to
the payment of which the Trustee does not have available
amounts pursuant to section 6.15 of the Indenture, or
otherwise, that are to be applied to such payment prior to
moneys demanded under the Letter of Credit is $__________.
5. The sum of the amounts set forth in paragraphs 3 and 4 above
is $_________ and is the amount of the drawing with respect to
this Certificate.
By: And:
--------------------------------- -------------------------------
Authorized Signature Authorized Signature
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<PAGE> 198
6. Immediately upon your payment of the amount demanded hereby,
such Bonds or Beneficial Ownership Interests will be held by
us, as your agent and for your benefit as Beneficial Owner,
pending your further instructions to the undersigned.
7. The amount hereby demanded was computed in accordance with the
indenture and does not exceed the Stated Amount.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Certificate as of this ______ day of ______________, ____.
FIRSTAR BANK, NA,
as Trustee
By:
------------------------------------
Its:
--------------------------------
By: And:
--------------------------------- -------------------------------
Authorized Signature Authorized Signature
-9-
<PAGE> 199
EXHIBIT 3
CERTIFICATE FOR INTEREST DRAWING
Re: Firstar Bank Irrevocable Letter of Credit No. _____
The undersigned hereby certifies to Firstar Bank, N.A. (the "Bank")
with reference to Irrevocable Letter of Credit No. _____ (the "Letter of
Credit"; the terms "Bonds," "Business Day," "Indenture" and "Stated Amount" used
herein shall have their respective meanings set forth in the Letter of Credit)
that,
1. The undersigned is the Trustee under the Indenture.
2. The undersigned is making a demand for payment under the
Letter of credit with respect to the payment of interest on
the Bonds.
3. The amount of interest on the Bonds which is due and payable,
or will be due and payable within two Business Days after the
date hereof, is $__________, and the amount of the drawing
with respect to this Certificate does not exceed such amount.
4. The amount hereby demanded was computed in accordance with the
Indenture and does not exceed the Stated Amount,
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Certificate as of the _______ day of ______________, ____.
FIRSTAR BANK, NA,
as Trustee
By:
------------------------------------
Its:
--------------------------------
By: And:
--------------------------------- -------------------------------
Authorized Signature Authorized Signature
-10-
<PAGE> 200
EXHIBIT 4
CERTIFICATE FOR PRINCIPAL DRAWING UPON
REDEMPTION, ACCELERATION OR SCHEDULED MATURITY
Re: Firstar Bank, N.A. Irrevocable Letter of Credit No. _____
The undersigned hereby certifies to Firstar Bank, N.A. (the "Bank")
with reference to Irrevocable Letter of Credit No. _____ (the "Letter of
Credit"; the terms "Bonds," "Business Day," "Indenture" and "Stated Amount" used
herein shall have their respective meanings set forth in the Letter of Credit)
that:
1. The undersigned is the Trustee under the Indenture.
2. The undersigned is making a demand for payment under the
Letter of Credit with respect to the payment of principal of
the Bonds.
3. The amount of principal of the Bonds which is due and payable,
or will be due and payable within two Business Days after the
date hereof, is $__________, and is the amount of the drawing
with respect to this Certificate.
4. The amount hereby demanded was computed in accordance with the
Indenture and does not exceed the stated Amount.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Certificate as of the _______ day of ___________, _____.
FIRSTAR BANK, NA,
as Trustee
By:
------------------------------------
Its:
--------------------------------
By: And:
--------------------------------- -------------------------------
Authorized Signature Authorized Signature
-11-
<PAGE> 201
EXHIBIT 5
CERTIFICATE FOR PRINCIPAL AND ACCRUED INTEREST
PURSUANT TO SECTIONS 2.06 AND 2.07 OF THE INDENTURE
Re: Firstar Bank, N.A. Irrevocable Letter of Credit No. _____
The undersigned hereby certifies to Firstar Bank, N.A. (the "Bank")
with reference to Irrevocable Letter of Credit No. _____ (the "Letter of
Credit"; the terms "Bonds," "Indenture," "Stated Amount," "Beneficial Owner" and
"Beneficial Ownership Interest" used herein shall have their respective meanings
set forth in the Letter of Credit) that:
1. The undersigned is the Trustee under the Indenture.
2. The undersigned is making this demand for payment under the
Letter of Credit with respect to the payment of the principal
amount of and accrued interest on the Bonds or Beneficial
ownership interests delivered to the Trustee for purchase in
accordance with sections 2.06 or 2.07 of the Indenture.
3. The principal amount of Bonds or Beneficial Ownership
interests which are to be purchased is $__________.
4. The accrued interest on the Bonds or Beneficial Ownership
Interests referred to in paragraph 3 above is $__________.
5. The sum of the amounts set forth in paragraphs 3 and 4 above
is $__________ and is the amount of the drawing with respect
to this Certificate.
6. Immediately upon your payment of the amount demanded hereby,
such Bonds or Beneficial ownership Interests will be held by
us, as your agent and for your benefit as Beneficial Owner,
pending your further instructions to the undersigned.
7. The amount hereby demanded was computed in accordance with the
Indenture and does not exceed the Stated Amount.
By: And:
--------------------------------- -------------------------------
Authorized Signature Authorized Signature
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<PAGE> 202
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Certificate as of the _______ day of ____________, _____.
FIRSTAR BANK, NA,
as Trustee
By:
------------------------------------
Its:
--------------------------------
By: And:
--------------------------------- -------------------------------
Authorized Signature Authorized Signature
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<PAGE> 203
EXHIBIT 6
CERTIFICATE OF REDUCTION IN STATED AMOUNT
FIRSTAR BANK, N.A.
Global Services Division
425 Walnut Street, 2nd floor
Cincinnati, Ohio 45202
Re: FIRSTAR BANK, N.A. Irrevocable Letter of Credit No. _____
Ladies and Gentlemen:
The undersigned, a duly authorized officer of FIRSTAR BANK, N.A., as
Trustee (the "Trustee"), hereby certifies to FIRSTAR BANK, N.A. (the "Bank")
with reference to FIRSTAR BANK, N.A. irrevocable ________ (the "Letter of
Credit," the capitalized terms defined therein and not defined herein being used
as therein defined) issued by the Bank in favor of the Trustee that:
(1) The Trustee is the Trustee under the Indenture for the holders
of the Bonds.
(2) On the date hereof, a payment or a credit towards payment of
principal on the Bonds in the amount of $_______ has been made from funds other
than amounts drawn under the Letter of Credit in accordance with the terms of
the Indenture.
(3) In accordance with the Letter of Credit, upon your receipt of
this certificate, the Stated Amount of the Letter of Credit is reduced by
$________________, which amount equals the sum of: (i) the amount of principal
so paid, plus (ii) 45 days' interest on such amount of principal. You may adjust
your records accordingly.
By: And:
--------------------------------- -------------------------------
Authorized Signature Authorized Signature
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<PAGE> 204
IN WITNESS WHEREOF, the Trustee has executed and delivered this
certificate as of the ______ day of __________________.
FIRSTAR BANK, N.A., as Trustee
By:
-----------------------------------------
Its:
-----------------------------------------
By:
-----------------------------------------
Its:
-----------------------------------------
By: And:
--------------------------------- -------------------------------
Authorized Signature Authorized Signature
-15-
<PAGE> 205
EXHIBIT 7
CERTIFICATE THAT NO BONDS ARE OUTSTANDING
FIRSTAR BANK, N.A.
Global Services Division
425 Walnut Street, 2nd floor
Cincinnati, Ohio 45202
Re: FIRSTAR BANK, N.A.
Irrevocable Letter of Credit No. _____
Ladies and Gentlemen:
The undersigned, a duly authorized officer of FIRSTAR BANK, N.A., as
Trustee (the "Trustee"), and a duly authorized officer of Jameson Inns, Inc.
(the "Corporation"), hereby certify to FIRSTAR BANK, N.A. (the "Bank") with
reference to FIRSTAR BANK, N.A. irrevocable ______ (the "Letter of Credit," the
capitalized terms defined therein and not defined herein being used as therein
defined) issued by the Bank in favor of the Trustee that:
(1) The Trustee is the Trustee under the Indenture for the holders
of the Bonds.
(2) No Bonds are outstanding within the meaning of the Indenture.
(3) The undersigned officers are duly authorized to sign this
certificate on behalf of the Trustee and on behalf of the
Corporation, respectively.
Pursuant to the Indenture, we are delivering herewith the Letter of
Credit for cancellation.
By: And:
--------------------------------- -------------------------------
Authorized Signature Authorized Signature
-16-
<PAGE> 206
IN WITNESS WHEREOF, the Trustee and the Corporation have executed and
delivered this certificate as of the ______ day of ___________________.
FIRSTAR BANK, N.A., as Trustee
By:
-----------------------------------------
Its:
-----------------------------------------
By:
-----------------------------------------
Its:
-----------------------------------------
JAMESON INNS, INC.
By:
-----------------------------------------
Title:
---------------------------------------
By: And:
--------------------------------- -------------------------------
Authorized Signature Authorized Signature
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<PAGE> 207
EXHIBIT 8
CERTIFICATE OF ACCEPTANCE OF ALTERNATE LETTER OF CREDIT
FIRSTAR BANK, N.A.
Global Services Division
425 Walnut Street, 2nd floor
Cincinnati, Ohio 45202
Re: FIRSTAR BANK, N.A.
Irrevocable Letter of Credit No. _____
Ladies and Gentlemen:
The undersigned, a duly authorized officer of FIRSTAR BANK, N.A., as
Trustee (the "Trustee"), and a duly authorized officer of Jameson Inns, Inc.
(the "Corporation"), hereby certify to FIRSTAR BANK, N.A. (the "Bank") with
reference to FIRSTAR BANK, N.A. irrevocable ________ (the "Letter of Credit,"
the capitalized terms defined therein and not defined herein being used therein
defined) issued by the Bank in favor of the trustee that:
(1) The Trustee is the Trustee under the Indenture for the holders
of the Bonds.
(2) An Alternate Letter of Credit (as defined in the Indenture)
has been accepted by the Trustee.
(3) The date on which such Alternate Letter of Credit becomes the
"Letter of Credit" for all purposes under the Indenture is
______________.
(4) The undersigned officers are duly authorized to sign this
certificate on behalf of the Trustee and on behalf of the
Corporation, respectively.
By: And:
--------------------------------- -------------------------------
Authorized Signature Authorized Signature
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<PAGE> 208
IN WITNESS WHEREOF, the Trustee and Corporation have executed and
delivered this certificate as of the _____ day of _________________.
FIRSTAR BANK, N.A., as Trustee
By:
-----------------------------------------
Its:
-----------------------------------------
By:
-----------------------------------------
Its:
-----------------------------------------
JAMESON INNS, INC.
By:
-----------------------------------------
Title:
---------------------------------------
By: And:
--------------------------------- -------------------------------
Authorized Signature Authorized Signature
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<PAGE> 209
EXHIBIT 9
CERTIFICATE OF TRANSFER OF
LETTER OF CREDIT TO SUCCESSOR TRUSTEE
For value received, the undersigned beneficiary hereby irrevocably
transfers to:
-----------------------------------
(Name of Transferee)
-----------------------------------
(Address)
as Successor Trustee under the Indenture (as defined in the above-referenced
Letter of Credit) all rights of the undersigned beneficiary to draw under the
above Letter of Credit in its entirety.
By this transfer, all rights of the undersigned beneficiary in such
Letter of Credit are transferred to the transferee and the transferee shall have
the sole rights as beneficiary thereof, including sole rights relating to any
amendments whether increases or extensions or other amendments and whether now
existing or hereafter made. All amendments are to be advised direct to the
transferee without necessity of any consent of or notice to the undersigned
beneficiary.
The original Letter of Credit (and any amendments thereto) is returned
herewith, and we ask you to endorse the transfer on the reverse thereof, and
forward it direct to the transferee with your customary notice of transfer.
SIGNATURE AUTHENTICATED Yours very truly,
FIRSTAR BANK, NA,
as trustee
- -------------------------------
(Bank)
By:
- ------------------------------- ------------------------------
(Authorized Signature) Its
---------------------------
By: And:
--------------------------------- -------------------------------
Authorized Signature Authorized Signature
-20-
<PAGE> 210
MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT
THIS MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT
(hereafter referred to as the "Mortgage") is made and entered into as of the
22nd day of December, 1999, from JAMESON INNS, INC., a Georgia corporation
(hereafter referred to as "Borrower"), whose address is 8 Perimeter Center East,
Suite 8050, Atlanta, Georgia 30346-1603 to FIRSTAR BANK, N.A., a National
Banking Association (hereafter referred to as "Mortgagee"), whose address is One
Financial Square, Louisville, Kentucky 40202-3322.
W I T N E S S E T H:
FOR and in consideration of the premises, the sum of Ten and
No/100 Dollars ($10.00) and other good and valuable consideration, the receipt
and sufficiency whereof are hereby acknowledged, and in order to secure the
indebtedness and other obligations of Borrower hereafter set forth, Borrower
does hereby grant, bargain, sell, convey, mortgage, warrant, assign, transfer,
pledge and set over unto Mortgagee and the successors and assigns of Mortgagee
all of the following (hereafter collectively referred to as the "Property"):
A. All that tract or parcel of land located in Elkhart,
Indiana as more particularly described in Exhibit A, attached hereto and
incorporated herein by this reference (hereafter referred to as the "Land");
B. All buildings, structures and improvements of every nature
whatsoever now or hereafter situated on the Land, including, without limitation,
all gas and electric fixtures, radiators, pipes, heaters, furnaces, engines and
machinery, escalators, boilers, ranges, elevators, motors, plumbing and heating
fixtures, carpeting and other floor coverings, fire extinguishers, sprinklers,
and any other safety equipment required by governmental regulation or law,
washers, dryers, water heaters, mirrors, mantels, air conditioning apparatus
(including, without limitation humidity control equipment), refrigeration
plants, refrigerators, cooking apparatus and appurtenances, window screens,
awnings and storm sashes, alarm devices of any type, automatic sprinkler
systems, carpet, cabinets and shelving, partitions, paneling, and wall covering,
and windows of every type, which are or shall be attached to the Land or said
buildings, structures, or improvements and all other fixtures, machinery,
equipment, furniture, furnishings, appliances, vehicles, building supplies and
materials, books and records, chattels, inventory, accounts, receivables, farm
products, consumer goods, general intangibles and personal property of every
kind and nature whatsoever (other than personal property which may be or deemed
to be toxic or Hazardous Materials, as defined herein) now or hereafter owned by
Borrower and located in, on, or about, or used or intended to be used with or in
connection with the use, operation, or enjoyment of the Property, including all
extensions, additions, improvements, betterments, after-acquired property,
renewals, replacements and substitutions, and proceeds from a sale of any of the
foregoing, and all right, title and interest of Borrower in any such fixtures,
machinery, equipment, furniture, furnishings, appliances, vehicles, and goods to
become fixtures, and personal property subject to or covered by any prior
security agreement, conditional sales contract, chattel mortgage or similar lien
or claim, together with the benefit of any deposits or payments now or hereafter
made by Borrower or on behalf of Borrower, all tradenames,
<PAGE> 211
trademarks, servicemarks, logos and goodwill which in any way are now owned or
hereafter belong, relate or appertain to the Property or any part thereof or are
now owned or hereafter acquired by Borrower and which relate or pertain to the
Property; and all inventory, accounts, chattel paper, documents, equipment,
fixtures, farm products, consumer goods and general intangibles constituting
proceeds acquired with cash proceeds of any of the property described
hereinabove, all of which are hereby declared and shall be deemed to be fixtures
and accessions to the Land and a part of the Property as between the parties
hereto and all persons claiming by, through or under them, and which shall be
deemed to be a portion of the security for the indebtedness herein described and
to be secured by this Mortgage;
C. All easements, rights-of-way, strips and gores of land,
vaults, streets, ways, alleys, passages, sewer rights, waters, water courses,
water rights and powers, shrubs, crops, trees, and timber now or hereafter
located on the Land or under or above the same or any part or parcel thereof,
and all estates, rights, titles, interests, minerals, royalties, easements,
privileges, liberties, tenements, hereditaments and appurtenances, reversion and
reversions, remainder and remainders whatsoever, in any way belonging, relating
or appertaining to the Property or any part thereof, or which hereafter shall in
any way belong, relate or be appurtenant thereto, whether now owned or hereafter
acquired by Borrower;
D. All present and future income, rents, issues, profits,
accounts, receivables and revenues of the Property from time to time accruing
(including, without limitation, all Borrower's rights and interest in all
payments under leases or tenancies, all payments and revenues for the use of
guest rooms or any other facilities or services at the Property and all advance
deposits for rooms, meeting or banquet space), unearned premiums on any
insurance policy carried by Borrower for the benefit of Mortgagee and/or the
Property, tenant security deposits, escrow funds and all awards or payments,
including interest thereon and the right to receive same, growing out of or as a
result of any exercise of the right of eminent domain, including the taking of
any part or all of the Property or payment for alteration of the grade of any
road upon which said Property abuts, or any other injury to, taking of or
decrease in the value of said Property to the extent of all amounts which may be
owing on the indebtedness secured by this Mortgage at the date of receipt of any
such award or payment by Borrower, and the reasonable attorneys' fees, costs and
disbursements incurred by Mortgagee in connection with the collection of such
award or payment), and all the estate, right, title, interest, property,
possession, claim and demand whatsoever at law or in equity, of Borrower of, in
and to the same; reserving to Borrower only the right to collect the same as
long as no default or event of default as defined in Paragraph 2.1 shall have
occurred; and
E. All insurance policies and proceeds thereof, contracts,
permits, licenses, plans or intangibles now or hereafter dealing with, affecting
or concerning the Property, including, without limitation, all rights accruing
to Borrower from any and all contracts with all contractors, architects,
engineers or subcontractors relating to the construction of improvements on or
upon the Property, including payment, performance and/or materialmen's bonds and
any other related choices in action;
TO HAVE AND TO HOLD the Property and all parts, rights,
members, and appurtenances thereof, for the use, benefit and behoof of Mortgagee
and the successors and
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<PAGE> 212
assigns of Mortgagee, IN FEE SIMPLE forever; and Borrower covenants that
Borrower is lawfully seized and possessed of the Property as aforesaid, and has
good right to convey and mortgage the same, that the same are unencumbered
except as to those matters expressly set forth in Exhibit B, attached hereto and
incorporated herein by this reference (hereafter referred to as the "Permitted
Exceptions"), and that Borrower does warrant and will forever defend the title
thereto against the claims of all persons whomsoever, except as to the Permitted
Exceptions.
This instrument is given to secure the payment of the
following in such manner as Mortgagee in its sole discretion shall determine
(hereafter collectively referred to as the "Indebtedness"):
A. All payment and performance obligations of Borrower under
that certain Reimbursement Agreement dated the 22nd day of December, 1999 by and
between Borrower and Mortgagee in connection with Mortgagee's issuance of a
Letter of Credit in the amount of $3,346,312 for the account of Borrower
(hereafter referred to as the "Agreement") together with any and all renewals,
extensions, substitutions, modifications and consolidations of the indebtedness
arising from the Agreement;
B. Any and all additional advances made by Mortgagee to
protect or preserve the Property or the security title or interest created
hereby on the Property, or for taxes, assessments or insurance premiums as
hereafter provided, or for performance of any of Borrower's obligations
hereunder, or for any other purpose provided herein (whether or not the original
Borrower remains the owner of the Property at the time of such advances),
provided, however, nothing herein shall be deemed to obligate Mortgagee to make
any such advances;
C. Any and all obligations and covenants of Borrower under any
other document, instrument or agreement now or hereafter evidencing, securing or
otherwise relating to the Agreement secured hereby (the Agreement, the Letter of
Credit issued pursuant to the Agreement, this Mortgage, the Assignment of Leases
and Rents, the Assignment and Subordination of Master Lease, the Environmental
Indemnity Agreement, the UCC Financing Statements, the Borrower's Affidavit
[each of the foregoing being dated of even date herewith], and the Commitment
between Borrower and Firstar Bank, N.A. dated October 15, 1999 [hereafter
referred to as the "Commitment"] and all of such other documents, instruments
and agreements are hereafter sometimes referred to collectively as the "Letter
of Credit Documents"), and all costs of collection, including reasonable
attorneys' fees.
Provided, always, and it is the true intent and meaning of the
parties, that when Borrower shall pay or cause to be paid to Mortgagee, its
successors or assigns, the Indebtedness according to the conditions and
agreements of the Agreement and of this Mortgage and shall keep, perform and
observe all of the covenants, obligations and agreements contained in the Letter
of Credit Documents, all without delay, as required thereunder and hereunder,
then this Mortgage shall cease, terminate and be null and void; otherwise this
Mortgage shall remain in full force and effect.
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Borrower hereby further covenants and agrees with Mortgagee
as follows:
1.1 Payment of Indebtedness, Covenants and Warranties.
A. Borrower will pay the sums required by the Agreement
according to the terms thereof and will pay all other sums now or hereafter
secured hereby at the time and in the manner provided under the Agreement, this
Mortgage, any instrument evidencing a future advance and any other Letter of
Credit Document and Borrower will otherwise perform, comply with and abide by
each and every of the stipulations, agreements, conditions and covenants
contained in the Agreement, this Mortgage and every other Letter of Credit
Document, the Bond Documents ( as defined in the Agreement) and any lease or
other agreement with respect to the Property to which Borrower is a party. The
final maturity date of this Mortgage shall be December 31, 2006.
B. Borrower shall protect, indemnify and hold Mortgagee
harmless from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs, and expenses (including, without limitation,
attorneys' fees and court costs) imposed upon or incurred by Mortgagee by reason
of this Mortgage or in exercising, performing, enforcing, or protecting its
rights, title, or interests set forth herein, and any claim or demand whatsoever
which may be asserted against Mortgagee by reason of any alleged obligation or
undertaking to be performed or discharged by Mortgagee under this Mortgage. In
addition, Borrower covenants and agrees that it shall:
[1] not initiate, join in or consent to any change in any
covenant, easement, or other public or private restriction, limiting or defining
the uses which may be made of the Property, or any part thereof, without
Mortgagee's prior written consent;
[2] not take any action or fail to take any action which will
result in any imposition affecting the Property, Borrower, the Agreement or this
Mortgage;
[3] indemnify and hold Mortgagee harmless from any and all
costs, damages or liabilities resulting from, arising out of, or related to, the
creation or existence of liens, impositions or encumbrances by or against
Borrower or Borrower's predecessor in title, or the Property;
Borrower hereby represents, warrants, and agrees as follows:
[1] Borrower has neither done any act nor failed to do any act
which might prevent Mortgagee from, or limit Mortgagee in, acting under any of
the provisions of this Mortgage;
[2] neither the execution and delivery of this Mortgage, nor
the performance of each and every covenant of Borrower under this Mortgage, nor
the satisfaction of each and every condition contained in this Mortgage,
conflicts with, or constitutes a breach or default under, any agreement,
indenture, or other instrument to which Borrower is a party or is
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subject, or any law, ordinance, administrative regulation, or court decree which
is applicable to Borrower;
[3] no action has been brought or, to the best of Borrower's
knowledge, is threatened, which would interfere in any way with the right of
Borrower to execute this Mortgage and perform all of Borrower's obligations
contained in this Mortgage;
[4] this Mortgage, the Agreeement and the Letter of Credit
Documents, constitute legal, valid and binding obligations of Borrower,
enforceable against Borrower in accordance with their terms;
[5] the financial statements submitted with the Commitment,
and the representations and warranties of Borrower contained in this Mortgage,
the Agreement and the Letter of Credit Documents, are true and correct as of the
date of this Mortgage;
[6] there is no litigation, arbitration, investigation, or
administrative proceeding of or before any court, arbitrator or governmental
authority, pending or threatened [a] by or against Borrower, [b] with respect to
or against the Property, [c] with respect to the Letter of Credit Documents, or
[d] which could have a material adverse affect on the business, operations,
property, or general condition of Borrower, or any principal of Borrower;
[7] the Property is in full compliance with all standards and
requirements specified under or required by Title III of the Americans With
Disabilities Act of 1990 (the "ADA"), 42 U.S.C.A. 12101, et seq., including but
not limited to all applicable Accessibility Guidelines and any other regulations
promulgated thereunder; and
[8] Borrower has tested the components of all building systems
at the Property (including but not limited to HVAC, lighting, elevators,
security, mechanical, electrical and plumbing) and those components have been
determined to be capable of correctly and accurately processing, providing or
receiving data from, into and between the years 1999 and 2000 and beyond and the
building systems will not operate abnormally or inaccurately or cease to operate
as a result of the inability to correctly and accurately process, provide or
receive data from, into and between the 20th and 21st centuries and the years
1999 and 2000 and beyond.
1.2 Taxes, Liens and Other Charges
A. In the event of the passage of any law, order, rule or
regulation subsequent to the date hereof, in any manner changing or modifying
the taxation of mortgages or security agreements or debts secured thereby or the
manner of collecting taxes so as to affect Mortgagee adversely, Borrower shall
promptly pay any such tax on or before the due date thereof. If Borrower fails
to make such prompt payment or if, in the opinion of Mortgagee, any such law,
order, rule or regulation prohibits Borrower from making such payment or would
penalize Mortgagee if Borrower makes such payment or if, in the opinion of
Mortgagee, the making of such payment might result in the imposition of interest
beyond the maximum amount permitted by applicable law, then the entire balance
of the Indebtedness secured by this Mortgage and all accrued interest thereon
shall, at the option of Mortgagee, become immediately due and payable.
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B. Borrower shall pay, before the due date thereof, all taxes,
levies, license fees, permit fees, liens, judgments, assessments and all other
expenses, fees and charges (in each case whether general or special, ordinary or
extraordinary, or foreseen or unforeseen) of every character whatsoever now or
hereafter levied, assessed, confirmed or imposed on, or with respect to, or
which may be a lien upon, the Property, or any part thereof, or any estate,
right, or interest therein, or upon the rents, issues, income or profits
thereof, or incurred in connection with the Agreement, the Indebtedness or any
of the Letter of Credit Documents, and all premiums on policies of insurance
covering, affecting, or relating to the Property, as required pursuant to
Paragraph 1.3 hereof, and shall submit to Mortgagee such evidence of the due and
punctual payment of all such taxes, assessments, insurance premiums and other
fees and charges as Mortgagee may require.
C. Borrower shall not suffer any mechanic's, materialman's,
laborer's, statutory or other lien to be created, filed of record or to remain
outstanding upon all or any part of the Property.
1.3 Insurance.
A. Borrower shall, at its expense, procure for, deliver to and
maintain for the benefit of Mortgagee until the Indebtedness is fully repaid,
original, fully paid insurance policies (or if such policy is a "blanket" policy
which includes land, improvements, personalty, or income other than the Property
or income derived from the Property, a certified copy of such blanket policy and
an original certificate from the insurer evidencing the allocation of coverage
to the Property and the income from the Property), providing the following types
of insurance relating to the Property, issued by insurance companies with a
Best's rating of A VI or better, in such amounts, in such form and content and
with such expiration dates as are approved by Mortgagee, in Mortgagee's sole
discretion, such policies to provide that the insurer shall give Mortgagee at
least thirty (30) days' prior written notice of cancellation, amendment,
non-renewal or termination, in the manner provided for the giving of notices
under Paragraph 3.5 hereof and to provide that no act done or omission by the
insured shall invalidate or diminish the insurance provided to Mortgagee and,
except for liability policies, to contain a standard Mortgagee clause
satisfactory to Mortgagee:
[1] Broad form property insurance against all risks of
physical loss, including, without limitation, fire, extended coverage,
vandalism, malicious mischief, earthquake, flood, and collapse, with waiver of
subrogation, to the extent of the full replacement cost of the improvements to
the Property, without deduction for depreciation, either without co-insurance
requirements or with agreed amount endorsement attached;
[2] Public liability insurance covering all liabilities
incident to the ownership, possession, occupancy and operation of the Property
and naming Mortgagee as an additional insured thereunder, having limits of not
less than $2,000,000 each accident, $2,000,000 each person, and $1,000,000
property damage. Mortgagee reserves the right to require increased coverage
under this Subparagraph [2];
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[3] Rent or business interruption insurance against
loss of income arising out of any hazard against which the Property is required
to be insured under this Section 1.3, in an amount not less than six months
gross rental income from the Property; and
[4] Flood hazard insurance if the Property is in a
special flood hazard area.
[5] Such other insurance with respect to the Property
or any replacements or substitutions therefor, in such amounts as may from time
to time be required by Mortgagee, against other insurable casualties which at
the time are commonly insured against in the case of properties of similar
character.
B. Borrower covenants and agrees that Mortgagee is hereby
authorized and empowered, at its option, to adjust, compromise or settle any
loss under any insurance policies maintained pursuant hereto, and to collect and
receive the proceeds from any policy or policies. Each insurance company is
hereby authorized and directed to make payment for all such losses directly to
Mortgagee, instead of to Borrower and Mortgagee jointly. In the event any
insurance company fails to disburse directly and solely to Mortgagee but
disburses instead either solely to Borrower or to Borrower and Mortgagee
jointly, Borrower agrees immediately to endorse and transfer such proceeds to
Mortgagee. Upon the failure of Borrower to endorse and transfer such proceeds as
aforesaid, Mortgagee may execute such endorsements or transfers for and in the
name of Borrower, and Borrower hereby irrevocably appoints Mortgagee as its
agent and attorney-in-fact to do so. After deducting from said insurance
proceeds all of its expenses incurred in the collection and administration of
such sums, including attorneys' fees, Mortgagee may apply the net proceeds or
any part thereof, at its sole option [i] to a prepayment of the obligations
under the Agreement without prepayment premium or penalty, [ii] to the repair
and/or restoration of the Property, upon such conditions as Mortgagee may
determine, and/or [iii] for any other purposes or objects for which Mortgagee is
entitled to advance funds under this Mortgage, all without reducing or impairing
the lien of this Mortgage or any obligations secured hereby. Any balance of such
proceeds then remaining shall be paid to Borrower or any other person or entity
lawfully entitled thereto.
Notwithstanding the foregoing, Mortgagee shall release the net
insurance proceeds to Borrower to be utilized by Borrower for the repair,
rebuilding, or restoration of the improvements to the Property to as good or
better condition as such improvements were in immediately prior to any casualty
on account of which such proceeds are paid (the "Restoration"), provided that
such net proceeds shall be released upon fulfillment of the following conditions
to the satisfaction of Mortgagee, Mortgagee exercising its sole discretion:
[1] Mortgagee shall have determined that the
improvements to the Property can be restored to as good or better
condition as such improvements were in immediately prior to the
casualty on account of which such proceeds were paid;
[2] Mortgagee shall have determined that such net
proceeds, together with any funds paid by Borrower to Mortgagee, shall
be sufficient to complete the Restoration;
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[3] No default, and no event or failure which, with
the passage of time or the giving of notice, would constitute a default
under the Agreement, this Mortgage, the Bond Documents (as defined in
the Agreement) or any of the Letter of Credit Documents, shall have
occurred;
[4] Such casualty shall have occurred prior to the
first day of the calendar year during which the Letter of Credit is
scheduled to expire;
[5] The value of the Property as determined by
Mortgagee shall be sufficient so that the Loan does not exceed 65% of
the amount available for draw under the Letter of Credit and so that
net rental revenue from the Property, after payment of operating
expenses, is sufficient, as determined by Lender, to establish a debt
service coverage ratio of 1.25 to 1.0 with respect to all debt secured
by the Property; and
[6] Mortgagee shall have approved the plans and
specifications to be used in connection with the Restoration and shall
have received written evidence, satisfactory to Mortgagee, that such
plans and specifications have been approved by all governmental and
quasi-governmental authorities having jurisdiction and by all other
persons or entities required to approve such plans and specifications.
Net proceeds in excess of the amount necessary to
complete the Restoration shall, at the option of Mortgagee, be applied to the
outstanding Indebtedness, in such order as Mortgagee may determine in its sole
discretion.
If, within a reasonable period of time after the
occurrence of any casualty, Borrower shall not have submitted to Mortgagee, and
received Mortgagee's approval of, plans and specifications for the Restoration
or shall not have obtained approval of such plans and specifications from all
governmental authorities and other persons and entities whose approval is
required, or if Borrower shall fail to commence promptly such Restoration, or if
thereafter Borrower fails to carry out diligently such Restoration or is
delinquent in the payment to mechanics, materialmen or others for the costs
incurred in connection with such Restoration, or if Mortgagee determines that
any other condition of this paragraph is not satisfied within a reasonable
period of time after the occurrence of any such loss or damage, then in addition
to all other rights herein set forth, at Mortgagee's option [x] Mortgagee may
declare that an Event of Default has occurred and/or [y] Mortgagee may dispose
of such net proceeds as provided in this Paragraph 1.3B and/or [z] Mortgagee, or
any lawfully appointed receiver of the Property may, but shall not be obligated
to, perform or cause to be performed such Restoration and may take such other
steps as they deem advisable to carry out such Restoration and may enter upon
the Property for any of the foregoing purposes, and Borrower hereby waives, for
itself and all others holding under it, any claim against Mortgagee and such
receiver (other than a claim based upon the alleged gross negligence or
intentional misconduct of Mortgagee or any such receiver) arising out of
anything done by them or any of them pursuant to this Paragraph 1.3B and
Mortgagee may, in its discretion apply any insurance proceeds held by it to
reimburse itself and/or such receiver for all amounts expended or incurred in
connection with the performance of such Restoration, including attorneys' fees,
and any excess costs shall be paid by Borrower to
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Mortgagee and Borrower's obligation to pay such excess costs shall be secured by
the lien of this Mortgage and shall bear interest at the default rate set forth
in the Agreement, until paid.
C. At least twenty (20) days prior to the expiration date of
each policy maintained pursuant to this Paragraph 1.3, a renewal or replacement
thereof satisfactory to Mortgagee shall be delivered to Mortgagee. Borrower
shall deliver to Mortgagee receipts evidencing the full payment of premiums for
all such insurance policies and renewals or replacements. The delivery of any
insurance policies hereunder shall constitute an assignment of all unearned
premiums as further security hereunder. In the event of the foreclosure of this
Mortgage or any other transfer of title to the Property in extinguishment or
partial extinguishment of the Indebtedness, all right, title and interest of
Borrower in and to all insurance policies maintained pursuant to this Paragraph
1.3 then in force shall belong to the purchaser and Mortgagee is hereby
irrevocably appointed by Borrower as attorney-in-fact for Borrower to assign any
such policy to said purchaser, without accounting to Borrower for any unearned
premiums therefor.
1.4 Condemnation. If all or any portion of the Property shall be
damaged or taken through condemnation (which term when used in this Mortgage
shall include any damage or taking by any governmental or quasi-governmental
authority and any transfer or grant by private sale made in anticipation of or
in lieu thereof), either temporarily or permanently, then the entire
Indebtedness shall, at the option of Mortgagee, become immediately due and
payable without prepayment premium and without notice to Borrower or any other
person or entity. Promptly upon learning of the institution or the proposed,
contemplated or threatened institution of any condemnation proceeding, Borrower
shall notify Mortgagee of the pendency of such proceedings, and no settlement
respecting awards in such proceedings shall be effected without the consent of
Mortgagee. Mortgagee shall be entitled to receive all compensation, awards,
proceeds and other payments or relief relating to or payable as a result of such
condemnation. Mortgagee is hereby authorized, at its option, to commence, appear
in and prosecute, in its own or in the name of Borrower, any action or
proceeding relating to any condemnation, and to settle or compromise any claim
in connection therewith. All such compensation, awards, damages, claims, rights
of action and proceeds and the right thereto are hereby assigned by Borrower to
Mortgagee. If Mortgagee does not elect to declare the entire Indebtedness
immediately due and payable, as provided above, then Mortgagee, after deducting
from said condemnation proceeds all of its expenses incurred in the collection
and administration of such sums, including, without limitation, attorneys' fees,
may apply the net proceeds or any part thereof, at its option, [i] to a
prepayment of the Agreement, without prepayment premium, [ii] to the repair
and/or restoration of the Property upon such conditions as Mortgagee may
determine, and/or [iii] for any other purposes or objects for which Mortgagee is
entitled to advance funds under this Mortgage, all without reducing or impairing
the lien of this Mortgage or any obligations secured hereby. Any balance of such
moneys then remaining shall be paid to Borrower or any other person or entity
lawfully entitled thereto. Mortgagee shall not be obligated to see to the proper
application of any amount paid over to Borrower. Borrower agrees to execute such
further assignment of any compensation, awards, damages, claims, rights of
action and proceeds as Mortgagee may require. If, prior to the receipt by
Mortgagee of such award or proceeds, the Property shall have been sold on
foreclosure of this Mortgage, or as a result of other legal action relating to
this
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Mortgage or the Agreement, Mortgagee shall have the right to receive such
award or proceeds to the extent of any unpaid Indebtedness following such sale,
with legal interest thereon, whether or not a deficiency judgment on this
Mortgage or the Agreement shall have been sought or recovered, and to the extent
of attorneys' fees, costs and disbursements incurred by Mortgagee in connection
with the collection of such award or proceeds.
Notwithstanding the foregoing, Mortgagee shall release the net
proceeds of any award paid to it for any taking of a portion of the Property to
Borrower to be utilized by Borrower in the restoration of the Property and the
improvements thereon to as good or better condition as existed immediately prior
to such taking, to the extent possible in light of the taking (the
"Restoration"), provided that such net proceeds shall be released upon such
conditions as Mortgagee shall determine, including fulfillment of the following
conditions to the satisfaction of Mortgagee, Mortgagee exercising its sole
discretion:
[1] Mortgagee shall have determined that the Property
and the improvements thereon can be restored to as good or better condition as
existed immediately prior to such taking, taking into account diminution of the
Property as a result of such taking;
[2] Mortgagee shall have determined that such net
proceeds, together with any funds paid by Borrower to Mortgagee, shall be
sufficient to complete the Restoration;
[3] No default, and no event or failure which, with
the passage of time or the giving of notice, would constitute a default under
the Agreement, this Mortgage, the Bond Documents (as defined in the Agreement)
or any of the Letter of Credit Documents, shall have occurred;
[4] Such taking shall have occurred prior to the
first day of the calendar year during which the Letter of Credit is scheduled to
expire;
[5] The remaining Property shall comply with all
applicable land use, zoning and subdivision regulations and all parking
requirements under all Leases;
[6] The value of the Property as determined by
Mortgagee shall be sufficient so that the Loan does not exceed 65% of the amount
available for draw under the Letter of Credit and so that net rental revenue
from the Property, after payment of operating expenses, is sufficient, as
determined by Lender, to establish a debt service coverage ratio of 1.25 to 1.0
with respect to all debt secured by the Property; and
[7] Mortgagee shall have approved the plans and
specifications to be used in connection with the Restoration and shall have
received written evidence, satisfactory to Mortgagee, that such plans and
specifications have been approved by all governmental and quasi-governmental
authorities having jurisdiction and by all other persons or entities required to
approve such plans and specifications.
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Net proceeds in excess of the amount necessary to complete the
Restoration shall, at the option of Mortgagee, be applied to the outstanding
Indebtedness, in such order as Mortgagee may determine in its sole discretion.
If, within a reasonable period of time after the occurrence of
any such taking, Borrower shall not have submitted to Mortgagee, and received
Mortgagee's approval of, plans and specifications for the Restoration or shall
not have obtained approval of such plans and specifications from all
governmental authorities and other persons and entities whose approval is
required, or if Borrower shall fail to commence promptly such restoration, or if
thereafter Borrower fails to carry out diligently such Restoration or is
delinquent in the payment to mechanics, materialmen or others for the costs
incurred in connection with such Restoration, or if Mortgagee determines that
any other condition of this paragraph is not satisfied within a reasonable
period of time after the occurrence of any such taking, then in addition to all
other rights herein set forth, at Mortgagee's option [x] Mortgagee may declare
that an Event of Default has occurred and/or [y] Mortgagee may dispose of such
net proceeds as provided in this Paragraph 1.4 and/or [z] Mortgagee, or any
lawfully appointed receiver of the Property may, but shall not be obligated to,
perform or cause to be performed such Restoration and may take such other steps
as they deem advisable to carry out such Restoration, and may enter upon the
Property for any of the foregoing purposes, and Borrower hereby waives, for
itself and all others holding under it, any claim against Mortgagee and such
receiver (other than a claim based upon the alleged gross negligence or
intentional misconduct of Mortgagee or any such receiver) arising out of
anything done by them or any of them pursuant to this Paragraph 1.4 and
Mortgagee may, in its discretion apply any such net proceeds held by it to
reimburse itself and/or such receiver for all amounts expended or incurred in
connection with the performance of such Restoration, including attorneys' fees,
and any excess costs shall be paid by Borrower to Mortgagee and Borrower's
obligation to pay such excess costs shall be secured by the lien of this
Mortgage and shall bear interest at the default rate set forth in the Agreement,
until paid.
1.5 Care of Property.
A. Borrower shall keep all improvements of any kind now or
hereafter erected on the Land or any part thereof in good condition and repair,
shall not commit or suffer any waste, and shall not do or suffer to be done
anything which would or could increase the risk of fire or other hazard to the
Property or any part thereof or which would or could result in the cancellation
of any insurance policy carried with respect to the Property.
B. Borrower shall not remove, demolish or materially alter,
enlarge or change any structure or other improvement located on the Land without
Mortgagee's consent, nor shall any new improvements be constructed on the
Property without Mortgagee's consent. Borrower shall not remove or permit to be
removed from the Land any fixture, chattel or part of the Property without the
consent of Mortgagee, except where appropriate replacements are immediately made
which are free of any lien, security interest or claim superior to that of this
Mortgage and which have a value and utility at least equal to the value and
utility of the fixture or chattel removed, which replacement shall, without
further action, become subject to the lien of this Mortgage.
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C. Mortgagee or its representative is hereby authorized to
enter upon and inspect the Property at all reasonable times.
D. Borrower will perform and comply promptly with, and cause
the Property to be maintained, used and operated in accordance with, any and all
[i] present and future laws, ordinances, rules, and regulations, including
without limitation, all applicable federal, state and local laws pertaining to
air and water quality, hazardous waste, waste disposal, air emissions and other
environmental matters, all zoning and other land use matters, and rules,
regulations and ordinances of the United States Environmental Protection Agency
and all other applicable federal, state and local agencies and bureaus; [ii]
policies of insurance at any time in force with respect to the Property. If
Borrower receives any notice that Borrower or the Property is in default under
or is not in compliance with any of the foregoing, or notice of any proceeding
initiated under or with respect to any of the foregoing, Borrower will promptly
furnish a copy of such notice to Mortgagee.
E. If all or any part of the Property shall be damaged by fire
or other casualty, Borrower shall give immediate written notice thereof to
Mortgagee and shall promptly restore the Property to the equivalent of its
original condition; and if a part of the Property shall be damaged through
condemnation, Borrower shall promptly restore, repair or alter the remaining
portions of the Property in a manner satisfactory to Mortgagee. In the event all
or any portion of the Property shall be damaged or destroyed by fire or other
casualty or by condemnation, Borrower shall promptly deposit with Mortgagee a
sum equal to the amount by which the estimated cost of the restoration of the
Property, as determined by Mortgagee, exceeds the actual net insurance or
condemnation proceeds received by Mortgagee in connection with such damage or
destruction.
1.6 Security Agreement.
A. With respect to any of the machinery, apparatus, equipment,
fittings, fixtures, building supplies and materials, articles of personal
property, chattels, chattel paper, documents, inventory, accounts, receivables,
revenues from the use of the Property or facilities thereon, farm products,
water rights, consumer goods and general intangibles or other property or rights
described in granting clauses B through E in this Mortgage or in any way
connected with the use and enjoyment of the Property, including any personal
property or fixtures included within the definition of the term "Property"
(other than any personal property which may be now or hereafter deemed to be
toxic or Hazardous Materials) whether now owned or hereafter from time to time
acquired, together with all substitutions, replacements, additions, attachments,
accessories and all of the rents, issues, income, revenues, receivables,
accounts, security deposits and profits derived from the Property (hereafter
collectively referred to as the "Collateral"), this Mortgage is hereby also made
and declared to be a security agreement encumbering each and every item of such
property comprising a part of the Collateral, in compliance with the provisions
of the Uniform Commercial Code as enacted in the state where the Land is
located, and Borrower hereby grants Trustee, for the benefit of Mortgagee a
security interest in all such property. Upon request by Mortgagee, at any time
and from time to time, a financing statement or statements reciting this
Mortgage to be a security agreement affecting all of such property shall be
executed by Borrower and Mortgagee and appropriately filed. The remedies for any
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violation of the covenants, terms and conditions of the security agreement
contained in this Mortgage shall include, but not be limited to those [i]
prescribed herein, or [ii] prescribed by general law, or [iii] prescribed by the
specific statutory consequences now or hereafter enacted and specified in said
Uniform Commercial Code, all at Mortgagee's sole election. Said security
interest shall attach thereto as soon as Borrower obtains any interest in any of
the Collateral and before the Collateral becomes fixtures or before the
Collateral is installed or affixed to other collateral for the benefit of
Mortgagee, to secure the Indebtedness, and all other sums and charges which may
become due hereunder or thereunder. The security interest held by Mortgagee
shall cover cash and non-cash proceeds of the Collateral, but nothing contained
herein shall be construed as authorizing, either expressly or by implication,
the sale or other disposition of the Collateral by Borrower, which sale or other
disposition is hereby expressly prohibited without the Mortgagee's prior written
consent, or as otherwise provided herein. No personal property or business
equipment owned by any Tenants (as hereafter defined) holding under Borrower is
included within this Mortgage, except to the extent of Borrower's landlord's
lien with respect thereto.
In the event of default under this Mortgage, Mortgagee,
pursuant to said Uniform Commercial Code, shall have the option of proceeding as
to both real and personal property in accordance with its rights and remedies in
respect of the real property, in which event the default provisions of the
Uniform Commercial Code shall not apply. The parties agree that, in the event
Mortgagee elects to proceed with respect to the Collateral separately from the
real property, the requirement of the Uniform Commercial Code as to reasonable
notice of any proposed sale or disposition of the Collateral shall be met if
such notice is mailed to the Borrower, as hereafter provided, at least five (5)
days prior to the time of such sale or disposition. Borrower agrees that,
without the prior written consent of Mortgagee, Borrower will not remove or
permit to be removed from the real property hereby conveyed, any of the
Collateral unless the same is replaced immediately with unencumbered collateral
of a quality and value equal or superior to that which it replaces. All such
replacements, renewals and additions shall become and be immediately subject to
the security interest of this Mortgage and be covered thereby. Borrower warrants
and represents that all Collateral now is, and that all replacements thereof,
substitutions therefor or additions thereto will be, free and clear of liens,
encumbrances or security interests of others, except as to the Permitted
Exceptions.
B. Borrower warrants that [i] Borrower's (that is, "Debtor's")
name, identity, and principal place of business are as referred to in the first
paragraph of this Mortgage, [ii] Borrower (that is, "Debtor") has been using or
operating under said name and identity without change since January 1, 1994, and
[iii] the location of all tangible collateral is upon the Land. Borrower
covenants and agrees that Borrower will furnish Mortgagee with notice of any
change in the matters addressed by clauses [i] or [iii] of this Subparagraph
1.6B within thirty (30) days of the effective date of any such change, and
Borrower will promptly execute any financing statements or other instruments
deemed necessary by Mortgagee to prevent any filed financing statement from
becoming misleading or losing its perfected status.
C. Some of the items of property described herein are goods
that are or are to become fixtures related to the real estate described herein,
and it is intended that, as to those goods, this Mortgage and Security Agreement
shall be effective as a financing statement filed as
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a fixture filing from the date of its filing for record in the real estate
records of the county in which the Land is located. Information concerning the
security interest created by this instrument may be obtained from the Mortgagee,
as "Secured Party," or Borrower, as "Debtor," at their respective mailing
addresses set out in Paragraph 3.5 hereof.
D. Borrower further covenants and agrees that all of the
aforementioned personal property shall be owned by Borrower and shall not be the
subject matter of any lease or other instrument, agreement or transaction
whereby the ownership or beneficial interest thereof or therein shall be held by
any person or entity other than Borrower, except to the extent Mortgagee
consents in writing to any lease of any of such property, which consent may be
withheld or delayed in Mortgagee's sole discretion; nor shall Borrower create or
cause to be created any security interest covering any such property, other than
[i] the security interest created herein in favor of Mortgagee, [ii] the rights
of tenants lawfully occupying the Property pursuant to leases approved by
Mortgagee, and [iii] the Permitted Exceptions.
1.7 Further Assurances; After-Acquired Property. At any time, and from
time to time, at Borrower's expense and upon request by Mortgagee, Borrower
shall make, execute and deliver or cause to be made, executed and delivered, to
Mortgagee and, where appropriate, cause to be recorded and/or filed and from
time to time thereafter to be re-recorded and/or refiled at such time and in
such offices and places as shall be deemed desirable by Mortgagee, any and all
such other and further deeds to secure debt, mortgages, deeds of trust, security
agreements, financing statements, continuation statements, instruments of
further assurances, certificates and other documents as may, in the opinion of
Mortgagee, be necessary or desirable in order to effectuate, complete or
perfect, or to continue and preserve, [i] the obligations of Borrower described
in the Agreement and under this Mortgage and [ii] the lien of this Mortgage as a
first and prior lien upon and security interest in and to all of the Property,
whether now owned or hereafter acquired by Borrower, subject only to the
Permitted Exceptions. Upon any failure by Borrower so to do, Mortgagee may make,
execute, record, file, re-record and/or refile any and all such deeds to secure
debt, mortgages, deeds of trust, security agreements, financing statements,
continuation statements, instruments, certificates and documents for and in the
name of Borrower, and Borrower hereby irrevocably appoints Mortgagee the agent
and attorney-in-fact of Borrower so to do. The lien and security interest hereof
shall automatically attach, without further act, to all after-acquired property
attached to and/or used in the operation of the Property or any part thereof, to
the extent permitted by law.
1.8 Expenses. Borrower shall indemnify Mortgagee and hold Mortgagee
harmless from and against, and pay or reimburse Mortgagee, upon demand therefor,
for all attorneys' fees, costs and expenses incurred by Mortgagee in any suit,
action, legal proceeding or dispute of any kind in which Mortgagee is made a
party or appears as a party plaintiff or defendant, affecting the Indebtedness,
this Mortgage, or the interest created herein, or the Property, including,
without limitation, any foreclosure proceedings, any condemnation action
involving the Property, any federal bankruptcy proceeding or state insolvency
proceeding involving the priorities or rights of creditors, any action to
protect the security hereof, or any action or proceeding commenced by
governmental authority with respect to the storage, disposal or clean-up of
toxic or Hazardous Materials on, under or about the Property; and any such
amounts paid by Mortgagee shall be
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added to the Indebtedness secured by the lien of this Mortgage and shall bear
interest from and after the date when paid at the default rate in effect under
the Agreement.
1.9 Subrogation. To the full extent of the Indebtedness, Mortgagee is
hereby subrogated to the liens, claims and demands, and to the rights of the
owners and holders of each lien, claim, demand and other encumbrance on the
Property which is paid or satisfied, in whole or in part, out of the proceeds of
the Indebtedness, and the respective liens, claims, demands and other
encumbrances shall be, and each of them is hereby, preserved and shall pass to
and be held by Mortgagee as additional collateral and further security for the
Indebtedness, to the same extent they would have been preserved and would have
been passed to and held by Mortgagee had they been duly and legally assigned,
transferred, set over and delivered unto Mortgagee by assignment,
notwithstanding the fact that any instrument providing public notice of the same
may be satisfied and canceled of record.
1.10 Transfer of the Property; Secondary Financing.
A. The identity and expertise of Borrower were and continue to
be material circumstances upon which Mortgagee has relied in connection with,
and which constitute valuable consideration to Mortgagee for, extending the
Indebtedness to Borrower, and any change in such identity or expertise could
materially impair or jeopardize the security for the payment of the
Indebtedness. Borrower covenants and agrees with Mortgagee, as part of the
consideration for extending the Indebtedness to Borrower, that without
Mortgagee's prior written consent, Borrower shall not, voluntarily or by
operation of law: [i] sell, transfer, convey, pledge, encumber, assign or
otherwise hypothecate or dispose of, all or any part of the Property or any
interest therein whether or not as collateral security for any other obligation
of Borrower; [ii] (if Borrower is a corporation, partnership, trust, or other
entity) sell, transfer, encumber or otherwise dispose of voting control or more
than fifty percent (50%) of the financial interest in Borrower or change its
general partners; nor [iii] cause or permit any junior encumbrance or lien to be
placed on the Property or other security for the Indebtedness. Any purported
transaction in violation of the foregoing shall be void and shall entitle
Mortgagee to declare the entire Indebtedness immediately due and payable without
notice or demand. Such consent may be given or withheld by Mortgagee in its sole
discretion and may be conditioned upon payment to Mortgagee of a fee for
processing the request for consent and other administrative costs incurred in
connection therewith, and/or an increase in the rate of interest on the unpaid
balance of the Indebtedness to a then current market rate, and/or a change in
the term of the Agreement, and/or other changes in the terms of the Letter of
Credit Documents, all of which Borrower hereby agrees are reasonable conditions
to the approval of any such transfer. In all events, if Mortgagee consents to
any such sale, transfer, conveyance, pledge, encumbrance, assignment,
hypothecation or disposition, at the option of Mortgagee the manager of the
Property shall remain the same before and after the transfer and the transferee
shall be a creditworthy person or entity of sound financial reputation.
B. The consent by Mortgagee to any sale, transfer, conveyance,
pledge, encumbrance, assignment, creation of a security interest in or other
hypothecation or disposition of the Property or the beneficial interests of
Borrower shall not be deemed to constitute a novation of the Indebtedness or a
consent to any further sale, transfer, pledge, encumbrance, creation of a
security interest or other hypothecation or disposition, or to waive Mortgagee's
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right, at its option, to exercise its remedies for default, without notice to or
demand upon Borrower or to any other person or entity upon any such sale,
transfer, pledge, encumbrance, creation of a security interest in or other
hypothecation, or disposition to which Mortgagee shall not have consented.
1.11 Limit on Interest. If from any circumstances whatsoever,
fulfillment of any provision of this Mortgage, the Reimbursement Agreement or
any other Letter of Credit Document, at the time performance of such provision
shall be due shall involve transcending the limit on interest presently
prescribed by any applicable usury statute or any other applicable law, with
regard to obligations of like character and amount, then Mortgagee may, at its
option [i] reduce the obligations to be fulfilled to such limit on interest, or
[ii] apply the amount that would exceed such limit on interest to the reduction
of the outstanding principal balance due under the Reimbursement Agreement, and
not to the payment of interest, with the same force and effect as though
Borrower had specifically designated such sums to be so applied to principal and
Mortgagee had agreed to accept such extra payment(s) as a premium-free
prepayment, so that in no event shall any exaction be possible under the
Reimbursement Agreement or Mortgage, that is in excess of the applicable limit
on interest. It is the intention of Borrower and Mortgagee not to create any
obligation in excess of the amount allowable by applicable law. The provisions
of this paragraph shall control every other provision of this Mortgage, and any
provision of the Letter of Credit Documents in conflict with this Paragraph
1.11.
1.12 Performance by Mortgagee of Defaults by Borrower. Borrower
covenants and agrees that, if it shall default in the payment of any tax, lien,
assessment, or charge levied or assessed against the Property; in the payment of
any utility charge, whether public or private; in the payment of any insurance
premium; in the procurement of insurance coverage and the delivery of the
insurance policies required hereunder; or in the performance or observance of
any other covenant, condition or term of this Mortgage, then Mortgagee, at its
option, but without obligation and without notice, may pay, perform or observe
the same, and all payments made or costs incurred by Mortgagee in connection
therewith shall be secured hereby and shall be, without demand, immediately
repaid by Borrower to Mortgagee with interest thereon, from the date such
payment is made or expense is incurred by Mortgagee to the date Mortgagee is
reimbursed therefor, at the default rate provided in the Agreement. Mortgagee
shall be the sole judge of the legality, validity and priority of any such tax,
lien, assessment, charge, claim and premium, of the necessity for any such
actions and of the amount necessary to be paid in satisfaction thereof.
Mortgagee is hereby empowered to enter and to authorize others to enter upon the
Property or any part thereof for the purpose of performing or observing any such
defaulted covenant, condition or term without thereby becoming liable to
Borrower or any person in possession of any portion of the Property holding
under Borrower. Borrower expressly acknowledges and agrees, however, that
notwithstanding anything contained in this Paragraph 1.12 to the contrary,
Mortgagee shall not be obligated under this Paragraph 1.12 to incur any expense
or to perform any act whatsoever. Borrower further acknowledges that no
performance by Mortgagee of Borrower's obligations shall cure Borrower's default
or release Borrower from those or any other obligations under this Mortgage.
Borrower hereby indemnifies Mortgagee against any and all costs, liabilities or
damages, arising from or in any way related to the performance of Borrower's
obligations by Mortgagee.
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1.13 Assignment of Leases, Franchise Agreement, Management Contracts
and Rents.
A. As additional collateral and to further secure the
Indebtedness and other obligations of Borrower, Borrower does hereby absolutely,
presently and irrevocably assign, grant, transfer, and convey to Mortgagee, its
successors and assigns, all of Borrower's right, title, and interest in, to, and
under all leases, master leases, subleases, tenant contracts, rental agreements,
agreements for the rental of rooms and facilities at the Property, franchise
agreements, management contracts, construction contracts and other contracts,
licenses and permits, map approvals and conditional use permits, whether written
or oral, now or hereafter affecting all or any part of the Property to the
extent the same is attributable to the ownership and operation of the Property,
together with Borrower's rights as landlord pursuant to any landlord's lien or
as secured party with respect to any security agreement contained in or security
interest granted by any master lease or operating lease. Borrower also
irrevocably assigns, transfers and conveys all of Borrower's right title and
interest in any agreement for the use or occupancy of all or any part of said
Property which may have been made heretofore or which may be made hereafter,
including any and all extensions, renewals, and modifications of the foregoing
and guaranties of the performance or obligations of any tenants thereunder, and
all other arrangements of any sort resulting in the payment of money to Borrower
or in Borrower becoming entitled to the payment of money for the use of the
Property or any part thereof whether such user or occupier is tenant, guest,
invitee, or licensee (all of the foregoing hereafter referred to collectively as
the "Leases" and individually as a "Lease", and said tenants, invitees, and
licensees are hereafter referred to collectively as "Tenants" and individually
as "Tenant" as the context requires), which Leases cover all or portions of the
Property; together with all of Borrower's right, title, and interest in and to
all income, accounts, receivables, rents, issues, royalties, profits, rights and
benefits and all Tenants' security and other similar deposits derived with
respect to the Leases and with respect to the Property, including, without
limitation, all base and minimum rents, percentage rents, additional rents, room
and facility rentals, payments in lieu of rent, expense contributions, and other
similar such payments (hereafter collectively referred to as "Income"), and the
right to collect the same as they become due, it being the intention of the
parties hereto to establish an absolute transfer and assignment of all of the
Leases and the Income to Mortgagee, and not just to create a security interest.
For purposes hereof, the income, rents, royalties, issues, rights and benefits,
etc., which are attributable to the Property shall include the Base Rent (as
defined in the Master Lease as defined below) directly attributable to the Rooms
(as defined in the Master Lease) in the Property and the Percentage Rent (as
defined in the Master Lease) generated by the Property. "Percentage Rent
generated by the Property" means the difference between: (i) Percentage Rent due
and owing utilizing the Percentage Rent calculation set forth in Section 3.1(b)
of the Master Lease using all Rooms for the applicable period; and (ii)
Percentage Rent due and owing utilizing the Percentage Rent calculation set
forth in Section 3.1(b) of the Master Lease using all Rooms for the applicable
period except those Rooms comprising the Property.
B. Borrower hereby represents, warrants, and agrees as
follows:
[1] Borrower is the sole holder of the landlord's
interest under the Leases, is entitled to receive the Income from the Leases and
from the Property (subject to the
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terms of the Master Lease with Jameson Hospitality, Inc. dated May 7, 1999 (the
"Master Lease")), and has the full right to sell, assign, transfer, and set over
the same and to grant to and confer upon Mortgagee the rights, interests,
powers, and authorities herein granted and conferred;
[2] Borrower has made no pledge or assignment of the
Leases or Income, prior to the date hereof, and Borrower shall not, after the
date hereof, make or permit any such pledge or assignment;
[3] Borrower has neither done any act nor failed to
do any act which might prevent Mortgagee from, or limit Mortgagee in, acting
under any of the provisions of this Mortgage;
[4] The Leases are valid, enforceable, and in full
force and effect, and Borrower has delivered to Mortgagee true, complete, and
correct copies of all Leases with respect to the Property or any part thereof;
[5] The Master Lease provides for rental to be paid
monthly and Borrower has not accepted, and shall not, after the date hereof,
accept or permit payment of rental or other Income under any of the Leases for
more than one (l) month in advance of the due date thereof;
[6] No security deposit has been made by any Tenant
under the Master Lease or any other Lease except as set forth in such Lease;
[7] To the best of Borrower's knowledge, there exists
no default or event of default or any state of facts which would or could, with
the passage of time or the giving of notice, or both, constitute a default or
event of default on the part of Borrower or by any Tenant under the terms of the
Master Lease or any of the Leases;
[8] Neither the execution and delivery of this
Mortgage or the Master Lease or any of the Leases, nor the performance of each
and every covenant of Borrower under this Mortgage, the Master Lease and the
Leases, nor the satisfaction of each and every condition contained in this
Mortgage, the Master Lease and the Leases, conflicts with, or constitutes a
breach or default under, any agreement, indenture, or other instrument to which
Borrower is a party or is subject, or any law, ordinance, administrative
regulation, or court decree which is applicable to Borrower;
[9] No action has been brought or, to the best of
Borrower's knowledge, is threatened, which would interfere in any way with the
right of Borrower to execute this Assignment and perform all of Borrower's
obligations contained in this Mortgage and in the Leases; and
C. Borrower hereby covenants and agrees as follows:
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[1] Borrower shall provide Mortgagee with a
fully-executed original counterpart of each Lease, amendment, modification or
alteration thereto;
[2] Borrower shall authorize and direct, and does
hereby authorize and direct, each and every present and future Tenant of the
whole or any part of the Property, including the Lessee under the Master Lease
to pay all rental from the Property to Mortgagee from and after the date of
receipt of written demand from Mortgagee to do so;
[3] Borrower shall [i] fulfill, perform, and observe
each and every condition and covenant of landlord or lessor contained in each of
the Leases; [ii] give prompt notice to Mortgagee of any claim of default under
the Master Lease or any other Leases, whether given by a Tenant to Borrower, or
given by Borrower to a Tenant, together with a complete copy of any such notice;
[iii] at no cost or expense to Mortgagee, enforce, short of termination, the
performance and observance of each and every covenant and condition of the
Master lease or other Leases to be performed or observed by the Tenants
thereunder; [iv] if so requested by Mortgagee, diligently and in good faith
enforce the Master lease and any other Leases and all remedies available to
Borrower against the Tenants in the event of default under any Lease by any
Tenant; [v] if so requested by Mortgagee, diligently and in good faith appear in
and defend any action arising out of, or in any manner connected with, any of
the Master Lease or other Leases, or the obligations or liabilities of Borrower
as the landlord thereunder, or of the Tenant or any guarantors thereunder; and
[vi] execute such additional documents as Mortgagee may require to evidence and
confirm such assignment;
[4] Borrower shall not, without the prior written
consent of Mortgagee, [i] enter into any lease of all or any part of the
Property, [ii] modify, amend, or alter, or agree to the modification, amendment,
or alteration of the Master Lease or any of the Leases; [iii] terminate the
term, accept the surrender of, or otherwise cancel any of the Master Lease or
any of the Leases; [iv] permit the prepayment of any rents under the Master
Lease or any of the Leases or other Income for more than one (l) month prior to
the due date thereof; [vi] discount any future accruing rents under the Master
Lease or other Leases or other Income; [vii] give any consent to any assignment
or sublease by any Tenant under the Master Lease or any of the Leases if such
assignment or subletting would result in the assignor or sublessor being
released from liability under its Lease; [viii] grant any rental concessions in
connection with the Master Lease or any of the Leases; or [ix] assign its
interest in, to, or under the Master Lease or the Leases or Income to any person
or entity other than Mortgagee and any attempt to violate the provisions of this
Subparagraph C shall be void;
[5] Borrower shall take no action that will cause or
permit the estate of any Tenant under the Master Lease or any of the Leases to
merge with the interests of Borrower in the Property or any portion thereof;
[6] Borrower shall protect, indemnify, and hold
Mortgagee harmless from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs, and expenses (including, without
limitation, attorneys' fees and court costs) imposed upon or incurred by
Mortgagee by reason of this Mortgage or in exercising, performing, enforcing, or
protecting its rights, title, or interests set forth herein, and any claim or
demand whatsoever
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which may be asserted against Mortgagee by reason of any alleged obligation or
undertaking to be performed or discharged by Mortgagee under this Mortgage;
[7] Borrower shall not do, or fail to do, any act if
such action or failure would constitute a violation of the Master Lease or any
of the Leases, or commit any act or omission that may create in any Tenant a
right to cease or reduce payment of rent or terminate its Lease or otherwise
affect or impair the benefits of this Mortgage;
[8] Borrower shall require that any master lease
entered into after the date of this assignment as a replacement or renewal of
the Master Lease will require the Tenant thereunder to execute assignment and
subordination of such Lease; and
D. Although this Mortgage constitutes an absolute, present and
current assignment of all Income from the Property, as long as no default or
event of default as defined in Paragraph 2.1 below, on the part of Borrower
shall have occurred, Mortgagee shall not demand that such Income be paid
directly to Mortgagee, and Borrower shall have a license to collect, but not
more than one (l) month prior to the due date thereof all such Income from the
Property (including, without limitation, all rental payments under the Leases).
E. Borrower acknowledges that this instrument is an absolute
transfer and assignment of all Leases and the Income to Mortgagee. Upon
termination, as determined by Mortgagee, of Borrower's obligations to Mortgagee
as set out in the Letter of Credit Documents, Mortgagee shall relinquish its
rights to such Leases and Income and return said rights granted by this
instrument to Borrower.
1.14 Books, Records, Accounts and Monthly Reports. Borrower shall keep
and maintain, or shall cause to be kept and maintained, at Borrower's cost and
expense, proper and accurate books, records and accounts reflecting all items of
income and expense in connection with the operation of the Property and in
connection with any services, equipment, or furnishings provided in connection
with the operation of the Property. Borrower shall furnish to Mortgagee annually
within 120 days after the end of Borrower's fiscal year, at Borrower's expense,
an accrual statement of the operation of the Property for such fiscal year
showing in detail all revenues derived from rents, profits and all other
sources, and all expenses and disbursements made in connection with the
Property, annual balance sheets, profit and loss statements, and all supporting
schedules covering the operation of the Property. From and after default
Mortgagee may require that any such statements shall be audited and/or prepared
and certified by an independent certified public accountant selected or approved
by Mortgagee. All of the foregoing financial statements shall fairly and
accurately present the financial condition of the subject thereof as of the
dates thereof and shall be certified by Borrower's principal financial or
accounting officer. In the event that Borrower shall refuse or fail to furnish
any statement as aforedescribed, or in the event such statement shall be
inaccurate or false, or in the event of failure of Borrower to permit Mortgagee
or its representatives to inspect the Property or the said books and records,
such acts of Borrower shall be a default hereunder and Mortgagee may proceed in
accordance with the rights and remedies afforded it under the provisions hereof.
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1.15 Hazardous Materials.
A. Borrower represents and warrants that except as disclosed
in the report of EMG, Inc. dated December 22, 1998, no Hazardous Materials exist
on, under or about the Property or, to the best of Borrower's knowledge after
diligent inquiry, have been transported to or from the Property or used,
generated, manufactured, stored or disposed of on, under or about the Property,
and the Property is not in violation of any federal, state or local law,
ordinance or regulation relating to industrial hygiene or the environmental
conditions on, under or about the Property, including, without limitation, soil
and groundwater conditions. Hazardous Materials shall include: [i] oil,
flammable substances, explosives, radioactive materials, hazardous wastes or
substances, toxic wastes or substances or any other materials or pollutants
which pose a hazard to the Property or to persons on or about the Property,
cause the Property to be in violation of any local, state or federal law or
regulation, or are defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials", "toxic substances",
"contaminants", "pollution", or words of similar import under any applicable
local, state or federal law or under the regulations adopted or publications
promulgated pursuant thereto, including, but not limited to: [A] the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended. 42 U.S.C. ss.9601, et seq.; [B] the Hazardous Materials Transportation
Act, as amended, 49 U.S.C. ss.1801, et seq.; [C] the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. ss.6901, et seq.; and [D] regulations
adopted and publications promulgated pursuant to the aforesaid laws; [ii]
asbestos in any form which is or could become friable, urea formaldehyde foam
insulation, transformers or other equipment which contain dielectric fluid
containing levels of polychlorinated biphenyls in excess of fifty (50) parts per
million; [iii] underground storage tanks; and [iv] any other chemical, material
or substance, exposure to which is prohibited, limited or regulated by any
governmental authority or may or could pose a hazard to the health and safety of
the occupants of the Property or the owners and/or occupants of property
adjacent to or surrounding the Property. As used in this Mortgage, the term
"Hazardous Materials law" shall include laws, rules, regulations, statutes, and
requirements pertaining or relating to Hazardous Materials.
B. Borrower shall, at its sole cost and expense, prevent the
imposition of any lien against the Property for the cleanup of any Hazardous
Material, and shall comply and cause [i] all Tenants under any Lease or
occupancy agreement affecting any portion of the Property, and [ii] any other
person or entity on or occupying the Property, to comply with all federal, state
and local laws, regulations, rules, ordinances and policies concerning the
environment, health and safety and relating to the presence, generation, use,
handling, transport, production, disposal, discharge or storage of Hazardous
Materials in, on or about the Property. Without limiting the generality of the
foregoing, Borrower represents, covenants and agrees that the Property does not
and will not contain any Hazardous Materials. Borrower hereby grants to
Mortgagee, its agents, employees, consultants and contractors an irrevocable
license to enter upon the Property and to perform such tests on the Property as
are reasonably necessary in Mortgagee's sole discretion to conduct an
investigation and/or review
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C. Borrower shall promptly take any and all necessary remedial
action in response to the presence, storage, use, disposal, transportation or
discharge of any Hazardous Materials on, under or about the Property; provided,
however that Borrower shall not, without Mortgagee's prior written consent, take
any remedial action in response to the presence, generation, use, handling,
transport, production, disposal, discharge or storage of any Hazardous Materials
on, under, or about the Property, nor enter into any settlement agreement,
consent decree, or other compromise in respect to any claims, proceedings,
lawsuits or actions, completed or threatened pursuant to any Hazardous Materials
laws or in connection with any third party, if such remedial action, settlement,
consent or compromise might, in Mortgagee's sole determination, impair the value
of Mortgagee's security hereunder; Mortgagee's prior consent shall not, however,
be necessary in the event that the presence, generation, use, handling,
transport, production, disposal, discharge or storage of Hazardous Materials on,
under, or about the Property either [i] poses an immediate threat to the health,
safety or welfare of any individual, or [ii] is of such a nature that an
immediate remedial response is necessary and it is not possible to obtain
Mortgagee's consent prior to undertaking such action. In the event Borrower
undertakes any remedial action with respect to any Hazardous Materials on, under
or about the Property, Borrower shall immediately notify Mortgagee of any such
remedial action, and shall conduct and complete such remedial action [A] in
compliance with all applicable federal, state and local laws, regulations,
rules, ordinances and policies, [B] to the satisfaction of Mortgagee, and [C] in
accordance with the orders and directives of all federal, state and local
governmental authorities
D. Borrower shall protect, defend, indemnify and hold
Mortgagee, its parent corporation, subsidiaries and affiliates and each of their
directors, officers, employees and agents, and any successors to Mortgagee's
interest in the Property, and any other person or entity who acquires any
portion of the Property at a foreclosure sale, by the receipt of a deed in lieu
of foreclosure, or otherwise through the exercise of Mortgagee's rights and
remedies under the Letter of Credit Documents, and any successors to any such
other person or entity, and all directors, officers, employees and agents of all
of the aforementioned indemnified parties, harmless from and against any and all
claims, proceedings, lawsuits, liabilities, damages, losses, fines, penalties,
judgments, awards, costs and expenses (including, without limitation, attorneys'
fees and costs and expenses of investigation) which arise out of or relate in
any way to any presence, generation, use, handling, transport, production,
disposal, discharge or storage of any Hazardous Materials in, on or about the
Property whether by Borrower or any Tenant or any other person or entity,
including, without limitation: [i] all foreseeable and all unforeseeable
consequential damages directly or indirectly arising out of [A] the presence,
generation, use, handling, transport, production, disposal, discharge or storage
of Hazardous Materials by Borrower, any prior owner or operator of the Property,
or any person or entity on or about the Property, or [B] any residual
contamination affecting any natural resource or the environment, and [ii] the
costs of any required or necessary repair, cleanup, or detoxification of the
Property and the preparation of any closure or other required plans (all such
claims, proceedings, lawsuits, liabilities, losses, fines, penalties, costs,
damages, and expenses referred to in this Paragraph 1.15D hereafter referred to
as "Expenses"). The foregoing indemnification obligations of Borrower shall
survive satisfaction of the Mortgage, and any foreclosure hereunder or a deed in
lieu of foreclosure. In addition, Borrower agrees that in the event any
Hazardous Material is caused to be removed from the Property by Borrower,
Mortgagee, or any other person or entity,
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the number assigned by the Environmental Protection Agency to such Hazardous
Material shall be solely in the name of Borrower and Borrower shall assume any
and all liability for such removed Hazardous Material. In the event Mortgagee
pays any Expenses, such Expenses shall be additional Indebtedness secured hereby
and shall become immediately due and payable without notice and with interest
thereon at the default rate specified in the Agreement
E. In the event that Borrower shall fail to timely comply with
the provisions of this Paragraph 1.15, Mortgagee may, but shall not be obligated
to, either [i] declare that an event of default shall have occurred, and/or [ii]
in addition to any rights granted to Mortgagee hereunder, do or cause to be done
whatever is necessary to cause the Property to comply with the applicable law,
rule, regulation or order, and the cost thereof shall be additional Indebtedness
secured hereby, and shall become immediately due and payable without notice and
with interest thereon at the default rate specified in the Agreement. Borrower
shall give Mortgagee and its agents and employees access to the Property for the
purpose of effecting such compliance and hereby specifically grants to Mortgagee
an irrevocable license, effective [x] immediately if, in the opinion of
Mortgagee, irreparable harm to the environment, the Property, or persons or
material amounts of property is imminent, or [y] otherwise, upon expiration of
the applicable cure period, to do whatever necessary to cause the Property to so
comply, including, without limitation, to enter the Property and remove
therefrom any Hazardous Materials. Borrower shall pay or reimburse Mortgagee for
any and all loss, cost, damage and expense (including, without limitation,
attorneys' fees and costs incurred in the investigation, defense and settlement
of claims) that Mortgagee may incur as a result of or in connection with the
assertion against Mortgagee of any claims relating to the presence or removal of
any Hazardous Material, or compliance with any federal, state or local laws,
rules, regulations or orders relating thereto, and the amount(s) thereof shall
be additional Indebtedness secured hereby and shall become immediately due and
payable without notice and with interest thereon at the default rate specified
in the Agreement
1.16 Purpose. The obligations under the Agreement which are secured by
this Mortgage have been incurred and made solely to induce Mortgagee to issue
its Letter of Credit for the account of Borrower.
Section 2. Defaults, Remedies and Waivers
2.1 Events of Default.
A. The terms "Default," "default," "Event of Default" or
"event of default," wherever used in this Mortgage, shall mean any one or more
of the following events:
[1] Failure by Borrower to pay or perform any
obligation under the Agreement, the Letter of Credit Documents, the Bond
Documents (as defined in the Agreement) or other indebtedness secured by this
Mortgage within ten (10) days from the date when due and payable;
[2] Any transfer under Paragraph 1.10 to which
Mortgagee shall not have first consented in writing;
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[3] An event shall occur which under the specific
terms of Paragraph 1.4 shall give the Mortgagee the option to accelerate the
maturity of the Indebtedness;
[4] Failure by Borrower duly to observe or perform
any other term, covenant, condition or agreement of this Mortgage or the
Agreement within 30 days after written notice of such failure; provided,
however, if such failure cannot be cured within such 30 day period, then failure
by Borrower to commence the curing thereof within such 30 day period and
diligently to prosecute such curing to completion within a reasonable time
thereafter;
[5] The fact that any representation or warranty of
Borrower contained in this Mortgage or in the Agreement or any other Letter of
Credit Document proves to be untrue or misleading in any respect as of the time
made or as of any subsequent time prior to the satisfaction in full of all of
the Indebtedness;
[6] The occurrence of any Default, default, event of
default or Event of Default under any of the other Letter of Credit Documents or
Borrower's default under the Bond Documents;
[7] The filing of any federal tax lien against the
Property;
[8] The filing by Borrower or any endorser of the
Agreement of a voluntary petition in bankruptcy pursuant to any federal, state
or other statute, law or regulation relating to bankruptcy, insolvency or other
relief for debtors (hereafter referred to collectively as "Bankruptcy Law") or
the issuing of an order for relief against Borrower or any endorser or guarantor
of the Agreement under any such Bankruptcy Law, or the filing by Borrower or
endorser of the Agreement of any petition or answer seeking or acquiescing in
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief for itself under any present or future Bankruptcy
Law;
[9] Borrower's or any such endorser's or guarantor's
seeking or consenting to or acquiescing in the appointment of any trustee,
custodian, receiver, or liquidator of Borrower, any such endorser or guarantor,
or of all or any substantial part of the Property or of any or all of the
income, rents, revenues, issues, earnings, profits or income thereof or of any
other property or assets of Borrower, or of such endorser or guarantor; or the
making by Borrower or any such endorser or guarantor of any general assignment
for the benefit of creditors, or the admission in writing by Borrower or any
such endorser or guarantor of its inability to pay its debts generally as they
become due, or the commission by Borrower or any such endorser or guarantor of
any act providing grounds for the entry of an order for relief under any
Bankruptcy Law;
[10] Failure to cause the dismissal of any
involuntary petition in bankruptcy brought against Borrower or any endorser or
guarantor of the Agreement within 60 calendar days after the same is filed but
in any event prior to the entry of an order, judgment, or decree approving such
petition;
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[11] The Property is subjected to actual or
threatened waste, or all or any part thereof is removed, demolished, or
materially altered without the prior written consent of Mortgagee;
[12] Borrower or any endorser of the Agreement (if a
corporation) is liquidated or dissolved or its charter expires or is revoked, or
Borrower or such endorser (if a partnership or business association) is
dissolved or partitioned, or Borrower or such endorser (if a trust) is
terminated or expires, or Borrower or such endorser (if an individual) dies;
[13] The filing by any person or entity of any claim
in any legal or equitable proceeding challenging the first priority lien of this
Mortgage, subject only to the Permitted Exceptions if such action is not
dismissed or stayed within sixty (60) days following such filing;
[14] Without the prior written consent of Mortgagee,
Borrower enters into, or terminates or cancels any agreement pertaining to
management of the Property; amends or modifies any such management agreement, or
consents to any such amendment or modification, without Mortgagee's prior
written consent, such consent not to be unreasonably withheld; or consents to
any termination, cancellation, amendment or modification of any such management
agreement;
[15] Default by Borrower under any other loan secured
by a lien on any portion of the Property and the expiration of any applicable
notice and/or cure period;
[16] The filing of any action under any federal or
state law, which permits forfeiture of Borrower's interest in the Property,
including but not limited to, any indictment under the Racketeer Influence and
Corrupt Organization Act of 1970 (RICO) if such action is not dismissed or
stayed within sixty (60) days following such filing; or
[17] Default by Borrower under the reimbursement
agreement or mortgage securing the reimbursement agreement or a default under
any letter of credit documents all of which have been entered into by Borrower
in connection with the refunding of certain economic development revenue bonds
issued in connection with the financing of Signature Inn properties in Florence
KY, Jefferson County, KY or Terre Haute, IN.
2.2 Acceleration of Maturity. If an Event of Default shall have
occurred, then the entire Indebtedness shall, at the option of Mortgagee, become
immediately due and payable without notice or demand other than notice of
Mortgagee's exercise of its option to accelerate the Indebtedness, which are
hereby expressly waived, time being of the essence of this Mortgage; and no
omission on the part of Mortgagee to exercise such option when entitled to do so
shall be construed as a waiver of such right.
2.3 Mortgagee's Right to Enter and Take Possession, Operate and Apply
Revenues.
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A. If an Event of Default shall have occurred, Borrower, upon
demand of Mortgagee, shall forthwith surrender to Mortgagee the actual
possession of the Property and if, and to the extent, permitted by law,
Mortgagee itself, or by such officers or agents as it may appoint, may enter and
take possession of all the Property without the appointment of a receiver, or an
application therefor, and may exclude Borrower and its respective agents and
employees wholly therefrom, and may have joint access with Borrower to the
books, papers and accounts of Borrower.
B. If Borrower shall for any reason fail to surrender or
deliver the Property or any part thereof after such demand by Mortgagee,
Mortgagee may obtain a judgment or decree conferring upon Mortgagee the right to
immediate possession or requiring Borrower to deliver immediate possession of
the Property to Mortgagee, to the entry of which judgment or decree Borrower
hereby specifically consents. Borrower will pay to Mortgagee, upon demand, all
expenses of obtaining such judgment or decree, including reasonable compensation
to Mortgagee, its attorneys and agents; and all such expenses and compensation
shall, until paid, be secured by the lien of this Mortgage.
C. Upon every such entering upon or taking of possession,
Mortgagee may hold, store, use, operate, manage and control the Property and
conduct the business thereof and, from time to time [i] make all necessary and
proper maintenance, repairs, renewals, replacements, additions, betterments and
improvements thereto and thereon and purchase or otherwise acquire additional
fixtures, personalty and other property; [ii] insure or keep the Property
insured; [iii] manage and operate the Property and exercise all the rights and
powers of Borrower to the same extent as Borrower could in its own name or
otherwise with respect to the same; [iv] enter into any and all agreements with
respect to the exercise by others of any of the powers herein granted Mortgagee,
all as Mortgagee from time to time may determine to be in its best interest; and
[v] perform all acts required of Borrower as lessor under any lease of all or
any part of the Property, all as Mortgagee may from time to time determine to be
to its best advantage. Mortgagee may collect and receive all the income, rents,
issues, profits and revenues from the Property, including those past due as well
as those accruing thereafter, and, after deducting [A] all expenses of taking,
holding, managing and operating the Property (including compensation for the
services of all persons employed for such purposes); [B] the cost of all such
maintenance, repairs, renewals, replacements, additions, betterments,
improvements, purchases and acquisitions; [C] the cost of such insurance; [D]
such taxes, assessments and other similar charges as Mortgagee may at its option
pay; [E] other proper charges upon the Property or any part thereof; and [F] the
compensation, expenses and disbursements of the attorneys and agents of
Mortgagee, Mortgagee shall apply the remainder of the moneys and proceeds so
received by Mortgagee to the payment of principal and interest in whatever order
or priority Mortgagee may elect. Anything in this Paragraph 2.3 to the contrary
notwithstanding, Mortgagee shall not be obligated to discharge or perform the
duties of a landlord to any tenant or incur any liability as the result of any
exercise by Mortgagee of its rights under this Mortgage, and Mortgagee shall be
liable to account only for the rents, incomes, issues, profits, and revenues
actually received by Mortgagee.
D. For the purpose of carrying out the provisions of this
Paragraph 2.3, Borrower hereby irrevocably constitutes and appoints Mortgagee
the true and lawful attorney-in-
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fact of Borrower to do and perform, from time to time, any and all actions
necessary and incidental to such purpose, and Borrower does, by these presents,
ratify and confirm any and all actions of said attorney-in-fact.
E. In the event that all such interest, deposits and principal
installments and other sums due under any of the terms, covenants, conditions
and agreements of this Mortgage, shall have been paid and all Events of Default
cured and satisfied, and as a result thereof, Mortgagee surrenders possession of
the Property to Borrower, the same right of taking possession shall exist if any
subsequent Event of Default shall occur
2.4 Receiver. If an Event of Default shall have occurred, Mortgagee,
upon application to a court of competent jurisdiction, shall be entitled as a
matter of strict right without notice and without regard to the sufficiency or
value of any security for the Indebtedness or the solvency of any party bound
for its payment, to the appointment of a receiver to take possession of and to
operate the Property and to collect and apply the income, rents, issues,
profits, and revenues thereof. The receiver shall have all of the rights and
powers permitted under the laws of the state within which the Land is located.
Borrower shall pay to Mortgagee upon demand all expenses, including receiver's
fees, attorneys' fees, costs, and agent's compensation, incurred pursuant to the
provisions of this Paragraph 2.4; and all such expenses shall be secured by this
Mortgage.
2.5 Enforcement.
A. If a Default shall have occurred, Mortgagee, at its option,
may institute legal proceedings for the foreclosure of this Mortgage.
B. Mortgagee shall have the right from time to time to enforce
any legal or equitable remedy against Borrower, including, without limitation,
suing for any sums, whether interest, principal or any installment of either or
both, taxes, penalties or any other sums required to be paid under the terms of
this Mortgage, as the same become due, without regard to whether or not all of
the Indebtedness shall then be due, and without prejudice to the right of
Mortgagee thereafter to enforce any other remedy, including, without limitation,
an action of foreclosure, whether or not such other remedy be based upon a
Default which existed at the time of commencement of an earlier or pending
action, and whether or not such other remedy be based upon the same Default upon
which an earlier or pending action is based.
2.6 Purchase by Mortgagee. Upon any foreclosure sale, Mortgagee may bid
for and purchase the Property and shall be entitled to apply all or any part of
the Indebtedness as a credit to the purchase price.
2.7 Application of Proceeds of Sale. In the event of a foreclosure sale
of all or any portion of the Property, the proceeds of said sale shall be
applied, in whatever order Mortgagee in its sole discretion may decide, to the
expenses of such sale and of all proceedings in connection therewith, including
attorneys' fees, to insurance premiums, liens, assessments, taxes and charges,
including utility charges, advanced by Mortgagee, to payment of the outstanding
principal balance of the Indebtedness, together with any prepayment premiums,
fees or charges
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herein or in the Agreement provided, or to the accrued interest on all of the
foregoing, and finally the remainder, if any, shall be paid to Borrower
2.8 Borrower as Tenant Holding Over. In the event of any such
foreclosure sale by Mortgagee, Borrower shall be deemed a tenant holding over
and shall forthwith deliver possession to the purchaser or purchasers at such
sale or be summarily dispossessed according to provisions of law applicable to
tenants holding over.
2.9 Leases. Mortgagee, at its option, is authorized to foreclose this
Mortgage subject to the rights of any tenants of the Property, and the failure
to make any such tenants parties to any such foreclosure proceedings and to
foreclose their rights will not be, nor be asserted to be by Borrower, a defense
to any proceedings instituted by Mortgagee to collect the Indebtedness.
2.10 Discontinuance of Proceedings. In case Mortgagee shall have
proceeded to enforce any right, power or remedy under this Mortgage by
foreclosure, entry or otherwise, and such proceeding shall have been withdrawn,
discontinued or abandoned for any reason, or shall have been determined
adversely to Mortgagee, then in every such case [i] Borrower and Mortgagee shall
be restored to their former positions and rights, [ii] all rights, powers and
remedies of Mortgagee shall continue as if no such proceeding had been taken,
[iii] each and every Default declared or occurring prior or subsequent to such
withdrawal, discontinuance or abandonment shall be deemed to be a continuing
Default, and [iv] neither this Mortgage, nor the Agreement, nor the
Indebtedness, nor any other of the Letter of Credit Documents shall be or shall
be deemed to have been released or otherwise affected by such withdrawal,
discontinuance or abandonment; and Borrower hereby expressly waives the benefit
of any statute or rule of law now provided, or which may hereafter be provided,
which would produce a result contrary to or in conflict with the above.
2.11 No Reinstatement. If a Default under Paragraph 2.1A[1] shall have
occurred and Mortgagee shall have proceeded to enforce any right, power or
remedy permitted hereunder, then a tender of payment by Borrower or by anyone on
behalf of Borrower of the amount necessary to satisfy all sums due hereunder
made at any time prior to foreclosure, or the acceptance by Mortgagee of any
such payment so tendered, shall not constitute a reinstatement of the Agreement
or this Mortgage.
2.12 Remedies Cumulative. No right, power or remedy conferred upon or
reserved to Mortgagee by this Mortgage or any other Letter of Credit Document is
intended to be exclusive of any other right, power or remedy, but each and every
such right, power and remedy shall be cumulative and concurrent and shall be in
addition to any other right, power and remedy given hereunder or now or
hereafter existing at law or in equity or by statute.
2.13 Suits to Protect the Property. Mortgagee shall have the power [i]
to institute and maintain such suits and proceedings as it may deem expedient to
prevent any impairment of the Property by any acts which may be unlawful or in
violation of this Mortgage, [ii] to preserve or protect its interest in the
Property and in the income, rents, accounts, receivables, issues, profits and
revenues arising therefrom, and [iii] to restrain the enforcement of or
compliance with any legislation or other governmental enactment, rule or order
that may be unconstitutional or
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<PAGE> 238
otherwise invalid, if the enforcement of or compliance with such enactment, rule
or order would impair the security hereunder or be prejudicial to the interest
of Mortgagee.
2.14 Mortgagee May File Proofs of Claim. In the case of any
receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment,
composition or other proceedings affecting Borrower, its creditors or its
property, Mortgagee, to the extent permitted by law, shall be entitled to file
such proofs of claim and other documents as may be necessary or advisable in
order to have the claims of Mortgagee allowed in such proceedings for the entire
amount of the Indebtedness at the date of the institution of such proceedings
and for any additional amount of the Indebtedness after such date.
2.15 Marshalling. At any foreclosure sale, the Property may, at
Mortgagee's option, be offered for sale for one total price, and the proceeds of
such sale accounted for in one account without distinction between the items of
security or without assigning to them any proportion of such proceeds, Borrower
hereby waiving the application of any doctrine of marshalling; and in the event
Mortgagee, at its option, elects to sell the Property in parts or parcels, said
sales may be held from time to time, and this Mortgage shall not terminate until
all of the Property not previously sold shall have been sold.
2.16 Waiver of Appraisement, Valuation, Etc. Borrower agrees, to the
full extent permitted by law, that in case of a Default on the part of Borrower
hereunder, neither Borrower nor anyone claiming through or under Borrower will
set up, claim or seek to take advantage of any moratorium, reinstatement,
forbearance, appraisement, valuation, stay, extension, homestead right,
entitlement or exemption, or redemption laws now or hereafter in force, in order
to prevent or hinder the enforcement or foreclosure of this Mortgage or the
absolute sale of the Property or the delivery of possession thereof immediately
after such sale to the purchaser at such sale, and Borrower, for itself and all
who may at any time claim through or under it, hereby waives to the full extent
that it may lawfully so do, the benefit of all such laws, and any and all right
to have the assets subject to the security interest of this Mortgage marshaled
upon any foreclosure.
2.17 Waiver of Homestead. Borrower hereby waives and renounces all
homestead right, entitlement, and exemption provided for by the Constitution and
the laws of the United States of America and of any state, in and to the
Property as against the collection of the Indebtedness, or any part hereof.
2.18 Security Deposits. If Borrower shall obtain from a tenant or
subtenant of the Property, or a part thereof, a deposit to secure such tenant's
or subtenant's obligations, such funds, following any default under this
Mortgage, shall be deposited with Mortgagee in an account maintained by
Mortgagee in its name; but any such deposit shall be returned to Borrower when
required, by the terms of any such lease, sublease or occupancy agreement, to be
paid over to the tenant or subtenant; and Borrower represents that the
provisions of any applicable laws relating to security deposits have been
satisfied with respect to each existing tenant, subtenant or occupant of the
Property and agrees that they will be satisfied with respect to each new tenant,
subtenant, or occupant of the Property; and Borrower will furnish details of
such satisfaction from time to time upon the request of Mortgagee in such detail
as Mortgagee may require.
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<PAGE> 239
Section 3. Miscellaneous
3.1 Successors and Assigns. Subject to Paragraph 1.10A hereof, this
Mortgage shall inure to the benefit of and be binding upon Borrower and
Mortgagee and their respective legal representatives, successors, and assigns.
Whenever a reference is made in this Mortgage to Borrower or Mortgagee, such
reference shall be deemed to include a reference to the heirs, devisees, legal
representatives, successors, and assigns of Borrower or Mortgagee, whether so
expressed or not.
3.2 Terminology. All personal pronouns used in this Mortgage whether
used in the masculine, feminine, or neuter gender, shall include all other
genders; the singular shall include the plural, and vice versa. Titles of
Articles are for convenience only and neither limit nor amplify the provisions
of this Mortgage itself and all references herein to Articles, Paragraphs, or
Subparagraphs shall refer to the corresponding Articles, Paragraphs, or
Subparagraphs of this Mortgage.
3.3 Severability. If any provision of this Mortgage or the application
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Mortgage and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
3.4 Applicable Law. This Mortgage shall be interpreted, construed and
enforced according to the laws of the state of Indiana.
3.5 Notices, Demands, and Requests. All notices, demands or requests
provided for or permitted to be given pursuant to this Mortgage shall be in
writing and shall be delivered in person or sent by registered or certified
United States mail, postage prepaid, return receipt requested, or by overnight
courier, to the addresses set out below or to such other addresses as are
specified by no less than ten (10) days' prior written notice delivered in
accordance herewith:
If to Mortgagee:
FIRSTAR BANK, N.A.
One Financial Square
Louisville, Kentucky 40202-3322
Attention: Commercial Real Estate Dept.
If to Borrower:
JAMESON INNS, INC.
8 Perimeter Center East, Suite 8050
Atlanta, Georgia 30346-1603
Attention:
All such notices, demands and requests shall be deemed effectively given and
delivered three (3) days after the postmark date of mailing, the day after
delivery to the overnight courier or, if
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<PAGE> 240
delivered personally, when received. Rejection or other refusal to accept or the
inability to deliver because of a changed address of which no notice was given
in accordance with the time period provided herein, shall be deemed to be
receipt of the notice, demand, or request sent.
3.6 Consents and Approvals. All approvals and consents hereunder shall
be in writing and no approval or consent shall be deemed to have been given
hereunder unless evidenced in a writing signed by the party from whom the
approval or consent is sought.
3.7 Waiver. No delay or omission of Mortgagee to exercise any right,
power or remedy accruing upon any default shall exhaust or impair any such
right, power or remedy or shall be construed to be a waiver of any such default,
or acquiescence therein; and every right, power and remedy given by this
Mortgage to Mortgagee may be exercised from time to time and as often as may be
deemed expedient by Mortgagee. No consent or waiver, express or implied, by
Mortgagee to or of any breach or default by Borrower in the performance of the
obligations hereunder shall be deemed or construed to be a consent or waiver to
or of any other breach or default in the performance of the same or any other
obligations of Borrower hereunder. Failure on the part of Mortgagee to complain
of any act or failure to act or to declare an Event of Default, irrespective of
how long such failure continues, shall not constitute a waiver by Mortgagee of
its rights hereunder or impair any rights, powers or remedies consequent on any
breach or default by Borrower.
3.8 Assignment. This Mortgage is assignable by Mortgagee, and any
assignment hereof by Mortgagee shall operate to vest in the assignee all rights
and powers herein conferred upon and granted to Mortgagee.
3.9 Time of the Essence. TIME IS OF THE ESSENCE with respect to each
and every covenant, agreement, and obligation of Borrower under this Mortgage,
the Agreement and any and all other Letter of Credit Documents.
3.10 Attorneys' Fees. The meaning of the terms "legal fees" or
"attorneys' fees" or any other reference to the fees of attorneys or counsel,
wherever used in this Mortgage, shall be deemed to include, without limitation,
all legal fees relating to litigation or appeals at any and all levels of courts
and administrative tribunals.
3.11 Covenants Run With the Land. All of the grants, covenants, terms,
provisions and conditions herein contained shall run with the land and shall
apply to, bind and inure to the benefit of, the successors and assigns of
Borrower and Mortgagee.
3.12 Further Stipulations. The covenants, agreements, and provisions,
if any, set forth in Exhibit D attached hereto are hereby made a part of this
Mortgage. In the event of any conflict between such further stipulations and any
of the printed provisions of this Mortgage, such further stipulations shall be
deemed to control.
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<PAGE> 241
IN WITNESS WHEREOF, Borrower has executed, sealed and
delivered this Mortgage the day, month, and year first above written.
BORROWER:
JAMESON INNS, INC.
By:
----------------------------------
Print or Type Name:
------------------
Title:
------------------------------
STATE OF ____________ )
) ss
COUNTY OF ___________ )
Before me, a Notary Public in and for the State and County aforesaid personally
appeared ______________________, who is known to me or was proven by
satisfactory evidence to be the person who executed the within instrument as
_____________________ of Jameson Inns, Inc. and who acknowledged execution as
his free act and deed and the free act and deed of Jameson Inns, Inc. In witness
whereof I have affixed my hand and seal this __ day of December, 1999.
-------------------------------------
Notary Public
Print or Type Name:
------------------
My commission Expires:
---------------------
County of Residence:
---------------------
This instrument prepared by:
- -------------------------------
L. Jude Clark, Jr.
Brown, Todd & Heyburn, PLLC
400 West Market Street
Louisville, KY 40202
502-568-0260
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<PAGE> 242
EXHIBIT A
MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT
LEGAL DESCRIPTION
<PAGE> 243
EXHIBIT B
MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT
PERMITTED EXCEPTIONS
1. The lien of ad valorem real estate taxes assessed against the
Property but not yet due and payable, provided the same are paid as required
under this Mortgage.
2. Rights of tenants, as tenants only, under Leases of the Property
permitted under this Mortgage and the other Letter of Credit Documents.
3. Matters shown as exceptions on the loan policy of title insurance
issued in favor of Mortgagee insuring the lien of this Mortgage.
4. Cross collateralization rights of Morgagee under documents securing
other properties of Mortgagor.
<PAGE> 244
EXHIBIT C
MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT
REIMBURSEMENT AGREEMENT
(Attached)
<PAGE> 245
EXHIBIT D
MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT
FURTHER STIPULATIONS
1.1 Additional Granting Clause. A new Granting Clause (F) is hereby
added to this Mortgage, as follows:
All Receivables arising from the operation of the Property, whether now
existing or hereafter arising, and however evidenced or acquired, or in which
Borrower now has or hereafter acquires any rights. The term "Receivables" means
and includes accounts receivable, rents or other payments for the use of rooms
and facilities at the Property contract rights, instruments, notes, drafts,
acceptances, documents, chattel paper, general intangibles, and all forms of
obligations owing to Borrower, and all of Borrower's rights to any merchandise
(including without limitation any returned or repossessed goods and the right of
stoppage in transit) which is represented thereby.
1.2 Cross-Default. In addition to the Agreement, Borrower has entered
into three other reimbursement agreements in connection with the issuance of
three letters of credit for the account of Borrower as credit enhancement for
Economic Development Revenue Refunding Bonds issued by the City of Terre Haute
in Indiana, the City of Florence, Kentucky, and Jefferson County, Kentucky.
Those reimbursement agreements are secured by mortgages encumbering Signature
Inn properties owned by Borrower in Terre Haute, IN, Florence, KY, and
Louisville, KY. Any default under the reimbursement agreements entered into in
connection with the issuance of the letters of credit enhancing the Terre Haute,
Florence or Jefferson County bond issues or any default under the mortgages, any
security agreement, any assignment of leases or any assignment of master leases
or operating agreements securing the payment and performance of obligations
under said reimbursement agreements shall be a default under this mortgage. In
addition, Mortgagee has made certain loans to Borrower secured by mortgages and
assignments of rents and leases encumbering Signature Inn properties in South
Bend, IN, Kokomo, IN, Muncie, IN and Evansville, IN. Any default under the notes
evidencing those loans or any default under any mortgage, security agreement or
assignment of rents and leases encumbering the Signature Inn properties in
Elkhart, Muncie, Kokomo, or Evansville, IN will constitute a default under this
mortgage and the Agreement.
Borrower further agrees that any default under the Agreement, this
Mortgage or the Letter of Credit Documents will constitute a default under the
notes from Borrower to Mortgagee relating to the Elkhart, Muncie, Kokomo and
Evansville Signature Inns and will also constitute a default under any mortgage
or other security document securing those notes and encumbering the Elkhart,
Muncie, Kokomo or Evansville Signature Inns.
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1.3 Receivables. A new Paragraph 1.17 is hereby added to this Mortgage,
as follows:
Special Provisions Concerning Receivables.
(a) Borrower shall keep all of its books and records relating
to Receivables at the location of the Property or at the offices of Borrower
shown in Paragraph 3.05 hereof.
(b) From time to time, as Mortgagee may request of Borrower,
Borrower shall provide Mortgagee with schedules describing all Receivables
created or acquired by Borrower, provided, however, that the failure of Borrower
to execute and deliver such schedules shall not affect or limit Mortgagee's
security interest or other rights in and to any such Receivables. Together with
each schedule, Borrower shall, if requested by Mortgagee, furnish copies of
customers' invoices or the equivalent, and original certificates of delivery and
acceptance, for all merchandise sold, and Borrower warrants the genuineness
thereof.
(c) (i) Unless and until Mortgagee gives Borrower other
instructions, Borrower shall collect all Receivables and may use the same to
carry on its business in accordance with sound business practice and otherwise
subject to the terms hereof.
(ii) After a default has occurred hereunder and in the event
Mortgagee requests the Borrower to do so.
(A) All instruments and chattel paper at any time
constituting part of the Receivables (including any postdated checks) shall,
upon receipt by Borrower, be immediately endorsed to and deposited with
Mortgagee in the same form as received by Borrower; and/or
(B) Borrower shall instruct all account debtors to remit all
payments in respect of Receivables to a lockbox to be maintained by Mortgagee
under the sole custody and control of Mortgagee.
(iii) After a default has occurred hereunder, Mortgagee or its
designee may notify Borrower's customers or account debtors at any time that
Receivables have been assigned to Mortgagee or of Mortgagee's security interest
therein and either in its own name, Borrower's name, or both, demand, collect
(including without limitation through a lockbox analogous to that described in
clause (c)(ii)(B) above), receive, receipt for, sue for, compound, and give
acquittance for, any or all amounts due or to become due on Receivables, and in
Mortgagee's discretion file any claim or take any other action or proceeding
which Mortgagee may deem necessary or appropriate to protect and realize upon
the security interest of Mortgagee in Receivables.
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(iv) In the event Mortgagee has exercised any or all of its
rights under clauses (c)(ii) or (iii) above, Mortgagee may, at any time, cause
all instruments, chattel paper, monies or other proceeds received by Mortgagee
to be deposited, handled, and administered, in and through a remittance account
and Borrower acknowledges that the maintenance of such an account by Mortgagee
is solely for the convenience of Mortgagee and that Borrower does not have any
right, title, or interest in and to such account or any accounts at any time
standing to the credit thereof. When final payment of checks, instruments, or
other items received by Mortgagee as collections of Receivables have been
received by Mortgagee the same shall be applied by Mortgagee in payment of the
Indebtedness in accordance with the terms of the Agreement.
1.4 Indiana Responsible Property Transfer Law. Borrower represents and
warrants to Mortgagee that the Property is not subject to the Indiana
Responsible Property Transfer Law (Indiana Code ss.13-7-22.5-1 et seq.)
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ASSIGNMENT OF LEASES AND RENTS
THIS ASSIGNMENT OF LEASES AND RENTS (the "Assignment") is made and
entered into as of the 22nd day of December, 1999, from JAMESON INNS, INC.,
whose address is 8 Perimeter Center East, Suite 8050, Atlanta, Georgia
30346-1603 (hereafter referred to as "Borrower"), to FIRSTAR BANK, N.A., a
National banking association whose address is One Financial Square, Louisville,
Kentucky 40202-3322 (hereafter referred to as "Bank");
W I T N E S S E T H:
FOR VALUE RECEIVED, Borrower does hereby absolutely, presently and
irrevocably assign, grant, transfer, and convey to Bank, its successors and
assigns, all of Borrower's right, title, and interest in, to, and under, to the
extent they are attributable to the Property (as defined below), all leases,
master leases, subleases, tenant contracts, rental agreements, rents, room
revenues, banquet or meeting space rentals, fees for the use of all or any part
of the Property, accounts receivable from room or space rentals, advance
deposits or payments for rooms or meeting or banquet space, franchise
agreements, management contracts, construction contracts and other contracts,
licenses and permits, map approvals and conditional use permits, whether written
or oral, now or hereafter affecting all or any part of the Property, and any
agreement for the use or occupancy of all or any part of said Property which may
have been made heretofore or which may be made hereafter, including any and all
extensions, renewals, and modifications of the foregoing and guaranties of the
performance or obligations of any tenants thereunder, and all other arrangements
of any sort resulting in the payment of money to Borrower or in Borrower
becoming entitled to the payment of money for the use of the Property or any
part thereof whether such user or occupier is tenant, invitee, or licensee (all
of the foregoing hereafter referred to collectively as the "Leases" and
individually as a "Lease", and said tenants, invitees, guests and licensees are
hereafter referred to collectively as "Tenants" and individually as "Tenant" as
the context requires), which Leases cover all or portions of certain property
(the "Property") located in Elkhart, Indiana, more particularly described in
Exhibit A, attached hereto and incorporated herein by this reference (the term
"Premises", wherever used herein, shall mean the Property and all improvements
now or hereafter situated thereon); together with all of Borrower's right,
title, and interest in and to all income, rents, issues, royalties, profits,
rights and benefits and all Tenants' security and other similar deposits derived
with respect to the Leases and with respect to the Property, including, without
limitation all base and minimum rents, percentage rents, additional rents,
payments in lieu of rent, accounts receivable, payments for the use of rooms at
the Property, expense contributions, and other similar such payments (hereafter
collectively referred to as "Income"), and the right to collect the same as they
become due, it being the intention of the parties hereto to establish an
absolute transfer and assignment of all of the Leases and the Income to Bank,
and not just to create a security interest.
For purposes hereof, the income, rents, royalties, issues, rights and
benefits, etc., which are attributable to the Property shall include but not be
limited to the Base Rent (as defined in the Master Lease Agreement between
Borrower and Jameson Hospitality, L.L.C. covering a number of different
properties, including the Property, dated May 7, 1999, as amended and referred
to hereafter as the "Master Lease") directly attributable to the Rooms (as
defined in the Master Lease) in the Property and the Percentage Rent (as defined
in the Master Lease) generated by the Property.
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"Percentage Rent generated by the Property" means the difference between: (i)
Percentage Rent due and owing utilizing the Percentage Rent calculation set
forth in Section 3.1(b) of the Master Lease using all Rooms for the applicable
period; and (ii) Percentage Rent due and owing utilizing the Percentage Rent
calculation set forth in Section 3.1(b) of the Master Lease using all Rooms for
the applicable period except those Rooms comprising the Property.
TO HAVE AND TO HOLD unto Bank, its successors and assigns forever,
subject to and upon the terms and conditions hereafter set forth. This
Assignment is made in connection with the execution of the Letter of Credit
Documents (as hereinafter defined).
1. REPRESENTATIONS, WARRANTIES, AND COVENANTS
1.1 Representations and Warranties of Borrower. Borrower hereby
represents, warrants, and agrees as follows:
a. Borrower is the sole holder of the landlord's interest under the
Leases, is entitled to receive the Income from the Leases and from the Property,
and has the full right to sell, assign, transfer, and set over the same and to
grant to and confer upon Bank the rights, interests, powers, and authorities
herein granted and conferred;
b. Borrower has made no pledge or assignment of the Leases or
Income, prior to the date hereof, and Borrower shall not, after the date hereof,
make or permit any such pledge or assignment;
c. Borrower has neither done any act nor failed to do any act which
might prevent Bank from, or limit Bank in, acting under any of the provisions of
this Assignment;
d. The Leases are valid, enforceable, and in full force and effect,
and Borrower has delivered to Bank true, complete, and correct copies of all
Leases with respect to the Property or any part thereof;
e. All Leases provide for rental to be paid monthly and Borrower
has not accepted, and shall not, after the date hereof, accept or permit payment
of rental or other Income under any of the Leases for more than one (l) month in
advance of the due date thereof;
f. No security deposit has been made by any Tenant under any Lease
except as set forth in such Lease;
g. To the best of Borrower's knowledge, there exists no default or
event of default or any state of facts which would or could, with the passage of
time or the giving of notice, or both, constitute a default or event of default
on the part of Borrower or by any Tenant under the terms of any of the Leases;
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<PAGE> 250
h. Neither the execution and delivery of this Assignment or
any of the Leases, nor the performance of each and every covenant of Borrower
under this Assignment and the Leases, nor the satisfaction of each and every
condition contained in this Assignment and the Leases, conflicts with, or
constitutes a breach or default under, any agreement, indenture, or other
instrument to which Borrower is a party or is subject, or any law, ordinance,
administrative regulation, or court decree which is applicable to Borrower;
i. No action has been brought or, to the best of Borrower's
knowledge, is threatened, which would interfere in any way with the right of
Borrower to execute this Assignment and perform all of Borrower's obligations
contained in this Assignment and in the Leases; and
1.2 Covenants of Borrower. Borrower hereby covenants and agrees as
follows:
[a] Borrower shall provide Bank with a fully-executed original
counterpart of each Lease, amendment, modification or alteration thereto;
[b] Borrower shall authorize and direct, and does hereby
authorize and direct, each and every present and future Tenant of the whole or
any part of the Property, including the Lessee under the Master Lease to pay all
rental attributable to the Property to Bank from and after the date of receipt
of written demand from Bank to do so;
[c] Borrower shall [i] fulfill, perform, and observe each and
every condition and covenant of landlord or lessor contained in each of the
Leases; [ii] give prompt notice to Bank of any claim of default under the Master
Lease or any other Leases, whether given by a Tenant to Borrower, or given by
Borrower to a Tenant, together with a complete copy of any such notice; [iii] at
no cost or expense to Bank, enforce, short of termination, the performance and
observance of each and every covenant and condition of the Master lease or other
Leases to be performed or observed by the Tenants thereunder; [iv] if so
requested by Bank, diligently and in good faith enforce the Master lease and any
other Leases and all remedies available to Borrower against the Tenants in the
event of default under any Lease by any Tenant; [v] if so requested by Bank,
diligently and in good faith appear in and defend any action arising out of, or
in any manner connected with, any of the Master Lease or other Leases, or the
obligations or liabilities of Borrower as the landlord thereunder, or of the
Tenant or any guarantors thereunder; and [vi] execute such additional documents
as Bank may require to evidence and confirm such assignment;
[d] Borrower shall not, without the prior written consent of
Bank, [i] enter into any lease of all or any part of the Property, [ii] modify,
amend, or alter, or agree to the modification, amendment, or alteration of the
Master Lease or any of the Leases; [iii] terminate the term, accept the
surrender of, or otherwise cancel any of the Master Lease or any of the Leases;
[iv] permit the prepayment of any rents under the Master Lease or any of the
Leases or other Income for more than one (l) month prior to the due date
thereof; [vi] discount any future
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accruing rents under the Master Lease or other Leases or other Income; [vii]
give any consent to any assignment or sublease by any Tenant under the Master
Lease or any of the Leases if such assignment or subletting would result in the
assignor or sublessor being released from liability under its Lease; [viii]
grant any rental concessions in connection with the Master Lease or any of the
Leases; or [ix] assign its interest in, to, or under the Master Lease or the
Leases or Income to any person or entity other than Bank and any attempt to
violate the provisions of this Subparagraph C shall be void;
[e] Borrower shall take no action that will cause or permit
the estate of any Tenant under the Master Lease or any of the Leases to merge
with the interests of Borrower in the Property or any portion thereof;
[f] Borrower shall protect, indemnify, and hold Bank harmless
from and against all liabilities, obligations, claims, damages, penalties,
causes of action, costs, and expenses (including, without limitation, attorneys'
fees and court costs) imposed upon or incurred by Bank by reason of this
Assignment or in exercising, performing, enforcing, or protecting its rights,
title, or interests set forth herein, and any claim or demand whatsoever which
may be asserted against Bank by reason of any alleged obligation or undertaking
to be performed or discharged by Bank under this Assignment;
[g] Borrower shall not do, or fail to do, any act if such
action or failure would constitute a violation of the Master Lease or any of the
Leases, or commit any act or omission that may create in any Tenant a right to
cease or reduce payment of rent or terminate its Lease or otherwise affect or
impair the benefits of this Assignment;
[h] Borrower shall [i] fulfill, perform, and observe each and
every condition and covenant of landlord or lessor contained in each of the
Leases; [ii] give prompt notice to Bank of any claim of default under any of the
Leases, whether given by a Tenant to Borrower, or given by Borrower shall
authorize and direct, and does hereby authorize and direct, each and every
present and future Tenant of the whole or any part of the Property to pay all
rental to Bank from and after the date of receipt of written demand from Bank to
do so; and
1.3 Right to Collect Rents, Termination, and Tenant Subordinations.
a. Although this Assignment constitutes an absolute, present
and current assignment of all Income, as long as no default or event of default
as defined in Paragraph 2.1 below, on the part of Borrower shall have occurred,
Bank shall not demand that such Income be paid directly to Bank, and Borrower
shall have a license to collect, but not more than one (l) month prior to the
due date thereof, all such Income from the Property (including, without
limitation, all rental payments under the Leases).
b. Borrower acknowledges that this Assignment is an absolute
transfer and assignment of all Leases and the Income to Bank. Upon expiration of
the Letter of Credit without a draw having occurred or upon repayment in full of
all amounts owed and performance of all
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obligations under the Reimbursement Agreement, Bank shall relinquish its rights
to the Leases and Income and return said rights granted by this Assignment to
Borrower. A recording of a valid release of the Mortgage shall automatically
constitute a release and termination of this Assignment without further action
on the part of Bank. Borrower hereby indemnifies and agrees to hold each Tenant
free and harmless from and against all liability, loss, cost, damage or expense
suffered or incurred by Tenant by reason of its compliance with any demand for
payment of Income by Bank contemplated by this Agreement.
c. Notwithstanding any other provisions of this Assignment,
Borrower shall not hereafter enter into any Lease without the prior written
consent of Bank, which consent may be granted or withheld in Bank's sole
discretion, and even if Bank's consent is obtained, only upon the following
conditions: [i] each such Lease shall contain a provision that the rights of the
parties thereunder are expressly subordinate to all of the rights and title of
Bank under this Assignment; [ii] each such Lease shall contain a provision
whereby the parties thereunder expressly recognize and agree that,
notwithstanding such subordination, Bank may sell the Property in the manner
provided herein, and thereby, at the option of Bank, sell the same subject to
such Lease; and [iii] at or prior to the time of execution of any such Lease,
Borrower shall, as a condition to such execution, procure from the other party
or parties thereto an agreement in favor of Bank, in form and substance
satisfactory to Bank, under which such party or parties agree to be bound by the
provisions hereof, regarding the manner in which Bank may foreclose under the
Mortgage. At Bank's option any Lease may be required to be made superior to
Bank's interest under this Assignment.
1.4 Certain Definitions. As used herein, the following terms have the
meanings set forth opposite each such term:
a. "Commitment" shall mean the Letter of Credit Commitment
between Borrower and Bank dated October 15th, 1999 for the sum of
$12,266,438.00.
b. "Indebtedness" shall have the same meaning herein as set
forth in the Mortgage.
c. "Indemnity" shall mean that certain Environmental
Indemnity Agreement of even date herewith, executed by Borrower for the benefit
of Bank.
d. "Letter of Credit Documents" shall mean the Letter of
Credit, the Reimbursement Agreement, the Mortgage, this Assignment, the
Commitment, and all other documents executed in connection with the
Indebtedness.
e. "Mortgage" shall mean that certain mortgage, deed of trust,
or other security instrument of even date herewith executed by Borrower
encumbering the Property and securing the Reimbursement Agreement and all
renewals, extensions, modifications and rearrangements thereof.
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f. "Reimbursement Agreement" shall mean the Reimbursement
Agreement entered into between Borrower and Bank on the 22nd day of December,
1999 in connection with the Bank's agreement to issue a Letter of Credit in the
amount of $3,346,312.
g. "Letter of Credit" shall mean that certain Irrevocable
Letter of Credit No. _______ issued by the Bank for the account of Borrower as
credit enhancement for those certain Revenue Refunding Bonds Series 1999 issued
by the City of Elkhart, Indiana.
2. DEFAULT
2.1 Events of Default. The term "default" or "event of default",
wherever used in this Assignment, shall mean any one or more of the following
events:
a. The failure by Borrower to pay or perform any obligation
under the Reimbursement Agreement or any other indebtedness secured by the
Mortgage or any other sum that may be due and payable under any of the Letter of
Credit Documents, within ten (10) days from the date when due and payable;
b. The failure by Borrower duly to observe or perform any
term, covenant, condition, or agreement of this Assignment within 30 days after
written notice of such failure; provided, however, if such failure cannot be
cured within such 30 day period, then failure by Borrower to commence the curing
thereof within such 30 day period and diligently to prosecute such curing to
completion within a reasonable time thereafter;
c. The fact that any representation or warranty of Borrower
contained in this Assignment or in any other Letter of Credit Document proves to
be untrue or misleading in any material respect; or
d. The occurrence of any default, Default, event of default or
Event of Default under any of the other Letter of Credit Documents.
2.2 Remedies. Upon the occurrence of any default or event of default,
whether before or after the Note is declared to be due and payable or whether
before or after the exercise by Bank of any default remedies contained in any of
the Letter of Credit Documents, Bank may, at its option, with or without notice
or demand of any kind, exercise any or all of the following remedies:
a. Declare any part or all of the indebtedness secured by the
Mortgage or this Assignment to be due and payable, whereupon the same shall
become immediately due and payable;
b. As Borrower's attorney-in-fact, coupled with an interest,
Bank being hereby so irrevocably designated, [i] collect, receive, sue for,
attach, levy, endorse checks or drafts evidencing the payment of Income, and
apply the Income without taking possession of the
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Property, [ii] if Bank so elects, control, operate, and manage, at the expense
of Borrower, the Property and exercise and perform all rights and obligations of
Borrower under the Leases (including the curing of any or all defaults under the
Leases) or such part of the foregoing Property or Leases as Bank shall elect,
and [iii] exercise, enforce, perform, and protect all other right, title, and
interest which is granted by Borrower herein or granted in any one or more of
the other Letter of Credit Documents. More specifically, but without limiting in
any way the immediately preceding sentence, Bank shall be entitled in the event
of such a default to collect, receive, sue for, attach, levy, and apply all
Income as herein authorized and may [A] use such measures as Bank may deem
necessary or desirable to enforce the payment of such Income, or, in the event
option [ii] above is elected, to secure possession of all or any part of the
Property or Leases, [B] institute, conduct, or defend any legal action in
connection with said Letter of Credit Documents, Property, or Leases, as Bank
may deem necessary or desirable, [C] from time to time, make any or all repairs,
replacements, and alterations to the Property as Bank may deem necessary or
desirable, [D] insure and reinsure the Property on such terms as Bank shall deem
necessary or desirable, [E] lease the Property or any part or parts thereof in
such parcels and for such periods and on such terms as Bank deems desirable,
including Leases for terms expiring after the expiry date of the letter of
credit, [F] cancel or modify any Lease with or without cause, and/or [G] take
whatever measures Bank from time to time deems necessary or desirable to
exercise, enforce, perform, or protect Bank's right, title, or interest in any
or all of the Letter of Credit Documents;
c. Apply the Income collected pursuant to Paragraph B above in
whatever order of priority Bank, in its sole discretion may elect, against [i]
all costs and expenses (including, without limitation, attorneys' fees) incurred
in connection with the operation of the Property, the performance of Borrower's
obligations under the Leases, and collection of the Income thereunder,
including, without limitation, all expenses for maintenance, repairs,
replacements, alterations, special assessments, taxes, and insurance, [ii] all
of the costs and expenses, including, without limitation, reasonable attorneys'
fees, incurred in the collection of any or all of the obligations secured by the
Letter of Credit Documents, including, without limitation, all costs, expenses,
and attorneys' fees incurred in seeking to realize on or to protect or preserve
Bank's interest in any other collateral securing any or all of the obligations
secured by the Letter of Credit Documents, [iii] all other expenses pertaining
to any part or all of the Property or the Leases, [iv] any or all accrued but
unpaid interest on amounts owed under the Reimbursement Agreement or secured by
the Letter of Credit Documents; and [v] any or all unpaid amounts owed under the
Reimbursement Agreement or secured by the Letter of Credit Documents.
d. Right to Exercise Remedies. Bank shall have full right to
exercise any or all of the foregoing remedies without regard to the adequacy of
security for any or all of the amounts secured by the Letter of Credit
Documents, without regard to other security, without releasing Borrower from any
obligation, and with or without the commencement of any legal or equitable
action or the appointment of any receiver or trustee, and shall have full right
to enter upon, take possession of, use, and operate, all or any portion of the
Property which Bank in its sole discretion deems desirable, to effectuate any or
all of the foregoing remedies, and shall be
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entitled to exercise, enforce, perform, and protect all of the aforesaid rights,
titles, and interests available to Bank hereunder, as well as all other rights,
titles, and interests available at law or in equity in and to the control,
operation, and management of the Property and Leases. Bank shall not be held
responsible for the failure to exercise diligence in taking any action permitted
hereunder.
e. Expenses and Liabilities of Bank. At the expense of
Borrower, Bank is hereby given the authority to employ agents, attorneys, and
others in exercising, enforcing, performing, or protecting Bank's rights, title,
or interests herein. To the extent that the Income is insufficient, Borrower
agrees to reimburse Bank for all monies advanced by Bank in so exercising,
enforcing, performing, or protecting Bank's rights, titles, or interests herein,
together with interest from day to day on all such advances by Bank, at a rate
equal to the default interest rate specified in the Reimbursement Agreement
(said interest rate being hereby incorporated herein by this reference). In the
event Bank incurs any liability, loss, cost, or damage by reason of this
Assignment, or in the defense of any claim or demand arising out of or in
connection with this Assignment, the amount of such liability, loss, cost, or
damage (including, without limitation, fees in connection with any appeal) shall
be added to the amounts secured by the Letter of Credit Documents, and shall
bear interest at the default interest rate specified in the Reimbursement
Agreement from the date incurred until paid, and shall be payable on demand.
3. GENERAL PROVISIONS
3.1 No Waiver. The failure of Bank at any time to avail itself of any
of the rights or remedies provided herein or in any of the other Letter of
Credit Documents shall not be construed to be a waiver of any of such rights or
remedies, but Bank shall have full power and authority to exercise, enforce,
perform, or protect such rights and remedies at any time or times that it deems
fit, subject to the other terms and conditions hereof. To be effective, any
waiver of any of the terms, covenants, or conditions hereof must be in writing
and shall be valid only to the extent clearly set forth in such writing. This
Assignment shall constitute a prior and continuing first lien on all Income. No
exercise, enforcement, performance, or protective action taken with respect to
any of the rights, titles, and interests assigned or granted herein shall be
construed as a cure of any default in any of the Letter of Credit Documents.
3.2 Remedies Cumulative. By accepting this Assignment, the Bank shall
in no manner be prejudiced in its right to exercise, enforce, perform, or
protect any one or more rights, titles, or interests available to it in any of
the Letter of Credit Documents or at law or in equity, including, without
limitation, its rights to foreclose the lien of the Mortgage or any other right,
title, or interest granted to it by the terms of any of the Letter of Credit
Documents or granted pursuant to applicable law or equity, it being intended
that all of such rights, titles, and interests are cumulative and may be
exercised, enforced, performed, or protected concurrently with or independently
of any one or more of such rights, titles, or interests to the extent deemed
advisable by Bank in the exercise of its sole discretion from time to time. It
is intended that this clause shall be broadly construed so that all remedies
herein provided or otherwise available to
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Bank shall continue and be each and all available to Bank until the indebtedness
evidenced or secured by the Letter of Credit Documents shall have been paid in
full.
3.3 Conflict. In the event of any conflict between the respective
assignments of rents and leases contained in the Mortgage and this Assignment,
this Assignment shall prevail. Except with respect to any such conflict, both of
said assignments of rents and leases shall be enforceable collectively or
separately as Bank shall elect from time to time.
3.4 No Mortgagee in Possession. In no event do the parties hereto
intend that Bank will be, nor shall Bank be, a mortgagee in possession by
acceptance of this Assignment or exercise of rights and remedies hereunder.
3.5 Successors and Assigns. This Assignment shall inure to the benefit
of and be binding upon Borrower and Bank and their respective heirs, executors,
legal representatives, successors and assigns subject to the limitations on the
transfer of the Property contained in Paragraph 1.10 of the Mortgage. Whenever a
reference is made in this Assignment to "Borrower" or "Bank", such reference
shall be deemed to include a reference to the heirs, executors, legal
representatives, successors and assigns of Borrower or Bank.
3.6 Terminology. All personal pronouns used in this Assignment, whether
used in the masculine, feminine, or neuter gender, shall include all other
genders, and the singular shall include the plural, and vice versa. Titles of
articles are for convenience only and neither limit nor amplify the provisions
of this Assignment.
3.7 Severability. If any provision of this Assignment or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Assignment and the
application of such provisions to other persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by law.
3.8 Applicable Law. This Assignment shall be interpreted, construed,
and enforced according to the laws of the state of Indiana.
3.9 No Third Party Beneficiaries. This Assignment is made solely for
the benefit of Bank and its assigns. No Tenant, nor any other person, shall have
standing to bring any action against Bank as the result of this Assignment, or
to assume that Bank will exercise any remedies provided herein, and no person
other than Bank shall under any circumstances be deemed to be a beneficiary of
any provision of this Assignment. Neither this Assignment nor any action or
inaction on the part of Bank shall constitute an assumption on the part of Bank
of any obligation or liability under any of the Leases.
3.10 No Oral Modifications. Neither this Assignment, nor any provisions
hereof, may be changed, waived, discharged, or terminated orally, but only by an
instrument in writing signed by the party against whom enforcement of the
change, waiver, discharge, or termination is sought.
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3.11 Cross-Default. An event of default by Borrower under this
Assignment shall constitute an event of default under all other Letter of Credit
Documents.
3.12 Counterparts. This Assignment may be executed in any number of
counterparts all of which taken together shall constitute one and the same
instrument, and any of the parties or signatories hereto may execute this
Assignment by signing any such counterpart.
3.13 Further Assurances. At any time and from time to time, upon
request by Bank, Borrower will make, execute, and deliver, or cause to be made,
executed, and delivered, to Bank and, where appropriate, cause to be recorded
and/or filed and from time to time thereafter to be re-recorded and/or refiled
at such time and in such offices and places as shall be deemed desirable by
Bank, any and all such other and further assignments, deeds to secure debt,
mortgages, deeds of trust, security agreements, financing statements,
continuation statements, instruments of further assurance, certificates, and
other documents as may, in the opinion of Bank, be necessary or desirable in
order to effectuate, complete, or perfect, or to continue and preserve [a] the
obligations of Borrower under this Assignment and [b] the interest created by
this Assignment as a first and prior entitlement in and to the Leases and the
Income from the Property. Upon any failure by Borrower so to do, Bank may make,
execute, record, file, re-record and/or refile any and all such assignments,
deeds to secure debt, mortgages, deeds of trust, security agreements, financing
statements, continuation statements, instruments of further assurance,
certificates, and other documents for and in the name of Borrower as may, in the
opinion of Bank, be necessary or desirable in order to effectuate, complete, or
perfect, or to continue and preserve [a] the obligations of Borrower under this
Assignment and [b] the security interest created by this Assignment as a first
and prior security interest upon the Leases and the Income from the Property,
and Borrower hereby irrevocably appoints Bank the agent and attorney-in-fact of
Borrower to do so.
3.14 Notices. All notices, demands or requests provided for or
permitted to be given hereunder shall be in writing and shall be delivered in
person or sent by registered or certified United States mail, postage prepaid,
return receipt requested, or by overnight courier, to the addresses set out
below or to such other addresses as are specified by no less than ten (10) days'
prior written notice delivered in accordance herewith:
If to Bank: FIRSTAR BANK, N.A.
One Financial Square
Louisville, Kentucky 40202-3322
Attn:
If to Borrower: JAMESON INNS, INC.
8 Perimeter Center East, Suite 8050
Atlanta, Georgia 30346-1603
10
<PAGE> 258
All such notices, demands and requests shall be deemed effectively given and
delivered three (3) days after the postmark date of mailing, the day after
delivery to the overnight courier or, if delivered personally, when received.
Rejection or other refusal to accept or the inability to deliver because of a
changed address of which no notice was given in accordance with the time period
provided herein, shall be deemed to be receipt of the notice, demand, or request
sent.
3.15 Modifications, etc. Borrower acknowledges that this Assignment is
absolute and agrees that no modification or surrender of any security
arrangements, security interests, or collateral pledges shall affect the
validity of this Assignment. Borrower hereby consents and agrees that Bank may
at any time, and from time to time, without notice to or further consent from
Borrower, either with or without consideration, surrender any property or other
security of any kind or nature whatsoever held by it or by any person, firm, or
corporation on its behalf or for its account, securing the indebtedness secured
by the Letter of Credit Documents; substitute for any collateral so held by it,
other collateral of like kind, or of any kind; extend or renew the Letter of
Credit for any period; grant releases, compromises, and indulgences with respect
to Mortgage or this Assignment to any persons or entities now or hereafter
liable thereunder or hereunder; release any guarantor or endorser of the
Reimbursement Agreement or any other of the Letter of Credit Documents; or take
or fail to take any action of any type whatsoever; and no such action which Bank
shall take or fail to take in connection with the Letter of Credit Documents, or
any of them, or any security for the payment of any obligation arising under the
Reimbursement Agreement or secured by any of the Letter of Credit Documents or
for the performance of any obligations or undertakings of Borrower, nor any
course of dealing with Borrower or any other person, shall release Borrower's
obligations hereunder, affect this Assignment in any way, or afford Borrower any
recourse against Bank. The provisions of this Assignment shall extend and be
applicable to all renewals, amendments, extensions, consolidations, and
modifications of the Letter of Credit Documents and the Leases, and any and all
references herein to the Letter of Credit Documents or the Leases shall be
deemed to include any such renewals, amendments, extensions, consolidations, or
modifications thereof.
IN WITNESS WHEREOF, Borrower has executed this Assignment under seal,
as of the day and year first above written.
[Remainder of Page Intentionally Left Blank]
11
<PAGE> 259
BORROWER:
JAMESON INNS, INC.
By:
-----------------------------------------
Print or Type Name:
-------------------------
Title:
--------------------------------------
STATE OF __________________________)
) SS
COUNTY OF _________________________)
Before me, a Notary Public in and for the State and County aforesaid
personally appeared ______________________, who is known to me or was proven by
satisfactory evidence to be the person who executed the within instrument as
_____________________ of Jameson Inns, Inc. and who acknowledged execution as
his free act and deed and the free act and deed of Jameson Inns, Inc.
In witness whereof I have affixed my hand and seal this ____ day of
December, 1999.
--------------------------------------------
Notary Public
Print or Type Name:
-------------------------
My commission Expires:
----------------------
County of Residence:
------------------------
This instrument prepared by:
- -------------------------------
L. Jude Clark, Jr.
Brown, Todd & Heyburn PLLC
400 West Market Street, 32nd Floor
Louisville, Kentucky 40202-3363
(502) 568-8260
12
<PAGE> 260
EXHIBIT A
ASSIGNMENT OF LEASES AND RENTS
LEGAL DESCRIPTION
<PAGE> 261
ASSIGNMENT AND SUBORDINATION
OF MASTER LEASE
THIS ASSIGNMENT AND SUBORDINATION OF MASTER LEASE (the
"Agreement") is made as of the 22nd day of December, 1999 by JAMESON INNS, Inc.,
a Georgia corporation ("Lessor"), and JAMESON HOSPITALITY, LLC, a Georgia
limited liability company ("Lessee") for the benefit of FIRSTAR BANK, N.A., a
national banking association ("Bank").
W I T N E S S T H:
WHEREAS, Lessor and Lessee entered into a certain Master Lease
dated as of May 7, 1999 (said Master Lease, together with any and all present or
future modifications, amendments, extensions, and renewals thereof and
supplements thereto, being hereinafter referred to as the "Master Lease"),
whereby Lessee has leased for the purpose of operating and managing the
improvements (the "Project") located upon that certain real property in Elkhart,
Indiana, and described in Exhibit A attached hereto and made a part hereof (the
Project and said real property being hereinafter referred to as the "Property")
and certain other real property also described in the Master Lease; and
WHEREAS, in order to obtain financing for the Property, Lessor
is executing a Mortgage, Assignment of Rents and Security Agreement (the
"Mortgage") to be recorded concurrently herewith, encumbering the Property and
securing Lessor's obligations under a Reimbursement Agreement of even date
herewith entered into in connection with the issuance by Bank of a Letter of
Credit for the account of Lessor in the sum of $3,346,312 (the "Letter of
Credit"); and
WHEREAS, Lessor desires expressly to assign its rights as
Lessor under the Master Lease as additional security for performance of Lessor's
obligations under the Reimbursement Agreement; and
WHEREAS, Lessee desires expressly to subordinate its interests
in the Master Lease insofar as they relate to or are attributable to the
Property to the lien and terms of the Mortgage, subject to the terms hereof; and
WHEREAS, Bank is not willing to issue the Letter of Credit and
enter into the Reimbursement Agreement unless Lessor and Lessee enter into this
Agreement;
NOW THEREFORE, for value received, the receipt and sufficiency
of which is hereby acknowledged, and in order to induce Bank to issue its Letter
of Credit and enter into the Reimbursement Agreement, it is hereby agreed as
follows:
<PAGE> 262
1. In the event of any default by either Lessor or Lessee under the
Master Lease, the nondefaulting party shall give Bank written notice of such
default to the address set forth in paragraph 8 below and Bank shall be
permitted an opportunity (not less than thirty days from receipt of said notice)
to cure such default; provided, however, that Bank shall in no event be required
to effect any such cure, and any cure by Bank shall not release Lessor or Lessee
from any of its obligations under the Master Lease. Bank shall have the right to
appear in and defend any action or proceeding purporting to affect the Property
or the rights and powers of Bank hereunder. Lessor agrees to protect, defend,
indemnify and hold Bank harmless from and against any and all losses, damages,
claims, liabilities, costs, and expenses (including but not limited to
attorneys' fees) incurred in connection with any such actions or measures taken
by Bank or otherwise incurred in the exercise of any other rights or remedies of
Bank under this Agreement. Lessor agrees that all sums so expended by Bank in
curing any default by Lessor or Lessee, or in appearing in or defending any
action or proceeding, or in taking any other action permitted hereby, in each
case together with interest thereon at the Default Rate (as defined in the
Reimbursement Agreement) shall be immediately due and payable and shall be
secured by the Mortgage and any other security held for the Reimbursement
Agreement.
2. This Agreement shall inure to the benefit of Bank, its successors
and assigns, and shall bind the parties hereto and their respective successors
and assigns.
3. In the event of a default on the part of Lessor hereunder or under
the Reimbursement Agreement, the Mortgage, or the Master Lease, then, without
regard for the adequacy of the security for the Reimbursement Agreement, Bank
shall have the right (but not the obligation) to [i] take possession of the
Property and exercise and enjoy all right title and interest of Lessor under the
Master Lease with respect to the Property; [ii] whether or not possession of the
Property is taken, to receive all funds, issues, and profits under the Master
Lease which are attributable to the Property and apply the same, less costs and
expenses of taking possession of the Property, operation and collection,
including reasonable attorney fees, upon any indebtedness due under the
Reimbursement Agreement or Mortgage whether or not then due and in such order as
Bank may determine; [iii] enforce or terminate the Master Lease with respect to
the Property, but not with respect to any other properties covered thereby; [iv]
acquire a substitute Lessee acceptable to Bank; and [v] do any acts which Bank
deems proper to protect the Property or Bank's security interest therein or lien
thereon, and thereupon and without further notice to Lessor, Lessor shall not
have any further rights under the Master Lease which would conflict with,
impair, or interfere with any rights of Bank hereunder. Neither Bank's entering
upon and taking possession of the Property nor the exercise of any of the
aforesaid remedies shall cure or waive any such default on the part of Lessor or
waive, modify or affect any notice of default under the Mortgage or invalidate
any act done pursuant to such notice.
4. Lessor and Lessee agree not to modify or terminate the Master Lease
without the prior written consent of Bank. Lessor further agrees the Lessee of
the Property shall not be changed without Bank's prior written consent. Lessor
and Lessee represent that there is no presently existing default by either party
under the Master Lease or other event which with notice and/or the passage of
time may be a default by either party, and that the Master Lease has not been
modified and is currently in full force and effect.
2
<PAGE> 263
5. Lessee agrees that any and all liens, rights, and interest owned,
claimed, or held by it, in and to the Property, and any receivables, revenues,
rents, accounts or payments for the use of all or any part of the Property, are
and shall be in all respects subordinate to the lien and security interest
created by the Mortgage and to the rights of Bank under that certain Assignment
of Leases and Rents executed by Lessor in favor of Bank of even date herewith.
In the event of a default by Lessor under the Reimbursement Agreement or
Mortgage [i] Lessee at the written request of Bank shall continue performance
under the Master Lease in accordance with the terms thereof, and [ii] the Master
Lease may, at the option of Bank, be terminated with respect to the Property
upon thirty days written notice by Bank to Lessor and Lessee at no cost or
liability to Bank, notwithstanding anything set forth in the Master Lease to the
contrary. In the event of any sale of the Property pursuant to foreclosure of
the Mortgage, or a deed in lieu of foreclosure, Lessee agrees that it will not
exercise any rights it may have to terminate the Master Lease with respect to
the Property. Notwithstanding the foregoing, Lessee agrees that such foreclosure
or deed in lieu of foreclosure shall operate to cut off, extinguish, and
otherwise terminate all liens that Lessee, and those claiming by, through, or
under Lessee, may now or hereafter have in and to the Property, and Lessee
agrees that Bank or any purchaser at a foreclosure sale under Bank's lien may
terminate the Master Lease with respect to the Property upon foreclosure or at
any time thereafter. Upon any termination of the Master Lease with respect to
the Property, whether or not pursuant to this Paragraph 5, Lessee agrees to
deliver copies of all records, files, financial statements, and any other
documents pertaining to management and operation of the Project to Lessor.
6. All notices, demands or requests provided for or permitted to be
given hereunder shall be in writing and shall be delivered in person or sent by
registered or certified United States mail, postage prepaid, return receipt
requested, or by overnight courier, to the addresses set out below or to such
other addresses as are specified by no less than ten (10) days' prior written
notice delivered in accordance herewith:
If to Bank: FIRSTAR BANK, N.A.
One Financial Center
Louisville, KY 40202-3322
Attn: Commercial Real Estate Department
If to Lessor: JAMESON INNS, INC.
8 Perimeter Center East
Suite 8050
Atlanta, GA 30346-1603
If to Lessee: JAMESON HOSPITALITY, LLC
8 Perimeter Center East
Suite 8050
Atlanta, GA 30346-1603
All such notices, demands and requests shall be deemed effectively given and
delivered three (3) days after postmark date of mailing, the date of delivery to
the overnight courier or, if delivered personally, when received. Rejection or
other refusal to accept or the inability to deliver because
3
<PAGE> 264
of a changed address of which no notice was given in accordance with the time
period provided herein, shall be deemed to be receipt of the notice, demand, or
request sent.
7. Lessor acknowledges and agrees that any default under, or breach of,
any covenant or representation contained in this Agreement by Lessor shall
constitute an Event of Default under the Mortgage, entitling Bank to exercise
any or all of its rights and remedies provided for thereunder upon the
occurrence of an Event of Default; provided Lessor shall have a period of thirty
(30) days after written notice from Bank in which to cure any such default or
breach under this Agreement. Bank shall not be obligated to perform or
discharge, nor does it hereby undertake to perform or discharge, any obligation,
duty or liability under the Master Lease, and Lessor does hereby agree to
indemnify Bank and hold it harmless from and against any and all liabilities,
claims, demands, losses, damages, costs, and expenses (including but not limited
to attorneys' fees) which Bank may incur under the Master Lease or under or by
reason of this Agreement and of and from any and all claims and demands
whatsoever which may be asserted against it by reason of any alleged or actual
obligation or undertaking on its part to perform or discharge any of the terms,
covenants, or agreements contained in the Master Lease.
8. This Agreement shall be interpreted, construed, and enforced in
accordance with the laws of the State of Indiana. This Agreement may be executed
in counterparts which taken together shall constitute one agreement.
9. In the event any term or provision of this Agreement or the
application thereof to any person or circumstance, the deletion of which would
not adversely affect the receipt of any material benefit hereunder, shall, for
any reason or to any extent be invalid or unenforceable, the remaining terms and
provisions of this Agreement, or the application of any such provision to
persons or circumstances other than those as to whom or which it has been
determined to be invalid or unenforceable, shall not be affected thereby, and
every provision of this Agreement shall be valid and enforceable to the fullest
extent permitted by law.
10. Upon the expiration of the Letter of Credit without any draw having
been made against the Letter of Credit or upon repayment in full of all amounts
due under the Reimbursement Agreement, this Agreement shall become void and of
no effect. Any and all indemnity covenants and agreements contained herein shall
survive the termination of this Agreement and the satisfaction of the
Reimbursement Agreement.
4
<PAGE> 265
IN WITNESS WHEREOF, Lessor and Lessee have executed this Agreement as
of the day and year first above written.
LESSOR:
-------
JAMESON INNS, INC.
By:
----------------------------------------
Print or Type Name:
------------------------
Name:
--------------------------------------
Title:
--------------------------------------
LESSEE:
-------
JAMESON HOSPITALITY, LLC
By:
----------------------------------------
Print or Type Name:
------------------------
Name:
--------------------------------------
Title:
--------------------------------------
5
<PAGE> 266
STATE OF ______________________)
) ss
COUNTY OF______________________)
Before me, a Notary Public in and for the State and County aforesaid
personally appeared ______________________, who is known to me or was proven by
satisfactory evidence to be the person who executed the within instrument as
_____________________ of Jameson Inns, Inc. and who acknowledged execution as
his free act and deed and the free act and deed of Jameson Inns, Inc.
In witness whereof, I have affixed my hand and seal this __ day of
December, 1999.
-------------------------------------
Notary Public
Print or Type Name:
------------------
My commission Expires:
--------------------
County of Residence:
--------------------
6
<PAGE> 267
STATE OF __________________________)
) SS
COUNTY OF _________________________)
Before me, a Notary Public in and for the State and County aforesaid
personally appeared ______________________, who is known to me or was proven by
satisfactory evidence to be the person who executed the within instrument as
_____________________ of Jameson Hospitality, LLC. and who acknowledged
execution as his free act and deed and the free act and deed of Jameson
Hospitality, LLC.
In witness whereof, I have affixed my hand and seal this __ day of
December, 1999.
-------------------------------------
Notary Public
Print or Type Name:
------------------
My commission Expires:
--------------------
County of Residence:
--------------------
This instrument prepared by:
- -------------------------------
L. Jude Clark, Jr.
Brown, Todd & Heyburn, PLLC
400 West Market Street
Louisville, KY 40202
502-568-0260
7
<PAGE> 268
EXHIBIT A
(LEGAL DESCRIPTION)
8
<PAGE> 269
ENVIRONMENTAL INDEMNITY AGREEMENT
THIS ENVIRONMENTAL INDEMNITY AGREEMENT (this "Agreement") is
made the 22nd day of December, 1999 by JAMESON INNS, INC., a Georgia Corporation
("Indemnitor"), to and for the benefit of FIRSTAR BANK, N.A., a National Banking
Association ("Bank").
RECITALS
A. Indemnitor is the present owner of the real property more
particularly described in Exhibit A attached hereto and certain other interests
and personal property more particularly described in the Mortgage (collectively,
the "Property");
B. Pursuant to a Commitment for issuance of a Letter of Credit dated
October 15th, 1999, Indemnitor will execute and deliver to Bank a Reimbursement
Agreement of even date herewith, secured by, among other things, a Mortgage,
Assignment of Rents, and Security Agreement of even date herewith (the
"Mortgage") encumbering the Property described in the Mortgage; and
C. As a condition precedent to entering into the Reimbursement
Agreement, Bank requires the execution of this Agreement.
AGREEMENTS
NOW, THEREFORE, in order to induce Bank to issue its Letter of
Credit and to enter into the Reimbursement Agreement secured by a Mortgage on
the Property, and in consideration of the matters described in the foregoing
Recitals, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Indemnitor hereby agrees as
follows:
2. Recitals. The Recitals are incorporated herein by reference.
3. Covenants, Representations and Warranties of Indemnitor.
(a) Indemnitor represents and warrants that except as
disclosed in the report of EMG, Inc. dated December 22, 1998, no Hazardous
Materials (as defined below) exist on, under or about the Property or, to the
best of Indemnitor's knowledge after diligent inquiry, have been transported to
or from the Property or used, generated, manufactured, stored or disposed of on,
under or about the Property, and the Property is not in violation of any
federal, state or local law, ordinance or regulation relating to industrial
hygiene or the environmental conditions on, under or about the Property,
including, without limitation, soil and groundwater conditions. Hazardous
Materials shall include: [i] oil, flammable substances, explosives, radioactive
materials, hazardous wastes or substances, toxic wastes or substances or any
other materials or pollutants which pose a hazard to the Property or to persons
on or about the Property, cause the Property to be in violation of any local,
state or federal law or regulation, or are defined as or included in the
definition of
<PAGE> 270
"hazardous substances", "hazardous wastes", "hazardous materials", "toxic
substances", "contaminants", "pollution", or words of similar import under any
applicable local, state or federal law or under the regulations adopted or
publications promulgated pursuant thereto, including, but not limited to: (A)
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. ss.9601, et seq.; (B) the Hazardous Materials
Transportation Act, as amended, 49 U.S.C. ss.1801, et seq.; (C) the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. ss.6901, et seq.; and (D)
regulations adopted and publications promulgated pursuant to the aforesaid laws;
[ii] asbestos in any form which is or could become friable, urea formaldehyde
foam insulation, transformers or other equipment which contain dielectric fluid
containing levels of polychlorinated biphenyls in excess of fifty (50) parts per
million; [iii] underground storage tanks; and [iv] any other chemical, material
or substance, exposure to which is prohibited, limited or regulated by any
governmental authority or may or could pose a hazard to the health and safety of
the occupants of the Property or the owners and/or occupants of property
adjacent to or surrounding the Property. As used in this Agreement, the term
"Hazardous Materials law" shall include laws, rules, regulations, statutes, and
requirements pertaining or relating to Hazardous Materials.
(b) Indemnitor shall, at its sole cost and expense, prevent
the imposition of any lien against the Property for the cleanup of any Hazardous
Material, and shall comply and cause [i] all tenants under any lease or
occupancy agreement affecting any portion of the Property, and [ii] any other
person or entity on or occupying the Property, to comply with all federal, state
and local laws, regulations, rules, ordinances and policies concerning the
environment, health and safety and relating to the presence, generation, use,
handling, production, disposal, discharge or storage of Hazardous Materials in,
on or about the Property. Without limiting the generality of the foregoing,
Indemnitor represents, covenants and agrees that the Property does not and will
not contain any Hazardous Materials. Indemnitor hereby grants to Bank, its
agents, employees, consultants and contractors an irrevocable license to enter
upon the Property and to perform such tests on the Property as are necessary in
Bank's sole discretion to conduct an investigation and/or review.
(c) Indemnitor shall promptly take any and all necessary
remedial action in response to the presence, storage, use, disposal,
transportation or discharge of any Hazardous Materials on, under or about the
Property; provided, however that Indemnitor shall not, without Bank's prior
written consent, take any remedial action in response to the presence,
generation, use, handling, production, disposal, discharge or storage of any
Hazardous Materials on, under, or about the Property, nor enter into any
settlement agreement, consent decree, or other compromise in respect to any
claims, proceedings, lawsuits or actions, completed or threatened pursuant to
any Hazardous Materials laws or in connection with any third party, if such
remedial action, settlement, consent or compromise might, in Bank's sole
determination, impair the value of Bank's security for Indemnitor's obligations
under the Reimbursement Agreement and Mortgage; Bank's prior consent shall not,
however, be necessary in the event that the presence, generation, use, handling,
production, disposal, discharge or storage of Hazardous Materials on, under, or
about the Property either [i] poses an immediate threat to the health, safety or
welfare of any individual, or [ii] is of such a nature that an immediate
remedial response is necessary and it is not possible to obtain Bank's consent
prior to undertaking such action. In the event Indemnitor undertakes any
remedial action with respect to any Hazardous Materials on, under or about the
Property, Indemnitor shall
2
<PAGE> 271
immediately notify Bank of any such remedial action, and shall conduct and
complete such remedial action (A) in compliance with all applicable federal,
state and local laws, regulations, rules, ordinances and policies, (B) to the
satisfaction of Bank, and (C) in accordance with the orders and directives of
all federal, state and local governmental authorities.
(d) Indemnitor shall protect, defend, indemnify and hold Bank,
its parent corporation, subsidiaries and affiliates, and each of their
directors, officers, employees and agents, and any successors to Bank's interest
in the Property, and any other person or entity who acquires any portion of the
Property at a foreclosure sale, by the receipt of a deed in lieu of foreclosure,
or otherwise through the exercise of Bank's rights and remedies under the
Reimbursement Agreement or Mortgage, and any successors to any such other person
or entity, and all directors, officers, employees and agents of all of the
aforementioned indemnified parties, harmless from and against any and all
claims, proceedings, lawsuits, liabilities, damages, losses, fines, penalties,
judgments, awards, costs and expenses (including, without limitation, attorneys'
fees and costs and expenses of investigation) which arise out of or relate in
any way to any presence, generation, use, handling, production, transportation,
disposal, discharge or storage of any Hazardous Materials in, on or about the
Property whether by Indemnitor or any tenant or any other person or entity,
including, without limitation: [i] all foreseeable and all unforeseeable
consequential damages directly or indirectly arising out of (A) the presence,
generation, use, handling, production, disposal, discharge or storage of
Hazardous Materials by Indemnitor, any prior owner or operator of the Property,
or any person or entity on or about the Property, or (B) any residual
contamination affecting any natural resource or the environment, and [ii] the
costs of any required or necessary repair, cleanup, or detoxification of the
Property and the preparation of any closure or other required plans (all such
claims, proceedings, lawsuits, liabilities, losses, fines, penalties, costs,
damages, and expenses referred to in this subparagraph (d) hereafter referred to
as "Expenses"). The foregoing indemnification obligations of Indemnitor shall
survive satisfaction of the Mortgage, and any foreclosure thereunder or a deed
in lieu of foreclosure. In addition, Indemnitor agrees that in the event any
Hazardous Material is caused to be removed from the Property by Indemnitor,
Bank, or any other person or entity, the number assigned by the Environmental
Protection Agency to such Hazardous Material shall be solely in the name of
Indemnitor, and Indemnitor shall assume any and all liability for such removed
Hazardous Material. In the event Bank pays any Expenses, such Expenses shall be
additional indebtedness secured by the Mortgage and shall become immediately due
and payable without notice and with interest thereon at the default rate
specified in the Reimbursement Agreement.
(e) In the event that Indemnitor shall fail to timely comply
with the provisions of this Paragraph 2, Bank may, but shall not be obligated
to, either [i] declare that an event of default shall have occurred, and/or [ii]
in addition to any rights granted to Bank hereunder, do or cause to be done
whatever is necessary to cause the Property to comply with the applicable law,
rule, regulation or order, and the cost thereof shall be additional indebtedness
secured by the Mortgage and shall become immediately due and payable without
notice and with interest thereon at the default rate specified in the
Reimbursement Agreement. Indemnitor shall give Bank and its agents and employees
access to the Property for the purpose of effecting such compliance and hereby
specifically grants to Bank an irrevocable license, effective (x) immediately
if, in the opinion of
3
<PAGE> 272
Bank, irreparable harm to the environment, the Property, or persons or material
amounts of property is imminent, or (y) otherwise, upon expiration of the
applicable cure period, to do whatever necessary to cause the Property to so
comply, including, without limitation, to enter the Property and remove
therefrom any Hazardous Materials. Indemnitor shall pay or reimburse Bank for
any and all loss, cost, damage and expense (including, without limitation,
attorneys' fees and costs incurred in the investigation, defense and settlement
of claims) that Bank may incur as a result of or in connection with the
assertion against Bank of any claims relating to the presence or removal of any
Hazardous Material, or compliance with any federal, state or local laws, rules,
regulations or orders relating thereto, and the amount(s) thereof shall be
additional indebtedness secured by the Mortgage and shall become immediately due
and payable without notice and with interest thereon at the default rate
specified in the Reimbursement Agreement.
4. Duration of Indemnity. This Agreement shall not be construed to
impose any liability on Indemnitor for loss or damage resulting from any
Hazardous Material first placed on the Property after Bank shall have become
owner of the Property, but shall be fully applicable to conditions existing both
before and after Bank became owner of the Property.
5. Notices from Indemnitor. Indemnitor shall immediately advise Bank in
writing of [i] any governmental or regulatory actions instituted or threatened
under any Hazardous Material law affecting the Property or the matters
indemnified hereunder including, without limitation, any notice of inspection,
abatement or noncompliance, [ii] all claims made or threatened by any third
party against Indemnitor or the Property relating to damage, contribution, cost
recovery, compensation, loss or injury resulting from any Hazardous Material,
[iii] Indemnitor's discovery of any occurrence or condition on any real property
adjoining or in the vicinity of the Property that could cause the Property to be
classified in a manner which may support a claim under any Hazardous Material
law, and [iv] Indemnitor's discovery of any occurrence or condition on the
Property or any real property adjoining or in the vicinity of the Property which
could affect transferability or use of the Property under any Hazardous Material
law. Indemnitor shall immediately deliver to Bank any documentation or records
as Bank may request in connection with all such notices, inquiries, and
communications above and shall advise Bank of any subsequent developments.
6. Notice of Claims Against Bank. Bank shall give written notice to
Indemnitor of any action against Bank which might give rise to a claim by Bank
against Indemnitor under this Agreement. If any action is brought against Bank,
Indemnitor, at Bank's sole option and Indemnitor's expense, may be required to
defend against such action with counsel satisfactory to Bank and, with Bank's
sole consent and approval, to settle and compromise any such action. However,
Bank may elect to be represented by separate counsel, at Indemnitor's expense,
and if Bank so elects any settlement or compromise shall be effected only with
the consent of Bank. Bank may elect to join and participate in any settlements,
remedial actions, legal proceedings or other actions included in connection with
any claims under this Agreement.
7. Payment of Bank's Expenses. If Bank retains counsel for advice or
other representation [i] with respect to this Agreement, [ii] in any litigation,
contest, dispute, suit or
4
<PAGE> 273
proceeding (whether instituted by Bank, Indemnitor, or any other party) in any
way relating to this Agreement and the agreements or the indemnities described
herein, or [iii] to enforce Indemnitor's obligations hereunder, then all of the
reasonable attorneys' fees arising from such services and all expenses and costs
shall be payable on demand by Indemnitor to Bank unless Indemnitor is adverse to
Bank in any such action and is the prevailing party therein.
8. Waivers. Indemnitor hereby waives notice of, and Indemnitor's
liability is in no way limited or impaired by: (a) Bank's acceptance of this
Agreement; (b) Indemnitor's grant to Bank of a security interest, lien or
encumbrance in any of the Indemnitor's assets; (c) Bank's modification of this
Agreement or Indemnitor's or any other party's obligations hereunder, or any
release, waiver or modification of any security interest, lien or encumbrance in
any other party's guaranty or any other Letter of Credit Document (as defined in
the Reimbursement Agreement); (d) Bank's amendment of the Reimbursement
Agreement or any other agreement or instrument referred to therein; (e)
presentment, demand, notice of default, nonpayment, partial payment and protest,
and all other notices or formalities to which Indemnitor may be entitled; (f)
extensions of time of payment of the Note or for performance required by any of
the Letter of Credit Documents granted to Indemnitor; (g) any sale or transfer
of all or any part of the Property by Indemnitor, whether by operation of law,
voluntary acts, or otherwise; and (h) acceptance from Indemnitor (or any other
party) of any partial payment or payments on the Reimbursement Agreement or any
collateral securing the payment thereof or the settlement, subordination,
discharge or release of the Reimbursement Agreement. Indemnitor agrees that Bank
may have or at any time may do any or all of the foregoing actions in such
manner, upon such terms and at such times as Bank, in its sole discretion, deems
advisable, without in any way impairing, affecting, reducing or releasing
Indemnitor from its obligations under this Agreement, and Indemnitor hereby
consents to each of the foregoing actions.
9. No Waiver. Indemnitor's obligations hereunder shall in no way be
impaired, reduced or released by reason of (a) Bank's omission or delay to
exercise any right described herein; or (b) any act or omissions of Bank in
connection with any notice, demand, warning or claim regarding violations of
codes, laws or ordinances governing the Property.
10. Separate Action. Indemnitor agrees that the indemnifications
contained in this Agreement are separate, independent of and in addition to
Indemnitor's undertakings under the Reimbursement Agreement, the Mortgage, and
the other Letter of Credit Documents. Indemnitor agrees that a separate action
may be brought to enforce the provisions of this Agreement which shall in no way
be deemed to be an action on the Reimbursement Agreement, the Mortgage, and the
other Letter of Credit Documents, whether or not Bank would be entitled to a
deficiency judgment following a judicial foreclosure or trustee's sale under the
Mortgage.
11. Payments. Payments under this Agreement in respect of all Expenses
shall be due and payable as such Expenses are incurred. Within a reasonable time
after any such Expenses are incurred, Bank shall give notice thereof to
Indemnitor; provided, however, that failure by Bank to give such notice shall
not relieve Indemnitor from any liability, duty or obligation hereunder.
Indemnitor will pay interest on any amount not paid from the date that notice of
such Expenses was
5
<PAGE> 274
given at the default rate of interest specified in the Reimbursement Agreement,
but in no event to exceed the maximum interest rate allowed by law.
12. Proceedings. In any action or proceeding that may be brought
against Bank or to which Bank may be a party and which relates to the subject
matter of this Agreement, Indemnitor shall be conclusively liable for the
results obtained by Bank with Indemnitor's consent (which consent shall not be
unreasonably withheld or delayed), including, without limitation, the amount of
any judgment or any good faith, out-of-court settlement or compromise. In
addition, Indemnitor shall be liable for any and all costs and expenses,
including, but not limited to, all attorneys' fees, that Bank incurs in
connection with any such action or proceeding as provided in Section 3 above.
13. Successors and Assigns. This Agreement and the indemnities
contained in this Agreement shall be continuing, irrevocable and binding on the
Indemnitor and its respective successors and assigns, and shall inure to the
benefit of Bank and Bank's successors and assigns.
14. Survival. All representations and warranties of Indemnitor
contained in this Agreement shall survive the execution and delivery of this
Agreement. All agreements and liabilities of Indemnitor under this Agreement
shall survive the exercise by Bank of its rights and remedies under the Letter
of Credit Documents, including, without limitation, the release or foreclosure
of the Mortgage, or the exercise of any power of sale contained therein, or
delivery of a deed in lieu of foreclosure.
15. Notices. All notices, demands or requests provided for or permitted
to be given hereunder, shall be in writing and shall be delivered in person or
sent by registered or certified United States mail, postage prepaid, return
receipt requested, or by overnight courier, to the addresses set out below or to
such other addresses as are specified by no less than ten (10) days' prior
written notice delivered in accordance herewith:
If to Indemnitor: JAMESON INNS, INC.
8 Perimeter Center East
Suite 8050
Atlanta, Georgia 303046-1603
Attn: Steve Curlee, Esq.
If to Bank: FIRSTAR BANK, N.A.
One Financial Square
Louisville, Kentucky 40202-3322
Attn: Commercial Real Estate Department
All such notices, demands and requests shall be deemed
effectively given and delivered three (3) days after the postmark date of
mailing, the day after delivery to the overnight courier or, if delivered
personally, when received. Rejection or other refusal to accept or the inability
to deliver because of a changed address of which no notice was given in
accordance with
6
<PAGE> 275
the time period provided herein, shall be deemed to be receipt of the notice,
demand, or request sent.
16. Entire Agreement. This Agreement constitutes the entire agreement
and supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter contained in this
Agreement.
17. Amendment and Waiver. This Agreement may be amended and observance
of any term of this Agreement may be waived only with the written consent of
Bank.
18. Governing Law. This Agreement shall be governed and controlled as
to interpretation, enforcement, validity, construction, effect and in all other
respects by the laws, statutes and decisions of the State of Indiana.
19. Severability. All provisions contained in this Agreement are
severable and the invalidity or unenforceability of any provisions shall not
affect or impair the validity or enforceability of the remaining provisions of
this Agreement.
20. Headings. The descriptive headings of the paragraphs of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
JAMESON INNS, INC.
By:
---------------------------------------
Title:
------------------------------------
7
<PAGE> 1
EXHIBIT 10.33
Schedule of Documents Substantially Similar to Exhibit 10.32
1. Loan Agreement between the City of Florence, Kentucky and
Jameson Inns, Inc. dated as of December 1, 1999, relating to
the issuance of $2,520,000 of Adjustable Rate Economic
Development Revenue Refunding Bonds; Trust Indenture; Escrow
Deposit Agreement; Irrevocable Letter of Credit; Reimbursement
Agreement; Mortgage; Assignment of Rents and Security
Agreement; Assignment of Leases and Rents; Assignment and
Subordination of Master Lease; Environmental Indemnity
Agreement; Agreement with respect to Pledged Bonds; Bond
Purchase Agreement; Remarketing Agreement
2. Loan Agreement between the City of Terre Haute, Indiana and
Jameson Inns, Inc. dated as of December 1, 1999, relating to
the issuance of $3,740,000 of Adjustable Rate Economic
Development Refunding Bonds; Trust Indenture; Escrow Deposit
Agreement; Irrevocable Letter of Credit; Reimbursement
Agreement; Mortgage; Assignment of Rents and Security
Agreement Assignment of Leases and Rents; Assignment and
Subordination of Master Lease; Environmental Indemnity
Agreement; Agreement with respect to Pledged Bonds; Bond
Purchase Agreement; Remarketing Agreement
3. Loan Agreement between County of Jefferson, Kentucky and
Jameson Inns, Inc. dated as of December 1, 1999, relating to
the issuance of $2,550,000 of Adjustable Rate Economic
Development Refunding Bonds; Trust Indenture; Escrow Deposit
Agreement; Irrevocable Letter of Credit; Reimbursement
Agreement; Mortgage; Assignment of Rents and Security
Agreement; Assignment of Leases and Rents; Assignment and
Subordination of Master Lease; Environmental Indemnity
Agreement; Agreement with respect to Pledged Bonds; Bond
Purchase Agreement; Remarketing Agreement
1
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 33-91218, Form S-3 No. 333-20143, Form No. S-8 No. 333-3310 and
Form No. S-8 333-42735) of Jameson Inns, Inc. of our reports dated February 8,
2000, with respect to the consolidated financial statements and schedule III of
Jameson Inns, Inc. and March 7, 2000 with respect to the consolidated financial
statements of Jameson Hospitality, LLC included in this Annual Report on Form
10-K of Jameson Inns, Inc. for the year ended December 31, 1999.
Ernst & Young LLP
Atlanta, Georgia
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF JAMESON INNS, INC. FOR THE YEAR ENDING
DECEMBER 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 15,147,491
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,088,806
<PP&E> 321,134,052
<DEPRECIATION> 24,551,080
<TOTAL-ASSETS> 322,851,745
<CURRENT-LIABILITIES> 12,590,702
<BONDS> 173,957,998
2,256,000
1,272,727
<COMMON> 1,108,395
<OTHER-SE> 131,665,923
<TOTAL-LIABILITY-AND-EQUITY> 322,851,745
<SALES> 0
<TOTAL-REVENUES> 34,668,532
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15,568,333
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,429,007
<INCOME-PRETAX> 10,770,567
<INCOME-TAX> 0
<INCOME-CONTINUING> 10,770,567
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,770,567
<EPS-BASIC> .51
<EPS-DILUTED> .51
</TABLE>
