SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission file number 0-23732
WINSTON HOTELS, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-1624289
(State of incorporation) (I.R.S. Employer
Identification No.)
2209 Century Drive
Raleigh, North Carolina 27612
(Address of principal executive offices)
(Zip Code)
(919) 510-6010
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No __
The number of shares of Common Stock, $.01 par value, outstanding on
October 31, 1998 was 16,313,980.
WINSTON HOTELS, INC.
Index
Page
PART I. FINANCIAL INFORMATION
Item 1. WINSTON HOTELS, INC.
Consolidated Balance Sheets as of
September 30, 1998 (unaudited) and
December 31, 1997 3
Unaudited Consolidated Statements of Income
for the three and nine months ended
September 30, 1998 and 1997 4
Unaudited Consolidated Statements of
Cash Flows for the nine months ended
September 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
CAPSTAR WINSTON COMPANY, L.L.C. (1)
Balance Sheets as of September 30, 1998
(unaudited) and December 31, 1997 10
Unaudited Statements of Income for the three and
nine months ended September 30, 1998 11
Unaudited Statement of Cash Flows for the
nine months ended September 30, 1998 12
Notes to Financial Statements 13
WINSTON HOSPITALITY, INC. (1)
Unaudited Statements of Income for the three
and nine months ended September 30, 1997 14
Unaudited Statement of Cash Flows for the
nine months ended September 30, 1997 15
Notes to Financial Statements 16
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 26
Signature Page 27
(1) The financial statements of CapStar Winston Company, L.L.C.
and Winston Hospitality, Inc. are included in this report
as they contain material information with respect to the
Company's investment in hotel properties. For the nine
months ended September 30, 1998, CapStar Winston Company,
L.L.C. served as the lessee of 47 of Winston Hotels, Inc.'s
(the "Company's") 49 hotels. For the nine months ended
September 30, 1997, Winston Hospitality, Inc. served as the
lessee of all 38 of the Company's hotels. In November
1997, CapStar Winston Company, L.L.C. replaced Winston
Hospitality, Inc. as the lessee of all 38 of the Company's
hotels. These two companies are not affiliated with the
Company in any way other than their lessee relationships.
WINSTON HOTELS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
ASSETS
(See Note 6)
September 30, 1998 December 31, 1997
------------------ -----------------
(unaudited)
Investment in hotel properties:
Land $ 40,454 $ 27,504
Buildings and improvements 341,007 224,535
Furniture and equipment 28,464 22,528
------------------ -----------------
Operating properties 409,925 274,567
Less accumulated depreciation (33,145) (21,572)
------------------ -----------------
376,780 252,995
Properties under development 15,623 26,490
------------------ -----------------
Net investment in hotel
properties 392,403 279,485
Corporate FF&E, net 249 23
Cash and cash equivalents 136 164
Lease revenue receivable 10,564 5,682
Deferred expenses, net 1,767 1,403
Prepaid expenses and other assets 788 1,070
------------------ -----------------
Total assets $ 405,907 $ 287,827
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Due to banks $ 163,876 $ 44,081
Accounts payable and accrued expenses 3,803 3,527
Deferred revenue 10,661 -
Distributions payable 6,609 6,950
Minority interest in Partnership 14,171 15,779
------------------ -----------------
Total liabilities 199,120 70,337
------------------ -----------------
Shareholders' equity:
Preferred stock, $.01 par value,
10,000 shares authorized,
3,000 shares issued and outstanding
(liquidation preference of
$76,734 and $77,100) 30 30
Common stock, $.01 par value, 50,000
shares authorized, 16,314 and 16,194
shares issued and outstanding 163 162
Additional paid-in capital 224,759 223,427
Unearned compensation (353) (106)
Distributions in excess of earnings (17,812) (6,023)
------------------ -----------------
Total shareholders' equity 206,787 217,490
------------------ -----------------
Total liabilities and
shareholders' equity $ 405,907 $ 287,827
================== =================
The accompanying notes are an integral part of the financial statements.
WINSTON HOTELS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(See Note 6) (See Note 6)
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Sept. Sept. Sept. Sept.
30, 1998 30, 1997 30, 1998 30, 1997
-------- -------- -------- --------
Revenue:
Percentage lease revenue $ 18,404 $ 10,328 $ 30,640 $ 27,098
Interest and other income 76 78 190 132
-------- -------- -------- --------
Total revenue 18,480 10,406 30,830 27,230
-------- -------- -------- --------
Expenses:
Real estate taxes and
property and casualty
insurance 1,343 670 3,605 1,826
General and
administrative 1,395 723 3,158 1,585
Interest 2,861 977 5,440 2,788
Depreciation 4,526 2,612 11,600 7,182
Amortization 79 45 256 127
-------- -------- -------- --------
Total expenses 10,204 5,027 24,059 13,508
-------- -------- -------- --------
Income before allocation
to minority interest 8,276 5,379 6,771 13,722
Income allocation to minority
interest 630 490 145 1,100
-------- -------- -------- --------
Net income 7,646 4,889 6,626 12,622
Preferred stock distribution 1,735 366 5,203 366
-------- -------- -------- --------
Net income applicable
to common shareholders$ 5,911 $ 4,523 $ 1,423 $ 12,256
======== ======== ======== ========
Earnings per share:
Net income per common share$ 0.36 $ 0.28 $ 0.09 $ 0.77
======== ======== ======== ========
Net income per common share
assuming dilution $ 0.36 $ 0.28 $ 0.09 $ 0.77
======== ======== ======== ========
Weighted average number of
common shares 16,314 16,129 16,280 15,923
======== ======== ======== ========
Weighted average number of
common shares assuming
dilution 18,054 17,878 18,050 17,395
======== ======== ======== ========
The accompanying notes are an integral part of the financial statements.
WINSTON HOTELS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(See Note 6)
Nine Months Nine Months
Ended Ended
September September
30, 1998 30, 1997
----------- -----------
Cash flows provided by operating activities:
Net income $ 6,626 $ 12,622
Adjustments to reconcile net income to
net cash provided by operating actvities:
Minority interest 145 1,100
Depreciation 11,600 7,182
Amortization 256 127
Amortization recorded as interest
expense 258 316
Changes in assets and liabilities:
Lease revenue receivable (4,882) (2,985)
Prepaid expenses and other assets 181 (591)
Accounts payable and accrued expenses 276 683
Deferred revenue 10,661 -
----------- -----------
Net cash provided by
operating activities 25,121 18,454
----------- -----------
Cash flows used in investing activities:
Prepaid acquisition costs (436) (335)
Investment in hotel properties (124,867) (57,653)
Sale of land parcel 445 -
----------- -----------
Net cash used in
investing activities (124,858) (57,988)
----------- -----------
Cash flows provided by financing activities:
Fees paid in connection with debt
obligations (510) (90)
Net proceeds from issuance of stock 588 72,066
Payment of distributions (20,164) (13,565)
Net increase (decrease) in line of
credit borrowings 76,895 (18,319)
Increase in demand notes 42,900 -
----------- -----------
Net cash provided by
financing activities 99,709 40,092
----------- -----------
Net increase (decrease) in cash
and cash equivalents (28) 558
Cash and cash equivalents at beginning
of period 164 234
Cash and cash equivalents at end of period $ 136 $ 792
----------- -----------
Supplemental disclosure:
Cash paid for interest $ 5,789 $ 2,809
=========== ===========
Summary of non-cash investing and
financing activities:
Distributions declared but not paid $ 6,609 $ 5,216
Issuance of partnership units for the
acquisition of hotel properties - 11,287
Conversion of partnership units for
common shares 152 -
Investment in hotel properties payable - 703
Unearned compensation 400 -
Minority interest payable adjustment
due to follow-on offerings, the
exercise of stock options and
conversion of partnership units for
common shares 193 1,675
Amounts included in accounts payable
and accrued expenses related to the
September 1997 stock offering - 363
The accompanying notes are an integral part of the financial statements.
WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share amounts)
1. ORGANIZATION
------------
Winston Hotels, Inc. (the "Company") operates so as to qualify
as a real estate investment trust ("REIT") for federal income
tax purposes. The accompanying unaudited consolidated financial
statements reflect, in the opinion of management, all
adjustments necessary for a fair presentation of the interim
financial statements. All such adjustments are of a normal and
recurring nature. Due to the seasonality of the hotel business,
and the method by which revenue is recognized (see Note 6), the
information for the three and nine months ended September 30,
1998 and the information for the three and nine months ended
September 30, 1997 are not necessarily indicative of the results
for a full year.
2. DEVELOPMENT
-----------
The Company opened two internally-developed hotels on October 3,
1998 and November 4, 1998. These hotels include the Winston-
Salem, North Carolina Courtyard by Marriott hotel and the
Durham, North Carolina Homewood Suites hotel. The addition of
these two new hotels brings the Company's total portfolio to 51
hotels. The Company currently has three hotels in various
stages of development. If completed, all three development
projects will represent a total investment of approximately $40
million.
3. PRO FORMA FINANCIAL INFORMATION
-------------------------------
These unaudited pro forma condensed statements of income of the
Company are presented as if the September 1997 Preferred Stock
offering had occurred January 1, 1997 and the Company had
acquired all 49 of the hotels owned as of September 30, 1998 on
the later of January 1, 1997, or the hotel opening date for the
eight hotels which opened in the first nine months of 1998.
These unaudited pro forma condensed statements of income are not
necessarily indicative of what actual results of operations of
the Company would have been assuming such transactions had been
completed as of the dates described above, nor do they purport
to represent the results of operations for future periods. As
discussed in Note 6, percentage lease revenue for the nine
months ended September 30, 1998 has been calculated under a
different method than percentage lease revenue for the nine
months ended September 30, 1997, resulting in a significant
reduction in the recognition of percentage lease revenue:
Pro Forma for the
Nine Months Ended September 30,
------------------------------
(See Note 6)
1998 1997
------------- -------------
Percentage lease and other
revenue $ 32,367 $ 37,412
------------- -------------
Expenses:
Real estate taxes and
property and casualty
insurance 3,841 2,999
General and administrative 3,166 1,650
Interest expense 5,194 3,348
Depreciation 11,930 9,282
Amortization 260 157
------------- -------------
Total expense 24,391 17,436
------------- -------------
Income before allocation to
minority interest 7,976 19,976
------------- -------------
Income allocation to
minority interest 269 1,698
Preferred stock distribution 5,203 5,203
------------- -------------
Net income applicable to
common shareholders $ 2,504 $ 13,075
------------- -------------
Net income per common share$ 0.15 $ 0.82
============= =============
Net income per common share
assuming dilution $ 0.15 $ 0.82
============= =============
Weighted average number of
common shares 16,280 15,923
============= =============
Weighted average number of
common shares assuming
dilution 18,050 17,974
============= =============
4. EARNINGS PER SHARE
------------------
The Company adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share," on December 31, 1997.
SFAS No. 128 requires the Company to change its method of
computing, presenting and disclosing earnings per share
information. All prior period data presented has been restated
to conform to the provisions of SFAS No. 128.
The following is a reconciliation of the net income applicable
to common shareholders used in the net income per common share
calculation to the income before allocation to minority interest
used in the net income per common share - assuming dilution
calculation.
(See Note 6) (See Note 6)
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Sept. Sept. Sept. Sept.
30, 1998 30,1997 30, 1998 30, 1997
-------- ------- -------- --------
Net income $ 7,646 $ 4,889 $ 6,626 $ 12,622
Less: preferred
stock distribution 1,735 366 5,203 366
-------- ------- -------- --------
Net income applicable
to common
shareholders 5,911 4,523 1,423 12,256
Plus: income
allocation to
minority interest 630 490 145 1,100
-------- ------- -------- --------
Net income assuming
dilution $ 6,541 $ 5,013 $ 1,568 $ 13,356
======== ======= ======== ========
The following is a reconciliation of the weighted average shares
used in the calculation of net income per common share to the
weighted average shares used in the calculation of net income
per common share - assuming dilution.
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Sept. Sept. Sept. Sept.
30, 1998 30, 1997 30, 1998 30, 1997
-------- -------- -------- --------
Weighted average
number of common
shares 16,314 16,129 16,280 15,923
Units with
redemption rights 1,738 1,671 1,749 1,402
Stock options 2 78 21 70
-------- -------- -------- --------
Weighted average
number of common
shares assuming
dilution 18,054 17,878 18,050 17,395
======== ======== ======== ========
WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share amounts)
5. DUE TO BANKS
------------
On October 30, 1998, the Company signed a $45,000 revolving
demand note. This note bears interest at the prime rate and is
collateralized by six of the Company's hotel properties. The
note matures at the earliest of (i) lender's written demand for
repayment, (ii) any default under the note, (iii) the closing of
any refinancing or the acceleration of indebtedness evidenced by
the Company's Credit Agreement dated October 29,1996 or (iv) May
1, 1999. The note proceeds were used to repay outstanding
balances under the five 90-day unsecured demand notes totaling
$42,900, which the Company signed during the second quarter of
1998.
On November 3, 1998, the Company entered into a loan agreement
totaling $71,000. The loan bears interest at a fixed rate of
7.375% and is collateralized by 14 of the Company's hotel
properties. Principal and interest payments are due monthly
based upon a 25-year amortization schedule. The loan is
anticipated to be repaid in full by December 1, 2008 ("the
Anticipated Payment Date"). If the loan is not repaid by the
Anticipated Payment Date, the outstanding principal balance of
the loan shall bear interest at an annual rate equal to the
greater of (i) 7.375% plus 3%, or (ii) the rate derived by
calculating the yields on noncallable United States Treasury
obligations with terms (one longer and one shorter) most nearly
approximating the period from such date of determination to
December 1, 2023, plus 3%. Proceeds from this loan were used to
repay a portion of the outstanding balances under the Company's
$125,000 line of credit as well as a portion of outstanding
balances under the $45,000 revolving demand note mentioned
above.
6. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS:
-----------------------------------------
The Company adopted Statement of Financial Accounting Standards
No. 130 "Reporting Comprehensive Income" ("SFAS 130") effective
January 1, 1998. SFAS 130 requires the Company to display an
amount representing the total comprehensive income for the
period in a financial statement which is displayed with the same
prominence as other financial statements. The Company does not
have any items representing differences between net income and
comprehensive income and therefore has not presented a Statement
of Comprehensive Income in the accompanying financial
statements.
The Company will adopt Statement of Financial Accounting
Standards No. 131 "Disclosure about Segments of an Enterprise
and Related Information" ("SFAS 131") effective December 31,
1998. SFAS 131 requires the Company to report selected
information about operating segments in its financial reports
issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic
areas and major customers. This statement is not expected to
have a material impact on the Company's financial statements.
On May 21, 1998, the Financial Accounting Standards Board's
Emerging Issues Task Force issued EITF 98-9 "Accounting for
Contingent Rent in Interim Financial Periods" ("EITF 98-9").
EITF 98-9 addresses the recognition of rental revenue during
interim periods derived from leases which provide for percentage
rent and requires that a lessor defer recognition of contingent
rental income in interim periods until specified targets are
met. The provisions of EITF 98-9 materially impact the
Company's revenue recognition on an interim basis, but will have
no impact on the Company's annual percentage lease revenue and
annual earnings per share, interim and annual cash flow from its
third party lessees, or the Company's ability to pay dividends.
The Company has accounted for EITF 98-9 as a change in
accounting principle effective January 1, 1998.
Consistent with the provisions of EITF 98-9, the accompanying
consolidated financial statements as of and for the three and
nine months ended September 30, 1997 have not been restated,
however, the following pro forma amounts reflect the effect on
the prior periods as if EITF 98-9 had been in effect as of the
beginning of these periods:
WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share amounts)
Three Months Nine Months
Ended Ended
September 30, 1997 September 30, 1997
------------------ ------------------
Total revenues $ 14,679 $ 22,395
Total expenses 5,027 13,508
------------------ ------------------
Income before
allocation to
minority interest 9,652 8,887
------------------ ------------------
Income allocation to
minority interest 906 716
------------------ ------------------
Net income 8,746 8,171
------------------ ------------------
Preferred stock distribution 366 366
Net income applicable
to common
shareholders $ 8,380 $ 7,805
================== ==================
Earnings per share:
Net income per common
share $ 0.52 $ 0.49
================== ==================
Net income per common share
assuming dilution $ 0.52 $ 0.49
================== ==================
Weighted average number
of common shares 16,129 15,923
================== ==================
Weighted average number
of common shares assuming
dilution 17,878 17,395
================== ==================
CAPSTAR WINSTON COMPANY, L.L.C.
BALANCE SHEETS
($ in thousands)
ASSETS
September 30, 1998 December 31, 1997
------------------ -----------------
Current assets: (unaudited)
Cash and cash equivalents $ 4,383 $ 3,393
Accounts receivable 4,039 1,614
Due from Winston Hospitality, Inc. -- 1,636
Due from CapStar Management Company, L.P. 6,377 385
Deposits and other assets 331 197
------------------ -----------------
Total current assets 15,130 7,225
Furniture, fixtures and equipment, net of
accumulated depreciation of $51 and $5 290 241
Intangible assets, net of accumulated
amortization of $781 and $93 33,442 34,088
Deferred franchise costs, net of
accumulated amortization of $55 and $7 553 601
------------------ -----------------
$ 49,415 $ 42,155
================== =================
LIABILITIES AND MEMBERS' CAPITAL
Current liabilities:
Accounts payable $ 1,700 $ 1,459
Accrued expenses 3,511 2,920
Percentage lease payable 10,474 5,682
Advance deposits 225 135
------------------ -----------------
Total current liabilities 15,910 10,196
Members' capital 33,505 31,959
------------------ -----------------
$ 49,415 $ 42,155
================== =================
The accompanying notes are an integral part of the financial statements.
CAPSTAR WINSTON COMPANY, L.L.C.
UNAUDITED STATEMENTS OF INCOME
($ in thousands)
Three Months Nine Months
Ended Ended
September 30, September 30,
1998 1998
------------- -------------
Revenue:
Rooms $ 32,244 $ 85,083
Food and beverage 1,944 4,649
Telephone and other operating
departments 1,464 4,121
------------- -------------
Total revenue 35,652 93,853
------------- -------------
Operating costs and expenses:
Rooms 7,168 18,655
Food and beverage 1,434 3,492
Telephone and other operating 684 1,898
departments
Undistributed expenses:
Lease expense 15,268 40,133
Administrative and general 2,832 8,218
Sales and marketing 1,339 3,362
Franchise fees 2,344 6,180
Repairs and maintenance 1,632 4,398
Energy 1,597 3,706
Other 469 1,483
Depreciation and amortization 263 782
------------- -------------
Total expenses 35,030 92,307
------------- -------------
Net income $ 622 $ 1,546
============= =============
The accompanying notes are an integral part of the financial statements.
CAPSTAR WINSTON COMPANY, L.L.C.
UNAUDITED STATEMENT OF CASH FLOWS
($ in thousands)
Nine Months
Ended
September 30, 1998
------------------
Cash flows from operating activities:
Net income $ 1,546
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 782
Loss on sale of fixed assets 2
Increase in accounts receivable and due from
Winston Hospitality, Inc. (789)
Increase in due from CapStar Management Company,
L.P. (5,992)
Increase in deposits and other assets (134)
Increase in accounts payable and accrued expenses 832
Increase in percentage lease payable 4,792
Increase in advance deposits 90
------------------
Net cash provided by operating activities 1,129
------------------
Cash flows from investing activities:
Additions of furniture, fixtures and equipment (112)
Additions to intangible assets (42)
Proceeds from sale of fixed assets 15
------------------
Net cash used in investing activities (139)
------------------
Net increase in cash and cash equivalents 990
Cash and cash equivalents at beginning of period 3,393
------------------
Cash and cash equivalents at end of period $ 4,383
------------------
The accompanying notes are an integral part of the financial statements.
CAPSTAR WINSTON COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS
The accompanying unaudited financial statements are prepared by and
are the sole responsibility of CapStar Winston Company, L.L.C.
CapStar Winston Company, L.L.C. leased 47 of the Company's 49 hotels
as of September 30, 1998 and other than this lessee relationship, is
not affiliated with the Company. These financial statements reflect,
in the opinion of CapStar Winston Company L.L.C. management, all
adjustments necessary for a fair presentation of the interim
financial statements. All such adjustments are of a normal and
recurring nature.
During November 1997, CapStar Management Company ("CMC") and CapStar
Hotel Company purchased substantially all of the assets and assumed
certain liabilities of Winston Hospitality, Inc., including 38 hotel
leases, certain operating assets and liabilities, goodwill and other
intangible assets. Concurrent with the purchase, CMC
contributed/assigned the assets purchased and liabilities assumed in
the transaction to CapStar Winston Company, L.L.C.
On August 1, 1998, CapStar Hotel Company and American General
Hospitality Corporation merged to form MeriStar Hospitality
Corporation and MeriStar Hotels & Resorts, Inc. As a result of the
merger, MeriStar Hospitality Operating Partnership, L.P. replaced
CapStar Management Company L.P. as the 99% member of CapStar Winston
Company, L.L.C.
WINSTON HOSPITALITY, INC.
UNAUDITED STATEMENTS OF INCOME
($ in thousands)
Three Months Nine Months
Ended Ended
September September
30, 1997 30, 1997
------------ -----------
Revenue:
Rooms $ 22,098 $ 58,911
Food and beverage 700 2,088
Telephone and other operating
departments 1,043 2,809
------------ -----------
Total revenue 23,841 63,808
------------ -----------
Operating costs and expenses:
Rooms 4,574 12,100
Food and beverage 507 1,455
Telephone and other operating
departments 461 1,419
Undistributed expenses:
Lease 10,328 27,098
Administrative and general 2,731 7,334
Sales and marketing 781 2,198
Franchise fees 1,592 4,171
Repairs and maintenance 1,044 2,969
Energy 957 2,376
Other 341 1,127
Depreciation and amortization 7 61
------------ -----------
Total expenses 23,323 62,308
------------ -----------
Net income $ 518 $ 1,500
============ ===========
The accompanying notes are an integral part of the financial statements.
WINSTON HOSPITALITY, INC.
UNAUDITED STATEMENT OF CASH FLOWS
($ in thousands)
Nine Months
Ended
September 30, 1997
------------------
Cash flows from operating activities:
Net income $ 1,500
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 61
Changes in assets and liabilities:
Accounts receivable - trade (981)
Prepaid expenses and other assets (54)
Accounts payable - trade 158
Percentage lease payable to Lessor 2,985
Accrued expenses and other
liabilities 577
------------------
Net cash provided by
operating activities 4,246
------------------
Cash flows from investing activites:
Purchase of furniture, fixtures
and equipment (72)
Advances to lessor, affiliates
and shareholders 683
Net cash used in
investing activities 611
------------------
Cash flows from financing activities:
Distributions (600)
Net increase in cash and cash equivalents 4,257
Cash and cash equivalents at beginning
of period 5,463
Cash and cash equivalents at end of
period $ 9,720
==================
The accompanying notes are an integral part of the financial statements.
WINSTON HOSPITALITY, INC.
NOTES TO FINANCIAL STATEMENTS
The accompanying unaudited financial statements reflect, in the
opinion of management, all adjustments necessary for a fair
presentation of the interim financial statements. All such
adjustments are of a normal and recurring nature.
During November 1997, CapStar Management Company ("CMC") and CapStar
Hotel Company purchased substantially all of the assets and assumed
certain liabilities of Winston Hospitality, Inc., including 38 hotel
leases, certain operating assets and liabilities, and goodwill and
other intangible assets. Concurrent with the purchase, CMC
contributed/assigned the assets purchased and liabilities assumed in
the transaction to CapStar Winston Company, L.L.C.
Certain reclassifications have been made to the 1997 financial
statements to conform with the 1998 presentation as shown in the
CapStar Winston Company, L.L.C. financial statements. These
reclassifications have no effect on net income or shareholders'
equity previously reported.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
($ AMOUNTS IN THOUSANDS)
OVERVIEW
Winston Hotels, Inc. (the "Company"), which consummated an
underwritten initial public offering ("IPO") in June 1994, follow-on
Common Stock offerings in May 1995 and in June 1996, and a Preferred
Stock offering in September 1997, operates as a real estate
investment trust ("REIT") to invest in hotel properties. The Company
owned 49 hotels (the "Current Hotels") as of September 30, 1998. The
Company owned 16 hotels as of December 31, 1994 (the "1994 Hotels"),
purchased five hotels in 1995 (the "1995 Acquired Hotels"), acquired
10 hotels in 1996 (the "1996 Acquired Hotels"), acquired seven hotels
in 1997 (the "1997 Acquired Hotels") and acquired eight hotels and
opened three internally developed hotels in the first nine months of
1998 (the "1998 Hotels"). It currently leases 47 of the total 49
Current Hotels to CapStar Winston Company, L.L.C. (the "Lessee"), one
of the Current Hotels to Bristol Hotel Company and one of the Current
Hotels to Prime Hospitality Corporation pursuant to leases that
provide for rent payments based, in part, on revenues from the
Current Hotels (the "Percentage Leases").
RESULTS OF OPERATIONS
The table below outlines the Company's investment in hotel properties
for the nine months ended September 30, 1998 and 1997.
Nine Months Nine Months
Ended Ended
September 30, 1998 September 30, 1997
-------------------- --------------------
Additions Properties Additions Properties
during owned during owned
the at the at
period September 30 period September 30
------- ------------ ------- ------------
Type of Hotel
-------------
Limited-service
service hotels 1 36 6 34
Extended-stay
hotels 5 7 - 2
Full-service
hotels 5 6 - 1
-- -- -- --
Total 11 49 6 37
== == == ==
In order to present a more meaningful comparison of operations, in
addition to the comparison of actual results of the Company and the
Lessee for the three and nine months ended September 30, 1998 versus
actual results for the three and nine months ended September 30,
1997, the Company has also provided an analysis of the pro forma
results of the Company for the three and nine months ended September
30, 1998 versus pro forma results for the three and nine months ended
September 30, 1997. These pro forma results are shown as if the 1997
Preferred Stock offering and the 1997 and 1998 acquisitions had
occurred on the later of January 1, 1997, or the hotel opening date
for the five acquired and three internally-developed hotels which
opened in the first nine months of 1998.
On May 21, 1998, the Financial Accounting Standards Board's Emerging
Issues Task Force issued EITF 98-9 "Accounting for Contingent Rent in
Interim Financial Periods" ("EITF 98-9"). EITF 98-9 addresses the
recognition of rental revenue during interim periods derived from
leases which provide for percentage rent and requires that a lessor
defer recognition of contingent rental income in interim periods
until specified targets are met. The provisions of EITF 98-9
materially impact the Company's revenue recognition on an interim
basis, but will have no impact on the Company's annual percentage
lease revenue and annual earnings per share, interim and annual cash
flow from its third party lessees or the Company's ability to pay
dividends. The Company has accounted for EITF 98-9 as a change in
accounting principle effective January 1, 1998, resulting in a
deferred revenue balance of $10,661 as of September 30, 1998, as
shown on the accompanying Consolidated Balance Sheets. This deferred
revenue balance is expected to be recognized in the fourth quarter of
1998. The actual and pro forma operating results for the three and
nine months ended September 30, 1997 have not been restated according
to the provisions of EITF 98-9. Accordingly, the operating results
for the three and nine months ended September 30, 1998 and the three
and nine months ended September 30, 1997 included in the accompanying
discussion are not comparable as the results for the periods have
been accounted for under different revenue recognition methods.
The Company's percentage leases provide for the greater of (i) annual
fixed base rent or (ii) rent based on the revenue of hotels
("Percentage Rent") to be remitted to the Company annually. The
leases contain annual room revenue thresholds used to calculate two
tiers of Percentage Rent. These annual thresholds have been
allocated equally to each quarter, subject to consumer price index
adjustments, to determine the quarterly lessee Percentage Rent
payments. The provisions of EITF 98-9 call for straight-line
recognition of the annual base rent throughout the year and for the
deferral of any additional lease amounts collected or due from the
lessees until such amounts exceed the annual fixed base rent. This
will generally result in base rent being recognized in the first and
second quarters and Percentage Rents, if any, collected or due from
the lessees during the first and second quarters being deferred and
then recognized in the third and fourth quarters due to the structure
of the Company's percentage leases and the seasonality of the hotel
operations. Prior to the adoption of EITF 98-9, the Company recorded
lease revenue in interim periods on the basis used to determine
quarterly lessee Percentage Rent payments, resulting in the second
and third quarters being the strongest quarters.
At September 30, 1998, deferred revenue of $10,661 represents
Percentage Rent collected or due from lessees under the terms of the
leases in excess of three-quarters of base rent but less than the
annual fixed base rent, which the Company expects to recognize as
lease revenue in the fourth quarter of 1998. The Company's quarterly
distributions are based on Percentage Rents collected as opposed to
percentage lease revenue recognized.
THE COMPANY
ACTUAL - THREE MONTHS ENDED SEPTEMBER 30, 1998 VS ACTUAL - THREE
- ----------------------------------------------------------------
MONTHS ENDED SEPTEMBER 30, 1997
- -------------------------------
The Company had revenues of $18,480 in 1998, consisting of $18,404 of
Percentage Lease revenues and $76 of interest and other income.
Percentage Lease revenues increased by $8,076 to $18,404 in 1998 from
$10,328 in 1997. This increase was comprised of an increase in
Percentage Lease revenue of (i) $4,081 due to the 1998 Hotels, (ii)
$613 due to the 1997 Hotels, (iii) $1,207 due to the hotels acquired
prior to 1997, and (iv) recognition of deferred revenue of $2,175 due
to the change in accounting principle regarding revenue recognition
under EITF 98-9 for the quarter ended September 30, 1998.
Real estate taxes and property insurance costs incurred in 1998 were
$1,343, an increase of $673 from $670 in 1997. This increase was
primarily attributable to the 1997 Acquired Hotels and the 1998
Hotels that were not owned in the third quarter of 1997, as well as
increased property tax assessments and tax rates from 1997 to 1998.
General and administrative expenses increased $672 to $1,395 in 1998
from $723 in 1997. The increase was attributable to the increase in
size and activities of the Company in 1998. Interest expense
increased by $1,884 to $2,861 in 1998 from $977 in 1997. This
increase was primarily attributable to an increase of $103,327 in the
weighted-average outstanding debt balance from $58,442 in 1997 to
$161,769 in 1998. Interest rates remained constant between the two
quarters. Depreciation expense increased $1,914 to $4,526 in 1998 from
$2,612 in 1997, primarily due to depreciation related to the 1997
Acquired Hotels, the 1998 Hotels and renovations completed during
1997 and 1998.
PRO FORMA - THREE MONTHS ENDED SEPTEMBER 30, 1998 VS PRO FORMA -
- ----------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1997
- -------------------------------------
The Company had revenues of $18,938 for the three months ended
September 30, 1998, consisting of $18,862 of Percentage Lease
revenues and $76 of interest and other income. Percentage Lease
revenues increased by $5,671 to $18,862 in 1998 from $13,191 in 1997.
This increase was primarily due to recognition of deferred revenue of
$2,491 due to the change in accounting principle regarding revenue
recognition under EITF 98-9, an increase of $3,018 attributable to
the opening of eight hotels in 1998, and an increase of $162
primarily due to higher room rates in 1998 than 1997.
Real estate taxes and property insurance costs incurred in 1998 were
$1,343, an increase of $355 from $988 in 1997. The increase was due
primarily to increased property tax assessments and tax rates from
1997 to 1998 as well as additional taxes and insurance costs incurred
due to the opening of eight hotels in 1998. General and
administrative expenses increased $654 to $1,394 in 1998 from $740 in
1997. The increase was primarily attributable to the increase in
size and activities of the Company from 1997 to 1998. Interest
expense increased $1,746 to $2,861 in 1998 from $1,115 in 1997. The
increase was attributable to $1,796 of additional interest expense
related primarily to borrowings under the line of credit to fund
acquisitions of the five new hotels which opened in 1998 as well as
the development of three additional hotels which opened in 1998.
This increase was offset by a reduction in line of credit fees
totaling $50. Depreciation expense increased $1,347 to $4,525 in 1998 from
$3,178 in 1997 primarily due to the opening of eight hotels in 1998
and renovations and other capital expenditures during 1997 and 1998.
ACTUAL - NINE MONTHS ENDED SEPTEMBER 30, 1998 VS ACTUAL - NINE
- --------------------------------------------------------------
MONTHS ENDED SEPTEMBER 30, 1997
- -------------------------------
The Company had revenues of $30,830 in 1998, consisting of $30,640 of
Percentage Lease revenues and $190 of interest and other income.
Percentage Lease revenues increased by $3,542 to $30,640 in 1998 from
$27,098 in 1997. This increase was comprised of an increase in
percentage lease revenue of (i) $7,632 due to the 1998 Hotels, (ii)
$5,164 due to the 1997 Hotels, and (iii) $1,407 due to the hotels
acquired prior to 1997, offset by deferred revenue of $10,661 due to
the change in accounting principle regarding revenue recognition
under EITF 98-9 for the first nine months of 1998.
Real estate taxes and property insurance costs incurred in 1998 were
$3,605, an increase of $1,779 from $1,826 in 1997. This increase was
primarily attributable to the 1997 Acquired Hotels and 1998 Hotels
that were not owned during the first nine months of 1997, as well as
increased property tax assessments and tax rates from 1997 to 1998.
General and administrative expenses increased $1,573 to $3,158 in
1998 from $1,585 in 1997. The increase was attributable to the
increase in size and activities of the Company in 1998. Interest
expense increased by $2,652 to $5,440 in 1998 from $2,788 in 1997.
This increase was primarily attributable to an increase of $60,412 in
the weighted average outstanding debt balance from $53,642 in 1997 to
$114,054 in 1998, offset by an increase in capitalized interest costs
related to development and renovation projects. Interest rates
remained constant between the two periods. Depreciation expense increased
$4,418 to $11,600 in 1998 from $7,182 in 1997, primarily due to
depreciation related to the 1997 Acquired Hotels, the 1998 Hotels and
renovations completed during 1997 and 1998.
PRO FORMA - NINE MONTHS ENDED SEPTEMBER 30, 1998 VS PRO FORMA - NINE
- --------------------------------------------------------------------
MONTHS ENDED SEPTEMBER 30, 1997
- -------------------------------
The Company had revenues of $32,367 for the nine months ended
September 30, 1998, consisting of $32,177 of Percentage Lease
revenues and $190 of interest and other income. Percentage Lease
revenues decreased by $5,008 to $32,177 in 1998 from $37,185 in 1997.
Of this decrease, $10,869 was due to the change in accounting
principle regarding revenue recognition under EITF 98-9. This
decrease was offset in part by an increase of $4,680 attributable to
the opening of eight hotels in 1998, as well as an increase of $1,181
primarily due to higher room rates in 1998 than 1997.
Real estate taxes and property insurance costs incurred in 1998 were
$3,841, an increase of $842 from $2,999 in 1997. The increase was
due primarily to increased property tax assessments and tax rates
from 1997 to 1998 as well as additional taxes and insurance costs
incurred due to the opening of eight hotels in 1998. General and
administrative expenses increased $1,516 to $3,166 in 1998 from
$1,650 in 1997. The increase was primarily attributable to the
increase in size and activities of the Company from 1997 to 1998.
Interest expense increased by $1,846 to $5,194 in 1998 from $3,348 in
1997. The increase was attributable to $2,518 of additional interest
expense related primarily to borrowings under the line of credit to
fund acquisitions of the five new hotels which opened in 1998 as well
as the development of three additional hotels which opened in 1998.
This increase was offset by both the increase in capitalization of
additional interest costs, totaling $586, in connection with the
development and certain renovation projects during the respective
periods, as well as a reduction in line of credit fees totaling $86.
Depreciation expense increased $2,648 to $11,930 in 1998 from $9,282 in 1997
primarily due to the opening of eight hotels in 1998 and renovations
and other capital expenditures during 1997 and 1998.
THE LESSEE
During November 1997, CapStar Management Company ("CMC") and CapStar
Hotel Company purchased substantially all of the assets and assumed
certain liabilities of Winston Hospitality, Inc., including 38 hotel
leases, certain operating assets and liabilities, and goodwill and
other intangible assets. Concurrent with the purchase, CMC
contributed/assigned the assets purchased and liabilities assumed in
the transaction to CapStar Winston Company, L.L.C. (the "Lessee").
Since the Lessee was not operating prior to the November 1997 Winston
Hospitality, Inc. purchase transaction, no comparative data is
available for the period January 1, 1997 through September 30, 1997.
However, for purposes of this management's discussion and analysis,
the financial information of the Lessee for the three and nine months
ended September 30, 1998 will be compared with the financial
information of Winston Hospitality, Inc. for the three and nine
months ended September 30, 1997. The Winston Hospitality, Inc.
financial information for the three and nine months ended September
30, 1997 contained in the tables below has been reclassified and
grouped according to the Lessee format in order to facilitate a
comparison of the data.
ACTUAL - THREE MONTHS ENDED SEPTEMBER 30, 1998 VS ACTUAL - THREE
- ----------------------------------------------------------------
MONTHS ENDED SEPTEMBER 30, 1997
- -------------------------------
The following table sets forth certain historical financial
information for the Current Hotels for the periods indicated:
Three Months Three Months
Ended Ended
September 30, 1998 September 30, 1997
------------------ ------------------
Revenue:
Rooms $ 32,244 90.4% $ 22,098 92.7%
Food and beverage 1,944 5.5% 700 2.9%
Telephone and other
operating departments 1,464 4.1% 1,043 4.4%
------------------ ------------------
Total revenue 35,652 100.0% 23,841 100.0%
------------------ ------------------
Operating costs and expenses:
Rooms 7,168 20.1% 4,574 19.2%
Food and beverage 1,434 4.0% 507 2.1%
Telephone and other
operating departments 684 1.9% 461 1.9%
Undistributed expenses:
Lease 15,268 42.8% 10,328 43.3%
Administrative and general 2,832 7.9% 2,731 11.5%
Sales and marketing 1,339 3.8% 781 3.3%
Franchise fees 2,344 6.6% 1,592 6.7%
Repairs and maintenance 1,632 4.6% 1,044 4.4%
Energy 1,597 4.5% 957 4.0%
Other 469 1.3% 341 1.4%
Depreciation and amortization 263 0.8% 7 -
------------------ ------------------
Total expenses 35,030 98.3% 23,323 97.8%
------------------ ------------------
Net income $ 622 1.7% $ 518 2.2%
================== ==================
The Lessee had room revenues of $32,244 in 1998, an increase of
$10,146 from $22,098 for Winston Hospitality, Inc. in 1997. The
increase was comprised of an increase of (i) $6,634 for the 1998
Hotels, (ii) $3,323 for the 1997 Acquired Hotels, and (iii) $189 for
the 1996 Acquired Hotels, the 1995 Acquired Hotels and the 1994
Hotels. Food and beverage revenue increased $1,244, to $1,944 in
1998 from $700 for Winston Hospitality, Inc. in 1997, primarily due
to the 1998 Hotels and the 1997 Acquired Hotels. Telephone and other
operating departments revenue increased $421 to $1,464 in 1998 from
$1,043 for Winston Hospitality, Inc. in 1997, primarily due to an
increase in revenue associated with long distance phone calls and in-
room movies.
The Lessee had total expenses in 1998 of $35,030, an increase of
$11,707 from $23,323 for Winston Hospitality, Inc. in 1997. The
increase in all expense categories except depreciation and
amortization expense was primarily attributable to the operation of a
greater number of hotels for the three months ended September 30,
1998 as compared with the same period of 1997. Although
administrative and general expenses increased in 1998 from 1997,
these expenses decreased as a percentage of total revenue from 1997
to 1998 as a result of efficiencies developed within the management
company, decreasing the incremental cost per hotel. Depreciation and
amortization expense increased due to amortization related to
goodwill and other intangible assets arising out of the purchase of
Winston Hospitality, Inc. by CMC and CapStar Hotel Company.
Net income increased $104 to $622 for 1998 from $518 for 1997. The
35 hotels operating prior to September 30, 1997 generated income,
excluding amortization of goodwill of $248 not present in 1997,
totaling $756 for the third quarter, a 4.6% increase from the prior
year. The five hotels acquired by the Company subsequent to
September 30, 1997 generated income of $204 for the third quarter of
1998. Seven new hotels opened during the first and second quarters
of 1998. These development hotels endured losses during their first
few months of operation. These losses totaled $90 for the third
quarter of 1998. These properties are gaining exposure in their
respective markets and are expected to add to the Lessee's net income
in the near future.
ACTUAL - NINE MONTHS ENDED SEPTEMBER 30, 1998 VS ACTUAL - NINE
- --------------------------------------------------------------
MONTHS ENDED SEPTEMBER 30, 1997
- -------------------------------
The following table sets forth certain historical financial
information for the Current Hotels for the periods indicated:
Nine Months Nine Months
Ended Ended
September 30, 1998 September 30, 1997
------------------ ------------------
Revenue:
Rooms $ 85,083 90.7% $ 58,911 92.3%
Food and beverage 4,649 4.9% 2,088 3.3%
Telephone and other
operating departments 4,121 4.4% 2,809 4.4
------------------ ------------------
Total revenue 93,853 100.0% 63,808 100.0%
------------------ ------------------
Operating costs and expenses:
Rooms 18,655 19.9% 12,100 19.0%
Food and beverage 3,492 3.7% 1,455 2.3%
Telephone and other
operating departments 1,898 2.0% 1,419 2.2%
Undistributed expenses:
Lease 40,133 42.8% 27,098 42.5%
Administrative and general 8,218 8.8% 7,334 11.5%
Sales and marketing 3,362 3.6% 2,198 3.4%
Franchise fees 6,180 6.6% 4,171 6.5%
Repairs and maintenance 4,398 4.7% 2,969 4.7%
Energy 3,706 3.9% 2,376 3.7%
Other 1,483 1.6% 1,127 1.8%
Depreciation and amortization 782 0.8% 61 0.1%
------------------ ------------------
Total expenses 92,307 98.4% 62,308 97.7%
------------------ ------------------
Net income $ 1,546 1.6% $ 1,500 2.3%
================== ==================
The Lessee had room revenues of $85,083 in 1998, an increase of
$26,172 from $58,911 for Winston Hospitality, Inc. in 1997. The
increase was comprised of an increase of (i) $11,728 for the 1998
Hotels (ii) $13,481 for the 1997 Acquired Hotels, and (iii) $963 for
the 1996 Acquired Hotels, the 1995 Acquired Hotels and the 1994
Hotels. Food and beverage revenue increased $2,561, to $4,649 in
1998 from $2,088 for Winston Hospitality, Inc. in 1997, primarily due
to the 1998 Hotels and the 1997 Acquired Hotels. Telephone and other
operating departments revenue increased $1,312 to $4,121 in 1998 from
$2,809 for Winston Hospitality, Inc. in 1997, primarily due to an
increase in revenue associated with long distance phone calls and in-
room movies.
The Lessee had total expenses in 1998 of $92,307, an increase of
$29,999 from $62,308 for Winston Hospitality, Inc. in 1997. The
increase in all expense categories except depreciation and
amortization expense was primarily attributable to the operation of a
greater number of hotels for the nine months ended September 30, 1998
as compared with the same period of 1997. Although administrative
and general expenses increased in 1998 from 1997, these expenses
decreased as a percentage of total revenue from 1997 to 1998 as a
result of efficiencies developed within the management company,
decreasing the incremental cost per hotel. Depreciation and
amortization expense increased due to amortization related to
goodwill and other intangible assets arising out of the purchase of
Winston Hospitality, Inc. by CMC and CapStar Hotel Company.
Net income increased $46 to $1,546 for 1998 from $1,500 for 1997.
The 35 hotels operating prior to September 30, 1997 generated income,
excluding amortization of goodwill of $736 not present in 1997,
totaling $2,469 for the nine months ended September 30, 1998, a 64.6%
increase from the prior year. The five hotels acquired by the
Company subsequent to September 30, 1997 generated income of $819 for
the nine months ended September 30, 1998. Seven new development
hotels opened during the first and second quarters of 1998. These
new hotels endured losses during their first few months of operation.
These losses totaled $1,006 for the nine months ended September 30,
1998. These properties are gaining exposure in their respective
markets and are expected to add to the Lessee's net income in the
near future.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations from operating cash flow, which
is principally derived from Percentage Leases. For the nine months
ended September 30, 1998, cash flow provided by operating activities
was $25,121. Funds from operations, as defined below, was
$8,892 for the quarter ended September 30, 1998 and $23,829 for the
nine months ended September 30, 1998. Under Federal income tax law
provisions applicable to REITs, the Company is required to distribute
at least 95% of its taxable income to maintain its tax status as a
REIT. For the nine months ended September 30, 1998, the Company
declared distributions of $18,415 to its shareholders. Because the
Company's annual cash flow from operating activities is expected to
exceed its annual taxable income due to depreciation and amortization
expenses, the Company expects to be able to meet its distribution
requirements out of cash flow from operating activities.
The Company's net cash used in investing activities for the nine
months ended September 30, 1998 totaled $124,858. This use of cash
was primarily for investments in hotel properties including $93,863
related to the acquisition of eight of the 1998 Hotels, $8,618
related to the development of three of the 1998 Hotels, $10,126 for
hotel renovations and $12,007 for the development of five additional
hotels, two of which opened by November 4, 1998 (see Note 2). If the
remaining three development projects are completed, the expected
additional costs are approximately $40,000. The Company also
purchased corporate assets totaling $253 during the period.
The Company plans to spend approximately $3,227 to renovate certain
of its Current Hotels during the next twelve months. These
expenditures are in addition to the reserve of 5% of room revenues
for its limited-service hotels and 7% of room revenues and food and
beverage revenues for its full-service hotels which the Company is
required to set aside under its Percentage Leases for periodic
capital improvements and the refurbishment and replacement of
furniture, fixtures and equipment at its Current Hotels. In the nine
months ended September 30, 1998, the Company set aside $4,556 for
such reserves. These reserves are in addition to amounts spent on
normal repairs and maintenance which have approximated 5.2% and 5.0%
of room revenues for the nine months ended September 30, 1998 and
1997, respectively, and are paid by the Lessee.
The Company's net cash provided by financing activities during the
nine months ended September 30, 1998 totaled $99,709 including an
increase of $76,895 in the line of credit borrowings, an increase of
$42,900 in demand note borrowings and $588 of net proceeds from the
issuance of common stock related to the exercise of stock options.
These cash receipts were offset by the payment of distributions to
shareholders of $18,756 and the payment of distributions to minority
interest holders of $1,408. The Company also paid $510 in connection
with obtaining the $71,000 long-term fixed-rate loan explained below.
The Company's outstanding bank debt balance as of September 30, 1998
was $163,876. This amount consisted of $120,976 outstanding under
its $125,000 line of credit as well as $42,900 outstanding under five
90-day demand notes. On October 30, 1998, the Company signed a
$45,000 revolving demand note, which is collateralized by six of the
Company's hotel properties. The note proceeds were used to repay
outstanding balances under the five 90-day unsecured demand notes
totaling $42,900, which the Company signed during the second quarter
of 1998. On November 3, 1998, the Company entered into a loan
agreement totaling $71,000, which is collateralized by 14 of the
Company's hotel properties. The loan bears interest at a fixed rate
of 7.375%. Approximately $55,000 of the net proceeds was used to
repay a portion of the outstanding balances under the Company's
$125,000 line of credit and approximately $12,000 of the net proceeds
was used to repay a portion of the outstanding balances under the
$45,000 revolving demand note (see Note 5 in the accompanying Notes
to Consolidated Financial Statements). The Company is currently in
negotiations to refinance its $125 million line of credit. The
Company anticipates finalizing these negotiations by the end of the
current fiscal year, however, there can be no assurances that the
Company will be successful in these efforts.
As of September 30, 1998, the Company has collateralized $120,884 of
its $125,000 line of credit with 28 of its Current Hotels. This
amount is calculated quarterly, and increases if cash flow
attributable to the collateral hotels increases and/or the Company
adds additional hotels as collateral. The total additional, non-
collateralized line availability accessible to the Company as of
September 30, 1998 was $4,116. The Company's Articles of
Incorporation limit its total amount of indebtedness to 45% of the
purchase prices paid by the Company for its investments in hotel
properties, as defined. As of September 30, 1998, the Company had
additional borrowing capacity under the debt limitation of
approximately $56,550 assuming it invests all borrowings in
additional hotels.
The Company is continually evaluating its hotel portfolio and
acquisition opportunities and intends to acquire and develop
additional hotel properties that meet its investment criteria. As
part of this analysis, the Company is also considering selling
certain assets as attractive opportunities present themselves. It is
expected that future hotel acquisitions will be financed, in whole or
in part, from additional follow-on offerings, borrowings under the
line of credit or additional demand notes, joint venture agreements,
proceeds from the disposition of hotels and/or the issuance of other
debt or equity securities. There can be no assurances that the
Company will acquire any additional hotels, or that any hotel
development will be undertaken, or if commenced, that it will be
completed on schedule or on budget. Further, there can be no
assurances that the Company will be able to obtain any additional
financing.
SEASONALITY
The hotels' operations historically have been seasonal in nature,
reflecting higher REVPAR during the second and third quarters. This
seasonality, the structure of the Percentage Leases, which provide
for a higher percentage of room revenues above the minimum equal
quarterly levels to be paid as Percentage Rent, as well as the
recognition of Percentage Lease revenue under the provisions of EITF
98-9 can be expected to cause significant fluctuations in the
Company's quarterly lease revenue under the Percentage Leases.
FUNDS FROM OPERATIONS
The Company considers Funds From Operations ("FFO") a widely used and
appropriate measure of performance for an equity REIT. FFO, as
defined by the National Association of Real Estate Investment Trusts
("NAREIT"), is income (loss) before minority interest (determined in
accordance with generally accepted accounting principles), excluding
gains (losses) from debt restructuring and sales of property, plus
real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. FFO
is presented to assist investors in analyzing the performance of the
Company. The Company's method of calculating FFO may be different
from methods used by other REITs and, accordingly, may not be
comparable to such other REITs. The formulation of FFO below is
consistent with the NAREIT White Paper definition of FFO with the
exception that deferred revenue has been included as a component of
the calculation. FFO (i) does not represent cash flows from
operating activities as defined by generally accepted accounting
principles, (ii) is not indicative of cash available to fund all cash
flow and liquidity needs, including the Company's ability to make
distributions, and (iii) should not be considered as an alternative
to net income (as determined in accordance with generally accepted
accounting principles) for purposes of evaluating the Company's
operating performance.
The following presents the Company's calculation of FFO and FFO per
share (in thousands, except per share data):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
Net income before
allocation to minority
interest $ 8,276 $ 5,379 $ 6,771 $ 13,722
Plus: depreciation 4,526 2,612 11,600 7,182
Less: preferred stock
dividends 1,735 366 5,203 366
Change in deferred
revenue (2,175) - 10,661 -
-------- -------- -------- ---------
FFO $ 8,892 $ 7,625 $23,829 $ 20,538
======== ======== ======== =========
Weighted average number
of common shares
assuming dilution 18,054 17,878 18,050 17,395
-------- -------- -------- ---------
FFO per share $ 0.49 $ 0.43 $ 1.32 $ 1.18
======== ======== ======== =========
YEAR 2000 MANAGEMENT
The "Year 2000 Issue" is the result of computer programs that were
written using two digits rather than four to define the applicable
year. If the computer programs, with date-sensitive functions, of
the Company or one of its service providers, contractors, or
suppliers, are not Year 2000 compliant, they may recognize a date
using "00" as the Year 1900 rather than the Year 2000. This could
result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to
process transactions, receive lease payments or engage in similar
normal business activities.
The Company has identified its Year 2000 risk in three categories:
internal software and imbedded chip technology, external
noncompliance by service providers, contractors and suppliers, and
external noncompliance by franchisors and lessees.
Internal Software and Imbedded Chip Technology
- ----------------------------------------------
The Company will begin its data gathering and testing phase with
regard to internal software and imbedded chip technology during the
fourth quarter of 1998, with the assistance of its systems
integration consultants. Virtually all of the Company's internal
software are current versions of off-the-shelf, name-brand software.
The Company's hardware systems, which includes computer hardware, a
phone system, copiers and facsimile machines, also contain imbedded
chip technology which could pose a risk of noncompliance. Because
the majority of this hardware has been installed in the last twelve
months, the cost of achieving Year 2000 compliance is not expected to
be material. If any of the Company's current software or hardware is
not Year 2000 compliant and is not repairable, the Company plans to
replace the respective software or hardware with readily available
Year 2000 compliant software or hardware. Full compliance is
expected by the third quarter of 1999.
External Noncompliance by Service Providers, Contractors and
- ------------------------------------------------------------
Suppliers
- ---------
The Company is in the process of identifying and contacting its
significant service providers, contractors and suppliers to determine
the extent to which the Company is vulnerable to those third parties'
failure to remedy their own Year 2000 issues. It is expected that
identification of any Year 2000 exposure with these parties will be
completed by April 30, 1999. To the extent that responses to Year
2000 readiness are unsatisfactory, the Company will attempt to change
significant service providers, contractors or suppliers to those who
have demonstrated Year 2000 readiness but cannot be assured that it
will be successful in finding such alternative service providers,
contractors or suppliers. The Company does not currently have any
formal information concerning the Year 2000 compliance status of its
significant service providers, contractors or suppliers, but has
received indications that most are working on Year 2000 compliance.
In the event that any of the Company's significant service providers,
contractors or suppliers do not successfully and timely achieve Year
2000 compliance, and the Company is unable to replace them with
alternate service providers, contractors or suppliers, the Company's
business or operations could be materially and adversely affected.
External Noncompliance by Franchisors and Lessees
- -------------------------------------------------
The Company has significant relationships with certain nationally
recognized hotel franchisors and lessees. These franchisors have
national reservation systems on which the Company relies to receive a
significant portion of its Percentage Lease revenue. The Company is
in the process of contacting its franchisors and lessees to identify
the extent to which the Company is vulnerable to those third parties'
failure to remedy their own Year 2000 issues. The Company does not
currently have any formal information concerning the Year 2000
compliance status of these franchisors and lessees, but has received
indications that most are working on Year 2000 compliance. In the
event that any of these franchisors and lessees do not successfully
and timely achieve Year 2000 compliance, the Company's business or
operations could be materially and adversely affected.
FORWARE LOOKING STATEMENTS
This report, including Management's Discussion and Analysis of
Financial Condition and Results of Operations, contains certain
"forward looking" statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, including, but not
limited to, those paragraphs relating to development and acquisition
of hotels in this section. These statements represent the Company's
judgment concerning the future and are subject to risks and
uncertainties that could cause actual operating results and financial
condition to differ materially from those expressed or implied in the
forward looking statements. Such forward looking statements can be
identified by the use of forward looking terminology such as "may,"
"will," "expect," "anticipate," "estimate," "believe," or "continue"
or the negative thereof, or other variations thereof or comparable
terminology. Important factors that could cause actual results to
differ include, but are not limited to the following: (i) risk
associated with the Company's acquisition of hotels with little or no
operating history, including the risk that such hotels will not
achieve the level of revenue assumed by the Company in calculating
the respective Percentage Rent formula; (ii) development risk,
including risk of construction delay, cost overruns, receipt of
zoning, occupancy and other required governmental permits and
authorizations and the incurrence of development costs in connection
with projects that are not pursued through completion; and (iii)
factors identified in the Company's filings with the Securities and
Exchange Commission, including the factors listed in the Company's
Registration Statement on Form S-3 filed with the Securities and
Exchange Commission on August 1, 1997.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.01 Restated Articles of Incorporation
10.01 Loan Agreement By and Between Winston SPE LLC
and CMF Capital Company, LLC, dated as of November
3, 1998
10.02 Promissory note dated November 3, 1998 by and
between Winston SPE LLC and CMF Capital Company, LLC
27. Financial Data Schedule (For SEC use only)
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter
ended September 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
WINSTON HOTELS, INC.
Date November 16, 1998 /s/ James D. Rosenberg
---------------------- ------------------------------------
James D. Rosenberg
Chief Financial Officer and
Chief Operating Officer
(Authorized officer and Principal
Financial Officer)
WINSTON HOTELS, INC.
FORM 10-Q for the quarter ended September 30, 1998
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------ ----------------------
3.01 Restated Articles of Incorporation
10.01 Loan Agreement By and Between Winston SPE LLC and CMF
Capital Company, LLC, dated as of November 3, 1998
10.02 Promissory note dated November 3, 1998 by and between
Winston SPE LLC and CMF Capital Company, LLC
27. Financial Data Schedule (For SEC use only).
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1998 AND THE
UNAUDITED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRITY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 136
<SECURITIES> 0
<RECEIVABLES> 10,564
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 425,548
<DEPRECIATION> 33,145
<TOTAL-ASSETS> 405,907
<CURRENT-LIABILITIES> 21,073
<BONDS> 0
0
30
<COMMON> 163
<OTHER-SE> 206,594
<TOTAL-LIABILITY-AND-EQUITY> 405,907
<SALES> 18,404
<TOTAL-REVENUES> 18,480
<CGS> 0
<TOTAL-COSTS> 7,343
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,861
<INCOME-PRETAX> 8,276
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,276
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,646
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
</TABLE>
ARTICLES OF RESTATEMENT
OF
WINSTON HOTELS, INC.
The undersigned corporation hereby submits these Articles of
Restatement for the purpose of integrating into one document its
original articles of incorporation and all amendments thereto:
1. The name of the corporation is Winston Hotels, Inc.
2. Attached hereto as an exhibit are the restated articles
of incorporation.
3. The restated articles of incorporation of the
corporation do not contain any amendments to the articles of
incorporation requiring shareholder approval, and the restated
articles of incorporation were adopted by the Board of Directors.
This the 24th day of August, 1998.
WINSTON HOTELS, INC.
By: /s/ Robert W. Winston, III
------------------------------
Robert W. Winston, III
Chief Executive Officer and
President
EXHIBIT A
RESTATED ARTICLES OF INCORPORATION
OF
WINSTON HOTELS, INC.
1. Name. The name of the corporation (which is
----
hereinafter called the "Corporation") is Winston Hotels, Inc.
2. For Profit. The Corporation is for profit.
----------
3. Principal and Registered Office. The address of the
-------------------------------
Corporation's registered office and its principal office is 2209
Century Drive, Suite 300, Raleigh, Wake County, North Carolina
27612.
4. Registered Agent. The name of the Corporation's
-----------------
registered agent at that office is Robert W. Winston, III.
5. Authorized Capital Stock. The total number of shares
------------------------
of stock which the Corporation has authority to issue is fifty
million (50,000,000) shares of a class denominated Common Stock,
$.01 par value per share, and ten million (10,000,000) shares of
a class denominated Preferred Stock, $.01 par value per share.
The Preferred Stock may be issued from time to time by the
Board of Directors of the Corporation, in such series and with
such preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or
other provisions as may be fixed by the Board of Directors.
(a) Series A Preferred Stock
(i) TITLE. The series of Preferred Stock is
hereby designated as the "9.25% Series A Cumulative Preferred
Stock" (the "Series A Preferred Stock").
(ii) NUMBER. The maximum number of authorized
shares of the Series A Preferred Stock shall be 3,000,000.
(iii) RELATIVE SENIORITY. In respect of
rights to receive dividends and to participate in distributions
of payments in the event of any liquidation, dissolution or
winding up of the Corporation, the Series A Preferred Stock shall
rank (i) senior to all classes or series of Common Stock of the
Corporation, and to all equity securities ranking junior to the
Series A Preferred Stock with respect to dividend rights or
rights upon liquidation, dissolution or winding up of the
Corporation; (ii) on a parity with all equity securities issued
by the Corporation, the terms of which specifically provide that
such equity securities rank on a parity with the Series A
Preferred Stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Corporation; and
(iii) junior to all existing and future indebtedness of the
Corporation. The term "equity securities" does not include
convertible debt securities, which will rank senior to the Series
A Preferred Stock prior to conversion.
(iv) DIVIDENDS.
(A) The holders of the then outstanding Series A Preferred
Stock shall be entitled to receive, when and as declared by the
Board of Directors out of any funds legally available therefor,
preferential cumulative cash dividends at the rate of 9.25% per
annum of the Liquidation Preference (as defined herein) per
share (equivalent to a fixed annual amount of $2.3125 per share).
Dividends on the Series A Preferred Stock shall be
cumulative from the date of original issue and shall be payable
quarterly in arrears on or before the sixteenth day of January,
April, July and October of each year, or, if not a Business Day
(as defined below), the next succeeding Business Day (each, a
"Dividend Payment Date"). The first dividend will be paid on or
before January 16, 1998. Dividends payable on the Series A
Preferred Stock for any partial dividend period will be computed
on the basis of a 360-day year consisting of twelve 30-day
months. Dividends will be payable to holders of record as they
appear in the stock records of the Corporation at the close of
business on the applicable record date, which shall be the last
Business Day of March, June, September and December,
respectively, or on such other date designated by the Board of
Directors of the Corporation for the payment of dividends that is
not more than 30 nor less than 10 days prior to the applicable
Dividend Payment Date (each, a "Dividend Record Date").
"Business Day" shall mean any day, other than a Saturday or
Sunday, that is neither a legal holiday nor a day on which
banking institutions in New York City are authorized or required
by law, regulation or executive order to close.
(B) The amount of any dividends accrued on any Series A
Preferred Stock at any Dividend Payment Date shall be the amount
of any unpaid dividends accumulated thereon, to and including
such Dividend Payment Date, whether or not earned or declared,
and the amount of dividends accrued on any shares of Series A
Preferred Stock at any date other than a Dividend Payment Date
shall be equal to the sum of the amount of any unpaid dividends
accumulated thereon, to and including the last preceding Dividend
Payment Date, whether or not earned or declared, plus an amount
calculated on the basis of the annual dividend rate of $2.3125
per share for the period after such last preceding Dividend
Payment Date to and including the date as of which the
calculation is made based on a 360-day year of twelve 30-day
months.
(C) Except as provided in this subsection (a) of Article 5,
the Series A Preferred Stock will not be entitled to any
dividends in excess of full cumulative dividends as described
above and shall not be entitled to participate in the earnings or
assets of the Corporation, and no interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend
payment or payments on the Series A Preferred Stock which may be
in arrears.
(D) Any dividend payment made on the Series A Preferred
Shares shall be first credited against the earliest accrued but
unpaid dividend due with respect to such shares which remains
payable.
(E) No dividends on shares of Series A Preferred Stock
shall be declared by the Board of Directors or paid or set apart
for payment by the Corporation at such time as the terms and
provisions of any agreement of the Corporation, including any
agreement relating to its indebtedness, prohibits such
declaration, payment or setting apart for payment or provides
that such declaration, payment or setting apart for payment would
constitute a breach thereof or a default thereunder, or if such
declaration or payment shall be restricted or prohibited by law.
Notwithstanding the foregoing, dividends on the Series A
Preferred Stock will accrue whether or not the Corporation has
earnings, whether or not there are funds legally available for
the payment of such dividends and whether or not such dividends
are declared. Accrued but unpaid dividends on the Series A
Preferred Stock will not bear interest and holders of the Series
A Preferred Stock will not be entitled to any distributions in
excess of full cumulative distributions described above.
(F) Except as set forth in the next sentence, no dividends
will be declared or paid or set apart for payment on any capital
stock of the Corporation or any other series of Preferred Stock
ranking, as to dividends, on a parity with or junior to the
Series A Preferred Stock (other than a dividend in shares of the
Corporation's Common Stock or in shares of any other class of
stock ranking junior to the Series A Preferred Stock as to
dividends and upon liquidation) for any period unless full
cumulative dividends have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof
is set apart for such payment on the Series A Preferred Stock for
all past dividend periods and the then current dividend period.
When dividends are not paid in full (or a sum sufficient for such
full payment is not so set apart) upon the Series A Preferred
Stock and the shares of any other series of Preferred Stock
ranking on a parity as to dividends with the Series A Preferred
Stock, all dividends declared upon the Series A Preferred Stock
and any other series of Preferred Stock ranking on a parity as to
dividends with the Series A Preferred Stock shall be declared pro
rata so that the amount of dividends declared per share of Series
A Preferred Stock and such other series of Preferred Stock shall
in all cases bear to each other the same ratio that accrued
dividends per share on the Series A Preferred Stock and such
other series of Preferred Stock (which shall not include any
accrual in respect of unpaid dividends for prior dividend periods
if such Preferred Stock does not have a cumulative dividend) bear
to each other.
(G) Except as provided in the immediately preceding
paragraph, unless full cumulative dividends on the Series A
Preferred Stock have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof is
set apart for payment for all past dividend periods and the then
current dividend period, no dividends (other than in shares of
Common Stock or other shares of capital stock ranking junior to
the Series A Preferred Stock as to dividends and upon
liquidation) shall be declared or paid or set aside for payment
nor shall any other distribution be declared or made upon the
Common Stock or any other capital stock of the Corporation
ranking junior to or on a parity with the Series A Preferred
Stock as to dividends or upon liquidation, nor shall any shares
of Common Stock, or any other shares of capital stock of the
Corporation ranking junior to or on a parity with the Series A
Preferred Stock as to dividends or upon liquidation, be redeemed,
purchased or otherwise acquired for any consideration (or any
monies be paid to or made available for a sinking fund for the
redemption of any such shares) by the Corporation (except by
conversion into or exchange for other capital stock of the
Corporation ranking junior to the Series A Preferred Stock as to
dividends and upon liquidation or redemptions for the purpose of
preserving the Corporation's qualification as a real estate
investment trust ("REIT")). Holders of shares of the Series A
Preferred Stock shall not be entitled to any dividend, whether
payable in cash, property or stock, in excess of full cumulative
dividends on the Series A Preferred Stock as provided above. Any
dividend payment made on shares of the Series A Preferred Stock
shall first be credited against the earliest accrued but unpaid
dividend due with respect to such shares which remains payable.
(v) LIQUIDATION RIGHTS.
(A) Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the
holders of shares of Series A Preferred Stock are entitled to be
paid out of the assets of the Corporation legally available for
distribution to its shareholders a liquidation preference of
$25.00 per share (the "Liquidation Preference"), plus an amount
equal to any accrued and unpaid dividends to the date of payment,
but without interest, before any distribution of assets is made
to holders of Common Stock or any other class or series of
capital stock of the Corporation that ranks junior to the Series
A Preferred Stock as to liquidation rights. Holders of Series A
Preferred Stock will be entitled to written notice of any event
triggering the right to receive such Liquidation Preference.
(B) After the payment to the holders of the Series A
Preferred Stock of the full preferential amounts provided for in
this subsection (a) of Article 5, the holders of the Series A
Preferred Stock, as such, shall have no right or claim to any of
the remaining assets of the Corporation.
(C) If, upon any voluntary or involuntary dissolution,
liquidation, or winding up of the Corporation, the amounts
payable with respect to the Liquidation Preference, plus an
amount equal to any accrued and unpaid dividends to the date of
payment, of the Series A Preferred Stock and any other shares of
the Corporation ranking as to any such distribution on a parity
with the Series A Preferred Stock are not paid in full, the
holders of the Series A Preferred Stock and of such other shares
will share ratably in any such distribution of assets of the
Corporation in proportion to the full respective preference
amounts to which they are entitled.
(D) The consolidation, share exchange or merger of the
Corporation with or into any other corporation, trust or entity
or of any other corporation with or into the Corporation, or the
sale, lease or conveyance of all or substantially all of the
property or business of the Corporation, shall not be deemed to
constitute a liquidation, dissolution or winding up of the
Corporation for the purposes of this subsection (a) of Article 5.
(vi) REDEMPTION.
(A) OPTIONAL REDEMPTION. On and after September 28, 2001,
the Corporation may, at its option, redeem at any time from time
to time, in whole or in part, the Series A Preferred Stock at a
price per share (the " Redemption Price"), payable in cash, of
$25.00, together with all accrued and unpaid dividends to and
including the date fixed for redemption (the "Redemption Date"),
without interest, to the full extent the Corporation has funds
legally available therefor. The shares of Series A Preferred
Stock have no stated maturity, except as provided for in
subparagraph (ix) below, and will not be subject to any sinking
fund or mandatory redemption provisions.
(B) REDEMPTION UPON A CHANGE OF CONTROL.
(1) At any time prior to September 28, 2001, the
Corporation may, at its option, upon the occurrence of a
Change of Control Event (as defined below) redeem all of the
outstanding Series A Preferred Stock at the applicable
redemption price reflected below, plus accrued and unpaid
dividends (if any) to the date of redemption. The
redemption price shall be as follows:
DATE OF REDEMPTION PURCHASE
-------------------------------------
FROM THROUGH PRICE
----------- ---------------- --------
September 11, 1997 December 31, 1997 $25.80
January 1, 1998 March 31, 1998 25.75
April 1, 1998 June 30, 1998 25.70
July 1, 1998 September 30, 1998 25.65
October 1, 1998 December 31, 1998 25.60
January 1, 1999 March 31, 1999 25.55
April 1, 1999 June 30, 1999 25.50
July 1, 1999 September 30, 1999 25.45
October 1, 1999 December 31, 1999 25.40
January 1, 2000 March 31, 2000 25.35
April 1, 2000 June 30, 2000 25.30
July 1, 2000 September 30, 2000 25.25
October 1, 2000 December 31, 2000 25.20
January 1, 2001 March 31, 2001 25.15
April 1, 2001 June 30, 2001 25.10
July 1, 2001 September 27, 2001 25.05
Such redemption may be consummated at any time prior
to, contemporaneously with or after the Change of Control
(as defined below), provided that notice of any such
redemption pursuant to this paragraph is given no later than
90 days following the date upon which the Change of Control
Event occurred, the redemption date must be within 60 days
of the date of notice and a sum sufficient to redeem the
shares must be deposited in trust to effect the redemption.
(2) Definitions.
(a) A "Change of Control Event" shall mean the
execution by the Corporation or any of its subsidiaries
or affiliates of any agreement with respect to any
proposed transaction or event or series of transactions
or events which, individually or in the aggregate, may
reasonably be expected to result in a Change of
Control.
(b) A "Change of Control" shall be deemed to have
occurred at such time as (i) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the
"Exchange Act")) becomes the ultimate "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person or group shall be
deemed to have beneficial ownership of all shares of
Voting Stock that such person or group has the right to
acquire regardless of when such right is first
exercisable), directly or indirectly, of Voting Stock
representing more than 35% of the total voting power of
the total Voting Stock of the Corporation on a fully
diluted basis; (ii) the date the Corporation sells,
transfers or otherwise disposes of all or substantially
all of the assets of the Corporation; and (iii) the
date of the consummation of a merger or share exchange
of the Corporation with another corporation where the
shareholders of the Corporation immediately prior to
the merger or share exchange would not beneficially own
immediately after the merger or share exchange, shares
entitling such shareholders to 50% or more of all votes
(without consideration of the rights of any class of
stock to elect directors by a separate group vote) to
which all shareholders of the corporation issuing cash
or securities in the merger or share exchange would be
entitled in the election of directors, or where members
of the Board of Directors of the Corporation
immediately prior to the merger or share exchange would
not immediately after the merger or share exchange
constitute a majority of the board of directors of the
corporation issuing cash or securities in the merger or
share exchange.
(c) "Voting Stock" shall mean capital stock of
any class or kind having the power to vote generally
for the election of directors of the Corporation.
(C) PROCEDURES OF REDEMPTION.
(1) Notice of redemption will be given by publication
in a newspaper of general circulation in the City of New
York, such publication to be made once a week for two
successive weeks commencing not less than 30 nor more than
60 days prior to the Redemption Date. A similar notice will
be mailed by the Corporation, postage prepaid, not less than
30 nor more than 60 days prior to the Redemption Date,
addressed to the respective holders of record of the Series
A Preferred Stock to be redeemed at their respective
addresses as they appear on the stock transfer records of
the Corporation. No failure to give such notice or any
defect therein or in the mailing thereof shall affect the
validity of the proceedings for the redemption of any shares
of Series A Preferred Stock except as to the holder to whom
the Corporation has failed to give notice or except as to
the holder to whom notice was defective. In addition to any
information required by law or by the applicable rules of
any exchange upon which the Series A Preferred Stock may be
listed or admitted to trading, each such notice shall state:
(a) the Redemption Date; (b) the Redemption Price; (c) the
number of shares of Series A Preferred Stock to be redeemed;
(d) the place or places where certificates for such shares
are to be surrendered for payment of the Redemption Price;
and (e) that dividends on the shares to be redeemed will
cease to accumulate on the Redemption Date. If less than
all of the shares of Series A Preferred Stock held by any
holder are to be redeemed, the notice mailed to such holder
shall also specify the number of shares of Series A
Preferred Stock to be redeemed from such holder.
(2) If notice has been mailed in accordance with
subparagraph (vi)(C)(1) above and provided that on or before
the Redemption Date specified in such notice all funds
necessary for such redemption shall have been irrevocably
set aside by the Corporation, separate and apart from its
other funds in trust for the pro rata benefit of the holders
of the Series A Preferred Stock so called for redemption, so
as to be, and to continue to be available therefor, then,
from and after the Redemption Date, dividends on the Series
A Preferred Stock so called for redemption shall cease to
accumulate, and said shares shall no longer be deemed to be
outstanding and shall not have the status of Series A
Preferred Stock and all rights of the holders thereof as
shareholders of the Corporation shall cease, except the
right to receive the Redemption Price. Upon surrender, in
accordance with such notice, of the certificates for any
Series A Preferred Stock so redeemed (properly endorsed or
assigned for transfer, if the Corporation shall so require
and the notice shall so state), such Series A Preferred
Stock shall be redeemed by the Corporation at the Redemption
Price. In case fewer than all the shares of Series A
Preferred Stock represented by any such certificate are
redeemed, a new certificate or certificates shall be issued
representing the unredeemed shares of Series A Preferred
Stock without cost to the holder thereof.
(3) Any funds deposited with a bank or trust
corporation for the purpose of redeeming Series A Preferred
Stock shall be irrevocable except that:
(a) the Corporation shall be entitled to receive
from such bank or trust corporation the interest or
other earnings, if any, earned on any money so
deposited in trust, and the holders of any shares
redeemed shall have no claim to such interest or other
earnings; and
(b) any balance of monies so deposited by the
Corporation and unclaimed by the holders of the Series
A Preferred Stock entitled thereto at the expiration of
two years from the applicable Redemption Date shall be
repaid, together with any interest or other earnings
earned thereon, to the Corporation, and after any such
repayment, the holders of the shares entitled to the
funds so repaid to the Corporation shall look only to
the Corporation for payment without interest or other
earnings.
(4) Unless full cumulative dividends on all shares of
Series A Preferred Stock shall have been or
contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the then current dividend
period, no shares of Series A Preferred Stock shall be
redeemed unless all outstanding shares of Series A Preferred
Stock are simultaneously redeemed and the Corporation shall
not purchase or otherwise acquire directly or indirectly any
shares of Series A Preferred Stock (except by exchange for
capital stock of the Corporation ranking junior to the
Series A Preferred Stock as to dividends and upon
liquidation); provided, however, that the foregoing shall
not prevent the redemption by the Corporation of shares of
Series A Preferred Stock in order to ensure that the
Corporation continues to meet the requirements for
qualification as a REIT, or the purchase or acquisition of
shares of Series A Preferred Stock pursuant to a purchase or
exchange offer made on the same terms to holders of all
outstanding shares of Series A Preferred Stock. So long as
no dividends are in arrears, the Corporation shall be
entitled at any time and from time to time to repurchase
shares of Series A Preferred Stock in open-market
transactions duly authorized by the Board of Directors and
effected in compliance with applicable laws.
(5) Immediately prior to any redemption of Series A
Preferred Stock, the Corporation shall pay, in cash, any
accumulated and unpaid dividends through the Redemption
Date, unless a Redemption Date falls after a Dividend Record
Date and prior to the corresponding Dividend Payment Date,
in which case each holder of Series A Preferred Stock at the
close of business on such Dividend Record Date shall be
entitled to the dividend payable on such shares on the
corresponding Dividend Payment Date notwithstanding the
redemption of such shares before such Dividend Payment Date.
(6) If less than all of the outstanding Series A
Preferred Stock is to be redeemed, the Series A Preferred
Stock to be redeemed shall be selected pro rata (as nearly
as may be practicable without creating fractional shares) or
by any other equitable method determined by the Corporation.
(vii) VOTING RIGHTS. Except as required by law, and
as set forth below, the holders of the Series A Preferred Stock
shall not be entitled to vote at any meeting of the shareholders
for election of directors or for any other purpose or otherwise
to participate in any action taken by the Corporation or the
shareholders thereof, or to receive notice of any meeting of
shareholders.
(A) Whenever dividends on any shares of Series A Preferred
Stock shall be in arrears for six or more quarters, whether
consecutive or not (a "Preferred Dividend Default"), the holders
of such shares of Series A Preferred Stock (voting separately as
a voting group with all other series of Preferred Stock ranking
on a parity with the Series A Preferred Stock as to dividends or
upon liquidation ("Parity Preferred") upon which like voting
rights have been conferred and are exercisable) will be entitled
to vote separately as a voting group for the election of a total
of two additional directors to serve on the Board of Directors of
the Corporation (the "Preferred Stock Directors") at a special
meeting called by the holders of record of at least 20% of the
Series A Preferred Stock and the holders of record of at least
20% of any series of Parity Preferred so in arrears (unless such
request is received less than 90 days before the date fixed for
the next annual or special meeting of shareholders) or at the
next annual meeting of shareholders, and at each subsequent
annual meeting until all dividends accumulated on such shares of
Series A Preferred Stock for the past dividend periods and the
dividend for the then current dividend period shall have been
fully paid or declared and a sum sufficient for the payment
thereof set aside for payment. A quorum for any such meeting
shall exist if at least a majority of the outstanding shares of
Series A Preferred Stock and shares of Parity Preferred upon
which like voting rights have been conferred and are exercisable
are represented in person or by proxy at such meeting. Such
Preferred Stock Directors shall be elected upon the affirmative
vote of a plurality of the shares of Series A Preferred Stock and
such Parity Preferred present and voting in person or by proxy at
a duly called and held meeting at which a quorum is present. If
and when all accumulated dividends and the dividend for the then
current dividend period on the Series A Preferred Stock shall
have been paid in full or set aside for payment in full, the
holders thereof shall be divested of the foregoing voting rights
(subject to revesting in the event of each and every Preferred
Dividend Default) and, if all accumulated dividends and the
dividend for the then current dividend period have been paid in
full or declared and set aside for payment in full on all series
of Parity Preferred upon which like voting rights have been
conferred and are exercisable, the term of office of each
Preferred Stock Director so elected shall terminate. Any
Preferred Stock Director may be removed at any time with or
without cause by, and shall not be removed otherwise than by the
vote of, the holders of record of a majority of the outstanding
shares of the Series A Preferred Stock and such Parity Preferred
when they have the voting rights described above (voting
separately as a voting group with all series of Parity Preferred
upon which like voting rights have been conferred and are
exercisable). So long as a Preferred Dividend Default shall
continue, any vacancy in the office of a Preferred Stock Director
may be filled by written consent of the Preferred Stock Director
remaining in office, or if none remains in office, by a vote of
the holders of record of a majority of the outstanding shares of
Series A Preferred Stock and such Parity Preferred when they have
the voting rights described above (voting separately as a voting
group with all series of Parity Preferred upon which like voting
rights have been conferred and are exercisable). The Preferred
Stock Directors shall each be entitled to one vote per director
on any matter.
(B) So long as any shares of Series A Preferred Stock
remain outstanding, the Corporation will not, without the
affirmative vote or consent of the holders of at least two-thirds
of the shares of Series A Preferred Stock outstanding at the
time, given in person or by proxy, either in writing or at a
meeting (such series voting separately as a voting group), amend,
alter or repeal the provisions of the Amended and Restated
Articles of Incorporation or this subsection (a) of Article 5
thereof, whether by merger, share exchange or otherwise (an
"Event"), so as to materially and adversely affect any right,
preference, privilege or voting power of the Series A Preferred
Stock or the holders thereof; provided, however, that with
respect to the occurrence of any Event set forth above, so long
as the Series A Preferred Stock remains outstanding with the
terms thereof materially unchanged, taking into account that upon
the occurrence of an Event, the Corporation might not be the
surviving entity, the occurrence of any such Event shall not be
deemed to materially and adversely affect such rights,
preferences, privileges or voting power of holders of the Series
A Preferred Stock, and provided further that (i) any increase in
the amount of the authorized Preferred Stock or the creation or
issuance of any other series of Preferred Stock, or (ii) any
increase in the amount of authorized shares of such series, in
each case ranking on a parity with or junior to the Series A
Preferred Stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding
up, shall not be deemed to affect materially and adversely such
rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or
prior to the time when the act with respect to which such vote
would otherwise be required shall be effected, all outstanding
shares of Series A Preferred Stock shall have been redeemed or
called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
(C) On each matter submitted to a vote of the holders of
Series A Preferred Stock in accordance with this paragraph (vii),
or as otherwise required by law, each share of Series A Preferred
Stock shall be entitled to one vote. With respect to each share
of Series A Preferred Stock, the holder thereof may designate a
proxy, with each such proxy having the right to vote on behalf of
the holder.
(viii) CONVERSION. The shares of Series A Preferred
Stock are not convertible into or exchangeable for any other
property or securities of the Corporation.
(ix) RESTRICTIONS ON OWNERSHIP AND TRANSFER.
(A) Definitions. The following terms shall have the
-----------
following meanings:
"Affiliate" shall mean, with respect to any person,
(i) any person directly or indirectly owning, controlling, or
holding, with power to vote ten percent or more of the
outstanding voting securities of such other person, (ii) any
person ten percent or more of whose outstanding voting securities
are directly or indirectly owned, controlled, or held, with power
to vote, by such other person, (iii) any person directly or
indirectly controlling, controlled by, or under common control
with such other person, (iv) any executive officer, director,
trustee or general partner of such other person, and (v) any
legal entity for which such person acts as an executive officer,
director, trustee or general partner. The term "person" means
and includes any natural person, corporation, partnership,
association, limited liability company or any other legal entity.
An indirect relationship shall include circumstances in which a
person's spouse, children, parents, siblings or mothers-, fathers-
, sisters- or brothers-in-law is or has been associated with a
person.
"Beneficial Ownership" shall mean ownership of shares
of Equity Stock by a Person who would be treated as an owner of
such shares of Equity Stock either directly or indirectly through
the application of Section 544 of the Code, as modified by
Section 856(h)(1)(B) of the Code. The terms "Beneficial Owner,"
"Beneficially Owns," and "Beneficially Owned" shall have
correlative meanings.
"Beneficiary" shall mean, with respect to any Trust,
one or more organizations described in each of Section
170(b)(1)(A) (other than clauses (vii) or (viii) thereof) and
Section 170(c)(2) of the Code that are named by the Corporation
as the beneficiary or beneficiaries of such Trust, in accordance
with the provisions of Section 2(a)(ix)(I)(1) hereof.
"Board of Directors" shall mean the Board of Directors
of the Corporation.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Common Stock" shall mean the shares of common stock,
par value $0.01 per share, of the Corporation.
"Constructive Ownership" shall mean ownership of shares
of Equity Stock by a Person who would be treated as an owner of
such shares of Equity Stock either directly or indirectly through
the application of Section 318 of the Code, as modified by
Section 856(d)(5) of the Code. The terms "Constructive Owner,"
"Constructively Owns," and "Constructively Owned" shall have
correlative meanings.
"Equity Stock" shall mean the Common Stock and the
Series A Preferred Stock of the Corporation. The term "Equity
Stock" shall include all shares of Common Stock and Series A
Preferred Stock of the Corporation that are held as Shares-in-
Trust in accordance with the provisions of Section 2(a)(ix)(I)
hereof.
"Offering" means the offering and sale of shares of
Series A Preferred Stock pursuant to the Corporation's first
effective registration statement for such shares of Series A
Preferred Stock filed under the Securities Act of 1933, as
amended.
"Market Price" on any date shall mean the average of
the Closing Price for the five consecutive Trading Days ending on
such date. The "Closing Price" on any date shall mean the last
sale price, regular way, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock
Exchange ("NYSE"), or, if the Equity Stock is not listed or
admitted to trading on the NYSE, as reported in the principal
consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange
on which the Equity Stock is listed or admitted to trading, or,
if the Equity Stock is not listed or admitted to trading on any
national securities exchange, the last quoted price, or if not so
quoted, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System, or, if such system is
no longer in use, the principal other automated quotations system
that may then be in use or, if the shares of Equity Stock are not
quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker
making a market in the shares of Equity Stock selected by the
Board of Directors.
"Non-Transfer Event" shall mean an event other than a
purported Transfer that would cause any Person to Beneficially
Own or Constructively Own shares of Equity Stock in excess of the
Ownership Limitation, including, but not limited to, the granting
of any option or entering into any agreement for the sale,
transfer or other disposition of shares of Equity Stock or the
sale, transfer, assignment or other disposition of any securities
or rights convertible into or exchangeable for shares of Equity
Stock.
"Ownership Limitation" shall mean the restriction on
ownership by any stockholder of (a) more than 9.9% of the number
of outstanding shares of Series A Preferred Stock and (b) if the
stockholder owns both Series A Preferred Stock and Common Stock,
more than 9.9% of the number of outstanding shares of Common
Stock.
"Permitted Transferee" shall mean any Person designated
as a Permitted Transferee in accordance with the provisions of
Section 2(a)(ix)(I)(5) hereof.
"Person" shall mean an individual, corporation,
partnership, estate, trust, a portion of a trust permanently set
aside for or to be used exclusively for the purposes described in
Section 642(c) of the Code, association, private foundation
within the meaning of Section 509(a) of the Code, joint stock
company or other entity and also includes a "group" as that term
is used for purposes of Section 12(d)(3) of the Securities
Exchange Act of 1934, as amended.
"Prohibited Owner" shall mean, with respect to any
purported Transfer or Non-Transfer Event, any Person who, but for
the provisions of Section 2(a)(ix)(C) hereof, would own record
title to shares of Equity Stock.
"Restriction Termination Date" shall mean the first day
after the date of the Offering on which (i) the Board of
Directors determines that it is no longer in the best interests
of the Corporation to attempt to, or continue to, qualify as a
REIT and (ii) there is an affirmative vote of two-thirds of the
number of shares of Common Stock entitled to vote on such matter
at a regular or special meeting of the shareholders of the
Corporation.
"Shares-in-Trust" shall mean any shares of Equity Stock
designated Shares-in-Trust pursuant to Section 2(a)(ix)(C)
hereof.
"Trading Day" shall mean any day other than a Saturday,
a Sunday or a day on which banking institutions in the State of
New York are authorized or obligated by law or executive order to
close.
"Transfer" (as a noun) shall mean any sale, transfer,
gift, assignment, devise or other disposition of shares of Equity
Stock, whether voluntary or involuntary, whether of record,
constructively or beneficially and whether by operation of law or
otherwise. "Transfer" (as a verb) shall have the correlative
meaning.
"Trust" shall mean any separate trust created pursuant
to Section 2(a)(ix)(C) hereof and administered in accordance with
the terms of Section 2(a)(ix)(I) hereof, for the exclusive
benefit of any Beneficiary.
"Trustee" shall mean any Person or entity that is not
an Affiliate of either the Corporation or any Prohibited Owner,
such Trustee to be designated by the Corporation to act as
trustee of any Trust, or any successor trustee thereof.
(B) Restriction on Transfers.
------------------------
(1) Except as provided in Section 2(a)(ix)(G) hereof,
from the date of the Offering and prior to the Restriction
Termination Date, (i) no Person shall Beneficially Own or
Constructively Own outstanding shares of Equity Stock in excess
of the Ownership Limitation and (ii) any Transfer that, if
effective, would result in any Person Beneficially Owning or
Constructively Owning shares of Equity Stock in excess of the
Ownership Limitation shall be void ab initio as to the Transfer
of that number of shares of Equity Stock which would be otherwise
Beneficially Owned or Constructively Owned by such Person in
excess of the Ownership Limitation, and the intended transferee
shall acquire no rights in such shares of Equity Stock.
(2) Except as provided in Section 2(a)(ix)(G) hereof,
from the date of the Offering and prior to the Restriction
Termination Date, any Transfer of shares of Series A Preferred
Stock that, if effective, would result in shares of Equity Stock
being Beneficially Owned by fewer than 100 Persons (determined
without reference to any rules of attribution) shall be void ab
initio as to the Transfer of that number of shares which
otherwise would be Beneficially Owned (determined without
reference to any rules of attribution) by the transferee, and the
intended transferee shall acquire no rights in such shares of
Series A Preferred Stock.
(3) From the date of the Offering and prior to the
Restriction Termination Date, any Transfer of shares of Series A
Preferred Stock that, if effective, would result in the
Corporation being "closely held" within the meaning of Section
856(h) of the Code shall be void ab initio as to the Transfer of
that number of shares of Equity Stock which would cause the
Corporation to be "closely held" within the meaning of Section
856(h) of the Code, and the intended transferee shall acquire no
rights in such shares of Series A Preferred Stock.
(4) From the date of the Offering and prior to the
Restriction Termination Date, any Transfer of shares of Series A
Preferred Stock that, if effective, would cause the Corporation
to Constructively Own 10% or more of the ownership interests in a
tenant of the Corporation's or a subsidiary's real property,
within the meaning of Section 856(d)(2)(B) of the Code, shall be
void ab initio as to the Transfer of that number of shares of
Equity Stock which would cause the Corporation to Constructively
Own 10% or more of the ownership interests in a tenant of the
Corporation's or a subsidiary's real property, within the meaning
of Section 856(d)(2)(B) of the Code, and the intended transferee
shall acquire no rights in such shares of Series A Preferred
Stock.
(C) Transfer to Trust.
-----------------
(1) If, notwithstanding the other provisions contained
in this Section 2(a)(ix), at any time after the Offering and
prior to the Restriction Termination Date, there is a purported
Transfer or Non-Transfer Event such that any Person would either
Beneficially Own or Constructively Own shares of Equity Stock in
excess of the Ownership Limitation, then, (i) except as otherwise
provided in Section 2(a)(ix)(G) hereof, the purported transferee
shall acquire no right or interest (or, in the case of a Non-
Transfer Event, the Person holding record title to the shares of
Equity Stock Beneficially Owned or Constructively Owned by such
Beneficial Owner or Constructive Owner, shall cease to own any
right or interest) in such number of shares of Equity Stock which
would cause such Beneficial Owner or Constructive Owner to
Beneficially Own or Constructively Own shares of Equity Stock in
excess of the Ownership Limitation, (ii) such number of shares of
Equity Stock in excess of the Ownership Limitation (rounded up to
the nearest whole share) shall be designated Shares-in-Trust and
transferred automatically and by operation of law to a Trust to
be held in accordance with that Section 2(a)(ix)(I), and (iii)
the Prohibited Owner shall submit such number of shares of Equity
Stock to the Corporation for registration in the name of the
Trustee. Such transfer to a Trust and the designation of shares
as Shares-in-Trust shall be effective as of the close of business
on the business day prior to the date of the Transfer or Non-
Transfer Event, as the case may be. There shall be a separate
Trust with respect to each designation and transfer of Shares-in-
Trust.
(2) If, notwithstanding the other provisions contained
in this Section 2(a)(ix), at any time after the Offering and
prior to the Restriction Termination Date, there is a purported
Transfer or Non-Transfer Event that, if effective, would (i)
result in shares of Equity Stock being Beneficially Owned by
fewer than 100 Persons (determined without reference to any rules
of attribution), (ii) result in the Corporation being "closely
held" within the meaning of Section 856(h) of the Code, or (iii)
cause the Corporation to Constructively Own 10% or more of the
ownership interests in a tenant of the Corporation's or a
subsidiary's real property, within the meaning of Section
856(d)(2)(B) of the Code, then (x) the purported transferee shall
not acquire any right or interest (or, in the case of a Non-
Transfer Event, the Person holding record title of the shares of
Series A Preferred Stock with respect to which such Non-Transfer
Event occurred, shall cease to own any right or interest) in such
number of shares of Series A Preferred Stock, the ownership of
which by such purported transferee or record holder would (A)
result in shares of Equity Stock being Beneficially Owned by
fewer than 100 Persons, (B) result in the Corporation being
"closely held" within the meaning of Section 856(h) of the Code,
or (C) cause the Corporation to Constructively Own 10% or more of
the ownership interests in a tenant of the Corporation's or a
subsidiary's real property, within the meaning of Section
856(d)(2)(B) of the Code, (y) such number of shares of Series A
Preferred Stock (rounded up to the nearest whole share) shall be
designated Shares-in-Trust and transferred automatically and by
operation of law to a Trust to be held in accordance with that
Section 2(a)(ix)(I), and (z) the Prohibited Owner shall submit
such number of shares of Series A Preferred Stock to the
Corporation for registration in the name of the Trustee. Such
transfer to a Trust and the designation of shares as Shares-in-
Trust shall be effective as of the close of business on the
business day prior to the date of the Transfer or Non-Transfer
Event, as the case may be. There shall be a separate Trust with
respect to each designation and transfer of Shares-in-Trust.
(D) Remedies For Breach. If the Corporation, or its
-------------------
designees, shall at any time determine in good faith that a
Transfer has taken place in violation of Section 2(a)(ix)(B)
hereof or that a Person intends to acquire or has attempted to
acquire Beneficial Ownership or Constructive Ownership of any
shares of Equity Stock in violation of Section 2(a)(ix)(B)
hereof, the Corporation shall take such action as it deems
advisable to refuse to give effect to or to prevent such Transfer
or acquisition, including, but not limited to, refusing to give
effect to such Transfer on the books of the Corporation or
instituting proceedings to enjoin such Transfer or acquisition.
(E) Notice of Restricted Transfer. Any Person who acquires
-----------------------------
or attempts to acquire shares of Equity Stock in violation of
Section 2(a)(ix)(B) hereof, or any Person who owned shares of
Equity Stock that were transferred to a Trust pursuant to the
provisions of Section 2(a)(ix)(C) hereof, shall immediately give
written notice to the Corporation of such event and shall provide
to the Corporation such other information as the Corporation may
request in order to determine the effect, if any, of such
Transfer or Non-Transfer Event, as the case may be, on the
Corporation's status as a REIT.
(F) Owners Required To Provide Information. From the date
--------------------------------------
of the Offering and prior to the Restriction Termination Date:
(1) Every Beneficial Owner or Constructive Owner of
more than 5%, or such lower percentages as required pursuant
to regulations under the Code, of the outstanding shares of
all classes of capital stock of the Corporation shall,
within 30 days after January 1 of each year, provide to the
Corporation a written statement or affidavit stating the
name and address of such Beneficial Owner or Constructive
Owner, the number of shares of Equity Stock Beneficially
Owned or Constructively Owned, and a description of how such
shares are held. Each such Beneficial Owner or Constructive
Owner shall provide to the Corporation such additional
information as the Corporation may request in order to
determine the effect, if any, of such Beneficial Ownership
or Constructive Ownership on the Corporation's status as a
REIT and to ensure compliance with the Ownership Limitation.
(2) Each Person who is a Beneficial Owner or
Constructive Owner of shares of Equity Stock and each Person
(including the stockholder of record) who is holding shares
of Equity Stock for a Beneficial Owner or Constructive Owner
shall provide to the Corporation a written statement or
affidavit stating such information as the Corporation may
request in order to determine the Corporation's status as a
REIT and to ensure compliance with the Ownership Limitation.
(G) Exception. The Ownership Limitation shall not apply to
---------
the acquisition of shares of Equity Stock by an underwriter that
participates in a public offering of such shares for a period of
90 days following the purchase by such underwriter of such shares
provided that the restrictions contained in Section 2(a)(ix)(B)
hereof will not be violated following the distribution by such
underwriter of such shares. In addition, the Board of Directors,
upon receipt of a ruling from the Internal Revenue Service or an
opinion of counsel in each case to the effect that the
restrictions contained in Section 2(a)(ix)(B) hereof will not be
violated, may exempt a Person from the Ownership Limitation
provided that (i) the Board of Directors obtains such
representations and undertakings from such Person as are
reasonably necessary to ascertain that no individual's Beneficial
Ownership or Constructive Ownership of shares of Equity Stock
will violate the Ownership Limitation and (ii) such Person agrees
in writing that any violation or attempted violation of such
representations or undertakings will result in such transfer to a
Trust of shares of Equity Stock pursuant to Section 2(a)(ix)(C)
hereof.
(H) Removal of Ownership Limitation. The Ownership
-------------------------------
Limitation will not be removed until (i) the Board of Directors
determines that it is no longer in the best interest of the
Corporation to attempt to qualify, or to continue to qualify, as
a REIT and (ii) there is an affirmative vote of two-thirds of the
number of shares of Common Stock entitled to vote on such matter
at a regular or special meeting of the stockholders of the
Corporation.
(I) Shares-in-Trust.
---------------
(1) Trust. Any shares of Equity Stock transferred to
-----
a Trust and designated Shares-in-Trust pursuant to Section
2(a)(ix)(C) hereof shall be held for the exclusive benefit of the
Beneficiary. The Corporation shall name a Beneficiary for each
Trust within five days after discovery of the existence thereof.
No Beneficiary shall be a Beneficiary of more than one Trust at
any time. Any transfer to a Trust, and subsequent designation of
shares of Equity Stock as Shares-in-Trust, pursuant to Section
2(a)(ix)(C) hereof shall be effective as of the close of business
on the business day prior to the date of the Transfer or Non-
Transfer Event that results in the transfer to the Trust. Shares-
in-Trust shall remain issued and outstanding shares of Equity
Stock of the Corporation and shall be entitled to the same rights
and privileges on identical terms and conditions as are all other
issued and outstanding shares of Equity Stock of the same class
and series. When transferred to a Permitted Transferee in
accordance with the provisions of Section 2(a)(ix)(I)(5) hereof,
such Shares-in-Trust shall cease to be designated as Shares-in-
Trust.
(2) Dividend Rights. The Trust, as record holder of
---------------
Shares-in-Trust, shall be entitled to receive all dividends and
distributions as may be declared by the Board of Directors on
such shares of Equity Stock and shall hold such dividends or
distributions in trust for the benefit of the Beneficiary. The
Prohibited Owner with respect to Shares-in-Trust shall repay to
the Trust the amount of any dividends or distributions received
by it that (i) are attributable to any shares of Equity Stock
designated Shares-in-Trust and (ii) the record date of which was
on or after the date that such shares became Shares-in-Trust.
The Corporation shall take all measures that it determines
reasonably necessary to recover the amount of any such dividend
or distribution paid to a Prohibited Owner, including, if
necessary, withholding any portion of future dividends or
distributions payable on shares of Equity Stock Beneficially
Owned or Constructively Owned by the Person who, but for the
provisions of Section 2(a)(ix)(C) hereof, would Constructively
Own or Beneficially Own the Shares-in-Trust; and, as soon as
reasonably practicable following the Corporation's receipt or
withholding thereof, shall pay over to the Trust for the benefit
of the Beneficiary the dividends so received or withheld, as the
case may be.
(3) Rights Upon Liquidation. In the event of any
-----------------------
voluntary or involuntary liquidation, dissolution or winding up
of, or any distribution of the assets of, the Corporation, each
holder of Shares-in-Trust shall be entitled to receive, ratably
with each other holder of shares of Equity Stock of the same
class or series, that portion of the assets of the Corporation
which is available for distribution to the holders of such class
and series of shares of Equity Stock. The Trust shall distribute
to the Prohibited Owner the amounts received upon such
liquidation, dissolution, or winding up, or distribution;
provided, however, that the Prohibited Owner shall not be
entitled to receive amounts pursuant to this Section
2(a)(ix)(I)(3) in excess of, in the case of a purported Transfer
in which the Prohibited Owner gave value for shares of Equity
Stock and which Transfer resulted in the transfer of the shares
to the Trust, the price per share, if any, such Prohibited Owner
paid for the shares of Equity Stock and, in the case of a Non-
Transfer Event or Transfer in which the Prohibited Owner did not
give value for such shares (e.g., if the shares were received
through a gift or devise) and which Non-Transfer Event or
Transfer, as the case may be, resulted in the transfer of shares
to the Trust, the price per share equal to the Market Price on
the date of such Non-Transfer Event or Transfer. Any remaining
amount in such Trust shall be distributed to the Beneficiary.
(4) Voting Rights. The Trustee shall be entitled to
-------------
vote all Shares-in-Trust. Any vote by a Prohibited Owner as a
holder of shares of Equity Stock prior to the discovery by the
Corporation that the shares of Equity Stock are Shares-in-Trust
shall, subject to applicable law, be rescinded and shall be void
ab initio with respect to such Shares-in-Trust and the Prohibited
- -- ------
Owner shall be deemed to have given, as of the close of business
on the business day prior to the date of the purported Transfer
or Non-Transfer Event that results in the transfer to the Trust
of shares of Equity Stock under Section 2(a)(ix)(C) hereof, an
irrevocable proxy to the Trustee to vote the Shares-in-Trust in
the manner in which the Trustee, in its sole and absolute
discretion, desires.
(5) Designation of Permitted Transferee. The Trustee
-----------------------------------
shall have the exclusive and absolute right to designate a
Permitted Transferee of any and all Shares-in-Trust. In an
orderly fashion so as not to materially adversely affect the
Market Price of the Shares-in-Trust, the Trustee shall designate
any Person as Permitted Transferee, provided, however, that (i)
-------- -------
the Permitted Transferee so designated purchases for valuable
consideration (whether in a public or private sale) the Shares-in-
Trust and (ii) the Permitted Transferee so designated may acquire
such Shares-in-Trust without such acquisition resulting in a
transfer to a Trust and the redesignation of such shares of
Equity Stock so acquired as Shares-in-Trust under Section
2(a)(ix)(C) hereof. Upon the designation by the Trustee of a
Permitted Transferee in accordance with the provisions of this
Section 2(a)(ix)(I)(5), the Trustee shall (i) cause to be
transferred to the Permitted Transferee that number of Shares-in-
Trust acquired by the Permitted Transferee, (ii) cause to be
recorded on the books of the Corporation that the Permitted
Transferee is the holder of record of such number of shares of
Equity Stock, (iii) cause the Shares-in-Trust to be canceled, and
(iv) distribute to the Beneficiary any and all amounts held with
respect to the Shares-in-Trust after making that payment to the
Prohibited Owner pursuant to Section 2(a)(ix)(I)(6) hereof.
(6) Compensation to Record Holder of Shares of Equity
-------------------------------------------------
Stock that Become Shares-in-Trust. Any Prohibited Owner shall be
- ---------------------------------
entitled (following discovery of the Shares-in-Trust and
subsequent designation of the Permitted Transferee in accordance
with Section 2(a)(ix)(I)(5) hereof or following the acceptance of
the offer to purchase such shares in accordance with Section
2(a)(ix)(I)(7) hereof) to receive from the Trustee following the
sale or other disposition of such Shares-in-Trust the lesser of
(i) in the case of (a) a purported Transfer in which the
Prohibited Owner gave value for shares of Equity Stock and which
Transfer resulted in the transfer of the shares to the Trust, the
price per share, if any, such Prohibited Owner paid for the
shares of Equity Stock, or (b) a Non-Transfer Event or Transfer
in which the Prohibited Owner did not give value for such shares
(e.g., if the shares were received through a gift or devise) and
which Non-Transfer Event or Transfer, as the case may be,
resulted in the transfer of shares to the Trust, the price per
share equal to the Market Price on the date of such Non-Transfer
Event or Transfer, and (ii) the price per share received by the
Trustee from the sale or other disposition of such Shares-in-
Trust in accordance with Section 2(a)(ix)(I) hereof. Any amounts
received by the Trustee in respect of such Shares-in-Trust and in
excess of such amounts to be paid the Prohibited Owner pursuant
to this Section 2(a)(ix)(I)(6) shall be distributed to the
Beneficiary in accordance with the provisions of Section
2(a)(ix)(I) hereof. Each Beneficiary and Prohibited Owner waive
any and all claims that they may have against the Trustee and the
Trust arising out of the disposition of Shares-in-Trust, except
for claims arising out of the gross negligence or willful
misconduct of, or any failure to make payments in accordance with
this Section 2(a)(ix)(I), by such Trustee or the Corporation.
(7) Purchase Right in Shares-in-Trust. Shares-in-
---------------------------------
Trust shall be deemed to have been offered for sale to the
Corporation, or its designee, at a price per share equal to the
lesser of (i) the price per share in the transaction that created
such Shares-in-Trust (or, in the case of devise, gift or Non-
Transfer Event, the Market Price at the time of such devise, gift
or Non-Transfer Event) and (ii) the Market Price on the date the
Corporation, or its designee, accepts such offer. The
Corporation shall have the right to accept such offer for a
period of ninety days after the later of (i) the date of the Non-
Transfer Event or purported Transfer which resulted in such
Shares-in-Trust and (ii) the date the Corporation determines in
good faith that a Transfer or Non-Transfer Event resulting in
Shares-in-Trust has occurred, if the Corporation does not receive
a notice of such Transfer or Non-Transfer Event pursuant to
Section 2(a)(ix)(I)(E) hereof.
(J) Remedies Not Limited. Nothing contained in this
--------------------
Section 2(a)(ix) shall limit the authority of the Corporation to
take such other action as it deems necessary or advisable to
protect the Corporation and the interests of its shareholders by
preservation of the Corporation's status as a REIT and to ensure
compliance with the Ownership Limitation.
(K) Ambiguity. In the case of an ambiguity in the
---------
application of any of the provisions of this Section 2(a)(ix),
including any definition contained in Section 2(a)(ix)(A) hereof,
the Board of Directors shall have the power to determine the
application of the provisions of this Section 2(a)(ix) with
respect to any situation based on the facts known to it.
(L) Legend. Each certificate for shares of Equity Stock
------
shall bear the following legend:
"The shares of Series A Preferred Stock
represented by this certificate are
subject to restrictions on transfer for
the purpose of the Corporation's
maintenance of its status as a real
estate investment trust under the
Internal Revenue Code of 1986, as
amended (the "Code"). No Person may (i)
Beneficially Own or Constructively Own
(a) more than 9.9% of the number of
outstanding shares of Series A Preferred
Stock and (b) if the stockholder owns
both Series A Preferred Stock and Common
Stock, more than 9.9% of the number of
outstanding shares of Common Stock, (ii)
Beneficially Own shares of Equity Stock
that would result in the shares of
Equity Stock being beneficially owned by
fewer than 100 Persons (determined
without reference to any rules of
attribution), (iv) Beneficially Own
shares of Equity Stock that would result
in the Corporation being "closely held"
under Section 856(h) of the Code, or (v)
Constructively Own shares of Equity
Stock that would cause the Corporation
to Constructively Own 10% or more of the
ownership interests in a tenant of the
Corporation's or a subsidiary's real
property, within the meaning of Section
856(d)(2)(B) of the Code. Any Person
who attempts to Beneficially Own or
Constructively Own shares of Equity
Stock in excess of the above limitations
must immediately notify the Corporation
in writing. If the restrictions above
are violated, the shares of Equity Stock
represented hereby will be transferred
automatically and by operation of law to
a Trust and shall be designated Shares-
in-Trust. All capitalized terms in this
legend have the meanings defined in the
Corporation's Amended and Restated
Articles of Incorporation, as the same
may be further amended from time to
time, a copy of which, including the
restrictions on transfer, will be sent
without charge to each shareholder who
so requests."
(M) Severability. If any provision of this Section
------------
2(a)(ix) or any application of any such provision is determined
to be invalid by any federal or state court having jurisdiction
over the issues, the validity of the remaining provisions shall
not be affected and other applications of such provision shall be
affected only to the extent necessary to comply with the
determination of such court.
6. Directors. (a) The Corporation shall have a Board of
---------
Directors consisting of not less than three (3) nor more than
nine (9) members. The number of directors may be fixed from time
to time within this range by the shareholders or by the
affirmative vote of at least 80% of the members of the Board of
Directors. However, the number of directors shall never be less
than the minimum number required by the North Carolina Business
Corporation Act. A director need not be a shareholder.
(b) Independent Directors. Notwithstanding anything herein
---------------------
to the contrary, at all times (except during a period not to
exceed sixty (60) days following the death, resignation,
incapacity or removal from office of a director prior to
expiration of the director's term of office), a majority of the
Board of Directors shall be comprised of persons who are not
officers or employees of the Corporation or "Affiliates" of (i)
any advisor to the Corporation under an advisory agreement, (ii)
any lessee of any property of the Corporation, (iii) any
subsidiary of the Corporation or (iv) any partnership which is an
Affiliate of the Corporation.
(c) Definition of Affiliate. For purposes of the foregoing
-----------------------
subsection, "Affiliate" of a person shall mean (i) any person
that, directly or indirectly, controls or is controlled by or is
under common control with such person, (ii) any other person that
owns, beneficially, directly or indirectly, five percent (5%) or
more of the outstanding capital stock, shares or equity interests
of such person, or (iii) any officer, director, employee, partner
or trustee of such person or any person controlling, controlled
by or under common control with such person (excluding trustees
and persons serving in similar capacities who are not otherwise
an Affiliate of such person). The term "person" means and
includes individuals, corporations, general and limited
partnerships, stock companies or associations, joint ventures,
associations, companies, trusts, banks, trust companies, land
trusts, business trusts, or other entities and governments and
agencies and political subdivisions thereof. For the purposes of
this definition, "control" (including the correlative meanings of
the terms "controlled by" and "under common control with"), as
used with respect to any person, shall mean the possession,
directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, through
the ownership of voting securities, partnership interests or
other equity interests.
(d) Amendment of this Section. Notwithstanding any other
-------------------------
provisions of this Charter or the Bylaws of the Corporation (and
notwithstanding that some lesser percentage may be specified by
law, this Charter or the Bylaws of the Corporation), the
provisions of this Article 6 shall not be amended, altered,
changed or repealed without the affirmative vote of at least 80%
of the members of the Board of Directors or the affirmative vote
of the holders of not less than 75% of the outstanding shares of
capital stock of the Corporation entitled to vote generally in
the election of directors, voting separately as a class.
7. Limitation on Indebtedness. The Corporation may not
--------------------------
incur or allow to exist as of the end of any month Indebtedness
(as defined below) in an amount in excess of forty-five percent
(45%) of the Corporation's investment in hotel properties, at
cost, after giving effect to the Corporation's use of proceeds
from any indebtedness. For purposes of the foregoing
restrictions, "cost" shall mean that the cost of properties be
accounted for using the purchase method of accounting, including
situations where properties are acquired from affiliates or
others and are accounted for at the historical cost basis of the
affiliates or others under generally accepted accounting
principles. For purposes of the foregoing restrictions,
"Indebtedness" of the Corporation shall mean all direct and
indirect obligations of the Corporation, its subsidiaries or any
partnership in which the Corporation serves as general partner,
for borrowed money (including all notes payable and drafts
accepted representing extensions of credit) and all obligations
evidenced by bonds, debentures, notes or other similar
instruments on which interest charges are customarily paid,
including obligations under capital leases. For purposes of this
Article 7, the Corporation's investment in hotel properties shall
include all investments made directly or indirectly through the
Corporation or through its subsidiaries or any partnership in
which the Corporation serves as general partner.
8. Dividends. All shares of Common Stock will participate
---------
equally in dividends payable to holders of shares of Common Stock
when and as declared by the Board of Directors and in net assets
available for distribution to holders of shares of Common Stock
upon liquidation or dissolution.
9. Voting. Each holder of Common Stock shall be entitled
------
to one vote per share on all matters to be voted on by the
shareholders of the Corporation.
10. Preemptive Rights. No holder of shares of capital
-----------------
stock of the Corporation shall have any preemptive or
preferential right to subscribe to or purchase (i) any shares of
any class of the Corporation, whether now or hereafter
authorized; (ii) any warrants, rights, or options to purchase any
such shares; or (iii) any securities or obligations convertible
into any such shares or into warrants, rights, or options to
purchase any such shares.
11. Limitation on Liability to Shareholders. To the
---------------------------------------
maximum extent that North Carolina law in effect from time to
time permits limitation of the liability of directors and
officers, no director or officer of the Corporation shall be
liable to the Corporation or its shareholders for money damages.
Neither the amendment nor repeal of this provision, nor the
adoption or amendment of any other provision of this Charter or
Bylaws inconsistent with this provision, shall apply to or affect
in any respect the applicability of the preceding sentence with
respect to any act or failure to act which occurred prior to such
amendment, repeal or adoption.
12. Indemnification. Any word or words defined in Part 5
---------------
of Article 8 of Chapter 55 of the General Statutes of North
Carolina, as amended from time to time, or any successor
provision thereof (the "Indemnification Section") used in this
Article 12, shall have the same meaning as provided in the
Indemnification Section.
The Corporation shall indemnify and advance expenses to a
director, officer, employee or agent of the Corporation in
connection with a proceeding to the fullest extent permitted by
and in accordance with the Indemnification Section.
13. Insurance. The Corporation may purchase and maintain
---------
insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation or who, while a
director, officer, employee or agent of the Corporation is or was
serving at the request of the Corporation as a director, officer,
partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against liability asserted
against or incurred by such person in that capacity or arising
from such person's status as a director, officer, employee or
agent, whether or not the Corporation would have power to
indemnify such person against the same liability under the
Indemnification Section.
14. REIT Status. The Corporation shall seek to elect and
-----------
maintain status as a real estate investment trust ("REIT") under
Sections 856-860 of the Internal Revenue Code of 1986, as amended
from time to time (the "Code"). It shall be the duty of the
Board of Directors to ensure that the Corporation satisfies the
requirements for qualification as a REIT under the Code,
including, but not limited to, the ownership of its outstanding
stock, the nature of its assets, the sources of its income, and
the amount and timing of its distributions to its shareholders.
The Board of Directors shall take no action to disqualify the
Corporation as a REIT or to otherwise revoke the Corporation's
election to be taxed as a REIT without the affirmative vote of
two-thirds (2/3) of the number of shares of Common Stock entitled
to vote on such matter at a special meeting of the Shareholders.
15. Restrictions on Transfer.
------------------------
(a) Affidavits of Transferees. Whenever it is deemed by
-------------------------
the Board of Directors to be prudent in protecting the tax status
of the Corporation as a REIT under the Code and regulations
issued under the Code, the Board of Directors may require to be
filed with the Corporation a statement or affidavit from each
proposed transferee of shares of capital stock of the Corporation
setting forth the number of such shares already owned by the
transferee and any related person(s) specified in the form
prescribed by the Board of Directors for that purpose. Any
contract for the sale or other transfer of shares of capital
stock of the Corporation shall be subject to this provision.
(b) Affidavits of Shareholders. Prior to any transfer or
--------------------------
transaction which would cause a shareholder to own, directly or
indirectly, shares in excess of the "Limit" as defined in
paragraph (d) of this Article 15, and in any event upon demand of
the Board of Directors, such shareholder shall file with the
Corporation an affidavit setting forth the number of shares of
capital stock of the Corporation (a) owned directly and (b) owned
indirectly by the person filing the affidavit. For purposes of
this paragraph (b), shares of capital stock not owned directly
shall be deemed to be owned indirectly by a person if that person
would be the beneficial owner of such shares for purposes of Rule
13d-3, or any successor rule thereto, promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act") and/or would
be considered to own such shares by reason of the attribution
rules in Section 544 (as modified by Section 856(h)) of the Code
or the regulations issued thereunder.
The affidavit to be filed with the Corporation shall set
forth all information required to be reported in returns filed by
shareholders under Treasury Regulation 1.857-9 issued under the
Code or similar provisions of any successor regulation, and in
reports to be filed under Section 13(d), or any successor rule
thereto, of the Exchange Act. The affidavit, or an amendment
thereto, shall be filed with the Corporation within ten (10) days
after demand therefor and at least fifteen (15) days prior to any
transfer or transaction which, if consummated, would cause the
filing person to hold a number of shares of capital stock of the
Corporation in excess of the "Limit" as defined in paragraph (d)
of this Article 15.
(c) Void Transfers. Notwithstanding any other provision
--------------
hereof to the contrary except Section 15(e), any acquisition of
shares of capital stock that (i) would cause any person's
ownership to exceed the Limit (as defined in Section 15(d)), (ii)
would result in the disqualification of the Corporation as a REIT
under the Code, or (iii) would cause the Corporation to be
treated as owning, directly or indirectly, 10% or more of the
ownership interests in a tenant of the Corporation's real
property, within the meaning of Sections 856(d)(2)(B) and
856(d)(5) of the Code, shall be void ab initio to the fullest
extent permitted under applicable law and the intended transferee
of those shares shall be deemed never to have had an interest
therein. If the foregoing provision is determined to be void or
invalid by virtue of any legal decision, statute, rule or
regulation, then the transferee of those shares shall be deemed
to be Excess Shares (as defined in Section 15(d)) and subject to
Section 15(f) below.
(d) Excess Shares. Except as provided in Section 15(e), no
-------------
person shall at any time directly or indirectly own in the
aggregate more than 9.9% of the outstanding shares of capital
stock of the Corporation (the "Limit"). Shares which but for
this Article 15 would be owned by a person and would, at any
time, be in excess of the Limit shall be deemed "Excess Shares"
and shall become subject to Section 15(f). For the purpose of
determining whether shares are Excess Shares, "ownership" of
shares shall be deemed to include shares constructively owned by
a person under the provisions of Section 544 (as modified by
Section 856(h)) of the Code. All shares of capital stock of the
Corporation which any person has the right to acquire upon
exercise of outstanding rights, options and warrants, and upon
conversion of any securities convertible into those shares, if
any, shall be considered outstanding for purposes of determining
the applicable Limit if such inclusion will cause such person to
own more than the Limit.
(e) Exemptions. The ownership limits set forth in
----------
paragraphs (c) and (d) of this Article 15 shall not apply to the
acquisition of shares of capital stock of the Corporation by an
underwriter in a public offering of those shares or in any
transaction involving the issuance of shares of capital stock by
the Corporation in which the Board of Directors determines that
the underwriter or other person or party initially acquiring
those shares will timely distribute those shares to or among
others so that, following such distribution, the ownership of
those shares will not be in violation of Sections 15(c) or (d).
The Board of Directors in its discretion may exempt from the
Limit and from the filing requirements of paragraph (b) of this
Article 15 ownership or transfers of certain designated shares of
capital stock of the Corporation while owned by or transferred to
a person who has provided the Board of Directors with evidence
and assurances acceptable to the Board of Directors that the
qualification of the Corporation as a REIT under the Code and the
regulations issued under the Code would not be jeopardized
thereby.
(f) Treatment of Excess Shares.
--------------------------
(i) If the Board of Directors of the Corporation shall
at any time determine that a transaction has taken place within
the scope of Section 15(c) or that any person intends to acquire
Excess Shares, the Board of Directors shall take such action as
it or they deem advisable to refuse to give effect to or to
prevent such transaction, including but not limited to refusing
to give effect to such transfer on the books of the Corporation.
(ii) If, notwithstanding Sections 15(c) and (f)(i), a
purported transferee (a "Record Transferee") acquires Excess
Shares, the Record Transferee shall be deemed to have received
such Excess Shares as agent on behalf of, and to hold such Excess
Shares in trust for the exclusive benefit of, the person(s) to
whom the Excess Shares may be later transferred pursuant to
Section 15(f)(iii). The Record Transferee shall have no right to
receive dividends or other distributions on the Excess Shares and
shall have no right to vote the Excess Shares. The Record
Transferee shall have no claim, cause of action, or any other
recourse whatsoever against the transferor of the Excess Shares.
The Record Transferee's sole right with respect to the trust
shall be to receive, at the Corporation's sole and absolute
discretion, either (i) an amount upon the resale of the Excess
Shares as directed by the Corporation pursuant to Section
15(f)(iii) or (ii) an amount upon the redemption of the Excess
Shares by the Corporation pursuant to Section 15(f)(iii).
(iii) The Board of Directors will, within six
months after receiving a notice of a transfer that causes a
Record Transferee to own Excess Shares, either, in its sole and
absolute discretion, (a) direct the Record Transferee to sell all
of the Excess Shares held in trust pursuant to Section 15(f)(ii)
for cash in such manner as the Board of Directors directs or (b)
redeem such Excess Shares for the price and on the terms set
forth in Section 15(f)(iii)(b) on such date within such six month
period as the Board of Directors may determine.
(a) If the Board of Directors directs the Record
Transferee to sell the Excess Shares in held in trust, the Record
Transferee shall pay the Corporation out of the proceeds of such
sale all expenses incurred by the Corporation in connection with
such sale plus any remaining amount of such proceeds that exceeds
the amount paid by the Record Transferee for the Excess Shares,
and the Record Transferee shall be entitled to retain only any
proceeds in excess of such amount required to be paid to the
Corporation. (b) If the Board of Directors
determines to redeem the Excess Shares, written notice of
redemption (the "Notice") shall be provided to the Record
Transferee of the Excess Shares not less than one week prior to
the redemption date (the "Redemption Date") determined by the
Board of Directors and included in the Notice. The redemption
price per share to be paid for Excess Shares will be equal to the
lesser of (i) the principal price paid by the Record Transferee
from whom Excess Shares are being redeemed, (ii)(a) the closing
price per share of the shares on the principal national
securities exchange on which the shares are listed or admitted to
trading on the date of Notice, or (b) if the shares are not so
listed or admitted to trading, the closing bid price on the date
of Notice as reported on the National Association of Securities
Dealers, Inc. System, if quoted thereon (the price per share
determined under clause (a) or (b) being herein defined as the
"Market Price"), or (c) if a Market Price is not determinable in
accordance with either clause (a) or (b) of this sentence, the
net asset value per share on the date of Notice determined in
good faith by the Board of Directors, (iii) the Market Price on
the date on which the person would but for this Article 15 have
been deemed to acquire ownership of the Excess Shares, or (iv)
the maximum price allowed under Part 5 of Chapter 35 of Title 48
of the North Carolina Code Annotated. The amount payable to the
Record Transferee for Excess Shares so redeemed may be paid, at
the option of the Corporation, in the form of the number of
"Units" equal to the number of shares redeemed divided by the
"Conversion Factor," as those terms are defined in the Amended
and Restated Agreement of Limited Partnership of WINN Limited
Partnership. The redemption price for any shares of capital
stock of the Corporation so redeemed shall be paid on the
Redemption Date. From and after the Redemption Date, the holder
of any redeemed shares of capital stock of the Corporation shall
cease to be entitled to any distributions or other benefits with
respect to redeemed shares, except the right to receive payment
of the redemption price fixed as aforesaid.
(g) Application of Article. Nothing contained in this
----------------------
Article 15 or in any other provision hereof shall limit the
authority of the Board of Directors to take any and all other
action as it in its sole discretion deems necessary or advisable
to protect the Corporation and the interests of its shareholders
by maintaining the Corporation's eligibility to be, and
preserving the Corporation's status as, a REIT under the Code.
(h) Definition of "Person". For purposes of this Article
----------------------
only, the term "person" shall include individuals, corporations,
limited partnerships, general partnerships, joint stock companies
or associations, joint ventures, associations, consortia,
companies, trusts, banks, trust companies, land trusts, common
law trusts, business trusts, or other entities and governments
and agencies and political subdivisions thereof.
(i) Severability. If any provision of this Article 15 or
------------
any application of any such provision is determined to be invalid
by any federal or state court having jurisdiction over the issue,
the validity of the remaining provisions shall not be affected
and other applications of such provision shall be affected only
to the extent necessary to comply with the determination of that
court.
(j) Legend. Certificates representing shares of capital
------
stock of the Corporation shall bear a legend referencing the
restrictions set forth in this Article 15.
(k) Nothing in these Articles of Incorporation shall
preclude settlement of any transaction entered into through the
facilities of the New York Stock Exchange.
WINSTON SPE LLC
(Borrower)
to
CMF CAPITAL COMPANY, LLC
(Lender)
LOAN AGREEMENT
Dated: As of November 3, 1998
DOCUMENT PREPARED BY:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Attention: Stephen Hauck, Esq.
TABLE OF CONTENTS
Page
----
ARTICLE 1
CERTAIN DEFINITIONS
SECTION 1.1 CERTAIN DEFINITIONS 1
ARTICLE 2
LOAN TERMS
SECTION 2.1 THE LOAN 13
SECTION 2.2 INTEREST RATE 13
SECTION 2.3 TERMS OF PAYMENT 13
SECTION 2.4 PREPAYMENT; DEFEASANCE 16
SECTION 2.5 RELEASE OF PROPERTY 18
SECTION 2.6 SUBSTITUTION OF PROPERTIES 20
ARTICLE 3
SECURITY; RESERVES AND CASH MANAGEMENT
SECTION 3.1 SECURITY; ESTABLISHMENT OF FUNDS 29
SECTION 3.2 PLEDGE AND GRANT OF SECURITY INTEREST 30
SECTION 3.3 DISBURSEMENT OF FUNDS 30
SECTION 3.4 INTENTIONALLY OMITTED 31
SECTION 3.5 CASH MANAGEMENT ACCOUNT 31
SECTION 3.6 PAYMENTS RECEIVED UNDER THE CASH MANAGEMENT
AGREEMENT 32
ARTICLE 4
CONDITIONS PRECEDENT
SECTION 4.1 CLOSING CONDITIONS 33
ARTICLE 5
INSURANCE, CONDEMNATION, AND IMPOUNDS
SECTION 5.1 INSURANCE; CASUALTY AND CONDEMNATION 37
SECTION 5.2 CONDEMNATION 41
SECTION 5.3 RESTORATION 41
SECTION 5.4 IMPOUNDS 46
ARTICLE 6
ENVIRONMENTAL MATTERS
SECTION 6.1 CERTAIN DEFINITIONS 47
SECTION 6.2 REPRESENTATIONS AND WARRANTIES ON
ENVIRONMENTAL MATTERS 48
SECTION 6.3 COVENANTS ON ENVIRONMENTAL MATTERS 48
SECTION 6.4 ALLOCATION OF RISKS AND INDEMNITY 49
SECTION 6.5 NO WAIVER 50
ARTICLE 7
LEASING MATTERS
SECTION 7.1 REPRESENTATIONS AND WARRANTIES ON LEASES 50
SECTION 7.2 STANDARD LEASE FORM; APPROVAL RIGHTS 50
SECTION 7.3 COVENANTS 51
SECTION 7.4 TENANT ESTOPPELS 51
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
SECTION 8.1 ORGANIZATION, POWER AND AUTHORITY 52
SECTION 8.2 VALIDITY OF LOAN DOCUMENTS 52
SECTION 8.3 NO CONFLICTS 52
SECTION 8.4 LIABILITIES; LITIGATION 53
SECTION 8.5 TAXES AND ASSESSMENTS 53
SECTION 8.6 OTHER AGREEMENTS; DEFAULTS 53
SECTION 8.7 TITLE 53
SECTION 8.8 COMPLIANCE WITH LAW 54
SECTION 8.9 LOCATION OF BORROWER 54
SECTION 8.10 ERISA 54
SECTION 8.11 FORFEITURE 55
SECTION 8.12 TAX FILINGS 55
SECTION 8.13 SOLVENCY 55
SECTION 8.14 FULL AND ACCURATE DISCLOSURE 56
SECTION 8.15 FLOOD ZONE 56
SECTION 8.16 FEDERAL RESERVE REGULATIONS 56
SECTION 8.17 NOT A FOREIGN PERSON 56
SECTION 8.18 SEPARATE LOTS 56
SECTION 8.19 NO PRIOR ASSIGNMENT 56
SECTION 8.20 INSURANCE 56
SECTION 8.21 USE OF PROPERTIES 57
SECTION 8.22 CERTIFICATE OF OCCUPANCY; LICENSES 57
SECTION 8.23 PHYSICAL CONDITION 57
SECTION 8.24 BOUNDARIES 57
SECTION 8.25 INTENTIONALLY OMITTED 57
SECTION 8.26 INTENTIONALLY OMITTED 57
SECTION 8.27 FILING AND RECORDING TAXES 57
SECTION 8.28 SINGLE PURPOSE ENTITY/SEPARATENESS 58
SECTION 8.29 MANAGEMENT AGREEMENTS 60
SECTION 8.30 FRANCHISE AGREEMENTS; OPERATING LEASES 62
SECTION 8.31 INVESTMENT COMPANY ACT 63
SECTION 8.32 LEASES 63
SECTION 8.33 SPE COMPLIANCE 63
ARTICLE 9
FINANCIAL REPORTING
SECTION 9.1 FINANCIAL STATEMENTS 63
SECTION 9.2 ACCOUNTING PRINCIPLES 65
SECTION 9.3 OTHER INFORMATION; ACCESS 65
SECTION 9.4 FORMAT OF DELIVERY 66
ARTICLE 10
COVENANTS
SECTION 10.1 DUE SALE AND ENCUMBRANCE; TRANSFERS OF
INTERESTS 66
SECTION 10.2 TAXES; UTILITY CHARGES 69
SECTION 10.3 OPERATING LEASE 69
SECTION 10.4 OPERATION; MAINTENANCE; INSPECTION 69
SECTION 10.5 TAXES ON SECURITY 70
SECTION 10.6 LEGAL EXISTENCE; NAME, ETC. 70
SECTION 10.7 FURTHER ASSURANCES 70
SECTION 10.8 ESTOPPEL CERTIFICATES 71
SECTION 10.9 NOTICE OF CERTAIN EVENTS 71
SECTION 10.10 INDEMNIFICATION 71
SECTION 10.11 PAYMENT FOR LABOR AND MATERIALS 71
SECTION 10.12 ALTERATIONS 72
SECTION 10.13 HANDICAPPED ACCESS 72
SECTION 10.14 CERTAIN HOTEL/FRANCHISE COVENANTS 73
ARTICLE 11
EVENTS OF DEFAULT
SECTION 11.1 PAYMENTS 74
SECTION 11.2 INSURANCE 74
SECTION 11.3 SINGLE PURPOSE ENTITY 74
SECTION 11.4 INSOLVENCY OPINION 74
SECTION 11.5 TAXES 74
SECTION 11.6 SALE, ENCUMBRANCE, ETC. 74
SECTION 11.7 REPRESENTATIONS AND WARRANTIES 75
SECTION 11.8 OTHER ENCUMBRANCES 75
SECTION 11.9 INVOLUNTARY BANKRUPTCY OR OTHER PROCEEDING 75
SECTION 11.10 VOLUNTARY PETITIONS, ETC. 75
SECTION 11.11 COVENANTS 75
SECTION 11.12 OPERATING LEASES 76
<PAGE 5>
SECTION 11.13 FRANCHISE AGREEMENTS AND MANAGEMENT
AGREEMENTS 76
ARTICLE 12
REMEDIES
SECTION 12.1 REMEDIES - INSOLVENCY EVENTS 76
SECTION 12.2 REMEDIES - OTHER EVENTS 76
SECTION 12.3 LENDER'S RIGHT TO PERFORM THE OBLIGATIONS 77
SECTION 12.4 CROSS-DEFAULT; CROSS-COLLATERALIZATION;
WAIVER OF MARSHALLING OF ASSETS 78
ARTICLE 13
LIMITATIONS ON LIABILITY
SECTION 13.1 LIMITATION ON LIABILITY 79
SECTION 13.2 LIMITATION ON LIABILITY OF LENDER'S
OFFICERS,EMPLOYEES, ETC. 80
ARTICLE 14
SECURITIZATION
SECTION 14.1 SECURITIZATION 80
SECTION 14.2 SECURITIZATION INDEMNIFICATION 81
SECTION 14.3 SERVICER 84
ARTICLE 15
MISCELLANEOUS
SECTION 15.1 NOTICES 84
SECTION 15.2 AMENDMENTS AND WAIVERS 85
SECTION 15.3 LIMITATION ON INTEREST 85
SECTION 15.4 INVALID PROVISIONS 86
SECTION 15.5 REIMBURSEMENT OF EXPENSES 86
SECTION 15.6 APPROVALS; THIRD PARTIES; CONDITIONS 86
SECTION 15.7 LENDER NOT IN CONTROL; NO PARTNERSHIP 87
SECTION 15.8 TIME OF THE ESSENCE 87
SECTION 15.9 SUCCESSORS AND ASSIGNS 87
SECTION 15.10 RENEWAL, EXTENSION OR REARRANGEMENT 87
SECTION 15.11 WAIVERS 88
SECTION 15.12 CUMULATIVE RIGHTS; JOINT AND SEVERAL
LIABILITY 88
SECTION 15.13 SINGULAR AND PLURAL 88
SECTION 15.14 PHRASES 88
SECTION 15.15 EXHIBITS AND SCHEDULES 88
SECTION 15.16 TITLES OF ARTICLES, SECTIONS AND
SUBSECTIONS 88
SECTION 15.17 PROMOTIONAL MATERIAL 88
SECTION 15.18 SURVIVAL 89
SECTION 15.19 WAIVER OF JURY TRIAL 89
SECTION 15.20 WAIVER OF PUNITIVE OR CONSEQUENTIAL DAMAGES89
SECTION 15.21 GOVERNING LAW 89
SECTION 15.22 ENTIRE AGREEMENT 91
SECTION 15.23 COUNTERPARTS 91
SECTION 15.24 BROKERS AND FINANCIAL ADVISORS 91
SECTION 15.25 CONFLICTS 91
SECTION 15.26 LENDER ESTOPPELS 91
LIST OF EXHIBITS AND SCHEDULES
SCHEDULE I RELEASE AMOUNTS
SCHEDULE II REQUIRED REPAIRS
SCHEDULE III INTENTIONALLY OMITTED
SCHEDULE IV FRANCHISE AGREEMENTS
SCHEDULE V OPERATING LEASES
SCHEDULE VI FORM OF NONDISTURBANCE AGREEMENT
SCHEDULE VII TENANT ESTOPPEL CERTIFICATE AND AGREEMENT
SCHEDULE VIII FORM OF SNDA
SCHEDULE IX LITIGATION
SCHEDULE X MANAGER'S CONSENT AND SUBORDINATION OF
MANAGEMENT AGREEMENT
SCHEDULE XI MANAGEMENT AGREEMENTS
SCHEDULE XII MARRIOTT FRANCHISE AGREEMENTS
SCHEDULE XIII MARRIOTT OWNER AGREEMENTS
LOAN AGREEMENT
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This Loan Agreement (this "AGREEMENT") is entered into
as of November 3, 1998, between CMF CAPITAL COMPANY, LLC, a
Delaware limited liability company ("Lender"), and WINSTON SPE
LLC, a Virginia limited liability company ("BORROWER").
ARTICLE 1
CERTAIN DEFINITIONS
Section 1.1 CERTAIN DEFINITIONS. As used herein, the
following terms have the meanings indicated:
"ACCESS LAWS" has the meaning assigned in Section 10.13.
-----------
"ACCRUED INTEREST" has the meaning assigned in Section
----------------
2.3(b).
"ADJUSTED RATE" has the meaning assigned in Section
-------------
2.2.
"ADJUSTED RELEASE AMOUNT" shall mean for an Individual
-----------------------
Property the product of (a) the quotient obtained by dividing the
original Release Amount for such Individual Property by the sum
of the original Release Amount for all Properties, (b) the
outstanding principal balance of the Loan, and (c) and one
hundred twenty-five percent (125%).
"AFFILIATE" means (a) any corporation in which Borrower
---------
or any partner, shareholder, director, officer, member, or
manager of Borrower directly or indirectly owns or controls more
than ten percent (10%) of the beneficial interest, (b) any
partnership, joint venture or limited liability company in which
Borrower or any partner, shareholder, director, officer, member,
or manager of Borrower is a partner, joint venturer or member,
(c) any trust in which Borrower or any partner, shareholder,
director, officer, member or manager of Borrower is a trustee or
beneficiary, (d) any entity of any type which is directly or
indirectly owned or controlled by Borrower or any partner,
shareholder, director, officer, member or manager of Borrower,
(e) any partner, shareholder, director, officer, member, manager
or employee of Borrower, (f) any Person related by birth,
adoption or marriage to any partner, shareholder, director,
officer, member, manager, or employee of Borrower, and (g) any
Borrower Party.
"AGREEMENT" means this Loan Agreement, as amended from
---------
time to time.
"ANNUAL BUDGET" shall mean the operating budget,
-------------
including all planned capital expenditures, for all the
Properties prepared by Borrower or the Operating Lessee for the
applicable calendar year or other period.
"ANTICIPATED PAYMENT DATE" means December 1, 2008.
------------------------
"APPROVED ANNUAL BUDGET" has the meaning assigned in
----------------------
Section 2.3(h).
"ASSIGNMENT OF LEASES AND RENTS" means the Assignment
------------------------------
of Leases and Rents, executed by Borrower for the benefit of
Lender, and pertaining to leases of space in each Individual
Property and any amendments, modifications, renewals,
substitutions or replacement thereof.
"AWARD" has the meaning assigned in Section 5.2.
-----
"BANKRUPTCY PARTY" has the meaning assigned in Section
----------------
11.9.
"BASIC CARRYING COSTS" shall mean, with respect to an
--------------------
Individual Property, the sum of the following costs associated
with such Individual Property for the relevant calendar year or
payment period: (i) Taxes and (ii) Insurance Premiums.
"BORROWER PARTY" means any Joinder Party, any
--------------
guarantor, any general partner of Borrower if Borrower is a
partnership or a limited partnership, any general partner in any
partnership or limited partnership that is a general partner of
Borrower, any managing member of Borrower if Borrower is a
limited liability company, and any managing member in any limited
liability company that is a managing member of Borrower, at any
level.
"BROKER" means First American Realty Associates, Inc.
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"BUSINESS DAY" means a day other than a Saturday, a
------------
Sunday, or a legal holiday on which national banks located in the
States of New York and North Carolina are not open for general
banking business.
"CAPITAL EXPENDITURES" means, for any period, the
--------------------
amount expended for items capitalized under generally accepted
accounting principles (including expenditures for building
improvements or major repairs, leasing commissions and tenant
improvements).
"CASH EXPENSES" means, for any period, the operating
-------------
expenses for the operation of the Properties as set forth in an
Approved Annual Budget, to the extent that such expenses are
actually incurred by Borrower, minus any payments into the Tax
and Insurance Escrow Fund.
"CASH MANAGEMENT ACCOUNT" has the meaning assigned in
-----------------------
Section 3.5(a).
"CASH MANAGEMENT AGREEMENT" has the meaning assigned in
-------------------------
Section 2.3(i).
"CASUALTY CONSULTANT" has the meaning assigned in
-------------------
Section 5.3(b)(iii).
"CASUALTY RETAINAGE" has the meaning assigned in
------------------
Section 5.3(b)(iv).
"CLOSING DATE" means the date the Loan is funded by
------------
Lender.
"CODE" shall mean the Internal Revenue Code of 1986, as
----
amended, and as it may be further amended from time to time, any
successor statutes thereto, and applicable U.S. Department of
Treasury regulations issued pursuant thereto in temporary or
final form.
"CONDEMNATION" has the meaning assigned in Section 5.2.
------------
"CONDEMNATION PROCEEDS" has the meaning assigned in
---------------------
Section 5.3(b).
"CONTRACT RATE" has the meaning assigned in Section
-------------
2.2.
"DEBT" shall mean the outstanding principal amount set
----
forth in, and evidenced by, this Agreement and the Note, together
with all interest accrued and unpaid thereon and all other sums
(including the Yield Maintenance Premium) due to Lender in
respect of the Loan under the Note, this Agreement, the Mortgages
or any other Loan Document.
"DEBT SERVICE" means the aggregate interest, fixed
------------
principal, and other payments due under the Loan, and on any
other outstanding permitted Indebtedness approved by Lender for
the period of time for which calculated.
"DEBT SERVICE COVERAGE RATIO" shall mean a ratio for
---------------------------
the applicable period in which:
(a) the numerator is the Net Operating
Income for such period as set forth in the
statements required hereunder; and
(b) the denominator is the aggregate amount
of principal and interest due and payable on
the Note or, in the event that a Defeasance
Event has occurred, the Undefeased Note.
"DEBT SERVICE ESCROW FUND" has the meaning ascribed in
------------------------
Section 3.1 (c).
"DEFAULT RATE" means the lesser of (a) the maximum rate
------------
of interest allowed by applicable law, and (b) five percent (5%)
per annum in excess of the Contract Rate or the Adjusted Rate,
whichever is then in effect.
"DEFEASANCE DATE" has the meaning ascribed in Section
---------------
2.4(b)(i).
"DEFEASANCE DEPOSIT" shall mean an amount which is
------------------
sufficient to purchase U.S. Obligations or other government
securities (as defined in Section 2(a)(16) of the Investment
Company Act of 1940, as amended (15 U.S.C. 80a-1)), necessary to
meet the Scheduled Defeasance Payments as and when the same
become due and to pay any costs and expenses incurred or to be
incurred in the purchase thereof, and any revenue, documentary
stamp or intangible taxes or any other tax or charge due in
connection with the transfer of the Note or the Defeased Note, as
applicable, the creation of the Defeased Note and the Undefeased
Note, if applicable, or otherwise required to accomplish the
requirements of Sections 2.4 and 2.5 hereof.
"DEFEASANCE EVENT" has the meaning assigned in
----------------
Section 2.4(b).
"DEFEASED NOTE" has the meaning assigned in
-------------
Section 2.4(b)(v).
"ELIGIBLE ACCOUNT" shall mean a separate and
----------------
identifiable account from all other funds held by the holding
institution that is either (i) an account or accounts maintained
with a federal or state-chartered depository institution or trust
company which complies with the definition of Eligible
Institution or (ii) a segregated trust account or accounts
maintained with a federal or state chartered depository
institution or trust company acting in its fiduciary capacity
which, in the case of a state chartered depository institution or
trust company is subject to regulations substantially similar to
12 C.F.R. 9.10(b), having in either case a combined capital and
surplus of at least $50,000,000 and subject to supervision or
examination by federal and state authority. An Eligible Account
will not be evidenced by a certificate of deposit, passbook or
other instrument.
"ELIBIBLE INSTITUTION" shall mean a depository
--------------------
institution or trust company that satisfies the Rating Criteria.
"ENVIRONMENTAL LAWS" has the meaning assigned in
------------------
Section 6.1(a).
"ERISA" has the meaning assigned in Section 8.10(a).
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"EVENT OF DEFAULT" has the meaning assigned in
----------------
Article 11.
"EXTRAORDINARY EXPENSES" means an extraordinary
----------------------
operating expense or capital expense not set forth in an Approved
Annual Budget.
"FRANCHISE AGREEMENT" means, with respect to any
-------------------
Individual Property, that certain franchise agreement more
specifically identified on Schedule IV attached hereto.
"FRANCHISOR" means, with respect to any Individual
----------
Property which is subject to a Franchise Agreement, the
franchisor with respect thereto, as same is identified on
Schedule IV attached hereto.
"FUNDAMENTAL TRANSACTION" has the meaning assigned in
-----------------------
Section 10.1(c).
"FUNDS" means the Required Repair Fund, the Replacement
-----
Escrow Fund and the Debt Service Escrow Fund.
"GOVERNMENTAL AUTHORITY" shall mean any court, board,
----------------------
agency, commission, office or authority of any nature whatsoever
for any governmental unit (federal, state, county, district,
municipal, city or otherwise) whether now or hereafter in
existence.
"HAZARDOUS MATERIALS" has the meaning assigned in
-------------------
Section 6.1(b).
"HAZARDOUS MATERIALS INDEMNITY AGREEMENT" shall mean
---------------------------------------
that certain hazardous materials indemnity agreement dated the
date hereof by Borrower and Indemnitor in favor of Lender.
"IMPROVEMENTS" shall have the meaning assigned to such
------------
term in the related Mortgage with respect to each Individual
Property.
"INDEBTEDNESS" means, for any Person, without
------------
duplication: (a) all indebtedness of such Person for borrowed
money, for amounts drawn under a letter of credit, or for the
deferred purchase price of property for which such Person or its
assets is liable, (b) all unfunded amounts under a loan
agreement, letter of credit, or other credit facility for which
such Person would be liable, if such amounts were advanced under
the credit facility, (c) all amounts required to be paid by such
Person as a guaranteed payment to partners or a preferred or
special dividend, including any mandatory redemption of shares or
interests, (d) all indebtedness guaranteed by such Person,
directly or indirectly, (e) all obligations under leases that
constitute capital leases for which such Person is liable, and
(f) all obligations of such Person under interest rate swaps,
caps, floors, collars and other interest hedge agreements, in
each case whether such Person is liable contingently or
otherwise, as obligor, guarantor or otherwise, or in respect of
which obligations such Person otherwise assures a creditor
against loss.
"INDEMNITOR" shall mean REIT and Operating Partnership.
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"INDEPENDENT DIRECTOR" has the meaning assigned in
--------------------
Section 8.28(p).
"INDIVIDUAL PROPERTY" means each parcel of real
-------------------
property and the Improvements thereon encumbered by a Mortgage,
together with all rights pertaining to such property and
improvements, as more particularly described in the granting
clauses of each such Mortgage and referred to therein as the
"Property".
"INSOLVENCY OPINION" has the meaning assigned in
------------------
Section 8.28(r).
"INSURANCE PREMIUMS" has the meaning assigned in
------------------
Section 5.1(b).
"INSURANCE PROCEEDS" has the meaning assigned in
------------------
Section 5.3(b).
"JOINDER PARTY" means the Persons executing the Joinder
-------------
hereto.
"LEASE" shall mean, with respect to each Individual
-----
Property, all leases, subleases, occupancy agreements, licenses,
concessions, rental contracts and other agreements (written or
oral) entered into by Borrower or any Borrower Party, or to which
Borrower or any Borrower Party is a successor, now or hereafter
existing relating to the use or occupancy of the project located
on such Individual Property, including the Operating Lease,
together with all guarantees, letters of credit and other credit
support, modifications, extensions and renewals thereof, whether
before or after the filing by or against Borrower of any petition
of relief under 11 U.S.C. 101 et seq., and all related security
and other deposits.
"LEGAL REQUIREMENTS" shall mean, with respect to each
------------------
Individual Property, federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations,
ordinances, judgments, decrees and injunctions of Governmental
Authorities affecting such Individual Property or any part
thereof or the construction, use, alteration or operation
thereof, or any part thereof, whether now or hereafter enacted
and in force, and all permits, licenses and authorizations and
regulations relating thereto, and all covenants, agreements,
restrictions and encumbrances contained in any instruments,
either of record or known to Borrower, at any time in force
affecting such Individual Property or any part thereof,
including, without limitation, any which may (i) require repairs,
modifications or alterations in or to such Individual Property or
any part thereof, or (ii) in any way limit the use and enjoyment
thereof.
"LIABILITIES" has the meaning assigned in Section
-----------
14.2(b).
"LIEN" means, with respect to each Individual Property,
----
any interest, or claim thereof, in such Individual Property
securing an obligation owed to, or a claim by, any Person other
than the owner of such Individual Property, whether such interest
is based on common law, statute or contract, including the lien
or security interest arising from a deed of trust, mortgage,
assignment, encumbrance, pledge, security agreement, conditional
sale or trust receipt or a Lease, consignment or bailment for
security purposes. The term "Lien" shall include reservations,
exceptions, encroachments, easements, rights of way, covenants,
conditions, restrictions, Leases and other title exceptions and
encumbrances affecting such Individual Property.
"LOAN" means the loan made by Lender to Borrower under
----
this Agreement and all other amounts secured by the Loan
Documents.
"LOAN DOCUMENTS" means: (a) this Agreement, (b) the
--------------
Note, (c) the Mortgage for each Individual Property, (d) the
Assignment of Leases and Rents for each Individual Property,
(e) the Hazardous Materials Indemnity Agreement, (f) Uniform
Commercial Code financing statements, (g) the Cash Management
Agreement, (h) the Nondisturbance Agreement, (i) all other
documents evidencing, securing, governing or otherwise pertaining
to the Loan, and (j) all amendments, modifications, renewals,
substitutions or replacements of any of the foregoing.
"LOCKOUT YIELD MAINTENANCE PREMIUM" shall mean an
---------------------------------
amount equal to the greater of (a) one percent (1%) of the
outstanding principal amount of the Loan to be prepaid or
satisfied, as applicable, or (b) the Yield Maintenance Premium
that would be required if a Defeasance Event had occurred
(whether or not permitted under this Agreement) in an amount
equal to the outstanding principal amount of the Loan to be
satisfied or prepaid, as applicable; plus if the prepayment of
which the Lockout Yield Maintenance Premium is a part is not paid
on a Payment Date, the interest that would have accrued on the
Loan through the next Payment Date.
"MANAGEMENT AGREEMENT" means, with respect to any
--------------------
Individual Property, the management agreement, if any, entered
into by and between Borrower or Operating Lessee, as applicable,
and the Manager pursuant to which the Manager is to provide
management and other services with respect to said Individual
Property.
"MANAGER" means any manager of any Individual Property
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approved in accordance with the terms and provisions of the Loan
Documents.
"MATURITY DATE" means the earliest of (a) December 1,
-------------
2023; (b) any earlier date on which the entire Loan is required
to be paid in full, by acceleration or otherwise, under this
Agreement or any of the other Loan Documents; or (c) if the Loan
is not subject to a Securitization on the Anticipated Payment
Date, the Anticipated Payment Date.
"MONTHLY DEBT SERVICE PAYMENT AMOUNT" has the meaning
-----------------------------------
assigned in Section 2.3(a).
"MORTGAGE" means, with respect to each Individual
--------
Property, as applicable, the Mortgage, Assignment of Leases and
Rents, Security Agreement and Fixture Filing, the Deed of Trust,
Assignment of Leases and Rents, Security Agreement and Fixture
Filing, or the Deed to Secure Debt, Assignment of Leases and
Rents, Security Agreement and Fixture Filing, executed by
Borrower in favor of Lender, covering such Individual Property
and any amendments, modifications, renewals, substitutions or
replacement thereof.
"NET OPERATING INCOME" means the amount obtained by
--------------------
subtracting Operating Expenses and Capital Expenditures from
Operating Revenues.
"NET PROCEEDS" has the meaning assigned in Section
------------
5.3(b).
"NET PROCEEDS DEFICIENCY" has the meaning assigned in
-----------------------
Section 5.3(b)(vi).
"NONDISTURBANCE AGREEMENT" shall mean, for each
------------------------
Individual Property, that certain Nondisturbance, Subordination
and Attornment Agreement among Lender, Borrower and Operating
Lessee, substantially in the form attached hereto as Schedule VI,
(as such Nondisturbance Agreement may be amended to include any
revisions required by Lender in the event a different form of
Operating Lease than those currently in existence is entered into
by Operating Lessee).
"NOTE" means the Promissory Note of even date, in the
----
stated principal amount of Seventy-One Million and No/100 Dollars
($71,000,000), executed by Borrower, and payable to the order of
Lender in evidence of the Loan, as the same may hereafter be
modified, amended, restated, renewed or replaced and including
any Defeased Note and Undefeased Note that may exist from time to
time.
"OFFERING DOCUMENT" has the meaning assigned in Section
-----------------
14.2(a).
"OPERATING EXPENSES" means all reasonable and necessary
------------------
expenses of Borrower of operating the Properties in the ordinary
course of Borrower's business whether incurred, paid, accrued or
payable, as determined in accordance with GAAP and the Uniform
System of Accounts, by or on behalf of Borrower and which are
directly associated with and fairly allocable to the Properties
for the applicable period, including real estate taxes and
assessments, insurance premiums, maintenance costs, management
fees and costs in an amount equal to the greater of those
actually incurred or four percent (4%) of gross operating
revenues of the Properties, accounting, legal, and other
professional fees, fees relating to environmental and net cash
flow and audits, and other expenses incurred by Lender and
reimbursed by Borrower under this Agreement and the other Loan
Documents, deposits to the Replacement Escrow Fund, Tax and
Insurance Fund, wages, salaries, and personnel expenses of
Borrower, but excluding Debt Service, capital expenditures, any
of the foregoing expenses which are paid from deposits to cash
reserves previously included as Operating Expenses, any payment
or expense for which Borrower was or is to be reimbursed from
proceeds of the Loan or insurance or by any third party, and any
non-cash charges such as depreciation and amortization. Any
management fee or other expense payable to Borrower or to an
Affiliate of Borrower shall be included as an Operating Expense
only with Lender's prior approval. Operating Expenses shall not
include any expenses (including, without limitation, federal,
state or local income taxes or legal and other professional fees)
unrelated to the operation of the Properties.
"OPERATING LEASE" means, with respect to any Individual
---------------
Property, the lease agreement in effect between the Borrower and
the Operating Lessee for the use and operation of each Individual
Property and all amendments, modifications, renewals,
substitutions or replacements of each such lease. The initial
Operating Leases in effect as of the date hereof are identified
on Schedule V attached hereto.
"OPERATING LEASE RENT" shall mean all rents, revenues,
--------------------
issues, profits, income and proceeds due or to become due to
Borrower under the Operating Leases.
"OPERATING LESSEE" means, with respect to any
----------------
Individual Property which is subject to an Operating Lease, the
lessee with respect thereto. The initial Operating Lessees under
the Operating Leases in effect as of the date hereof are
identified on Schedule V attached hereto.
"OPERATING PARTNERSHIP" shall mean WINN Limited
---------------------
Partnership, a North Carolina limited partnership.
"OPERATING REVENUES" means all gross revenues of
------------------
Borrower from operation of the Properties or otherwise arising in
respect of the Properties which are properly allocable to the
Properties for the applicable period, including Rent, Operating
Lease Rent and other receipts from Leases and parking agreements,
concession fees and charges and other miscellaneous operating
revenues and also including amounts designated as deffered
revenues under Rule 98-9 of the Internal Revenue Service Emerging
Issues Task Force, but excluding security deposits and earnest
money deposits until they are forfeited by the depositor, advance
rentals until they are earned, and proceeds from a sale or other
disposition. Operating Revenues shall not include (a) any
condemnation or insurance proceeds, other than the proceeds of
any business interruption or loss of income insurance received by
Borrower, (b) any proceeds resulting from the sale, exchange,
transfer, financing or refinancing of all or any part of the
Properties, (c) any rent accrued by Borrower but not received
because of any free rent provisions or other rental concessions
in any Lease, (d) any repayments received from tenants of
principal loaned or advanced to tenants by Borrower, (e) any
payments due pursuant to the terms of any Lease in connection
with the cancellation or termination of a Lease, (f) investment
income on any reserves or funds not related to the normal
operation of the Properties, including, without limitation, funds
allocated to pay for construction expenses or (g) any type of
income other than Operating Lease Rent that would otherwise be
considered Operating Revenues pursuant to the provisions above
but is paid directly by any tenant to a Person or entity other
than Borrower.
"PAYMENT DATE" shall mean the first day of each
------------
calendar month commencing on the first day of January, 1999.
"PERMITTED ENCUMBRANCES" means outstanding liens,
----------------------
easements, restrictions, security interests and other exceptions
to title set forth in the policies of title insurance insuring
the liens of the Mortgages, together with (i) the liens and
security interests in favor of Lender created by the Loan
Documents and (ii) any other encumbrances that Borrower is
permitted to enter into pursuant to Section 8.28(d)(iii) hereof.
"PERSON" means any individual, corporation,
------
partnership, joint venture, association, joint stock company,
trust, trustee, estate, limited liability company, unincorporated
organization, real estate investment trust, government or any
agency or political subdivision thereof, or any other form of
entity.
"PERSONALTY" shall have the meaning assigned to such
----------
term in the related Mortgage with respect to each Individual
Property.
"POLICIES" has the meaning assigned in Section 5.1(b).
--------
"POLICY" has the meaning assigned in Section 5.1(b).
------
"POTENTIAL DEFAULT" means the occurrence of any event
-----------------
or condition which, with the giving of notice, the passage of
time, or both, would constitute an Event of Default.
"PROPERTIES" means, collectively, all of the Individual
----------
Properties which are subject to the terms of this Agreement.
"QUALIFIED MANAGER" means a Manager that is (or is
-----------------
controlled by, controlling or under common control with) either
(a) an entity owned by the executive management of the REIT
immediately prior to the applicable Fundamental Transaction, or
(b) a professional management company which at the time of its
engagement as Manager shall be the property manager for at least
ten (10) hotel properties containing at least one thousand three
hundred (1,300) rooms exclusive of the Properties.
"QUALIFIED OPERATING LESSEE" means a Person that (a) is
--------------------------
(or is controlled by, controlling or under common control with)
either (i) an entity owned by the executive management of the
REIT immediately prior to the applicable Fundamental Transaction,
or (ii) a hotel operating company which at the time of its
engagement as Operating Lessee shall be operating and
controlling, as owner, manager or operating lessee, at least
twelve (12) hotel properties consisting of at least one thousand
five hundred (1,500) rooms exclusive of the Properties, and (b)
is a single purpose bankruptcy-remote entity in accordance with
the then-current standards of the Rating Agencies.
"QUALIFIED RESULTANT OWNER" means one or more Persons
-------------------------
which, individually or collectively, own at least fifty-one
percent (51%) of the beneficial interest in and control of the
REIT or the Operating Partnership, as applicable; and (1)(a) is
or is controlled by either a pension fund, pension fund advisor,
an insurance company, a domestic bank (with total assets of at
least One Billion Dollars ($1,000,000,000)), or a publicly or
privately traded real estate investment trust or other publicly
traded or privately held company, (b) has a then current net
worth of at least One Hundred Million Dollars ($100,000,000) and
total real estate assets of at least Two Hundred Million Dollars
($200,000,000), in each case exclusive of the Properties (or in
the case of a pension fund advisor, controls at least Five
Hundred Million ($500,000,000) in real estate assets), and (c)
controls (exclusive of the Properties) at least ten (10) hotel
properties containing in the aggregate at least one thousand
three hundred (1,300) rooms and (2) if the Fundamental
Transaction occurs at any time that the Loan is not part of a
Securitization, (x) such Person(s) are not and have not been,
within the previous ten (10) years, subject to any material,
uncured event of default which resulted in litigation or an
acceleration of any indebtedness under any agreement with Lender,
(y) such Person(s) are not subject to any bankruptcy action and
(z) the principals or entities which control such Person(s) have
never been convicted of a felony.
"RATING AGENCIES" means (i) prior to a Securitization,
---------------
each of Standard & Poor's Ratings Group, a division of McGraw-
Hill, Inc. and Moody's Investors Service, Inc. and (ii) following
a Securitization, each of the following agencies who rate the
Securities issued in one or more Securitizations of which the
Loan is a part: Standard & Poor's Ratings Group, a division of
McGraw-Hill, Inc., Moody's Investors Service, Inc., Duff & Phelps
Credit Rating Co. and Fitch IBCA Inc., or any other nationally-
recognized statistical rating agency which has been approved by
Lender.
"RATING CRITERIA" with respect to any Person, shall
---------------
mean the short term unsecured debt obligations or commercial
paper which are rated at least A-1 by Standard & Poor's Ratings
Group, P-1 by Moody's Investors Service, Inc., D-1 by Duff &
Phelps Credit Rating Co. and F-1+ by Fitch IBCA, Inc. in the case
of accounts in which funds are held for 30 days or less (or, in
the case of accounts in which funds are held for more than 30
days, the long term unsecured debt obligations of which are rated
at least "AA-" by Fitch, Duff and Standard & Poor's and "Aa3" by
Moody's).
"REGISTRATION STATEMENT" has the meaning assigned in
----------------------
Section 14.2(b).
"REIT" shall mean Winston Hotels, Inc., a North
----
Carolina corporation.
"RELEASE AMOUNT" means, for an Individual Property, the
--------------
amount set forth on Schedule I attached hereto.
"RELEASE DATE" shall mean the earlier of (i) the date
------------
that is two (2) years from the "startup day" within the meaning
of Section 860G(a)(9) of the Code of the REMIC Trust or (iii)
three (3) years from the date hereof.
"REMIC TRUST" shall mean a "real estate mortgage
-----------
investment conduit" within the meaning of Section 860D of the
Code that holds the Note.
"RENT" shall mean all rents, revenues, issues, profits,
----
income and proceeds due or to become due from tenants of the
Properties, including rentals and all other payments of any kind
under the Leases and Operating Leases for using, leasing,
licensing, possessing, operating from, rendering in, selling or
otherwise enjoying the Properties including, without limitation,
all hotel receipts, revenues and credit card receipts collected
from guest rooms, restaurants, bars, meeting rooms, banquet rooms
and recreational facilities, all receivables, customer
obligations, installment payment obligations and other
obligations now existing or hereafter arising or created out of
the sale, lease, sublease, license, concession or other grant of
the right of the use and occupancy of property or rendering of
services by Borrower, any Operating Lessee or any operator or
manager of the hotel or the commercial space located in the
Improvements or acquired from others (including, without
limitation, from the rental of any office space, retail space,
guest rooms or other space, halls, stores, and offices, and
deposits securing reservations of such space), license, lease,
sublease and concession fees and rentals, health club membership
fees, food and beverage wholesale and retail sales, service
charges, vending machine sales and proceeds, if any, from
business interruption or other loss of income insurance.
"REPLACEMENT ESCROW FUND" has the meaning assigned in
-----------------------
Section 3.1(b).
"REQUIRED REPAIR FUND" has the meaning assigned in
--------------------
Section 3.1(a).
"RESTORATION" shall mean the repair and restoration of
-----------
an Individual Property after a casualty or Condemnation as nearly
as possible to the condition the Individual Property was in
immediately prior to such casualty or Condemnation, with such
alterations as may be reasonably approved by Lender.
"SCHEDULED DEFEASANCE PAYMENTS" has the meaning
-----------------------------
assigned in Section 2.4(c).
"SECURITIES" has the meaning assigned in Section 14.1.
----------
"SECURITIES ACT" has the meaning assigned in Section
--------------
14.2.
"SECURITIZATION" has the meaning assigned in Section
--------------
14.1.
"SECURITIZATION INFORMATION" has the meaning assigned
--------------------------
in Section 14.1(a)(iii).
"SECURITY AGREEMENT" has the meaning assigned in
------------------
Section 2.4(b)(v).
"SERVICER" has the meaning assigned in Section 14.3.
--------
"SERVICING AGREEMENT" has the meaning assigned in
-------------------
Section 14.3.
"SEVERED LOAN DOCUMENTS" has the meaning assigned in
----------------------
Section 12.2(c).
"SINGLE PURPOSE ENTITY" shall mean a Person (other than
---------------------
an individual, a government or any agency or political
subdivision thereof), which exists solely for the purpose of
owning the Properties, observes corporate, company or partnership
formalities, as applicable, independent of any other Person, and
which otherwise complies with the covenants set forth in Section
8.28 hereof.
"SITE ASSESSMENT" means an environmental engineering
---------------
report for each Individual Property prepared at Borrower's
expense by an engineer engaged by Borrower and approved by
Lender, and in a manner satisfactory to Lender, based upon an
investigation relating to and making appropriate inquiries
concerning the existence of Hazardous Materials on or about each
such Individual Property, and the past or present discharge,
disposal, release or escape of any such substances, all
consistent with ASTM Standard E1527-93 or any successor thereto
published by ASTM and good customary and commercial practice.
"SPC PARTY" has the meaning assigned in 8.28(o).
---------
"SUBSTITUTE PROPERTIES" has the meaning assigned in
---------------------
Section 2.6.
"SUBSTITUTE PROPERTY" has the meaning assigned in
-------------------
Section 2.6.
"SUBSTITUTED PROPERTY" has the meaning assigned in
--------------------
Section 2.6.
"SUBSTITUTE RELEASE AMOUNT" has the meaning assigned in
-------------------------
Section 2.6.
"SUCCESSOR" has the meaning assigned in Section
---------
10.1(c).
"SUCCESSOR BORROWER" has the meaning assigned in
------------------
Section 2.5(c).
"TAX AND INSURANCE ESCROW FUND" has the meaning
-----------------------------
assigned in Section 5.4.
"TAXES" has the meaning assigned in Section 10.2.
-----
"THRESHOLD AMOUNT" has the meaning assigned in Section
----------------
10.12.
"TRANSFEREE" has the meaning assigned in Section
----------
10.1(d)(ii).
"TREASURY RATE" shall mean, as of the Anticipated
-------------
Payment Date, the yield, calculated by linear interpolation
(rounded to the nearest one-thousandth of one percent (i.e.,
0.001%) of the yields of noncallable United States Treasury
obligations with terms (one longer and one shorter) most nearly
approximating the period from such
date of determination to the Maturity Date, as determined by
Lender on the basis of Federal Reserve Statistical Release
H.15-Selected Interest Rates under the heading U.S. Governmental
Security/Treasury Constant Maturities, or other recognized source
of financial market information selected by Lender.
"UNDEFEASED NOTE" has the meaning assigned in Section
---------------
2.4(b)(v).
"U.S. OBLIGATIONS" shall mean direct non-callable
----------------
obligations of the United States of America.
"YIELD MAINTENANCE PREMIUM" shall mean the amount (if
-------------------------
any) which, when added to the remaining principal amount of the
Note or the principal amount of the Defeased Note, as applicable,
will be sufficient to purchase U.S. Obligations providing the
required Scheduled Defeasance Payments.
ARTICLE 2
LOAN TERMS
----------
SECTION 2.1 THE LOAN. Lender agrees to make a Loan of
--------
SEVENTY-ONE MILLION AND NO/100 DOLLARS ($71,000,000) to Borrower,
which shall be funded in one advance and repaid in accordance
with the terms of this Agreement and the Note. Borrower hereby
agrees to accept the Loan on the Closing Date, subject to and
upon the terms and conditions set forth herein.
SECTION 2.2 INTEREST RATE. From the date hereof
-------------
through but not including the Anticipated Payment Date, the
outstanding principal balance of the Loan shall bear interest at
a rate of interest equal to seven and three hundred seventy-five
one-thousandths percent (7.375%) per annum (the "CONTRACT RATE").
From and after the Anticipated Payment Date through and including
the Maturity Date, the outstanding principal balance of the Loan
shall bear interest at a rate per annum equal to the greater of
(i) the Contract Rate plus three percentage points (3%) or (ii)
the Treasury Rate plus three percentage points (3%) (the
"ADJUSTED RATE"); provided, however, if after the Anticipated
-------- -------
Payment Date at any time the Loan is not subject to a
Securitization, such Adjusted Rate shall be increased two
percentage points (2%) per annum for so long as the Loan is not
subject to a Securitization.
SECTION 2.3 TERMS OF PAYMENT.
----------------
(a) INTEREST AND PRINCIPAL. The Loan shall be payable
----------------------
as follows: (i) payment of interest only (computed at the
Contract Rate) on the date hereof for the period from the date
hereof through the last day of the current month (unless the
Closing Date is the first day of a calendar month, in which case
no such interest is due); and (ii) thereafter, a constant payment
of $518,924.55 (the "MONTHLY DEBT SERVICE PAYMENT AMOUNT") due
and payable on the first day of January, 1999 and on each Payment
Date thereafter; each of such payments, to be applied (A) to the
payment of interest computed at the Contract Rate and (B) the
balance applied toward reduction of the principal sum. The constant
payment required hereunder is calculated to pay the entire
principal sum over a twenty-five (25) year amortization
schedule.
(b) To the extent the Loan is outstanding, from and
after the Anticipated Payment Date interest shall accrue on the
unpaid principal balance from time to time outstanding on the
Loan at the Adjusted Rate. Borrower shall continue to make
payments of principal and interest in monthly installments
beginning on the Anticipated Payment Date and on the first day of
each calendar month thereafter up to and including the Maturity
Date in an amount equal to the Monthly Debt Service Payment
Amount and, notwithstanding the following provision with respect
to Accrued Interest, the failure to make any such payment within
the time period required pursuant to Section 11.1 shall
constitute an Event of Default. Each Monthly Debt Service
Payment Amount paid after the Anticipated Payment Date shall be
applied to the payment of interest computed at the Contract Rate
with remainder applied to reduce the outstanding principal
balance of the Loan in accordance with Section 2.3(a) above.
Interest accrued at the Adjusted Rate and not paid shall be
deferred and added to the Debt and shall earn interest at the
Adjusted Rate to the extent permitted by applicable law (such
accrued interest is hereinafter defined as "ACCRUED INTEREST").
In addition to such payments of principal and interest, from and
after the Anticipated Payment Date, Borrower shall make payments
in reduction of the outstanding principal balance of the Loan and
accrued interest in monthly installments beginning on the
Anticipated Payment Date and on the first day of each calendar
month thereafter up to and including the Maturity Date in
accordance with the terms and provisions of Section 3.5 below.
(c) MATURITY. On the Maturity Date, Borrower shall
--------
pay to Lender all outstanding principal, accrued and unpaid
interest (including Accrued Interest, if any), default interest,
late charges and any and all other amounts due under the Loan
Documents.
(d) DEFAULT RATE. From and after the occurrence and
------------
during the continuation of an Event of Default, Lender shall be
entitled to receive and Borrower shall pay to Lender interest on
the entire unpaid principal sum and any other amounts due at the
Default Rate. Interest at the Default Rate shall be computed
from the occurrence of the Event of Default until the earliest of
(i) Lender's express written waiver of such Event of Default,
(ii) Lender's express written acceptance of Borrower's cure of
such Event of Default or (iii) the actual receipt and collection
of the Debt (or that portion thereof that is then due). Interest
at the Default Rate shall be added to the Debt and shall be
secured by the Mortgages. This section, however, shall not be
construed as an agreement or privilege to extend the date of the
payment of the Debt, nor as a waiver of any other right or remedy
accruing to Lender by reason of the occurrence of any Event of
Default.
(e) MAKING OF PAYMENTS. Each payment by Borrower
------------------
hereunder or under the Note shall be made in funds settled
through the New York Clearing House Interbank Payments System or
other funds immediately available to Lender by 1:00 p.m., New
York City time, on the date such payment is due, to Lender by
deposit to such account as Lender may designate by written notice
to Borrower. Whenever any payment hereunder or under the
Note shall be stated to be due on a day which is not a Business Day,
such payment shall be made on the first Business Day thereafter.
(f) COMPUTATIONS. Interest payable hereunder or under
------------
the Note by Borrower shall be computed on the basis of a 360-day
year consisting of twelve (12) months of thirty (30) days each
except that interest due and payable for a period less than a
full month shall be calculated by multiplying the actual number
of days elapsed in such period by a daily rate based on said 360-
day year.
(g) LATE PAYMENT CHARGE. If any principal, interest
-------------------
or any other sums due under the Loan Documents is not paid by
Borrower within five (5) days of (and including) the date it is
due, Borrower shall pay to Lender upon demand an amount equal to
the lesser of five percent (5%) of such unpaid sum or the maximum
amount permitted by applicable law in order to defray the expense
incurred by Lender in handling and processing such delinquent
payment and to compensate Lender for the loss of the use of such
delinquent payment. Any such amount shall be secured by the
Mortgages and the other Loan Documents.
(h) ANNUAL BUDGET. (a) For the partial year period
-------------
commencing on the date hereof, and for each calendar year
thereafter, Borrower shall submit or cause Operating Lessees to
submit to the Lender an Annual Budget not later than sixty (60)
days prior to the commencement of such period or calendar year in
form reasonably satisfactory to Lender. The Annual Budget
submitted for the calendar year in which the Anticipated Payment
Date occurs and for each calendar year thereafter shall be
subject to Lender's written approval (each such Annual Budget as
approved by Lender, an "APPROVED ANNUAL BUDGET"); provided,
however, that, notwithstanding anything contained in this Section
2.3(h) to the contrary, the Annual Budget for the calendar year
in which the Anticipated Payment Date occurs shall not be subject
to Lender's written approval until and unless the Debt is not
repaid in full on the Anticipated Payment Date. In the event
that Lender objects to a proposed Annual Budget submitted by
Borrower or Operating Lessees which requires Lender's approval,
Lender shall advise Borrower and/or Operating Lessees of such
objections within thirty (30) days after receipt thereof (and
deliver to such party a reasonably detailed description of such
objections) and Borrower shall revise, or shall cause Operating
Lessees to revise, such Annual Budget and resubmit the same to
Lender. Lender shall advise Borrower of any objections to such
revised Annual Budget within ten (10) days after receipt thereof
(and deliver to such party a reasonably detailed description of
such objections) and Borrower shall promptly revise, or cause
Operating Lessees to revise, the same in accordance with the
process described in this subsection until Lender approves the
Annual Budget. Until such time that Lender approves a proposed
Annual Budget, the most recently Approved Annual Budget shall
apply; provided that, such Approved Annual Budget shall be
adjusted to reflect actual increases in real estate taxes,
insurance premiums and utilities expenses.
(i) CASH MANAGEMENT AGREEMENT. Simultaneously with
-------------------------
the execution hereof Borrower has entered into a lockbox
agreement and a cash management agreement among Borrower, Lender,
any Manager and one or more certain financial institutions
(together with any modifications or amendments thereof, are
hereinafter collectively referred to as the
"CASH MANAGEMENT AGREEMENT"), which provide, among other things,
that all Operating Revenues and other sums collected from, or
arising with respect to, the Properties be deposited in
accordance with the Cash Management Agreement and that such
amounts shall be disbursed in accordance with Section 3.5 hereof.
Borrower shall pay all costs and expenses required under the
Cash Management Agreement. Subject to Section 3.2, upon the
occurrence and during the continuation of an Event of Default,
Lender may apply any sums then held pursuant to the Cash
Management Agreement to the payment of the Debt in any order in
its sole discretion. Until expended or applied, amounts held
pursuant to the Cash Management Agreement shall constitute
additional security for the Debt.
SECTION 2.4 PREPAYMENT; DEFEASANCE.
----------------------
(a) PREPAYMENT. Borrower shall repay any outstanding
----------
principal indebtedness of the Loan in full on the Maturity Date,
together with accrued and unpaid interest thereon to (but
excluding) the date of repayment. Other than as set forth in
this Section 2.4, Borrower shall have no right to prepay all or
any portion of the Loan prior to the Anticipated Payment Date.
On any scheduled Payment Date occurring no earlier than ninety
(90) days prior to the Anticipated Payment Date, Borrower may, at
its option and upon thirty (30) days prior written notice from
Borrower to Lender, prepay in whole or in part the Debt without
payment of any premium. Any such payment shall be applied to the
last payments of principal and interest due under the Loan. Each
voluntary prepayment after the Anticipated Payment Date shall be
made on a scheduled Payment Date and include all accrued and
unpaid interest up to but not including such scheduled Payment
Date or, if not paid on a scheduled Payment Date, include
interest that would have accrued on such prepayment through the
next regularly scheduled Payment Date. If more than sixty (60)
days prior to the Anticipated Payment Date and during the
continuation of any Event of Default, Borrower shall tender
payment of an amount sufficient to satisfy all or any portion of
the Debt, such tender by Borrower shall be deemed to be voluntary
and may be accepted or rejected by Lender in its sole discretion.
If Lender accepts such tender, Borrower shall pay, in addition to
the Debt, the Lockout Yield Maintenance Premium.
(b) VOLUNTARY DEFEASANCE OF THE LOAN. Provided no
--------------------------------
Event of Default exists and is continuing, at any time after the
Release Date and prior to the Anticipated Payment Date Borrower
may voluntarily defease all or any portion of the Loan by
providing Lender with U.S. Obligations that produce payments
which replicate the Scheduled Defeasance Payments (hereinafter, a
"DEFEASANCE EVENT"). Each Defeasance Event by Borrower shall be
subject to the satisfaction of the following conditions
precedent:
(i) Borrower shall provide not less than thirty
(30) days prior written notice to Lender specifying the Payment
Date (the "DEFEASANCE DATE") on which the Defeasance Event is to
occur. Such notice shall indicate the principal amount of the
Note to be defeased;
(ii) Borrower shall pay to Lender all accrued and
unpaid interest on the principal balance of the Note to but not
including the Defeasance Date. If for any reason
the Defeasance Date is not a Payment Date, Borrower shall also
pay interest that would have accrued on the Note through the
next Payment Date;
(iii) Borrower shall pay to Lender all other
sums, not including scheduled interest or principal payments, due
under the Note, this Agreement, the Mortgage, and the other Loan
Documents;
(iv) Borrower shall pay to Lender the required
Defeasance Deposit for the Defeasance Event;
(v) In the event only a portion of the Loan is
the subject of the Defeasance Event, Borrower shall prepare all
necessary documents to amend and restate the Note and issue two
substitute notes, one note having a principal balance equal to
the defeased portion of the original Note (the "DEFEASED NOTE")
and the other note having a principal balance equal to the
undefeased portion of the Note (the "UNDEFEASED NOTE"). The
Defeased Note and Undefeased Note shall have identical terms as
the Note except for the principal balance. A Defeased Note
cannot be the subject of any further Defeasance Event;
(vi) Borrower shall execute and deliver a security
agreement, in form and substance satisfactory to Lender, creating
a first priority lien on the Defeasance Deposit and the U.S.
Obligations purchased with the Defeasance Deposit in accordance
with this provision of this Section 2.4 (the "SECURITY
AGREEMENT");
(vii) Borrower shall deliver an opinion of
counsel for Borrower in form satisfactory to Lender in its sole
discretion stating, among other things, that Borrower has legally
and validly transferred and assigned the U.S. Obligations and all
obligations, rights and duties under and to the Note or Defeased
Note (as applicable) to the Successor Borrower, that Lender has a
perfected first priority security interest in the Defeasance
Deposit and the U.S. Obligations delivered by Borrower, and that
any REMIC Trust formed pursuant to a Securitization will not fail
to maintain its status as a "real estate mortgage investment
conduit" within the meaning of Section 860D of the Code as a
result of such Defeasance Event;
(viii) Borrower shall deliver evidence in
writing from the applicable Rating Agencies to the effect that
such release will not result in a downgrading, withdrawal or
qualification of the respective ratings in effect immediately
prior to such Defeasance Event for the Securities issued in
connection with the Securitization which are then outstanding.
If required by the applicable Rating Agencies, Borrower shall
also deliver or cause to be delivered a non-consolidation opinion
with respect to the Successor Borrower in form and substance
satisfactory to Lender and the applicable Rating Agencies;
(ix) Borrower shall deliver an Officer's
Certificate certifying that the requirements set forth in this
Section 2.4(b) have been satisfied;
(x) Borrower shall deliver a certificate of a
"Big Six" or other nationally recognized public accounting firm,
acceptable to Lender certifying that the U.S.
Obligations purchased with the Defeasance Deposit generate monthly
amounts equal to or greater than the required scheduled Defeasance
Payments;
(xi) Borrower shall deliver such other
certificates, documents or instruments as Lender may reasonably
request; and
(xii) Borrower shall pay all costs and
expenses of Lender incurred in connection with the Defeasance
Event, including any costs and expenses associated with a release
of the lien of the Mortgage as provided in Section 2.5 hereof as
well as reasonable attorneys' fees and expenses.
(c) In connection with each Defeasance Event, Borrower
hereby appoints Lender as its agent and attorney-in-fact for the
purpose of using the Defeasance Deposit to purchase U.S.
Obligations which provide payments on or prior to, but as close
as possible to, all successive scheduled payment dates after the
Defeasance Date upon which interest and principal payments are
required under the Note, in the case of a Defeasance Event for
the entire outstanding principal balance of the Loan, or the
Defeased Note, in the case of a Defeasance Event for only a
portion of the outstanding principal balance of the Loan, as
applicable, and in amounts equal to the scheduled interest and
principal payments due on such dates under the Note or the
Defeased Note, as applicable, and assuming such Note or Defeased
Note is prepaid in full on the Anticipated Payment Date (the
"SCHEDULED DEFEASANCE PAYMENTS"). Borrower, pursuant to the
Security Agreement or other appropriate document, shall authorize
and direct that the payments received from the U.S. Obligations
may be made directly to the Cash Management Account (unless
otherwise directed by Lender) and applied to satisfy the
obligations of Borrower under the Note or the Defeased Note, as
applicable. Any portion of the Defeasance Deposit in excess of
the amount necessary to purchase the U.S. Obligations required by
this Section 2.4 and satisfy Borrower's obligations under this
Section 2.4 and Section 2.5 shall be remitted to Borrower.
SECTION 2.5 RELEASE OF PROPERTY. Except as set forth
-------------------
in this Section 2.5, no repayment, prepayment or defeasance of
all or any portion of the Note shall cause, give rise to a right
to require, or otherwise result in, the release of the lien of
the Mortgage on any Individual Property.
(a) RELEASE OF ALL THE PROPERTIES. (i) If
-----------------------------
Borrower has elected to defease the entire Note and the
requirements of Section 2.4 have been satisfied, all of the
Properties shall be released from the liens of their respective
Mortgages and the U.S. Obligations pledged pursuant to the
Security Agreement shall be the sole source of collateral
securing the Note.
(ii)In connection with the release of the liens,
Borrower shall submit to Lender, not less than thirty (30) days
prior to the Defeasance Date, an instrument releasing the lien
(and related Loan Documents) for each Individual Property for
execution by Lender. Such release shall be in a form appropriate
in each jurisdiction in which an Individual Property is located
and satisfactory to Lender in its reasonable discretion. In
addition, Borrower shall provide all other documentation Lender
reasonably requires to be delivered by Borrower in
connection with such release, together with an Officer's Certificate
certifying that such documentation (A) is in compliance with all
Legal Requirements, and (B) will effect such releases in
accordance with the terms of this Agreement.
(b) RELEASE OF INDIVIDUAL PROPERTIES. Borrower
--------------------------------
on one or more occasions may obtain (i) the individual release of
an Individual Property from the lien of the Mortgage thereon (and
related Loan Documents) and (ii) the release of Borrower's
obligations under the Loan Documents with respect to such
Individual Property (other than those expressly stated to survive
including those set forth in the Hazardous Materials Indemnity
Agreement), upon satisfaction of each of the following
conditions:
(i) The principal balance of the Defeased Note
shall equal or exceed the Adjusted Release Amount for the
applicable Individual Property; provided, however, if the
outstanding principal balance of the Undefeased Note is less than
the Adjusted Release Amount for the Individual Property to be
released, the Defeased Note shall be in an amount equal to the
outstanding principal balance of the Undefeased Note.
(ii) The requirements of Section 2.4 (including
Section 2.4(b)(viii)) have been satisfied.
(iii) Lender shall have received (A) a copy of
a deed conveying all of Borrower's right, title and interest in
and to the Individual Property (x) to an entity other than
Borrower or its general partner or managing member (as
applicable) in an arms' length transaction or (y) to the REIT or
the Operating Partnership and (B) a letter from Borrower
countersigned by a title insurance company acknowledging receipt
of such deed and agreeing to record such deed in the real estate
records for the county in which the Individual Property is
located. In the event the Individual Property is to be conveyed
to the REIT or the Operating Partnership, Lender shall also have
received (a) a copy of a fully executed contract of sale between
the REIT or the Operating Partnership, as applicable, and an
entity other than Borrower or a Borrower Party for the sale of
the Individual Property in an arms' length transaction, which
contract of sale (i) at the time of release, is not subject to
any contingencies, except for the payment of the purchase price
by the purchaser and the delivery of title by the REIT or the
Operating Partnership, as applicable and (ii) contains a closing
date which is not more than thirty (30) days following the date
of the proposed substitution and (b) evidence that any good-faith
deposit required under such contract of sale has been deposited
into escrow.
(iv) Borrower shall submit to Lender, not less
than thirty (30) days prior to the date of such release, an
instrument releasing the lien (and related Loan Documents) for
such Individual Property for execution by Lender. Such release
shall be in a form appropriate in each jurisdiction in which the
Individual Property is located and satisfactory to Lender in its
sole discretion. In addition, Borrower shall provide all other
documentation Lender reasonably requires to be delivered by
Borrower in connection with such release, together with an
Officer's Certificate certifying that such documentation (i) is
in compliance with all Legal Requirements, (ii) will effect such
release in accordance with the terms of this Agreement, and (iii)
will not impair or otherwise adversely affect the liens, security
interests and other rights of Lender under the Loan Documents not
being released (or as to the parties to the Loan Documents and
Properties subject to the Loan Documents not being released).
(v) After giving effect to such release, the Debt
Service Coverage Ratio for all of the Properties then remaining
subject to the liens of the Mortgages shall be equal to the
greater of (i) the Debt Service Coverage Ratio for the twelve
(12) full calendar months immediately preceding the Closing Date,
and (ii) the Debt Service Coverage Ratio for all of the then
remaining Properties (including the Individual Property to be
released) for the twelve (12) full calendar months immediately
preceding the release of the Individual Property.
(c) SUCCESSOR BORROWER. In connection with any
------------------
release of a lien under this Section 2.5, Borrower may, or at the
request of Lender shall, establish or designate a successor
entity (the "SUCCESSOR BORROWER"), which shall be a single
purpose bankruptcy remote entity approved by Lender, and Borrower
shall transfer and assign all obligations, rights and duties
under and to the Note or the Defeased Note, as applicable,
together with the pledged U.S. Obligations to such Successor
Borrower. Such Successor Borrower shall assume the obligations
under the Note or the Defeased Note, as applicable, and the
Security Agreement and Borrower shall be relieved of its
obligations under such documents. Borrower shall pay $1,000 to
any such Successor Borrower as consideration for assuming the
obligations under the Note or the Defeased Note, as applicable,
and the Security Agreement. Notwithstanding anything in this
Agreement to the contrary, no other assumption fee shall be
payable upon a transfer of the Note or the Defeased Note, as
applicable, in accordance with this Section 2.5, but Borrower
shall pay all costs and expenses incurred by Lender, including
Lender's attorneys' fees and expenses, incurred in connection
therewith.
SECTION 2.6 SUBSTITUTION OF PROPERTIES. Subject to the
--------------------------
terms and conditions set forth in this Section 2.6, Borrower may
obtain a release of the lien of a Mortgage (and the related Loan
Documents) encumbering an Individual Property (a "SUBSTITUTED
PROPERTY") by substituting therefor its fee interest in another
hotel property of like kind and quality acquired by Borrower
(individually, a "SUBSTITUTE PROPERTY" and collectively, the
"SUBSTITUTE PROPERTIES"), provided that no such substitution may
occur after the Anticipated Payment Date. In addition, any such
substitution shall be subject, in each case, to the satisfaction
of the following conditions precedent:
(i) Lender shall have received (A) a copy of a deed conveying
all of Borrower's right, title and interest in and to the
Substituted Property (x) to an entity other than Borrower or its
general partner or managing member (as applicable) in an arms'
length transaction or (y) to the REIT or the Operating
Partnership and (B) a letter from Borrower countersigned by a
title insurance company acknowledging receipt of such deed and
agreeing to record such deed in the real estate records for the
county in which the Substituted Property is located. In the
event the Substituted Property is to be conveyed to the REIT or
the Operating Partnership, Lender shall also have received (a) a
copy of a fully executed contract of sale between the REIT or the
Operating Partnership, as applicable, and an entity other than
Borrower or a Borrower Party for the sale of the Substituted
Property in an arms' length transaction, which contract of sale
(i) at the time of substitution, is not subject to any
contingencies, except for the payment of the purchase price by
the purchaser and the delivery of title by the REIT or the
Operating Partnership, as applicable and (ii) contains a closing
date which is not more than thirty (30) days following the date
of the proposed substitution and (b) evidence that any good-faith
deposit required under such contract of sale has been deposited
into escrow.
(ii) If the Loan is part of a Securitization, Lender shall have
received an MAI appraisal of the Substitute Property dated no
more than forty-five (45) days prior to the substitution by an
appraiser acceptable to Lender and the Rating Agencies,
indicating an appraised value of the Substitute Property that is
at least equal to the greater of the appraised value of the
Substituted Property determined by Lender as of (A) the date
hereof or (B) the date immediately preceding the encumbrance of
the Substitute Property by the related Mortgage. If the Loan is
not part of a Securitization, Lender shall have determined that
the fair market value of the Substitute Property is at least
equal to the greater of the fair market value of the Substituted
Property as of (A) the date hereof or (B) the date immediately
preceding the encumbrance of the Substitute Property by the
related Mortgage, such determination to be made by Lender in its
sole reasonable discretion consistent with the methodology used
by Lender in determining property values in connection with the
origination of the Loan (which determination may include an
appraisal satisfactory to Lender in all respects).
(iii)After giving effect to the substitution, the Debt
Service Coverage Ratio for the Loan for all of the Properties is
not less than the Debt Service Coverage Ratio for the Loan for
all of the Properties as of the date immediately preceding the
substitution.
(iv) The Net Operating Income for the Substitute Property either
(A) does not show a successive decrease over the three (3) years
immediately prior to the date of substitution, or (B) with
respect to a Substitute Property for which information regarding
the Net Operating Income of such Substitute Property for the
three (3) years immediately prior to the date of substitution
cannot be obtained by Borrower after Borrower's exercise of
diligent efforts, the Net Operating Income shall not show a
successive decrease for such lesser period of no less than twelve
(12) months, or (C) if the Substitute Property has been
substantially renovated within such three (3) year period, the
Net Operating Income shall not show a successive decrease for
such lesser period of no less than twelve (12) months.
(v) The Net Operating Income for the twelve (12) month period
immediately preceding the substitution for the Substitute
Property is equal to or greater than the Net Operating Income for
the twelve (12) month period immediately preceding the
substitution for the Substituted Property.
(vi) If the Loan is part of a Securitization, Lender shall have
received evidence in writing from the Rating Agencies to the
effect that such substitution will not result in a withdrawal,
qualification or downgrade of the respective ratings in effect
immediately prior to such substitution for the Securities issued
in connection with the Securitization that are then outstanding.
(vii)No Event of Default shall have occurred and be
continuing. Lender and the Rating Agencies (if applicable) shall
have received a certificate from Borrower confirming the
foregoing.
(viii)Borrower shall have executed, acknowledged and
delivered to Lender (A) a Mortgage, an Assignment of Leases and
two UCC Financing Statements with respect to the Substitute
Property, together with a letter from Borrower countersigned by a
title insurance company acknowledging receipt of such Mortgage,
Assignment of Leases and UCC-1 Financing Statements and agreeing
to record or file, as applicable, such Mortgage, Assignment of
Leases and Rents and one of the UCC-1 Financing Statements in the
real estate records for the county in which the Substitute
Property is located and to file one of the UCC-1 Financing
Statement in the office of the Secretary of State of the state in
which the Substitute Property is located, so as to effectively
create upon such recording and filing valid and enforceable liens
upon the Substitute Property, of the requisite priority, in favor
of Lender (or such other trustee as may be desired under local
law), subject only to the Permitted Encumbrances and such other
liens as are permitted pursuant to the Loan Documents, (B) an
Environmental Indemnity with respect to the Substitute Property,
(C) a Nondisturbance Agreement for the Substitute Property and
(D) written confirmation from each Indemnitor and all Joinder
Parties regarding such substitution. The Mortgage, Assignment of
Leases, UCC-1 Financing Statements and Environmental Indemnity
shall be the same in form and substance as the counterparts of
such documents executed and delivered with respect to the related
Substituted Property subject to modifications reflecting the
Substitute Property as the Individual Property that is the
subject of such documents and such modifications reflecting the
laws of the state in which the Substitute Property is located as
shall be recommended by the counsel admitted to practice in such
state and delivering the opinion as to the enforceability of such
documents required pursuant to clause (xiv) below. The Mortgage
encumbering the Substitute Property shall secure all amounts
evidenced by the Note, provided that in the event that the
jurisdiction in which the Substitute Property is located imposes
a mortgage recording, intangibles or similar tax and does not
permit the allocation of indebtedness for the purpose of
determining the amount of such tax payable, the principal amount
secured by such Mortgage shall be equal to one hundred fifty
percent (150%) of the amount of the Loan allocated to the
Substitute Property. The amount of the Loan allocated to the
Substitute Property (such amount being hereinafter referred to as
the "SUBSTITUTE RELEASE AMOUNT") shall equal the Adjusted Release
-------------------------
Amount of the related Substituted Property.
(ix) Lender shall have received (A) any "tie-in" or similar
endorsement to each Title Insurance Policy insuring the lien of
an existing Mortgage as of the date of the substitution available
with respect to the Title Insurance Policy insuring the lien of
the Mortgage with respect to the Substitute Property and (B) a
Title Insurance Policy (or a marked, signed and redated
commitment to issue such Title Insurance Policy) insuring the
lien of the Mortgage encumbering the Substitute Property, issued
by the title company that issued the Title Insurance Policies
insuring the lien of the existing Mortgages and dated as of the
date of the substitution, with reinsurance and direct access
agreements that replace such agreements issued in connection with
the Title Insurance Policy insuring the lien of the Mortgage
encumbering the Substituted Property, to the extent such
agreements are available in the jurisdiction in which the
Substitute Property is located. The Title Insurance Policy
issued with respect to the Substitute Property shall (1) provide
coverage in the amount of the Substitute Release Amount if the
"tie-in" or similar endorsement described above is available or,
if such endorsement is not available, in an amount equal to one
hundred fifty percent (150%) of the Substitute Release Amount,
(2) insure Lender that the relevant Mortgage creates a valid
first lien on the Substitute Property encumbered thereby, free
and clear of all exceptions from coverage other than Permitted
Encumbrances and standard exceptions and exclusions from coverage
(as modified by the terms of any endorsements), (3) contain such
endorsements and affirmative coverages as are contained in the
Title Insurance Policies insuring the liens of the existing
Mortgages, to the extent available in the jurisdiction in which
the Substitute Property is located and (4) name Lender as the
insured. Lender also shall have received copies of paid receipts
showing that all premiums in respect of such endorsements and
Title Insurance Policies have been paid.
(x) Lender shall have received a current title survey for each
Substitute Property, certified to the title company and Lender
and their successors and assigns, in the same form and having the
same content as the certification of the Survey of the
Substituted Property prepared by a
professional land surveyor licensed in the state in which the
Substitute Property is located
and acceptable to the Rating Agencies in accordance with the 1992
Minimum Standard Detail Requirements for ALTA/ACSM Land Title
Surveys, including items 2, 3, 4, 6, 7, 8, 9, 10, 11 and 13 from
Table A. Such survey shall reflect the same legal description
contained in the Title Insurance Policy relating to such
Substitute Property and shall include, among other things, a
metes and bounds description of the real property comprising part
of such Substitute Property. The surveyor's seal shall be
affixed to each survey and each survey shall certify that the
surveyed property is not located in a "one-hundred-year flood
hazard area."
(xi) Lender shall have received valid certificates of insurance
indicating that the requirements for the policies of insurance
required for an Individual Property hereunder have been satisfied
with respect to the Substitute Property and evidence of the
payment of all premiums payable for the existing policy period.
(xii) Lender shall have received a Phase I environmental
report and, if recommended under the Phase I environmental
report, a Phase II environmental report from a nationally
recognized environmental consultant approved by Lender and, if a
substitution occurs after a Securitization, approved by the
Rating Agencies, not less than forty-five (45) days prior to such
release and substitution, which conclude that the Substitute
Property does not contain any Hazardous Substance (except for
cleaning and other products used in connection with the routine
maintenance or repair of the Substitute Property or the operation
thereof as a hotel, in full compliance with Environmental Laws)
and is not subject to any risk of contamination from any off-site
Hazardous Substance. If any such report discloses the presence
of any Hazardous Substance (except for cleaning and other
products used in connection with the routine maintenance or
repair of the Substitute Property or the operation thereof as a
hotel, in full compliance with Environmental Laws) or the risk of
contamination from any off-site Hazardous Substance, such report
shall include an estimate of the cost of any related remediation
and Borrower shall deposit with Lender an amount equal to one
hundred twenty-five percent (125%) of such estimated cost, which
deposit shall constitute additional security for the Loan and
shall be released to Borrower upon the delivery to Lender of (A)
an update to such report indicating that there is no longer any
Hazardous Substance (except for cleaning and other products used
in connection with the routine maintenance or repair of the
Substitute Property or the operation thereof as a hotel, in full
compliance with Environmental Laws) on the Substitute Property or
any danger of contamination from any off-site Hazardous Substance
that has not been fully remediated in accordance
with all applicable laws and (B) paid receipts indicating that
the costs of all such remediation work have been paid. Such
report shall also state the amount of time that will be
necessary to complete such remediation, as may be required by
law. Borrower covenants to undertake any repairs, cleanup or
remediation indicated.
(xiii) Borrower shall deliver or cause to be delivered to
Lender (A) updates certified by Borrower of all organizational
documentation related to Borrower and/or the formation,
structure, existence, good standing and/or qualification to do
business delivered to Lender in connection with the Closing Date;
(B) good standing certificates, certificates of qualification to
do business in the jurisdiction in which the Substitute Property
is located (if required in such jurisdiction) and (C) resolutions
of the general partner of Borrower authorizing the substitution
and any actions taken in connection with such substitution.
(xiv) Lender shall have received the following opinions of
Borrower's counsel (which opinions, with respect to the opinions
set forth in clauses (A), (B) and (C) below, shall be in form
similar to the corresponding opinions delivered in connection
with the closing of the Loan): (A) an opinion or opinions of
counsel admitted to practice under the laws of the state in which
the Substitute Property is located stating that the Loan
Documents delivered with respect to the Substitute Property
pursuant to clause (viii) above are valid and enforceable in
accordance with their terms, subject to the laws applicable to
creditors' rights and equitable principles, and that Borrower is
qualified to do business and in good standing under the laws of
the jurisdiction where the Substitute Property is located or that
Borrower is not required by applicable law to qualify to do
business in such jurisdiction; (B) an opinion of counsel stating
that the Loan Documents delivered with respect to the Substitute
Property pursuant to clause (viii) above were duly authorized,
executed and delivered by Borrower and that, to the best of
Borrower's counsel's knowledge, the execution and delivery of
such Loan Documents and the performance by Borrower of its
obligations thereunder will not cause a breach of, or a default
under, any agreement, document or instrument to which Borrower is
a party or to which it or its properties are bound; (C) an
opinion of counsel stating that subjecting the Substitute
Property to the lien of the related Mortgage and the execution
and delivery of the related Loan Documents does not and will not
affect or impair the ability of Lender to enforce its remedies
under all of the Loan Documents or to realize the benefits of the
cross-collateralization provided for thereunder; (D) an update of
the Insolvency Opinion indicating that the substitution does not
affect the opinions set forth therein; (E) an opinion of counsel
acceptable to the Rating Agencies stating that the substitution
and the related transactions do not constitute a fraudulent
conveyance under applicable bankruptcy and insolvency laws and
(F) an opinion of counsel acceptable to the Rating Agencies that
the substitution does not constitute a "significant modification"
of the Loan under Section 1001 of the Code or otherwise cause a
tax to be imposed on a "prohibited transaction" by any REMIC
Trust.
(xv) Borrower shall have paid all Basic Carrying Costs relating
to each of the Properties and the Substitute Property, including,
without limitation, (i) accrued but unpaid insurance premiums
relating to each of the Properties and the Substitute Property,
(ii) currently due Taxes (including any in arrears) relating to
each of the Properties and the Substitute Property and (iii) any
other charges relating to each of the Properties and Substitute
Property which are currently due.
(xvi) Borrower shall have paid or reimbursed Lender for all
third party out-of-pocket costs and expenses incurred by Lender
(including, without limitation, reasonable attorneys fees and
disbursements) in connection with the substitution and Borrower
shall have paid all recording charges, filing fees, taxes or
other expenses (including, without limitation, mortgage and
intangibles taxes and documentary stamp taxes) payable in
connection with the substitution. Borrower shall have paid all
costs and expenses of the Rating Agencies incurred in connection
with the substitution.
(xvii) Lender shall have received annual operating statements
and occupancy statements for the Substitute Property for the
three (3) most recently completed fiscal years and a current
operating statement for the Substituted Property or, if
information is not available for a three (3) year period or if
the Substituted Property has been substantially renovated within
such three (3) year period, such lesser period as is available,
but in no event less than twelve (12) months. Each of the
statements required under this clause (xvii) shall be certified
to Lender as being true and correct and a certificate from
Borrower certifying that there has been no adverse change in the
financial condition of the Substitute Property since the date of
such operating statements.
(xviii) Borrower shall have delivered to Lender estoppel
certificates from any Operating Lessees and other tenants of the
Substitute Property. All such estoppel certificates shall be in
the form attached hereto as Schedule VII and shall indicate,
------------
among other things, that (1) the subject lease is a valid and
binding obligation of the tenant thereunder, (2) there are no
defaults under such lease on the part of the landlord or tenant
thereunder, (3) the tenant thereunder has no defense or offset to
the payment of rent under such leases, (4) no rent under such
lease has been paid more than one (1) month in advance, (5) the
tenant thereunder has no option or right of first refusal under
such lease to purchase all or any portion of the Substitute
Property and (6) all tenant improvement work required under such
lease has been completed and the tenant under such lease is in
actual occupancy of its leased premises. If an estoppel
certificate indicates that all tenant improvement work required
under the subject lease has not yet been completed, Borrower
shall, if required by the Rating Agencies, deliver to Lender
financial statements indicating that Borrower has adequate funds
to pay all costs related to such tenant improvement work as
required under such lease.
(xix) Lender shall have received copies of all tenant leases
affecting the Substitute Property certified by Borrower as being
true and correct. Lender shall have received a current rent roll
of the Substitute Property certified by Borrower as being true
and correct.
(xx) Lender shall have received a Nondisturbance Agreement with
respect to all Operating Leases and subordination, nondisturbance
and attornment agreements substantially in the form attached
hereto as Schedule VIII (as such form may be amended by Lender
consistent with prudent underwriting standards) with respect to
any other leases which are not subordinate by their terms to the
Mortgage with respect to the Substitute Property.
(xxi) Lender shall have received (A) an endorsement to the
Title Insurance Policy insuring the lien of the Mortgage
encumbering the Substitute Property insuring that the Substitute
Property constitutes a separate tax lot or, if such an
endorsement is not available in the state in which the Substitute
Property is located, a letter from the title insurance company
issuing such Title Insurance Policy stating that the Substitute
Policy constitutes a separate tax lot or (B) a letter from the
appropriate taxing authority stating that the Substitute Property
constitutes a separate tax lot.
(xxii) Lender shall have received a Physical Conditions Report
with respect to the Substitute Property from a nationally
recognized structural consultant approved by the Rating Agencies
in a form recognized and approved by rating agencies not less
than forty-five (45) days prior to such release and substitution
stating that the Substitute Property and its use comply in all
material respects with all applicable Legal Requirements
(including, without limitation, zoning, subdivision and building
laws) and that the Substitute Property is in good condition and
repair and free of damage or waste. If compliance with any Legal
Requirements are not addressed by the Physical Conditions Report,
such compliance shall be confirmed by delivery to Lender of a
certificate of an architect licensed in the state in which the
Substitute Property is located, a letter from the municipality in
which such Property is located, a certificate of a surveyor that
is licensed in the state in which the Substitute Property is
located (with respect to zoning and subdivision laws), an ALTA
3.1 zoning endorsement to the Title Insurance Policy delivered
pursuant to clause (ix) above (with respect to zoning laws) or a
subdivision endorsement to the Title Insurance Policy delivered
pursuant to clause (ix) above (with respect to subdivision laws)
to the extent such endorsements are available in the jurisdiction
in which the Substitute Property is located. If the Physical
Conditions Report recommends that any repairs be made with
respect to the Substitute Property, such Physical Conditions
Report shall either (A) include an estimate of the cost of such
recommended repairs (in which case Borrower shall deposit into
the Required Repair Fund an amount equal to one hundred twenty-
five percent (125%) of such estimated cost), or (B) state the
specific amounts that need to be reserved over time in order to
meet the requirements of such replacements, but in no event less
than five percent (5%) of gross revenues (in which case Borrower
shall deposit such reserves into the Replacement Escrow Fund on a
monthly basis). Any such deposits shall constitute additional
security for the Loan pursuant to Section 3.2 and shall be
released to Borrower pursuant to Section 3.3. Borrower covenants
to undertake any repairs, cleanup or remediation indicated in the
Physical Conditions Report before the earlier of (i) the time
required by applicable law or (ii) the time recommended in the
Physical Conditions Report.
(xxiii) Lender shall have received and approved each Operating
Lease, Franchise Agreement and Management Agreement relating to
the Substitute Property, provided, however, that Lender shall be
deemed to have approved the non-economic provisions of the form
of such Operating Lease or Franchise Agreement to the extent that
such agreements are substantially similar (as determined by
Lender in its reasonable discretion) to the agreements then in
place at the Substituted Property.
(xxiv) Lender shall have received such other and further
approvals, opinions, documents and information in connection with
the substitution as the Rating Agencies may have requested.
(xxv) Lender shall have received copies of all contracts and
agreements relating to the leasing and operation of the
Substitute Property together with a certification of Borrower
attached to each such contract or agreement certifying that the
attached copy is a true and correct copy of such contract or
agreement and all amendments thereto.
(xxvi) Borrower shall submit to Lender, not less than thirty
(30) days prior to the date of such substitution, a release of
lien (and related Loan Documents) for the Substituted Property
for execution by Lender. Such release shall be in a form
appropriate for the jurisdiction in which the Substituted
Property is located. Borrower shall deliver an Officer's
Certificate certifying that the requirements set forth in this
Section 2.6 have been satisfied.
Upon the satisfaction of the foregoing conditions precedent,
Lender will release its lien from the Substituted Property to be
released and the Substitute Property shall be deemed to be an
Individual Property for purposes of this Agreement and the
Substitute Release Amount with respect to such Substitute
Property shall be deemed to be the Release Amount with respect to
such Substitute Property for all purposes hereunder.
ARTICLE 3
SECURITY; RESERVES AND CASH MANAGEMENT
--------------------------------------
SECTION 3.1 SECURITY; ESTABLISHMENT OF FUNDS. The Loan
--------------------------------
shall be evidenced by the Note of Borrower, in the original
principal amount of the Loan. The Loan shall be secured by the
Mortgages creating a first lien on the Properties, the Assignment
of Leases and Rents and the other Loan Documents. As further
security for the Loan, Borrower agrees to establish the following
reserves with Lender, to be held by Lender as security for the
Loan:
(a) REQUIRED REPAIRS FUND. On the date hereof,
---------------------
Borrower shall deposit with Lender the amount of $178,375 (the
"REQUIRED REPAIR FUND") to perform the required repairs set forth
on Schedule II annexed hereto by the deadlines set forth in such
-----------
Schedule (which deadlines shall in no event be later than six (6)
months from the date hereof).
(b) REPLACEMENT ESCROW FUND. Borrower shall deposit
-----------------------
with Lender on each Payment Date one-twelfth of five percent (5%)
of the gross revenue derived from the Properties for replacements
and repairs required to be made to the Properties and the
furniture, fixtures and equipment located thereon during the
calendar year (the "REPLACEMENT ESCROW FUND"). Such computation
shall be based upon the gross revenue derived from the Properties
for the prior calendar year, as reasonably determined by Lender,
and shall be subject to adjustment by Lender from time to time in
its reasonable discretion to reflect actual gross revenue derived
from the Properties for the current calendar year.
(c) DEBT SERVICE ESCROW FUND. On the date hereof,
------------------------
Borrower shall deposit the amount of $1,037,849.10 with Lender,
which shall be deposited with and held by Lender as a reserve for
debt service payments due under this Agreement and the Note (the
"DEBT SERVICE ESCROW FUND"). In the event that Lender withdraws
funds from the Debt Service Escrow Fund for payment of any debt
service, Borrower shall deposit the amount so withdrawn into the
Debt Service Escrow Fund within three (3) Business Days.
SECTION 3.2 PLEDGE AND GRANT OF SECURITY INTEREST.
-------------------------------------
Borrower hereby pledges to Lender, and grants a security interest
in, any and all monies now or hereafter deposited in
the Funds as additional security for the payment of the Loan.
Borrower shall not, without obtaining the prior written consent of
Lender, further pledge, assign or grant any security interest in the
Funds or permit any lien or encumbrance to be attached thereto,
or any levy to be made thereon, or any UCC-1 Financing Statements
(except those naming Lender as the secured party) to be filed
with respect thereto. The Funds shall be held in Lender's name
in a money market interest bearing account and may be commingled
with Lender's own funds at financial institutions selected by
Lender in its sole discretion. Interest earned on the Funds
shall be added back into the Funds; provided, however, that
Lender shall not be obligated to obtain any specified rate of
return and Lender shall not be liable for any loss of principal,
for which Borrower shall bear the full risk. Upon the occurrence
and during the continuation of an Event of Default, Lender may
apply any sums then present in the Funds to the payment of the
Loan in any order in its sole discretion; provided, however, that
Lender shall not apply any sums then present in the Funds to
reduce the outstanding principal amount of the Note until such
time as Lender has accelerated the Loan. Until expended or
applied as above provided, the Funds shall constitute additional
security for the Loan.
SECTION 3.3 DISBURSEMENT OF FUNDS. From and after
---------------------
the Anticipated Payment Date, Lender may reassess its estimate of
the amount necessary for the Funds from time to time and may
adjust any monthly amounts required to be deposited into the
Funds upon thirty (30) days notice to Borrower. Lender shall
make disbursements, within five (5) Business Days following
Lender's receipt of all documentation required to be delivered to
Lender pursuant to this Section 3.3, from the Required Repair
Fund and the Replacement Escrow Fund as requested by Borrower,
and approved by Lender in its reasonable discretion, not more
frequently than three times during any calendar month in amounts,
in the aggregate, of no less than $10,000.00 upon delivery by
Borrower of Lender's standard form of draw request accompanied by
copies of paid invoices in excess of $15,000; provided, however,
that upon Lender's receipt of all documentation required
hereunder, Lender shall disburse up to $300,000 in the aggregate
with respect to any disbursement based upon unpaid invoices in
such amount, provided that with respect to any unpaid invoice in
an amount exceeding $25,000 Lender may, at its option, issue a
joint check and provided further that, it shall be a condition to
the next requested disbursement that Borrower provide Lender with
paid copies of such unpaid invoices for which Lender has made
disbursements. Any draw request for work costing less than
$15,000 shall be accompanied by either an officer's certificate
stating that the work has been completed or a paid invoice. If
required by Lender, Borrower shall deliver lien waivers and
releases from all parties furnishing materials and/or services in
connection with the requested payment. Lender may require an
inspection of the Properties prior to making a disbursement in
order to verify completion of replacements and repairs for which
reimbursement is sought; provided that (i) Borrower shall not be
required to pay for the cost of any such inspection, and (ii) an
inspection shall not be a condition to disbursements if the draw
request (A) is for less than $100,000 and (B) is not in
connection with any improvements or repairs that require a
building permit or similar governmental approval and cost in
excess of $50,000. Lender shall have no obligation to release
any of the Funds while any Event of Default is continuing.
Lender may apply any amounts in the Debt Service Escrow Fund for
debt service payments and required reserve, escrow and impound
payments and any other amounts then due and owing by Borrower
under this Agreement or any other Loan Document.
All costs and expenses incurred by Lender in the disbursement of
any of the Funds shall be paid by Borrower promptly upon demand.
SECTION 3.4 INTENTIONALLY OMITTED.
---------------------
SECTION 3.5 CASH MANAGEMENT ACCOUNT. (a) Borrower
-----------------------
shall establish and maintain a segregated Eligible Account (the
"CASH MANAGEMENT ACCOUNT"), which Cash Management Account shall
be subject to the Cash Management Agreement. The Cash Management
Account shall be entitled "CMF CAPITAL COMPANY, LLC, as Lender,
pursuant to Loan Agreement dated as of November 3, 1998 - Cash
Management Account." Borrower shall deposit, and shall direct
each Operating Lessee to deposit all Operating Lease Rent
directly into the Cash Management Account. In addition, Borrower
shall deliver written instructions to any other tenants under
Leases and, in the event an Operating Lease is not in effect for
an Individual Property, to any applicable credit card companies,
to deliver all Rents payable to Borrower thereunder directly to
the Cash Management Account and Borrower shall deposit all
amounts received by Borrower constituting Rents into the Cash
Management Account promptly upon receipt. Borrower hereby grants
to Lender a first priority security interest in the Cash
Management Account and all deposits at any time contained therein
and the proceeds thereof and will take all actions necessary to
maintain in favor of Lender a perfected first priority security
interest in the Cash Management Account, including, without
limitation, executing and filing UCC-1 Financing Statements and
continuations thereof. Borrower will not in any way alter or
modify the Cash Management Account and will notify Lender of the
account number thereof. All withdrawals from the Cash Management
Account shall be made in accordance with the Cash Management
Agreement and all costs and expenses for establishing and
maintaining the Cash Management Account shall be paid by
Borrower.
(b) Provided no Event of Default shall have occurred
and be continuing, on the first day of each calendar month (or,
if such day is not a Business Day, on the immediately preceding
Business Day) all funds distributed to Lender from the Cash
Management Account shall be applied by Lender to the payment of
the following items in the order indicated:
(i) First, payments to the Tax and Insurance
Escrow Fund in accordance with the terms and conditions of
Section 5.4 hereof;
(ii) Second, payment of the Monthly Debt Service
Payment Amount, applied first to the payment of interest computed
at the Contract Rate with the remainder applied to the reduction
of the outstanding principal balance of the Note;
(iii) Third, payments to the Replacement
Escrow Fund in accordance with the terms and conditions hereof;
(iv) Fourth, payment to Lender of any other
amounts then due and payable under the Loan Documents (other than
Accrued Interest);
(v) Fifth, on or after the Anticipated Payment
Date, payments for monthly Cash Expenses incurred in accordance
with the related Approved Annual Budget pursuant to a written
request for payment submitted by Borrower to Lender specifying
the individual Cash Expenses in a form acceptable to Lender;
(vi) Sixth, on or after the Anticipated Payment
Date, payments for Extraordinary Expenses approved by Lender, if
any;
(vii) Seventh, on or after the Anticipated
Payment Date, payments to Lender in reduction of the outstanding
principal balance of the Loan; and
(viii) Eighth, on or after the Anticipated
Payment Date, payments to Lender for Accrued Interest.
(c) The insufficiency of funds on deposit in the Cash
Management Account shall not absolve Borrower of the obligation
to make any payments, as and when due pursuant to this Agreement
and the other Loan Documents, and such obligations shall be
separate and independent, and not conditioned on any event or
circumstance whatsoever.
(d) Subject to Section 3.2, all amounts on deposit in
the Cash Management Account during the continuation of an Event
of Default may be applied by Lender in such order and priority as
Lender shall determine.
SECTION 3.6 PAYMENTS RECEIVED UNDER THE CASH
--------------------------------
MANAGEMENT AGREEMENT. Notwithstanding anything to the contrary
- --------------------
contained in this Agreement or the other Loan Documents, and
provided no Event of Default has occurred and is continuing,
Borrower's obligations with respect to the monthly payment of
principal and interest and amounts due for the Tax and Insurance
Escrow Fund, Required Repair Fund, Replacement Escrow Fund, the
Debt Service Escrow Fund and any other payment reserves
established pursuant to this Agreement or any other Loan Document
shall be deemed satisfied to the extent sufficient amounts are
deposited in the Cash Management Account established pursuant to
the Cash Management Agreement to satisfy such obligations on the
dates each such payment is required, regardless of whether any of
such amounts are so applied by Lender.
ARTICLE 4
CONDITIONS PRECEDENT
--------------------
SECTION 4.1 CLOSING CONDITIONS. The obligation of
------------------
Lender to make the Loan hereunder is subject to the fulfillment
by Borrower or waiver by Lender of the following conditions
precedent no later than the Closing Date:
(a) REPRESENTATIONS AND WARRANTIES; COMPLIANCE WITH
-----------------------------------------------
CONDITIONS. The representations and warranties of Borrower
- ----------
contained in this Agreement and the other Loan Documents shall be
true and correct in all material respects on and as of the
Closing Date with the same effect as if made on and as of such
date, and no Event of Default shall have occurred and be
continuing; and Borrower shall be in compliance in all material
respects with all terms
and conditions set forth in this Agreement and in each other
Loan Document on its part to be observed or performed.
(b) LOAN AGREEMENT AND NOTE. Lender shall have
-----------------------
received a copy of this Agreement and the Note, in each case,
duly executed and delivered on behalf of Borrower.
(c) DELIVERY OF LOAN DOCUMENTS; TITLE INSURANCE;
--------------------------------------------
REPORTS; LEASES.
- ---------------
(i) MORTGAGES, ASSIGNMENTS OF LEASES, ASSIGNMENTS
---------------------------------------------
OF AGREEMENTS. Lender shall have received from Borrower fully
- -------------
executed and acknowledged counterparts of the Mortgages and the
Assignments of Leases relating to each of the Properties and
evidence that counterparts of the Mortgages and Assignments of
Leases have been delivered to the title company for recording, in
the reasonable judgment of Lender, so as to effectively create
upon such recording valid and enforceable liens upon such
Properties, of the requisite priority, in favor of Lender (or
such other trustee as may be required or desired under local
law), subject only to the Permitted Encumbrances and such other
Liens as are permitted pursuant to the Loan Documents. Lender
shall have also received from Borrower fully executed
counterparts of the other Loan Documents.
(ii) TITLE INSURANCE. Lender shall have received
---------------
title insurance policies issued by a title company acceptable to
Lender and dated as of the Closing Date. Such title insurance
policies shall (A) provide coverage in the maximum amount of the
Loan, (B) insure Lender that the relevant Mortgage creates a
valid lien on the Individual Property encumbered thereby of the
requisite priority, free and clear of all exceptions from
coverage other than Permitted Encumbrances and standard
exceptions and exclusions from coverage (as modified by the terms
of any endorsements), (C) name Lender as the insured and (D)
contain the following endorsements and/or affirmative coverages
(to the extent available in the relevant jurisdictions): (a) ALTA
9 Comprehensive, (b) Survey, (c) ALTA 3.1 Zoning (with additional
coverage for number and types of parking spaces), (d) Usury, (e)
Doing Business, (f) Access, (g) Separate Tax Lot, (h)
Environmental Protection Lien, (i) Subdivision, (j) Contiguity,
(k) Tax Deed (as applicable), (l) Mortgage Recording Tax (as
applicable), (m) PUD (as applicable) and (n) tie-in endorsements.
If tie-in endorsements are not available in a particular state,
the title insurance policy for each Property located in such
state shall be in an amount equal to 125% of the value of such
Property and each such policy shall contain last dollar and first
loss endorsements. The title insurance policies shall be
assignable. Lender also shall have received evidence that all
premiums in respect of such title insurance policies have been
paid.
(iii) SURVEY. Lender shall have received a
------
current title survey for each Individual Property, certified to
the title company and Lender and their successors and assigns, in
form and content satisfactory to Lender and prepared by a
professional and properly licensed land surveyor satisfactory to
Lender in accordance the 1992 Minimum Standard Detail
Requirements for ALTA/ACSM Land Title Surveys. The survey should
meet the classification of an "Urban Survey" and the following
additional items from the list of "Optional Survey
Responsibilities and Specifications" (Table A) should be added to
each survey: 2, 3, 4, 6, 7, 8, 9, 10, 11 and 13. Such survey
shall reflect the same legal description contained in the title
insurance policies relating to such Individual Property referred
to in clause (ii) above and shall include, among other things, a
metes and bounds description of the real property comprising part
of such Individual Property reasonably satisfactory to Lender.
The surveyor's seal shall be affixed to each survey and the
surveyor shall provide a certification for each survey in form
and substance acceptable to Lender.
(iv) INSURANCE. Lender shall have received valid
---------
certificates of insurance for the policies of insurance required
hereunder, satisfactory to Lender in its sole discretion, and
evidence of the payment of all premiums payable for the existing
policy period.
(v) ENVIRONMENTAL REPORTS. Lender shall have
---------------------
received an environmental report in respect of each Individual
Property, in each case satisfactory to Lender.
(vi) ZONING. With respect to each Individual
------
Property, Lender shall have received, at Lender's option, (i)
letters or other evidence with respect to each Individual
Property from the appropriate municipal authorities (or other
Persons) concerning applicable zoning and building laws, (ii) an
ALTA 3.1 zoning endorsement for the applicable title insurance
policy, or (iii) a zoning opinion letter, in substance reasonably
satisfactory to Lender.
(vii) ENCUMBRANCES. Borrower shall have taken
------------
or caused to be taken such actions in such a manner so that
Lender has a valid and perfected lien of the requisite priority
as of the Closing Date with respect to each Mortgage in the
applicable Individual Property, subject only to applicable
Permitted Encumbrances and such other Liens as are permitted
pursuant to the Loan Documents, and Lender shall have received
satisfactory evidence thereof.
(d) RELATED DOCUMENTS. Each additional document not
-----------------
specifically referenced herein, but relating to the transactions
contemplated herein, shall have been duly authorized, executed
and delivered by all parties thereto and Lender shall have
received and approved certified copies thereof.
(e) DELIVERY OF ORGANIZATIONAL DOCUMENTS. On or
------------------------------------
before the Closing Date, Borrower shall deliver or cause to be
delivered to Lender (i) copies certified by Borrower of all
organizational documentation related to Borrower and/or the
formation, structure, existence, good standing and/or
qualification to do business, as Lender may request in its
reasonable discretion, including, without limitation, good
standing certificates, qualifications to do business in the
appropriate jurisdictions, resolutions authorizing the entering
into of the Loan and incumbency certificates as may be requested
by Lender.
(f) OPINIONS OF BORROWER'S COUNSEL. Lender shall have
------------------------------
received opinions of Borrower's counsel (i) with respect to non-
consolidation and (ii) with respect to due execution, authority,
enforceability of the Loan Documents and such other matters as
Lender may reasonably require, all such opinions in form, scope
and substance satisfactory to Lender and Lender's counsel in
their reasonable discretion.
(g) COMPLETION OF PROCEEDINGS. All corporate and
-------------------------
other proceedings taken or to be taken in connection with the
transactions contemplated by this Agreement and other Loan
Documents and all documents incidental thereto shall be
satisfactory in form and substance to Lender, and Lender shall
have received all such counterpart originals or certified copies
of such documents as Lender may reasonably request.
(h) PAYMENTS. All payments, deposits or escrows
--------
required to be made or established by Borrower under this
Agreement, the Note and the other Loan Documents on or before the
Closing Date shall have been paid.
(i) FRANCHISOR ESTOPPEL. Lender shall have received
-------------------
an executed franchisor estoppel letter which shall be in form and
substance reasonably satisfactory to Lender from the franchisor
under each of the franchise agreements listed on Schedule IV.
(j) TENANT ESTOPPELS. Lender shall have received an
----------------
executed tenant estoppel letter, which shall be in form and
substance reasonably satisfactory to Lender, from each of the
Operating Lessees listed on Schedule V, and any other tenant
requested by Lender.
(k) Intentionally Omitted.
(l) BASIC CARRYING COSTS. Borrower shall have paid
--------------------
all Basic Carrying Costs relating to each of the Properties which
are in arrears.
(m) TRANSACTION COSTS. Borrower shall have paid or
-----------------
reimbursed Lender for all title insurance premiums and recording
and filing fees incurred in connection with the origination of
the Loan.
(n) MATERIAL ADVERSE CHANGE. There shall have been no
-----------------------
material adverse change in the financial condition or business
condition of Borrower, any Operating Lessee or any Individual
Property since the date of the most recent financial statements
delivered to Lender. The income and expenses of the Properties,
the Operating Leases, the Franchise Agreements, and all other
features of the transaction shall be as represented to Lender
without material adverse change. Neither Borrower nor any
Operating Lessee shall be the subject of any bankruptcy,
reorganization, or insolvency proceeding.
(o) LEASES. Lender shall have received copies of
------
Operating Leases, all tenant Leases, certified copies of any
tenant Leases as requested by Lender and certified copies of all
ground Leases affecting any Individual Property.
(p) NONDISTURBANCE AGREEMENTS. Lender shall have
-------------------------
received Nondisturbance Agreements acceptable to Lender with
respect to each Operating Lease.
(q) TAX LOT. Lender shall have received evidence that
-------
each Individual Property constitutes a separate tax lot, which
evidence shall be reasonably satisfactory in form and substance
to Lender.
(r) PHYSICAL CONDITIONS REPORTS. Lender shall have
---------------------------
received Physical Conditions Reports with respect to each
Individual Property, which reports shall be reasonably
satisfactory in form and substance to Lender.
(s) MANAGEMENT AGREEMENT. Lender shall have received
--------------------
a certified copy of any Management Agreement, which shall be
satisfactory in form and substance to Lender.
(t) APPRAISAL. Lender shall have received an
---------
appraisal of each Individual Property, which shall be
satisfactory in form and substance to Lender.
(u) FINANCIAL STATEMENTS. Lender shall have received
--------------------
a balance sheet with respect to the Properties for the two most
recent calendar years and statements of income and statements of
cash flows with respect to the Properties for the three most
recent calendar years.
(v) FRANCHISE AGREEMENTS. Lender shall have received a
--------------------
certified copy of each Franchise Agreement between the Operating
Lessee and the Franchisor with respect to each Individual
Property, which shall be satisfactory in form and substance to
Lender.
(w) OPERATING LEASES. Lender shall have received a
----------------
certified copy of each Operating Lease between Borrower and the
Operating Lessee with respect to each Individual Property, which
shall be satisfactory in form and substance to Lender.
(x) FURTHER DOCUMENTS. Lender or its counsel shall
-----------------
have received such other and further approvals, opinions,
documents and information as Lender or its counsel may have
reasonably requested and the form and content of all the Loan
Documents.
ARTICLE 5
INSURANCE, CONDEMNATION, AND IMPOUNDS
-------------------------------------
SECTION 5.1 INSURANCE; CASUALTY AND CONDEMNATION.
------------------------------------
(a) Borrower shall obtain and maintain, or cause to be
maintained, insurance for Borrower and each of the Individual
Properties providing at least the following coverages:
(i) comprehensive all risk insurance on the
Improvements and the Personalty, including contingent liability
from Operation of Building Laws, Demolition Costs and Increased
Cost of Construction Endorsements, in each case (A) in an amount
equal to one hundred percent (100%) of the "Full Replacement
Cost," which for purposes of this Agreement shall mean actual
replacement value (exclusive of costs of excavations,
foundations, underground utilities and footings) with a waiver of
depreciation, but the amount shall in no event be less than the
outstanding principal balance of the Loan; (B) containing an
agreed amount endorsement with respect to the Improvements and
Personalty waiving all co-insurance provisions; (C) providing for
no deductible in excess of Ten Thousand and No/100 Dollars
($10,000) for all such insurance coverage; and (D) containing an
"Ordinance or Law Coverage" or "Enforcement" endorsement if any
of the Improvements or the use of the Individual Property shall
at any time constitute legal non-conforming structures or uses.
In addition, Borrower shall obtain: (y) if any portion of the
Improvements is currently or at any time in the future located in
a federally designated "special flood hazard area", flood hazard
insurance in an amount equal to the lesser of (1) the outstanding
principal balance of the Note or (2) the maximum amount of such
insurance available under the National Flood Insurance Act of
1968, the Flood Disaster Protection Act of 1973 or the National
Flood Insurance Reform Act of 1994, as each may be amended or
such greater amount as Lender shall require; and (z) earthquake
insurance in amounts and in form and substance satisfactory to
Lender in the event the Individual Property is located in an area
with a high degree of seismic activity, provided that the
insurance pursuant to clauses (y) and (z) hereof shall be on
terms consistent with the comprehensive all risk insurance policy
required under this subsection (i).
(ii) commercial general liability insurance
against claims for personal injury, bodily injury, death or
property damage occurring upon, in or about the Individual
Property, such insurance (A) to be on the so-called "occurrence"
form with a combined limit of not less than Two Million and
No/100 Dollars ($2,000,000) in the aggregate and One Million and
No/100 Dollars ($1,000,000) per occurrence; (B) to continue at
not less than the aforesaid limit until required to be changed by
Lender in writing by reason of changed economic conditions making
such protection inadequate; and (C) to cover at least the
following hazards: (1) premises and operations; (2) products and
completed operations on an "if any" basis; (3) independent
contractors; (4) blanket contractual liability for all legal
contracts; and (5) contractual liability covering the indemnities
contained in the Loan Documents to the extent the same is
available;
(iii) business income insurance (A) with loss
payable to Lender; (B) covering all risks required to be covered
by the insurance provided for in subsection (i) above; (C)
containing an extended period of indemnity endorsement which
provides that after the physical loss to the Improvements and
Personalty has been repaired, the continued loss of income will
be insured until such income either returns to the same level it
was at prior to the loss, or the expiration of twelve (12) months
from the date that the applicable Individual Property is repaired
or replaced and operations are resumed, whichever first occurs,
and notwithstanding that the policy may expire prior to the end
of such period; and (D) in an amount equal to one hundred percent
(100%) of the projected gross income from the Individual Property
for a period of eighteen (18) months from the date that the
Individual Property is repaired or replaced and operations are
resumed. The amount of such business income insurance shall be
determined prior to the date hereof and at least once each year
thereafter based on Borrower's reasonable estimate of the gross
income from the applicable Individual Property for the succeeding
eighteen (18) month period. All proceeds payable to Lender
pursuant to this subsection shall be held by Lender and shall be
applied to the obligations secured by the Loan Documents from
time to time due and payable hereunder and under the Note;
provided, however, that nothing herein contained shall be deemed
to relieve Borrower of its obligations to pay the obligations
secured by the Loan Documents on the respective dates of payment
provided for in the Note and the other Loan Documents except to
the extent such amounts are actually paid out of the proceeds of
such business income insurance;
(iv) at all times during which structural
construction, repairs or alterations are being made with respect
to the Improvements, and only if the Individual Property coverage
form does not otherwise apply, (A) owner's contingent or
protective liability insurance covering claims not covered by or
under the terms or provisions of the above mentioned commercial
general liability insurance policy; and (B) the insurance
provided for in subsection (i) above written in a so-called
builder's risk completed value form (1) on a non-reporting basis,
(2) against all risks insured against pursuant to subsection (i)
above, (3) including permission to occupy the Individual
Property, and (4) with an agreed amount endorsement waiving co-
insurance provisions;
(v) workers' compensation, subject to the
statutory limits of the state in which the Individual Property is
located, and employer's liability insurance with a limit of at
least Five Hundred Thousand and No/100 Dollars ($500,000) per
accident and per disease per employee, and Five Hundred Thousand
and No/100 Dollars ($500,000) for disease in the aggregate in
respect of any work or operations on or about the Individual
Property, or in connection with the Individual Property or its
operation (if applicable);
(vi) comprehensive boiler and machinery insurance,
if applicable, in amounts as shall be reasonably required by
Lender on terms consistent with the commercial property insurance
policy required under subsection (i) above;
(vii) umbrella liability insurance in an
amount not less than Fifty Million and No/100 Dollars
($50,000,000) per occurrence on terms consistent with the
commercial general liability insurance policy required under
subsection (ii) above;
(viii) motor vehicle liability coverage for all
owned and non-owned vehicles, including rented and leased
vehicles containing minimum limits per occurrence, including
umbrella coverage, of One Million and No/100 Dollars
($1,000,000);
(ix) so-called "dramshop" insurance or other
liability insurance required in connection with the sale of
alcoholic beverages;
(x) insurance against employee dishonesty in an
amount not less than one (1) month of gross revenue from such
Individual Property with a deductible not greater than Ten
Thousand and No/100 Dollars ($10,000); and
(xi) upon sixty (60) days' written notice, such
other reasonable insurance and in such reasonable amounts as
Lender from time to time may reasonably request against such
other insurable hazards which at the time are commonly insured
against for property similar to the Individual Property located
in or around the region in which the Individual Property is
located.
(b) All insurance provided for in Section 5.1(a) shall
be obtained under valid and enforceable policies (collectively,
the "POLICIES" or in the singular, the "POLICY"), and shall be
subject to the approval of Lender as to insurance companies,
amounts, deductibles, loss payees and insureds. The Policies
shall be issued by financially sound and responsible insurance
companies authorized to do business in the state in which the
applicable Individual Property is located with a rating of "A X"
or better as established by Best's Rating Guide and having a
claims paying ability rating of "AA" or better by at least two
(2) of the Rating Agencies (one of which shall be (i) Standard &
Poor's, if Standard & Poor's is rating the Securities issued in
the Securitization of which this Loan is a part or (ii) Moody's,
if Moody's is rating the Securities issued in the Securitization
of which this Loan is a part). The Policies described in
Section 5.1 shall designate Lender as loss payee. Not less than
ten (10) days prior to the expiration dates of the Policies
theretofore furnished to Lender, certificates of insurance
evidencing the Policies accompanied by evidence satisfactory to
Lender of payment of the premiums due thereunder (the "INSURANCE
PREMIUMS"), shall be delivered by Borrower to Lender.
Notwithstanding the foregoing, (1) the insurance required to be
maintained, or caused to be maintained, by Borrower pursuant to
Sections 5.1(a)(vi) and (x) for the Homewood Suites in Houston,
Texas may be provided by Hartford Steam Boiler and Continental
Casualty Company, respectively, for so long as (i) Hartford Steam
Boiler remains reasonably acceptable to Lender and (ii)
Continental Casualty Company maintains a claims paying ability
rating of "A+" or better by Standard & Poor's and (2) the
insurance required to be maintained, or caused to be maintained,
by Borrower pursuant to Sections 5.1(a)(ii), (v) and (viii) may
be provided by Lumbermen's Mutual for so long as Lumbermen's
Mutual maintains a claims paying ability rating of "A+" or better
by Standard & Poor's.
(c) Any blanket insurance Policy shall specifically
allocate to the Individual Property the amount of coverage from
time to time required hereunder and shall otherwise provide the
same protection as would a separate Policy insuring only the
Individual Property in compliance with the provisions of Section
5.1(a), including an acknowledgment that the payment of such
allocation shall continue such Policy as to the Individual
Property notwithstanding any other payment of premiums.
(d) All Policies of insurance provided for or
contemplated by Section 5.1(a), except for the Policy referenced
in Section 5.1(a)(v), shall name Borrower as the insured and
Lender as the additional insured, as its interests may appear,
and in the case of property damage, boiler and machinery, flood
and earthquake insurance, shall contain a so-called New York
standard non-contributing mortgagee clause in favor of Lender
providing that the loss thereunder shall be payable to Lender.
(e) All Policies of insurance provided for in Section
5.1(a) shall contain clauses or endorsements to the effect that:
(i) no act or negligence of Borrower, or anyone
acting for Borrower, or of any tenant or other occupant, or
failure to comply with the provisions of any Policy, which might
otherwise result in a forfeiture of the insurance or any part
thereof, shall in any way affect the validity or enforceability
of the insurance insofar as Lender is concerned;
(ii) the Policy shall not be materially changed
(other than to increase the coverage provided thereby) or
canceled without at least thirty (30) days' written notice to
Lender and any other party named therein as an additional
insured;
(iii) each Policy shall provide that the
issuers thereof shall give written notice to Lender if the Policy
has not been renewed fifteen (15) days prior to its expiration;
and
(iv) Lender shall not be liable for any Insurance
Premiums thereon or subject to any assessments thereunder.
(f) If at any time Lender is not in receipt of written
evidence that all insurance required hereunder is in full force
and effect, Lender shall have the right, without notice to
Borrower, to take such action as Lender deems necessary to
protect its interest in the Individual Property, including,
without limitation, the obtaining of such insurance coverage as
Lender in its sole discretion deems appropriate and all premiums
incurred by Lender in connection with such action or in obtaining
such insurance and keeping it in effect shall be paid by Borrower
to Lender upon demand and until paid shall be secured by the
Mortgages and shall bear interest at the Default Rate.
(g) If the Individual Property shall be damaged or
destroyed, in whole or in part, by fire or other casualty,
Borrower shall give prompt notice of such damage to Lender and
shall promptly commence and diligently prosecute the completion
of the Restoration of the Individual Property. Borrower shall
pay all costs of such Restoration whether or not such costs are
covered by insurance. Lender may, but shall not be obligated to
make proof of loss if not made promptly by Borrower.
(h) In the event of foreclosure of the Mortgage with
respect to the Individual Property, or other transfer of title to
the Individual Property in extinguishment in whole or in part of
the Debt all right, title and interest of Borrower in and to the
Policies that are not blanket Policies then in force concerning
the Individual Property and all proceeds payable thereunder shall
thereupon vest in the purchaser at such foreclosure or Lender or
other transferee in the event of such other transfer of title.
SECTION 5.2 CONDEMNATION. Borrower shall promptly
------------
give Lender notice of the actual or threatened commencement of
any condemnation or eminent domain proceeding (a "CONDEMNATION")
affecting any of the Individual Properties and shall deliver to
Lender copies of any and all papers served in connection with
such proceedings. Lender may participate in any such proceedings
and Borrower shall deliver to Lender all instruments required to
permit participation in such proceedings. Borrower shall, at its
expense, diligently prosecute any such proceedings, and shall
consult with Lender, its attorneys and experts, and cooperate
with them in the carrying on or defense of any such proceedings.
Lender is hereby irrevocably appointed as Borrower's attorney-in-
fact, coupled with an interest, with exclusive power to collect,
receive and retain any Award and to make any compromise or
settlement in connection with any such Condemnation. The Net
Proceeds of any Award shall be applied in the manner set forth in
Section 5.3 Notwithstanding any taking by any public or quasi-
public authority through eminent domain or otherwise (including
but not limited to any transfer made in lieu of or in
anticipation of the exercise of such taking), Borrower shall
continue to pay the Debt at the time and in the manner provided
for its payment in the Note and in this Agreement and the
Debt shall not be reduced until any award or payment therefor (an
"AWARD") shall have been actually received and applied by Lender,
after the deduction of expenses of collection, to the reduction
or discharge of the Debt. Lender shall not be limited to the
interest paid on the Award by the condemning authority but shall
be entitled to receive out of the award interest at the rate or
rates provided herein or in the Note. If an Individual Property
or any portion thereof is taken by a condemning authority,
Borrower shall promptly commence and diligently prosecute the
Restoration of the applicable Individual Property and otherwise
comply with the provisions of Section 5.3. If an Individual
Property is sold, through foreclosure or otherwise, prior to the
receipt by Lender of the Award, Lender shall have the right,
whether or not a deficiency judgment on the Note shall have been
sought, recovered or denied, to receive the Award, or a portion
thereof sufficient to pay the Debt.
SECTION 5.3 RESTORATION. The following provisions
-----------
shall apply in connection with the application of Net Proceeds to
the Restoration of any Individual Property:
(a) If the Net Proceeds shall be less than Fifty
Thousand and No/100 Dollars ($50,000) and the costs of completing
the Restoration shall be less than Fifty Thousand and No/100
Dollars ($50,000), the Net Proceeds will be disbursed by Lender
to Borrower upon receipt, provided that all of the conditions set
forth in Section 5.3(b)(i) are met and Borrower delivers to
Lender a written undertaking to expeditiously commence and to
satisfactorily complete with due diligence the Restoration in
accordance with the terms of this Agreement.
(b) If the Net Proceeds are equal to or greater than
Fifty Thousand and No/100 Dollars ($50,000) or the costs of
completing the Restoration is equal to or greater than Fifty
Thousand and No/100 Dollars ($50,000) Lender shall make the Net
Proceeds available for the Restoration provided that the
conditions of this Section 5.3 have been satisfied. The term
"NET PROCEEDS" for purposes of this Section 5.3 shall mean: (i)
the net amount of all insurance proceeds received by Lender
pursuant to Section 5.1 (a)(i), (iv), (vi), (vii) and (ix) (if
applicable) as a result of such damage or destruction, after
deduction of the reasonable costs and expenses (including, but
not limited to, reasonable counsel fees), if any, in collecting
same ("INSURANCE PROCEEDS"), or (ii) the net amount of the Award,
after deduction of its reasonable costs and expenses (including,
but not limited to, reasonable counsel fees), if any, in
collecting same ("CONDEMNATION PROCEEDS"), whichever the case may
be.
(i) The Net Proceeds shall be made available to
Borrower for Restoration provided that the Net Proceeds
are received prior to the Anticipated Payment Date and
each of the following conditions are met:
(A) no Event of Default shall have occurred
and be continuing;
(B) (1) in the event the Net Proceeds are
Insurance Proceeds, less than fifty percent (50%)
of the total floor area of the Improvements of the
Individual Property has been damaged, destroyed or
rendered unusable as a result of such fire or
other casualty or (2) in the event the Net
Proceeds are Condemnation Proceeds, less than ten
percent (10%) of the land constituting the
Individual Property is taken, and such land is
located along the perimeter or periphery of the
Individual Property, and no portion of the
Improvements is located in such land;
(C) the Operating Lease, if any, for such
Individual Property shall remain in full force and
effect during and after the completion of the
Restoration, notwithstanding the occurrence of any
such fire or other casualty or taking, whichever
the case may be;
(D) the Franchise Agreement, if any, for
such Individual Property shall remain in full
force and effect during and after the completion
of the Restoration, notwithstanding the occurrence
of any such fire or other casualty or taking,
whichever the case may be;
(E) Borrower shall commence the Restoration
as soon as reasonably practicable (but in no event
later than sixty (60) days after such damage or
destruction or taking, whichever the case may be,
occurs) and shall diligently pursue the same to
satisfactory completion;
(F) Lender shall be satisfied that any
operating deficits, including all scheduled
payments of principal and interest under the Note,
which will be incurred with respect to the
Individual Property as a result of the occurrence
of any such fire or other casualty or taking,
whichever the case may be, will be covered out of
(1) the Net Proceeds, (2) the insurance coverage
referred to in Section 5.1(a)(iii), if applicable,
or (3) by other funds of Borrower;
(G) Lender shall be satisfied that the
Restoration will be completed on or before the
earliest to occur of (1) six (6) months prior to
the Anticipated Payment Date, (2) the earliest
date required for such completion under the terms
of any Operating Lease or Franchise Agreement, (3)
such time as may be required under applicable
zoning law, ordinance, rule or regulation in order
to repair and restore the applicable Individual
Property to the condition it was in immediately
prior to such fire or other casualty or to as
nearly as possible the condition it was in
immediately prior to such taking, as applicable or
(4) the expiration of the insurance coverage
referred to in Section 5.1(a)(iii);
(H) the Individual Property and the use
thereof after the Restoration will be in
compliance with and permitted under all applicable
zoning laws, ordinances, rules and regulations and
all necessary operating or reciprocal easement
agreements for the operation and maintenance of
the applicable Individual Property are, or remain,
in effect;
(I) the Restoration shall be done and
completed by Borrower in an expeditious and
diligent fashion and in compliance in all material
respects with all applicable governmental laws,
rules and regulations (including, without
limitation, all applicable environmental laws);
(J) such fire or other casualty or taking,
as applicable, does not result in the loss of
access to the Individual Property or the related
Improvements after the completion of Restoration;
(K) after giving effect to such Restoration,
the Debt Service Coverage Ratio for the Individual
Property shall be equal to the greater of (i) the
Debt Service Coverage Ratio for the twelve (12)
full calendar months immediately preceding the
Closing Date, and (ii) the Debt Service Coverage
Ratio for the Individual Property for the twelve
(12) full calendar months immediately preceding
the casualty or Condemnation of the Individual
Property; and
(L) Lender shall be satisfied that the ratio
of the appraised value of the Individual Property
to the Release Amount, as determined by Lender,
upon the completion of the Restoration, is not
greater than the lesser of the ratio of the
appraised value of the Individual Property to the
Release Amount determined by Lender as of (i) the
date hereof or (ii) the date immediately preceding
the casualty or Condemnation to such Individual
Property.
(ii) The Net Proceeds shall be held by Lender in
an interest-bearing account and, until disbursed in
accordance with the provisions of this Section 5.3(b),
shall constitute additional security for the Debt and
other obligations under the Loan Documents. The Net
Proceeds shall be disbursed by Lender to, or as
directed by, Borrower from time to time during the
course of the Restoration, upon receipt of evidence
satisfactory to Lender that (A) all materials installed
and work and labor performed (except to the extent that
they are to be paid for out of the requested
disbursement) in connection with the Restoration have
been paid for in full, and (B) there exist no notices
of pendency, stop orders, mechanic's or materialman's
liens or notices of intention to file same, or any
other liens or encumbrances of any nature whatsoever on
the Individual Property arising out of the Restoration
which have not either been fully bonded to the
satisfaction of Lender and discharged of record or in
the alternative fully insured to the satisfaction of
Lender by the title company issuing the title insurance
policy.
(iii) All plans and specifications required in
connection with the Restoration shall be subject to
prior review and acceptance in all respects by Lender
and by an independent consulting engineer selected by
Lender (the "CASUALTY CONSULTANT"). Lender shall have
the use of the plans and specifications and all
permits, licenses and approvals required or obtained in
connection with the Restoration. The identity of the
contractors, subcontractors and materialmen with
contracts in excess of $150,000 engaged in any
Restoration, as well as the contracts under which they
have been engaged, shall be subject to prior review and
acceptance by Lender and the Casualty Consultant;
provided, however, that in the event Lender or its
Casualty Consultant fails to respond to a request for
approval of any such contractors, subcontractors,
materialmen and contracts within ten (10) Business Days
following Lender's receipt of all documentation
required hereunder, then the requirement for any such
approval with respect to such item shall be deemed
waived. All reasonable costs and expenses incurred by
Lender in connection with making the Net Proceeds
available for the Restoration including, without
limitation, reasonable counsel fees and disbursements
and the Casualty Consultant's fees, shall be paid by
Borrower.
(iv) In no event shall Lender be obligated to make
disbursements of the Net Proceeds in excess of an
amount equal to the costs actually incurred from time
to time for work in place as part of the Restoration,
as certified by the Casualty Consultant, minus the
Casualty Retainage. The term "CASUALTY RETAINAGE"
shall mean an amount equal to ten percent (10%) of the
costs actually incurred for work in place as part of
the Restoration, as certified by the Casualty
Consultant, until the Restoration has been completed.
The Casualty Retainage shall in no event, and
notwithstanding anything to the contrary set forth
above in this Section 5.1(b), be less than the amount
actually held back by Borrower from contractors,
subcontractors and materialmen engaged in the
Restoration. The Casualty Retainage shall not be
released until the Casualty Consultant certifies to
Lender that the Restoration has been completed in
accordance with the provisions of this Section 5.1(b)
and that all approvals necessary for the re-occupancy
and use of the Individual Property have been obtained
from all appropriate governmental and quasi-
governmental authorities, and Lender receives evidence
satisfactory to Lender that the costs of the
Restoration have been paid in full or will be paid in
full out of the Casualty Retainage; provided, however,
-------- -------
that Lender will release the portion of the Casualty
Retainage being held with respect to any contractor,
subcontractor or materialman engaged in the Restoration
as of the date upon which the Casualty Consultant
certifies to Lender that the contractor, subcontractor
or materialman has satisfactorily completed all work
and has supplied all materials in accordance with the
provisions of the contractor's, subcontractor's or
materialman's contract, the contractor, subcontractor
or materialman delivers the lien waivers and evidence
of payment in full of all sums due to the contractor,
subcontractor or materialman as may be reasonably
requested by Lender or by the title company issuing the
title insurance policy, and Lender receives an
endorsement to the title insurance policy insuring the
continued priority of the lien of the related Mortgage
and evidence of payment of any premium payable for such
endorsement. If required by Lender, the release of
any such portion of the Casualty Retainage shall be
approved by the surety company, if any, which has
issued a payment or performance bond with respect to
the contractor, subcontractor or materialman.
(v) Lender shall not be obligated to make
disbursements of the Net Proceeds more frequently than
once every calendar month.
(vi) If at any time the Net Proceeds or the
undisbursed balance thereof shall not, in the
reasonable opinion of Lender in consultation with the
Casualty Consultant, be sufficient to pay in full the
balance of the costs which are reasonably estimated by
the Casualty Consultant to be incurred in connection
with the completion of the Restoration, Borrower shall
deposit the deficiency (the "NET PROCEEDS DEFICIENCY")
with Lender before any further disbursement of the Net
Proceeds shall be made. The Net Proceeds Deficiency
deposited with Lender shall be held by Lender and shall
be disbursed for costs actually incurred in connection
with the Restoration on the same conditions applicable
to the disbursement of the Net Proceeds, and until so
disbursed pursuant to this Section 5.1(b) shall
constitute additional security for the Debt and other
obligations under the Loan Documents.
(vii) The excess, if any, of the Net Proceeds
and the remaining balance, if any, of the Net Proceeds
Deficiency deposited with Lender after the Casualty
Consultant certifies to Lender that the Restoration has
been completed in accordance with the provisions of
this Section 5.1(b), and the receipt by Lender of
evidence satisfactory to Lender that all costs incurred
in connection with the Restoration have been paid in
full, shall be remitted by Lender to Borrower, provided
no Event of Default shall have occurred and shall be
continuing under the Note, this Loan Agreement or any
of the other Loan Documents.
(c) All Net Proceeds not required (i) to be made
available for the Restoration or (ii) to be returned to Borrower
as excess Net Proceeds pursuant to Section 5.1.(b)(vii) may be
retained and applied by Lender toward the payment of the Debt
whether or not then due and payable in such order, priority and
proportions as Lender in its sole discretion shall deem proper,
or, at the discretion of Lender, the same may be paid, either in
whole or in part, to Borrower for such purposes as Lender shall
designate, in its discretion; provided that, notwithstanding the
foregoing, upon the payment in full of the Debt, any additional
Net Proceeds shall be paid to Borrower or to such other
Person(s)who may be entitled thereto.
(d) In the event that, pursuant to and in accordance
with the terms and provisions of Section 2.5(b), Borrower obtains
the release of an Individual Property which has been subject to
any casualty or Condemnation, the Adjusted Release Amount for
such Individual Property for purposes of Section 2.5(b) shall be
reduced by any amounts retained and applied by Lender to a
reduction of the principal amount of the Debt with respect to
such Individual Property in accordance with Section 5.3(c).
SECTION 5.4 IMPOUNDS. Borrower shall deposit with
--------
Lender, monthly, (a) one-twelfth (1/12th) of the Taxes that
Lender estimates will be payable during the next ensuing
twelve (12) months in order to accumulate with Lender sufficient
funds to pay all such Taxes at least thirty (30) days prior to
their respective due dates, and (b) one-twelfth of the Insurance
Premiums that Lender estimates will be payable for the renewal of
the coverage afforded by the insurance policies required by
Lender upon the expiration thereof in order to accumulate with
Lender sufficient funds to pay all such Insurance Premiums at
least thirty (30) days prior to expiration (said amounts in (a)
and (b) above hereinafter called the "TAX AND INSURANCE ESCROW
FUND"). At or before the advance of the Loan, Borrower shall
deposit with Lender a sum of money which together with the
monthly installments will be sufficient to make each of such
payments thirty (30) days prior to the date any delinquency or
penalty becomes due with respect to such payments. Deposits
shall be made on the basis of Lender's estimate from time to time
of the charges for the current year (after giving effect to any
reassessment or, at Lender's election, on the basis of the
charges for the prior year, with adjustments when the charges are
fixed for the then current year). Borrower hereby grants to
Lender a security interest in all funds so deposited with Lender
for the purpose of securing the Loan. The funds shall be held in
Lender's name in a money market interest bearing account and may
be commingled with Lender's own funds at financial institutions
selected by Lender in its sole discretion. Interest earned on
the funds shall be added back into the funds; provided, however,
that Lender shall not be obligated to obtain any specified rate
of return and Lender shall not be liable for any loss of
principal, for which Borrower shall bear the full risk. Subject
to Section 3.2, while an Event of Default is continuing, the
funds deposited may be applied in payment of the charges for
which such funds have been deposited, or to the payment of the
Loan or any other charges affecting the security of Lender, as
Lender may elect, but no such application shall be deemed to have
been made by operation of law or otherwise until actually made by
Lender. Borrower shall furnish Lender with bills for the charges
for which such deposits are required (i) at least thirty (30)
days prior to the date on which the charges first become payable
or (ii) if the Governmental Authority which issues such bills
does not issue bills at least thirty (30) days prior to the date
on which the charges first become payable, then within three (3)
Business Days following Borrower's receipt of such bills from the
Governmental Authority. If at any time the amount on deposit
with Lender, together with amounts to be deposited by Borrower
before such charges are payable, is insufficient to pay such
charges, Borrower shall deposit any deficiency with Lender within
three (3) Business Days after Borrower receives written notice of
such deficiency. Lender shall pay such charges when the amount
on deposit with Lender is sufficient to pay such charges and
Lender has received a bill for such charges.
ARTICLE 6
ENVIRONMENTAL MATTERS
---------------------
SECTION 6.1 CERTAIN DEFINITIONS. As used herein, the
-------------------
following terms have the meanings indicated:
(a) "ENVIRONMENTAL LAWS" Any local, state, federal or
other governmental authority, statute, ordinance, code, order,
decree, law, rule or regulation pertaining to or imposing
liability or standards of conduct concerning environmental
regulation, contamination or clean-up including, without
limitation, the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, the Resource
Conservation and Recovery Act, as amended, the Emergency Planning
and Community Right-to-Know Act of 1986, as amended, the
Hazardous Substances Transportation Act, as amended, the Solid
Waste Disposal Act, as amended, the Clean Water Act, as amended,
the Clean Air Act, as amended, the Toxic Substances Control Act,
as amended, the Safe Drinking Water Act, as amended, the
Occupational Safety and Health Act, as amended, any state
superlien and environmental clean-up statutes and all regulations
adopted in respect of the foregoing laws whether presently in
force or coming into being and/or effectiveness hereafter.
(b) "HAZARDOUS MATERIALS" means (i) petroleum or
chemical products, whether in liquid, solid, or gaseous form, or
any fraction or by-product thereof, (ii) asbestos or
asbestos-containing materials, (iii) polychlorinated biphenyls
(pcbs), (iv) radon gas, (v) underground storage tanks, (vi) any
explosive or radioactive substances, (vii) lead or lead-based
paint, or (viii) any other substance, material, waste or mixture
which is or shall be listed, defined, or otherwise determined by
any Governmental Authority (to the extent that such Governmental
Authority has jurisdiction over Borrower or any of the Properties
with respect to such materials) to be hazardous, toxic, dangerous
or otherwise regulated, controlled or giving rise to liability
under any Environmental Laws.
SECTION 6.2 REPRESENTATIONS AND WARRANTIES ON
---------------------------------
ENVIRONMENTAL MATTERS. To Borrower's knowledge, except as set
- ---------------------
forth in the Site Assessments of each Individual Property
delivered in connection with the origination of the Loan, (a) no
Hazardous Material is now or was formerly used, stored,
generated, manufactured, installed, treated, discharged, disposed
of or otherwise present at or about any Individual Property or
any property adjacent to any Individual Property (except for
cleaning and other products currently used in connection with the
routine maintenance or repair of an Individual Property or the
operation thereof as a hotel, in full compliance with
Environmental Laws) and no Hazardous Material was removed or
transported from any Individual Property, (b) all permits,
licenses, approvals and filings required by Environmental Laws
have been obtained, and the use, operation and condition of any
Individual Property does not, and did not previously, violate any
Environmental Laws, (c) no civil, criminal or administrative
action, suit, claim, hearing, investigation or proceeding has
been brought or, to the best of Borrower's knowledge, been
threatened, nor have any settlements been reached by or with any
parties or any liens imposed in connection with any Individual
Property concerning Hazardous Materials or Environmental Laws;
and (d) no underground storage tanks exist on any part of any
Individual Property.
SECTION 6.3 COVENANTS ON ENVIRONMENTAL MATTERS.
----------------------------------
(a) Borrower shall (i) comply strictly and in all
respects with applicable Environmental Laws; (ii) notify Lender
immediately upon Borrower's discovery of any spill, discharge,
release or presence of any Hazardous Material in violation of
applicable Environmental Laws at, upon, under, within, contiguous
to or otherwise affecting any Individual Property; (iii) promptly
remove such Hazardous Materials and remediate any Individual
Property in full compliance with Environmental Laws or as
reasonably required by Lender based upon the recommendations and
specifications of an independent environmental consultant
approved by Lender; and (iv) promptly forward to Lender copies of
all orders, notices, permits, applications or other
communications and reports in connection with any spill,
discharge, release or the presence of any Hazardous Material or
any other matters relating to the Environmental Laws or any
similar laws or regulations, as they may affect any Individual
Property or Borrower.
(b) Borrower shall not cause, shall prohibit any other
Person within the control of Borrower from causing, and shall use
prudent, commercially reasonable efforts to prohibit other
Persons (including tenants) from (i) causing any spill, discharge
or release, or the use, storage, generation, manufacture,
installation, or disposal, of any Hazardous Materials at, upon,
under, within or about any Individual Property or the
transportation of any Hazardous Materials to or from any
Individual Property (except for cleaning and other products used
in connection with routine maintenance or repair of any
Individual Property or the operation thereof as a hotel in full
compliance with Environmental Laws), (ii) installing any
underground storage tanks at any Individual Property, or
(iii) conducting any activity that requires a permit or other
authorization under Environmental Laws (except in connection with
the cleaning or routine maintenance of such Individual Property
or the operation thereof as a hotel, and then only in strict
compliance with such permit or authorization).
(c) Borrower shall provide to Lender, at Borrower's
expense, as soon as reasonably practicable following the written
request of Lender from time to time, a Site Assessment or, if
reasonably required by Lender, an update to any existing Site
Assessment, to assess the presence or absence of any Hazardous
Materials and the potential costs in connection with abatement,
cleanup or removal of any Hazardous Materials found on, under, at
or within any Individual Property. Borrower shall pay the cost
of no more than one such Site Assessment with respect to any
Individual Property or update in any twenty-four (24)-month
period, unless Lender's request for a Site Assessment is based on
information received by Lender pursuant to Section 6.3(a), a
reasonable suspicion of Hazardous Materials at or near any
Individual Property, a breach of representations under
Section 6.2, or an Event of Default, in which case any such Site
Assessment or update shall be at Borrower's expense.
SECTION 6.4 ALLOCATION OF RISKS AND INDEMNITY. As
---------------------------------
between Borrower, Lender and Indemnitor, all risk of loss
associated with non-compliance with Environmental Laws, or with
the presence of any Hazardous Material at, upon, within,
contiguous to or otherwise affecting any Individual Property,
shall lie solely with Borrower and Indemnitor. Accordingly,
Borrower and Indemnitor shall bear all risks and costs associated
with any loss (including any loss in value attributable to
Hazardous Materials), damage or liability therefrom, including
all costs of removal of Hazardous Materials or other remediation
required by Lender or by law. Borrower shall indemnify, defend
and hold Lender and its shareholders, directors, officers,
employees and agents harmless from and against all loss,
liabilities, damages, claims, costs and expenses (including
reasonable costs of defense and consultant
fees,investigation and laboratory fees, court costs, and other
litigation expenses)arising out of or associated, in any way,
with (a) the non-compliance with Environmental Laws, or (b) the
existence of Hazardous Materials in, on, or about any Individual
Property, (c)any personal injury (including wrongful death) or
property damage (real or personal) arising out of or related
to Hazardous Materials; (d) any lawsuit brought or threatened,
settlement reached, or government order relating to such Hazardous
Materials, (e) a breach of any representation, warranty or
covenant contained in this Article 6, whether based in contract,
tort, implied or express warranty, strict liability, criminal or
civil statute or common law, or (f) the imposition of any
environmental lien encumbering any Individual Property; provided,
however, Borrower shall not be liable under such indemnification
to the extent such loss, liability, damage, claim, cost or
expense results solely from Lender's gross negligence or willful
misconduct. Except as otherwise specifically provided in the
following sentence, Borrower's obligations under this Section 6.4
shall arise whether or not any Governmental Authority has taken
or threatened any action in connection with the presence of any
Hazardous Material, and whether or not the existence of any such
Hazardous Material or potential liability on account thereof is
disclosed in the Site Assessment and shall continue
notwithstanding the repayment of the Loan or any transfer or sale
of any right, title and interest in any Individual Property (by
foreclosure, deed in lieu of foreclosure or otherwise).
Borrower's obligations under this Section 6.4 shall not apply to
any release or presence of Hazardous Materials that (i) occurred
solely after any payoff of the Note in full or solely after a
transfer resulting from a foreclosure or deed in lieu of
foreclosure accepted by Lender and (ii) was not caused by
Borrower or any Affiliate of Borrower. Additionally, if any
Hazardous Materials affect or threaten to affect the Properties,
Lender may (but shall not be obligated to) give such notices and
take such actions as it deems necessary or advisable at the
expense of Borrower in order to abate the discharge of any
Hazardous Materials or remove the Hazardous Materials. Any
amounts payable to Lender by reason of the application of this
Section 6.4 shall become due and payable within three (3)
Business Days after Borrower receives notice thereof and shall
bear interest at the Default Rate from the date loss or damage is
sustained by Lender until paid. The obligations and liabilities
of Borrower under this Section 6.4 shall survive any termination,
satisfaction, assignment, entry of a judgment of foreclosure or
delivery of a deed in lieu of foreclosure.
SECTION 6.5 NO WAIVER. Notwithstanding any provision
---------
in this Article 6 or elsewhere in the Loan Documents, or any
rights or remedies granted by the Loan Documents, Lender does not
waive and expressly reserves all rights and benefits now or
hereafter accruing to Lender under the "security interest" or
"secured creditor" exception under applicable Environmental Laws,
as the same may be amended. No action taken by Lender pursuant
to the Loan Documents shall be deemed or construed to be a waiver
or relinquishment of any such rights or benefits under the
"security interest exception."
ARTICLE 7
LEASING MATTERS
---------------
SECTION 7.1 REPRESENTATIONS AND WARRANTIES ON LEASES.
----------------------------------------
Borrower represents and warrants to Lender with respect to the
Leases of each Individual Property that as of the date hereof:
(a) the Leases are valid and in and full force and effect;
(b) the Leases (including amendments) are in writing, and there
are no oral agreements with respect thereto; (c) the copies of
the Leases delivered to Lender are true and complete; (d) neither
the landlord nor any tenant is in default under any of the
Leases; (e) Borrower has no knowledge of any notice of
termination or default with respect to any Lease; (f) Borrower
has not assigned or pledged any of the Leases, the rents or any
interests therein except to Lender; (g) no tenant or other party
has an option or right of first refusal or offer, to purchase all
or any portion of the Individual Property; (h) no tenant has the
right to terminate its Lease prior to expiration of the stated
term of such Lease except upon the happening of a casualty or
condemnation and in such event only pursuant to and in accordance
with the terms and provisions of its Lease; (i) no tenant has
prepaid more than one month's rent in advance (except for bona
fide security deposits not in excess of an amount equal to two
month's rent); (j) no tenant under any Lease has any right or
option for additional space; (k) all existing Leases are
subordinate to the Mortgage either pursuant to their terms or a
recorded subordination agreement; and (l) there are no long term
subleases in effect other than subleases of space for ancillary
hotel uses such as gift shops.
SECTION 7.2 STANDARD LEASE FORM; APPROVAL RIGHTS. All
------------------------------------
Leases and other rental arrangements executed by Borrower after
the date hereof shall be approved by Lender. Such Lease shall
provide that (a) the Lease is subordinate to the Mortgage, (b)
the tenant shall attorn to Lender, and (c) that any cancellation,
surrender, or amendment of such Lease without the prior written
consent of Lender shall be voidable by Lender. Borrower shall
hold, in trust, all tenant security deposits in a segregated
account, and, to the extent required by applicable law, shall not
commingle any such funds with any other funds of Borrower.
Within ten (10) days after Lender's request, Borrower shall
furnish to Lender a statement of all tenant security deposits,
and copies of all Leases not previously delivered to Lender, to
the extent that such Leases are in Borrower's possession or
Borrower is entitled to receive a copies of such Leases pursuant
to the applicable Operating Lease, certified by Borrower as being
true and correct. The provisions of this Section 7.2 shall not
apply to any Operating Leases.
SECTION 7.3 COVENANTS. Borrower (a) shall perform the
---------
obligations which Borrower is required to perform under the
Leases; (b) shall enforce the obligations to be performed by the
tenants; (c) shall furnish to Lender any notice of default or
termination received by Borrower from any tenant, and any notice
of default or termination given by Borrower to any tenant within
three (3) Business Days after Borrower's receipt thereof;
(d) shall not collect any rents for more than thirty (30) days in
advance of the time when the same shall become due, except for
bona fide security deposits not in excess of an amount equal to
two months rent; (e) shall not enter into any ground Lease or
master Lease of any part of the Properties; (f) shall not further
assign or encumber any Lease; (g) shall not, except with
Lender's prior written consent (which consent shall not be
unreasonably delayed or withheld), cancel or accept surrender or
termination of any Lease; (h) shall not, except with Lender's
prior written consent (which consent shall not be unreasonably
delayed, withheld or conditioned), modify or amend any Lease
(except for minor modifications and amendments entered into in the
ordinary course of business, consistent with prudent property
management practices, not affecting the economic terms of the Lease);
(i)shall not, except with Lender's prior written consent (which
consent shall not be unreasonably delayed, withheld or
conditioned), consent to any sublease of space at any of the
Properties; and (j) shall maintain all security deposits in
accordance with the applicable Leases and the requirements of the
applicable laws of the state in which each Individual Property is
located. Any action in violation of clauses (e), (f), (g), (h)
and (i) of this Section 7.3 shall be void at the election of
Lender.
SECTION 7.4 TENANT ESTOPPELS. At Lender's request,
----------------
Borrower shall obtain and furnish to Lender, written estoppels in
the form attached hereto as Schedule VII or otherwise in form
and substance reasonably satisfactory to Lender, executed by
tenants under Leases and Operating Leases at the Properties and
confirming the term, rent, and other provisions and matters
relating to the Leases.
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants, as of the date
hereof, and covenants to Lender that:
SECTION 8.1 ORGANIZATION, POWER AND AUTHORITY.
---------------------------------
Borrower and the Operating Lessee (a) are duly organized, validly
existing and in good standing under the laws of the state of
their formation or existence, (b) are in compliance with all
legal requirements applicable to doing business in each state
where the Properties are located, and (c) to the extent
necessary, have the necessary governmental approvals to own and
operate the Properties and conduct the business now conducted or
to be conducted thereon. Each Borrower Party (a) is duly
organized, validly existing and in good standing under the laws
of the state of its formation or existence and (b) to the extent
necessary, is in compliance with all legal requirements
applicable to doing business in each state where the Properties
are located. Borrower has the full power, authority and right to
execute, deliver and perform its obligations pursuant to this
Loan Agreement and the other Loan Documents, and to mortgage the
Properties pursuant to the terms of the Mortgages and to keep and
observe all of the terms of this Loan Agreement and the other
Loan Documents on Borrower's part to be performed.
SECTION 8.2 VALIDITY OF LOAN DOCUMENTS. The
--------------------------
execution, delivery and performance by Borrower and each Borrower
Party of the Loan Documents: (a) are duly authorized and do not
require the consent or approval of any other party or
governmental authority which has not been obtained; and (b) will
not violate any law or result in the imposition of any lien,
charge or encumbrance upon the assets of any such party, except
as contemplated by the Loan Documents. The Loan Documents
constitute the legal, valid and binding obligations of Borrower
and each Borrower Party, enforceable in accordance with their
respective terms, subject to equitable principles and applicable
bankruptcy, insolvency, or similar laws generally affecting the
enforcement of creditors' rights.
SECTION 8.3 NO CONFLICTS. The execution, delivery and
------------
performance of this Agreement and the other Loan Documents by
Borrower will not conflict with or result in a breach of any of
the terms or provisions of, or constitute a default under, or
result in the creation or imposition of any lien, charge or
encumbrance (other than pursuant to the Loan Documents) upon any
of the property or assets of Borrower pursuant to the terms of
any indenture, mortgage, deed of trust, loan agreement,
partnership agreement or other agreement or instrument to which
Borrower is a party or by which any of Borrower's property or
assets is subject, nor will such action result in any violation
of the provisions of any statute or any order, rule or regulation
of any court or governmental agency or body having jurisdiction
over Borrower or any of Borrower's properties or assets, and any
consent, approval, authorization, order, registration or
qualification of or with any court or any such regulatory
authority or other governmental agency or body required for the
execution, delivery and performance by Borrower of this Agreement
or any other Loan Documents has been obtained and is in full
force and effect.
SECTION 8.4 LIABILITIES; LITIGATION.
-----------------------
(a) All financial data, including, without limitation,
the statements of cash flow and income and operating expense,
that have been delivered by Borrower and each Borrower Party are
(i) are true, complete and correct in all material respects, (ii)
accurately represent the financial condition of the Properties as
of the date of such reports, and (iii) to the extent prepared or
audited by an independent certified public accounting firm, have
been prepared in accordance with generally accepted accounting
principles then in effect throughout the periods covered, except
as disclosed therein. Borrower does not have any contingent
liabilities, liabilities for taxes, unusual forward or long-term
commitments or unrealized or anticipated losses from any
unfavorable commitments that are known to Borrower and reasonably
likely to have a materially adverse effect on the Properties or
the operation thereof as hotels, except as referred to or
reflected in said financial statements. Since the date of the
financial statements, there has been no materially adverse change
in the financial condition, operations or business of Borrower
from that set forth in said financial statements. There is no
litigation, administrative proceeding, investigation or other
legal action (including any proceeding under any state or federal
bankruptcy or insolvency law) pending or, to the knowledge of
Borrower, threatened, against the Properties, Borrower or any
Borrower Party which if adversely determined could have a
material adverse effect on such party, the Properties or the
Loan, except as specifically set forth on Schedule IX.
-----------
(b) Neither Borrower nor any Borrower Party is
contemplating either the filing of a petition by it under state
or federal bankruptcy or insolvency laws or the liquidation of
all or a major portion of its assets or property, and neither
Borrower nor any Borrower Party has knowledge of any Person
contemplating the filing of any such petition against it.
SECTION 8.5 TAXES AND ASSESSMENTS. There are no
---------------------
pending or, to Borrower's best knowledge, proposed, special or
other assessments for public improvements or otherwise affecting
the Properties, nor, to Borrower's knowledge, are there any
contemplated improvements to the Properties that may result in
such special or other assessments.
SECTION 8.6 OTHER AGREEMENTS; DEFAULTS. Neither
---------------------------
Borrower nor any Borrower Party is a party to any agreement or
instrument or subject to any court order, injunction, permit, or
restriction which might materially adversely affect any of the
Properties or the business, operations, or condition (financial
or otherwise) of Borrower. Neither Borrower nor any Borrower
Party is in violation of any agreement which violation would have
a materially adverse effect on any of the Properties, Borrower,
or any Borrower Party or Borrower's business, properties, or
assets, operations or condition, financial or otherwise.
SECTION 8.7 TITLE. Borrower has good, marketable and
-----
insurable title to the Properties, free and clear of all Liens
whatsoever except the Permitted Encumbrances, such other Liens as
are permitted pursuant to the Loan Documents and the liens
created by the Loan Documents. Each Mortgage creates (i) a
valid, perfected lien on the applicable Individual Property,
subject only to Permitted Encumbrances and the liens created by
the Loan Documents and (ii) perfected security interests in and
to, and perfected collateral assignments of, all personalty
(including the Leases), all in accordance with the terms thereof,
in each case subject only to any applicable Permitted
Encumbrances, such other Liens as are permitted pursuant to the
Loan Documents and the liens created by the Loan Documents.
There are no claims for payment for work, labor or materials
affecting any of Borrower's Properties which are or may become a
lien prior to, or of equal priority with, the liens created by
the Loan Documents. None of the Permitted Encumbrances,
individually or in the aggregate, materially interfere with the
benefits of the security intended to be provided by the Mortgages
and this Loan Agreement, materially and adversely affect the
value of any Individual Property, impair the use or operations of
any Individual Property or impair Borrower's ability to pay its
obligations in a timely manner.
SECTION 8.8 COMPLIANCE WITH LAW.
-------------------
(a) Borrower has or, pursuant to the Operating Lease,
has caused the Operating Lessees to have all requisite licenses,
permits, franchises, qualifications, certificates of occupancy or
other governmental authorizations to own, lease and operate each
of the Properties and carry on its business, and each of the
Properties is in compliance with applicable legal requirements in
all material respects and is free of material structural defects,
and all building systems contained therein are in good working
order, subject to ordinary wear and tear. Each of the Properties
does not constitute, in whole or in part, a legally
non-conforming use under applicable legal requirements;
(b) No condemnation has been commenced or, to
Borrower's knowledge, is contemplated with respect to all or any
portion of the Properties or for the relocation of roadways
providing access to any of the Properties; and
(c) Each of the Properties has adequate rights of
access to public ways and is served by adequate water, sewer,
sanitary sewer and storm drain facilities. All public utilities
necessary to the full use and enjoyment of the Properties are
located in the public right-of-way abutting each of the
Properties, and all such utilities are connected so as to serve
the Properties without passing over other property, except to the
extent such other property is subject to a perpetual easement for
such utility benefiting each of the Properties. All roads
necessary for the full utilization of each of the Properties for
its current purpose have been completed and dedicated to public
use and accepted by all governmental authorities.
SECTION 8.9 LOCATION OF BORROWER. Borrower's
--------------------
principal place of business and chief executive offices are
located at the address stated in Section 15.1.
SECTION 8.10 ERISA.
-----
(a) As of the date hereof and throughout the term of
the Loan, (i) Borrower is not and will not be an "employee
benefit plan" as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"),
which is subject to Title I of ERISA, and (ii) the assets of
Borrower do not and will not constitute "plan assets" of an
employee benefit plan for purposes of Title I of ERISA; provided
that the foregoing representation is based on the assumption that
Lender will not satisfy its obligations under the Loan with the
assets of an "employee benefit plan"; and
(b) As of the date hereof and throughout the term of
the Loan (i) Borrower is not and will not be a "governmental
plan" within the meaning of Section 3(32) of ERISA and (ii)
transactions by or with Borrower are not and will not be subject
to state statutes applicable to Borrower regulating investments
of and fiduciary obligations with respect to governmental plans.
SECTION 8.11 FORFEITURE. There has not been committed
----------
by Borrower or, to Borrower's knowledge, any other person in
occupancy of or involved with the operation or use of any of the
Properties any act or omission affording the federal government
or any state or local government the right of forfeiture as
against any of the Properties or any part thereof or any monies
paid in performance of Borrower's obligations under any of the
Loan Documents. Borrower hereby covenants and agrees not to
commit, permit or suffer to exist any act or omission affording
such right of forfeiture.
SECTION 8.12 TAX FILINGS. Borrower and each Borrower
-----------
Party have filed (or have obtained effective extensions for
filing) all federal, state and local tax returns required to be
filed and have paid or made adequate provision for the payment of
all federal, state and local taxes, charges and assessments
payable by Borrower and each Borrower Party, respectively.
Borrower and each Borrower Party believe that their respective
tax returns properly reflect the income and taxes of Borrower and
each Borrower Party, respectively, for the periods covered
thereby, subject only to reasonable adjustments required by the
Internal Revenue Service or other applicable tax authority upon
audit.
SECTION 8.13 SOLVENCY. Borrower (a) has not entered
into the transaction or any Loan Document with the actual intent
to hinder, delay, or defraud any creditor and (b) received
reasonably equivalent value in exchange for its obligations under
the Loan Documents. Giving effect to the Loan, the fair saleable
value of Borrower's assets exceeds and will, immediately
following the making of the Loan, exceed Borrower's total
liabilities, including, without limitation, subordinated,
unliquidated, disputed and contingent liabilities. The fair
saleable value of Borrower's assets is and will, immediately
following the making of the Loan, be greater than Borrower's
probable liabilities, including the maximum amount of its
contingent liabilities on its debts as such debts become absolute
and matured, Borrower's assets do not and, immediately following
the making of the Loan will not, constitute unreasonably small
capital to carry out its business as conducted or as proposed to
be conducted. Borrower does not intend to, and does not believe
that it will, incur Indebtedness and liabilities (including
contingent liabilities and other commitments) beyond its ability
to pay such Indebtedness as they mature (taking into account the
timing and amounts of cash to be received by Borrower and the
amounts to be payable on or in respect of obligations of
Borrower). Except as expressly disclosed to Lender in writing,
no petition in bankruptcy has been filed against Borrower,
Indemnitor, any guarantor or any Borrower Party in the last seven
(7) years, and neither Borrower, Indemnitor, any guarantor or any
Borrower Party in the last seven (7) years has ever made an
assignment for the benefit of creditors or taken advantage of any
insolvency act for the benefit of debtors.
SECTION 8.14 FULL AND ACCURATE DISCLOSURE. All
----------------------------
information submitted by Borrower or any Borrower Party to Lender
in connection with the Loan or in satisfaction of the terms
thereof and all statements of fact made by Borrower or any
Borrower Party in this Agreement or in any other Loan Document,
are accurate, complete and correct in all material respects. No
statement of fact made by or on behalf of Borrower or any
Borrower Party in this Agreement or in any of the other Loan
Documents contains any untrue statement of a material fact or
omits to state any material fact necessary to make statements
contained herein or therein not misleading. There is no fact
presently known to Borrower which has not been disclosed to
Lender which adversely affects, nor as far as Borrower can
reasonably foresee, might materially adversely affect, any of the
Properties or the business, operations or condition (financial or
otherwise) of Borrower or any Borrower Party.
SECTION 8.15 FLOOD ZONE. Except as otherwise
----------
disclosed by the surveys delivered to Lender pursuant to Section
4.1 hereof, no portion of the improvements comprising any of the
Properties is located in an area identified by the Secretary of
Housing and Urban Development or any successor thereto as an area
having special flood hazards pursuant to the National Flood
Insurance Act of 1968, the Flood Disaster Protection Act of 1973
or the National Flood Insurance Act of 1994, as amended, or any
successor law, or, if located within any such area, Borrower has
obtained and will maintain the insurance prescribed in Section
5.1 hereof.
SECTION 8.16 FEDERAL RESERVE REGULATIONS. No part of
---------------------------
the proceeds of the Loan will be used for the purpose of
purchasing or acquiring any "margin stock" within the meaning of
Regulation U of the Board of Governors of the Federal Reserve
System or for any other purpose which would be inconsistent with
such Regulation U or any other Regulations of such Board of
Governors, or for any purposes prohibited by Legal Requirements
or by the terms and conditions of this Agreement or the other
Loan Documents.
SECTION 8.17 NOT A FOREIGH PERSON. Borrower is not a
--------------------
"foreign person" within the meaning of 1445(f)(3) of the Code.
SECTION 8.18 SEPARATE LOTS. Each Individual Property
-------------
is comprised of one (1) or more parcels which constitutes a
separate tax lot and does not constitute a portion of any other
tax lot not a part of such Individual Property.
SECTION 8.19 NO PRIOR ASSIGNMENT. There are no prior
-------------------
assignments of the Leases, Operating Leases or any portion of the
Rents due and payable or to become due and payable which are
presently outstanding.
SECTION 8.20 INSURANCE. Borrower has obtained, or has
---------
caused to be obtained, and has delivered to Lender certified
copies of all insurance policies reflecting the insurance
coverages, amounts and other requirements set forth in this
Agreement. No claims have been made under any such Policy, and,
to the best of Borrower's knowledge, no Person, including
Borrower, has done, by act or omission, anything which would
impair the coverage of any such policy.
SECTION 8.21 USE OF PROPERTIES. Each of the
-----------------
Individual Properties is used exclusively for hotel purposes and
other appurtenant and related uses including, but not limited to,
restaurants and lounges.
Section 8.22 CERTIFICATE OF OCCUPANCY; LICENSES. All
----------------------------------
certifications, permits, licenses and approvals, including
without limitation, certificates of completion and occupancy
permits and any applicable liquor license required for the legal
use, occupancy and operation of each of the Individual Properties
as a hotel (collectively, the "LICENSES"), have been obtained and
are in full force and effect. Borrower shall ensure that all
licenses necessary for the operation of each of the Individual
Properties as a hotel are kept and maintained. The use being
made of each Individual Property is in conformity with the
certificate of occupancy issued for such Individual Property.
SECTION 8.23 PHYSICAL CONDITION. Each of the
------------------
Individual Properties, including, without limitation, all
buildings, improvements, parking facilities, sidewalks, storm
drainage systems, roofs, plumbing systems, HVAC systems, fire
protection systems, electrical systems, equipment, elevators,
exterior sidings and doors, landscaping, irrigation systems and
all structural components, are in good condition, order and
repair in all material respects; there exists no structural or
other material defects or damages in any of the Individual
Properties, whether latent or otherwise, and Borrower has not
received notice from any insurance company or bonding company of
any defects or inadequacies in any of the Individual Properties,
or any part thereof, which would adversely affect the
insurability of the same or cause the imposition of extraordinary
premiums or charges thereon or of any termination or threatened
termination of any policy of insurance or bond.
SECTION 8.24 BOUNDARIES. Except as otherwise
----------
disclosed by the surveys delivered to Lender pursuant to Section
4.1 hereof, all of the improvements which were included in
determining the appraised value of each Individual Property lie
wholly within the boundaries and building restriction lines of
such Individual Property, and no improvements on adjoining
properties encroach upon such Individual Property, and no
easements or other encumbrances upon the applicable Individual
Property encroach upon any of the improvements, so as to affect
the value or marketability of the applicable Individual Property
except those which are insured against by title insurance.
SECTION 8.25 INTENTIONALLY OMITTED.
---------------------
SECTION 8.26 INTENTIONALLY OMITTED.
---------------------
SECTION 8.27 FILING AND RECORDING TAXES. All
--------------------------
transfer taxes, deed stamps, intangible taxes or other amounts in
the nature of transfer taxes required to be paid by any Person
under applicable Legal Requirements currently in effect in
connection with the transfer of the Properties to Borrower have
been paid. All mortgage, mortgage recording, stamp, intangible
or other similar tax required to be paid by any Person under
applicable Legal Requirements currently in effect in connection
with the execution, delivery, recordation, filing, registration,
perfection or enforcement of any of the Loan Documents,
including, without limitation, the Mortgages encumbering the
Properties have been paid, and, under current Legal Requirements,
the Mortgages encumbering the Properties are enforceable in
accordance with their respective terms by Lender (or any
subsequent holder thereof), subject to equitable principles and
applicable bankruptcy, insolvency or similar laws generally
affecting the enforcement of creditors' rights.
SECTION 8.28 SINGLE PURPOSE ENTITY/SEPARATENESS.
----------------------------------
Borrower represents, warrants and covenants as follows:
(a) The purpose for which the Borrower is organized
shall be limited solely to (i) owning, holding, selling, leasing,
transferring, exchanging, operating and managing the Properties,
(ii) entering into this Agreement with the Lender, (iii)
refinancing the Properties in connection with a permitted
repayment of the Loan and (iv) transacting any and all lawful
business for which a Borrower may be organized under its
constitutive law that is incident, reasonable and appropriate to
accomplish the foregoing. Borrower shall conduct its business in
accordance with the foregoing purpose.
(b) Borrower does not own and will not own any asset
or property other than (i) the Properties, and (ii) incidental
personal property necessary for the ownership or operation of the
Properties. Borrower will not engage in any business other than
the ownership, management and operation of the Properties and
Borrower will conduct and operate its business as presently
conducted and operated.
(c) Borrower will not enter into any contract or
agreement with any Affiliate of Borrower, any constituent party
of Borrower, the guarantors or any Affiliate of any constituent
party or guarantor, except upon terms and conditions that are
substantially similar to those that would be available on an arms-
length basis with third parties other than any such party.
(d) Borrower has not incurred and will not incur any
Indebtedness other than (i) the Loan, (ii) trade and operational
debt incurred in the ordinary course of business which is
outstanding for no more than sixty (60) days with trade creditors
and in amounts as are normal and reasonable under the
circumstances, provided such debt is not evidenced by a note, is
paid when due and such debt does not exceed at any one time one
percent (1%) of the Release Amount for the applicable Individual
Property, and (iii) debt incurred in the financing of equipment
and other personal property located at the Properties which is
not in any way deemed to be real property, secured solely by such
equipment or personal property being financed, not to exceed at
any one time two percent (2%) of the Release Amount for the
applicable Individual Property. No Indebtedness other than the
Loan may be secured (subordinate or pari passu) by the
Properties.
(e) Borrower has not made and will not make any loans
or advances to any third party (including any affiliate or
constituent party, any guarantor or any affiliate of any
constituent party or guarantor), and shall not acquire
obligations or securities of its affiliates or any constituent
party.
(f) Borrower is and will remain solvent and Borrower
will pay its debts and liabilities (including, as applicable,
shared personnel and overhead expenses) from its assets as the
same shall become due.
(g) Borrower has done or caused to be done and will do
all things necessary to observe organizational formalities and
preserve its existence, and Borrower will not, nor will Borrower
permit any constituent party or any guarantor to amend, modify or
otherwise change the partnership certificate, partnership
agreement, articles of incorporation and bylaws, operating
agreement, trust or other organizational documents of Borrower or
such constituent party or guarantor without the prior written
consent of Lender.
(h) Borrower will maintain all of its books, records,
financial statements and bank accounts separate from those of its
Affiliates and any constituent party and, to the extent required
by law, Borrower will file its own tax returns. Borrower shall
maintain its books, records, resolutions and agreements as
official records.
(i) Borrower will be, and at all times will hold
itself out to the public as, a legal entity separate and distinct
from any other entity (including any Affiliate of Borrower, any
constituent party of Borrower, any guarantor or any Affiliate of
any constituent party or guarantor), shall correct any known
misunderstanding regarding its status as a separate entity, shall
conduct business in its own name, shall not identify itself or
any of its Affiliates as a division or part of the other and
shall maintain and utilize a separate telephone number and
separate stationery, invoices and checks.
(j) Borrower will maintain adequate capital for the
normal obligations reasonably foreseeable in a business of its
size and character and in light of its contemplated business
operations.
(k) Neither Borrower nor any constituent party will
seek the dissolution, winding up, liquidation, consolidation or
merger in whole or in part, of Borrower.
(l) Borrower will not commingle the funds and other
assets of Borrower with those of any Affiliate or constituent
party, any guarantor, or any Affiliate of any constituent party
or guarantor, or any other person.
(m) Borrower has and will maintain its assets in such
a manner that it will not be costly or difficult to segregate,
ascertain or identify its individual assets from those of any
Affiliate or constituent party, any guarantor, or any Affiliate
of any constituent party or guarantor, or any other person.
(n) Borrower does not and will not hold itself out to
be responsible for the debts or obligations of any other person.
(o) If Borrower is a limited partnership or a limited
liability company, each general partner or managing member (each,
an "SPC PARTY") shall be a corporation whose sole asset is its
interest in Borrower and each such SPC Party will at all times
comply, and will cause Borrower to comply, with each of the
representations, warranties, and covenants contained in this
Section 8.28 as if such representation, warranty or covenant was
made directly by such SPC Party.
(p) Borrower shall at all times cause there to be at
least one duly appointed member of the board of directors (an
"INDEPENDENT DIRECTOR") of each SPC Party in Borrower reasonably
satisfactory to Lender who shall not have been at the time of
such individual's appointment, and may not have been at any time
during the preceding five years (i) a shareholder of, or an
officer, director, partner or employee of, Borrower or any of its
shareholders, subsidiaries or affiliates, (ii) a customer of, or
supplier to, Borrower or any of its shareholders, subsidiaries or
affiliates, (iii) a person or other entity controlling or under
common control with any such shareholder, partner, supplier or
customer, or (iv) a member of the immediate family of any such
shareholder, officer, director, partner, employee, supplier or
customer of Borrower. As used herein, the term "control" means
the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a person or
entity, whether through ownership of voting securities, by
contract or otherwise.
(q) Borrower shall not cause or permit the board of
directors of each SPC Party in Borrower to take any action which,
under the terms of any certificate of incorporation, by-laws or
any voting trust agreement with respect to any common stock,
requires the vote of the board of directors of Borrower and/or
any SPC Party in Borrower unless at the time of such action there
shall be at least one member who is an Independent Director.
(r) Borrower shall conduct its business so that the
assumptions made with respect to Borrower in that certain opinion
letter of even date herewith (the "INSOLVENCY OPINION") delivered
by Hunton & Williams in connection with the Loan shall be true
and correct in all respects.
SECTION 8.29 MANAGEMENT AGREEMENTS.
---------------------
(a) In the event that any Individual Property is or
becomes subject to a Management Agreement with a Person that is
not an "affiliate" (as defined in the applicable Operating Lease)
of the applicable Operating Lessee, Lender shall have the right
to reasonably approve such Manager in advance (and any
replacement Manager) and the applicable Management Agreement.
The fee due under any Management Agreement, and the terms and
provisions of each Management Agreement, shall be subordinate to
this Agreement and the applicable Mortgage, and each Manager
shall agree to attorn to Lender. Borrower shall not terminate,
cancel, modify, renew or extend any Management Agreement, or
enter into any agreement relating to the management or operation
of the Properties without the express written consent of Lender,
which consent shall not be unreasonably withheld, delayed or
conditioned; provided, however, after a Securitization, with
-------- -------
respect to a new Manager such consent may be conditioned upon
Borrower delivering evidence in writing from the applicable
Rating Agencies to the effect that such new Manager will not
result in a downgrade, withdrawal or qualification of the
respective ratings then in effect for any Securities issued in
connection with a Securitization. If at any time Lender consents
to the appointment of a new Manager, such new Manager and
Borrower or the Operating Lessee, as applicable, shall, as a
condition of Lender's consent, execute a Manager's Consent and
Subordination of Management Agreement substantially in the form
attached hereto as Schedule X (as such form may be amended by
----------
Lender consistent with prudent underwriting standards). Each
Management Agreement (and any amendments or modifications
thereto) must provide that (i) upon a termination of the related
Operating Lease or a termination of Borrower's or Operating
Lessee's right to possession of the applicable Individual
Property for any reason, such Management Agreement may be
terminated by Lender without liability for any payment due or to
become due to the Manager thereunder, (ii) any management fees
shall be subordinated to payments of Rent thereunder, and (iii)
in the event Borrower or Operating Lessee, as applicable, is in
default, such Manager shall, at the election of Lender and
provided that such Manager continues to be paid, continue to
perform under the terms of the Management Agreement for a period
not to exceed ninety (90) days. No fees or other amounts payable
to Borrower by Manager under such Management Agreements shall
excuse Borrower from its obligations to pay Rent and other
amounts to the Bank (as defined in the Cash Management Agreement)
to be held and applied in accordance with the Cash Management
Agreement. To the extent that there is no Operating Lessee and
Borrower directly enters into a management agreement, it shall
also provide that (i) if at any time under the term of the Loan
the property manager becomes insolvent or a debtor in any
bankruptcy or insolvency proceeding or (ii) Borrower is in
default beyond applicable notice and cure periods under the Loan,
Lender may terminate and remove the property manager and replace
the manager with a manager acceptable to Lender and any Rating
Agencies in their sole discretion; such manger shall receive a
property management fee not to exceed then current market rates.
(b) Borrower, upon the request of Lender (and with
respect to the Operating Leases in effect as of the date hereof,
to the extent that Borrower is empowered to do so under such
Operating Leases), shall terminate any Manager designated by
Lender, without penalty or fee, if at any time during the Loan
(i) such Manager shall become insolvent or a debtor in any
bankruptcy or insolvency proceeding, (ii) there is continuing an
Event of Default, or (iii) the Anticipated Payment Date has
occurred and the Loan has not been repaid. Each Management
Agreement entered into by Borrower shall provide that such
Manager may be terminated, without penalty or fee, upon the
occurrence of any of the foregoing. At such time as the Manager
may be removed, a replacement Manager acceptable to Lender and
the applicable Rating Agencies in their sole discretion shall
assume management of the Properties and shall receive a property
management fee not to exceed then current market rates.
(c) The Management Agreements more particularly
described on Schedule XI hereto are the only Management
Agreements currently in effect with respect to the Properties.
Borrower is under no obligation to pay any fees, expenses or
other costs to or for any party, or to perform any acts or
services for any party, pursuant to the terms and provisions of
the Management Agreements more particularly described on Schedule
XI hereto.
SECTION 8.30 FRANCHISE AGREEMENTS; OPERATING LEASES
--------------------------------------
(a) To the best of Borrower's knowledge, each of the
Franchise Agreements between the respective Operating Lessee and
the Franchisor listed on Schedule IV, pursuant to which the
applicable Operating Lessee has the right to operate the hotel
located on the Individual Property under a name and/or hotel
system controlled by such Franchisor, is in full force and effect
and there is no default, breach or violation existing thereunder
by any party thereto and no event has occurred (other than
payments due but not yet delinquent) that, with the passage of
time or the giving of notice, or both, would constitute a
default, breach or violation by any party thereunder. Borrower
shall not permit, to the extent empowered to do so, or consent to
the termination, extension or modification or the entering into
of any Franchise Agreement without Lender's prior written
consent, which consent shall not be unreasonably conditioned,
withheld or delayed; provided, however, with respect to a new
Franchise Agreement entered into after a Securitization, such
consent may be conditioned upon Borrower delivering evidence in
writing from the applicable Rating Agencies to the effect that
such new Franchise Agreement will not result in a downgrade,
withdrawal or qualification of the respective ratings then in
effect for any Securities issued in connection with a
Securitization. All payments due under the Franchise Agreements
shall be the sole obligation of the applicable Operating Lessee
and not of Borrower; provided, however, that Borrower may be
responsible for additional payments with respect to the Franchise
Agreements more particularly described on Schedule XII hereto
-------------
pursuant to the owner's agreements more particularly described on
Schedule XIII hereto.
- -------------
(b) Each Operating Lease, pursuant to which the
applicable Operating Lessee operates the respective Individual
Property as a hotel, is in full force and effect and there is no
default, breach or violation existing thereunder by Borrower or,
to the best of Borrower's knowledge, any other party thereto and
no event has occurred (other than payments due but not yet
delinquent) that, with the passage of time or the giving of
notice, or both, would constitute a default, breach or violation
by any party thereunder. The fee due under each Operating Lease,
and the terms and provisions of the Operating Lease, are
subordinate to this Agreement and the Mortgage. Borrower shall
not terminate, cancel, modify, renew or extend any Operating
Lease (other than a termination by Borrower due to the non-
payment of Rent due thereunder by the Operating Lessee in
accordance with the terms of the applicable Operating Lease
beyond any applicable notice and cure periods), or enter into any
agreement relating to the management or operation of any
Individual Property with the applicable Operating Lessee or any
other party without the express written consent of Lender, which
consent shall not be unreasonably conditioned, withheld or
delayed; provided, however, that with respect to a new Operating
Lessee such consent may be conditioned upon Borrower delivering
evidence in writing from the applicable Rating Agencies to the
effect that such new Operating Lessee will not result in a
downgrade, withdrawal or qualification of the respective ratings
then in effect for any Securities issued in connection with a
Securitization. If at any time Lender consents to the
appointment of a new Operating Lessee, such new Operating Lessee
and Borrower shall, as a condition of Lender's consent, execute a
Nondisturbance Agreement. In the event any one Operating Lessee
operates more than one Individual Property, each such Operating
Lease shall be cross defaulted with the Operating Leases covering
any of the other Properties entered into with such Operating
Lessee.
(c) Neither the execution and delivery of the Loan
Documents, Borrower's performance thereunder, nor the exercise of
any remedies by Lender, will adversely affect Borrower's rights
under the Franchise Agreements, the Operating Leases, or any of
the Licenses.
SECTION 8.31 INVESTMENT COMPANY ACT. Borrower is not
----------------------
(a) an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment
Company Act of 1940, as amended; (b) a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of
either a "holding company" or a "subsidiary company" within the
mean of the Public Utility Holding Company Act of 1935, as
amended; or (c) subject to any other federal or state law or
regulation which purports to restrict or regulate its ability to
borrow money.
SECTION 8.32 LEASES. Borrower is not a party, either
------
directly or as a successor or assignee, to any Leases other than
(i) the Operating Leases set forth on Schedule V hereto and (ii)
that certain Lease dated as of October 21, 1992 made by and
between Cary Suites, Inc. and Siemens Medical Systems, Inc., as
amended by that certain Amendment to Lease dated as of February
7, 1994 and subsequently assigned to Borrower.
SECTION 8.33 SPE COMPLIANCE. All of the assumptions
--------------
set forth in the Insolvency Opinion are true and correct. In
connection with the foregoing, Borrower hereby covenants and
agrees that it will comply with, or cause the compliance with,
(i) all the assumptions (whether regarding Borrower or any other
persons or entity) set forth in the Insolvency Opinion, (ii) all
the representations and warranties set forth in Section 8.28
hereof, and (iii) all the organizational documents of Borrower
and its SPC Party.
ARTICLE 9
FINANCIAL REPORTING
-------------------
SECTION 9.1 FINANCIAL STATEMENTS
--------------------
(a) OBLIGATIONS OF BORROWER. (i) Borrower will keep
-----------------------
and maintain or will cause to be kept and maintained, in
accordance with generally accepted accounting principles proper
and accurate books, records and accounts reflecting all of the
financial affairs of Borrower and Operating Lessees, all items of
income and expense in connection with the operation on an
individual basis of each of the Individual Properties. Lender
shall have the right from time to time at all times during normal
business hours to examine such books, records and accounts at the
office of Borrower, Operating Lessee or other Person maintaining
such books, records and accounts and to make such copies or
extracts thereof as Lender shall desire. After the occurrence
and during the continuation of an Event of Default, Borrower
shall pay any costs and expenses incurred by Lender to examine
any accounting records with respect to the Properties, as Lender
shall determine to be necessary or appropriate in the protection
of Lender's interest.
(b) MONTHLY REPORTS. Within thirty (30) days after
---------------
the end of each calendar month, Borrower shall furnish or cause
the Operating Lessees to furnish to Lender current (as of the
calendar month just ended) property-level balance sheets,
detailed property-level operating statements (showing monthly
activity and year-to-date) stating Operating Revenues, Operating
Expenses, Net Operating Income and net cash flow for the calendar
month just ended, a general ledger (if so required), a report of
occupancy for the subject month including an average daily rate,
and any and all franchise inspection reports received by Borrower
or any Operating Lessee during the subject month and, as
requested by Lender, a written statement setting forth any
variance from the annual budget and other documentation
supporting the information disclosed in the most recent financial
statements.
(c) QUARTERLY REPORTS. Within sixty (60) days after
-----------------
the end of each calendar quarter, Borrower shall furnish or shall
cause the Operating Lessees to furnish to Lender detailed
property-level operating statements (showing quarterly activity
and year-to-date) stating Operating Revenues, Operating Expenses,
Net Operating Income, and net cash flow and capital expenditures
for the calendar quarter just ended. Borrower's quarterly
statements shall be accompanied by (i) a comparison of the
budgeted income and expenses and the actual income and expenses
for the prior calendar quarter, and (ii) a certificate executed
by the chief financial officer of Borrower or the general partner
of Borrower stating that, to the best of such officer's
knowledge, each such quarterly statement presents fairly the
financial condition and the results of operations of Borrower and
the Properties being reported upon and has been prepared in
accordance with generally accepted accounting principles;
provided that, with respect to property-level reports, such
quarterly reports shall be prepared using the same accounting
method used at closing and Borrower agrees to notify Lender of
any material changes in the method used for the preparation of
such property-level reports upon the receipt of notice of such
change from the Operating Lessee. In addition, such statement
shall also be accompanied by a certificate of the chief financial
officer of Borrower or the general partner or managing member of
Borrower stating that the representations and warranties of
Borrower set forth in Section 8.28 are true and correct as of the
date of such certificate and that there are no trade payables of
Borrower outstanding for more than sixty (60) days.
(d) ANNUAL REPORTS. Within ninety (90) days after the
--------------
end of each calendar year, Borrower will furnish or direct to be
furnished to Lender a complete copy of the annual financial
statements of Borrower and REIT audited by a "Big Five"
accounting firm or other independent certified public accountant
acceptable to Lender in accordance with generally accepted
accounting principles (which audited Borrower financial
statements shall contain a supplemental schedule of Operating
Lease revenues on a property-by-property basis; provided that
such supplemental schedule will not be audited separately).
Within ninety (90) days after the end of each calendar year,
Borrower shall furnish or cause the Operating Lessees to furnish
to Lender detailed property-level operating statements (showing
annual activity) stating Operating Revenues, Operating Expenses,
Operating Income and net cash flow for each of the Properties.
Such property-level annual financial statements shall be
accompanied by (i) a comparison of the budgeted income and
expenses and the actual income and expenses for the prior
calendar year and (ii) a certificate executed by the chief
financial officer of Borrower or the general partner of Borrower
stating that, to the best of such officer's knowledge, each such
annual financial statement presents fairly the financial
condition and the results of operations of the Properties;
provided that, with respect to property-level reports, such
annual reports shall be prepared using the same accounting method
used at closing and Borrower agrees to notify Lender of any
material changes in the method used for the preparation of such
property-level reports upon the receipt of notice of such change
from the Operating Lessee. Annual financial statements of the
Borrower and REIT shall be accompanied by an unqualified opinion
of a "Big Five" accounting firm or other independent certified
public accountant reasonably acceptable to Lender.
(e) CERTIFICATION; SUPPORTING DOCUMENTATION. Each
----------------------------------------
such financial statement shall be in scope and detail
satisfactory to Lender and certified by the chief financial
representative of Borrower.
(f) ADDITIONAL REPORTS. Borrower shall deliver to
------------------
Lender as soon as reasonably available but in no event later than
thirty (30) days after such items become available to Borrower in
final form:
(i) copies of any final engineering or
environmental reports, if any, prepared for Borrower or
any Operating Lessee with respect to an Individual
Property;
(ii) a copy of any notice received from any
environmental authority having jurisdiction over an
Individual Property with respect to a condition
existing or alleged to exist or emanate from or at an
Individual Property; and
(iii) copies of any financial statements and
reports required to be delivered to Borrower by any
Operating Lessees pursuant to the Operating Leases.
SECTION 9.2 ACCOUNTING PRINCIPLES . All financial
---------------------
statements shall be prepared in accordance with generally
accepted accounting principles in the United States of America as
in effect on the date so indicated and consistently applied and
the Uniform System of Accounts for Hotels, current edition (or
such other accounting basis reasonably acceptable for Lender).
SECTION 9.3 OTHER INFORMATION; ACCESS. Borrower shall
-------------------------
deliver to Lender such reasonable additional information
regarding Borrower, its subsidiaries, its business, any Borrower
Party, and any of the Properties within thirty (30) days after
Lender's request therefor. Borrower shall permit Lender to
examine such records, books and papers of Borrower which reflect
upon its financial condition and the income and expenses of each
of the Properties.
SECTION 9.4 FORMAT OF DELIVERY. Any reports,
------------------
statements or other information required to be delivered under
this Agreement shall be delivered (a) in paper form, (b) on a
diskette, when available, and (c) if requested by Lender and
within the capabilities of Borrower's data systems without change
or modification thereto, in electronic form and prepared using a
Microsoft Word for Windows or WordPerfect for Windows files
(which files may be prepared using a spreadsheet program and
saved as word processing files).
ARTICLE 10
COVENANTS
---------
Borrower covenants and agrees with Lender as follows:
SECTION 10.1 DUE ON SALE AND ENCUMBRANCE; TRANSFERS OF
-----------------------------------------
INTERESTS.
- ---------
(a) Subject to the provisions of Sections 2.4, 2.5,
2.6, 8.28(d)(iii), 10.1(b) and 10.1(d), without the prior written
consent of Lender, neither Borrower nor any other Person having
an ownership or beneficial interest in Borrower shall sell,
transfer, convey, mortgage, encumber, pledge (including the
exercise thereof), or assign any interest in any of the
Properties or any part thereof or further encumber, alienate,
grant a Lien or grant any other interest in any of the Properties
or any part thereof, whether voluntarily or involuntarily, in
violation of the covenants and conditions set forth in the
Mortgage.
(b) Notwithstanding anything to the contrary contained
in this Agreement, the Mortgages or any other Loan Documents,
Lender's consent shall not be required for any of
the following sales, transfers, assignments, pledges, conveyances or
encumbrances, provided that Lender has received payment in full
of all its actual expenses incurred in connection therewith:
(i) with respect to the REIT, (A) any
transfer of all or any portion of any shares of
beneficial interests of the REIT for so long as the
shares of the REIT continue to be publicly traded on a
national stock exchange and (B) the issuance of
additional shares of the REIT;
(ii) with respect to the Operating
Partnership, (A) any transfer of limited partnership
interests in the Operating Partnership and (B) the
issuance of additional limited partnership units or
other securities, even if such issuance results in a
reduction of the partnership interest of the REIT in
the Operating Partnership, provided that, after giving
effect to such transfer or series of transfers
described in (A) or (B), the REIT owns more than fifty-
one percent (51%) of the partnership interests of the
Operating Partnership; or
(iii) a Fundamental Transaction relating
to the REIT or the Operating Partnership.
(c) As used herein, the term "Fundamental Transaction"
shall mean any acquisition by, merger with or consolidation with
or into, or sale of substantially all of its assets to, an entity
(the "Successor") in which the following conditions have been
satisfied as of the consummation of the transaction:
(i) the Successor owns, directly or
indirectly, substantially all the assets which the
Operating Partnership owned immediately prior to the
effective date of such merger, consolidation or sale;
(ii) the Successor agrees in writing to
assume all obligations of the Operating Partnership
under the Loan Documents to which the Operating
Partnership is a party;
(iii) upon the consummation of such
transaction, Successor shall either be owned by a
Qualified Resultant Owner or the Successor shall be
owned by the executive management of the REIT
immediately prior to such transfer;
(iv) Lender shall have confirmations in
writing from the Rating Agencies to the effect that
such transfer will not result in a re-qualification,
reduction or withdrawal of any rating then assigned to
any Securities in a Securitization;
(v) with respect to any Individual Property
that is the subject of a Management Agreement, the
Manager shall be either the Manager immediately prior
to such transfer or a Qualified Manager, and any new
Management Agreement shall be reasonably satisfactory
to Lender;
(vi) with respect to any Individual Property
that is the subject of an Operating Lease, the
Operating Lessee shall be either the Operating Lessee
immediately prior to such transfer or a Qualified
Operating Lessee, and any new Operating Lease shall be
reasonably satisfactory to Lender;
(vii) Lender shall have received a Legal
non-consolidation opinion of Borrower's counsel
reasonably acceptable to Lender with respect to any
Successor;
(viii) The Properties will be owned by one
or more special purpose bankruptcy remote entities and
a non-consolidation opinion acceptable to Lender and
the Rating Agencies has been delivered; and
(ix) Lender has received no less than forty-
five (45) days' prior written notice of such transfer.
(d) Lender's consent to the sale or transfer of all
Properties (and not less than all) to one purchaser will not be
unreasonably withheld after consideration of all relevant
factors, provided that:
(i) no Event of Default or event which with the
giving of notice or the passage of time would
constitute an Event of Default shall have
occurred and remain uncured;
(ii) the proposed transferee (the "Transferee")
and each indemnitor shall be a reputable
Person of good character, creditworthy, with
sufficient financial worth considering the
obligations assumed and undertaken, as
evidenced by financial statements and other
information reasonably requested by Lender;
(iii) the Transferee, each Operating Lessee
(if changed), and any Manager (if changed)
shall have sufficient experience in the
ownership and management of properties
similar to the Property, and Lender shall be
provided with reasonable evidence thereof;
(iv) if a Securitization has taken place, Lender
shall have confirmations in writing from the
Rating Agencies to the effect that such
transfer will not result in a re-
qualification, reduction or withdrawal of any
rating then assigned to any Securities issued
in connection with such Securitization;
(v) Lender shall have received evidence
satisfactory to it (which shall include a
legal non-consolidation opinion of Borrower's
counsel reasonably acceptable to Lender) that
the single purpose nature and bankruptcy
remoteness of Borrower (and the Operating
Lessee, if changed) its shareholders,
partners, or members, as the case may be,
following such transfers are in accordance
with the standards of the Rating Agencies;
(vi) the Transferee shall have executed and
delivered to Lender an assumption agreement
in form and substance acceptable to Lender,
evidencing such Transferee's agreement to
abide and be bound by the terms of the Note,
the Mortgages and the other Loan Documents,
together with such indemnifications, legal
opinions and title insurance endorsements as
may be reasonably requested by Lender, and
Lender shall have received subordination
agreements in a form acceptable to Lender
with respect to any new Operating Lease or
Management Agreement; and
(vii)Lender shall have received an assumption
fee equal to one percent (1%) of the then
unpaid principal balance of the Note in
addition to the payment of all costs and
expenses incurred by Lender in connection
with such assumption (including reasonable
attorney's fees and costs).
SECTION 10.2 TAXES; UTILITY CHARGES. Borrower shall
----------------------
pay before any fine, penalty, interest or cost may be added
thereto, and shall not enter into any agreement to defer, any
real estate taxes and assessments, franchise taxes and charges,
and other governmental charges (the "TAXES") that may become a
Lien upon any of the Properties or become payable during the term
of the Loan; provided, however; Borrower may contest the validity
-------- -------
of Taxes so long as (a) Borrower notifies Lender that it intends
to contest such Taxes, (b) Borrower provides Lender with an
indemnity, bond or other security reasonably satisfactory to
Lender assuring the discharge of Borrower's obligations for such
Taxes, including interest and penalties, (c) Borrower is
diligently contesting the same by appropriate legal proceedings
in good faith and at its own expense and concludes such contest
prior to the tenth (10th) day preceding the earlier to occur of
the Maturity Date or the date on which the Individual Property is
scheduled to be sold for non-payment, (d) Borrower promptly upon
final determination thereof pay the amount of any such Taxes,
together with all costs, interest and penalties which may be
payable in connection therewith; and (e) notwithstanding the
foregoing, Borrower shall immediately upon request of Lender pay
any such Taxes notwithstanding such contest if, in the opinion of
Lender, any Individual Property or any part thereof or interest
therein may be in danger of being sold, forfeited, foreclosed,
terminated, cancelled or lost. Lender may pay over any cash
deposit or part thereof to the claimant entitled thereto at any
time when, in the judgment of Lender, the entitlement of such
claimant is established. Borrower's compliance with Section 5.4
of this Agreement relating to impounds for Taxes shall, with
respect to payment of such Taxes, be deemed compliance with this
Section 10.2. Borrower shall not suffer or permit the joint
assessment of any of the Properties with any other real property
constituting a separate tax lot or with any other real or
personal property. Borrower shall promptly pay for all utility
services provided to each of the Properties.
SECTION 10.3 OPERATING LEASE. Borrower shall hold and
---------------
maintain, or shall cause Operating Lessees to hold and maintain,
all necessary licenses, certifications and permits required by
law. Borrower shall fully perform all of its covenants,
agreements and obligations under the Operating Leases.
SECTION 10.4 OPERATION; MAINTENANCE; INSPECTION.
------------------------------------
Borrower shall observe and comply, or, pursuant to the Operating
Leases, cause Operating Lessees to observe and comply, in all
material respects, with the legal requirements applicable to the
ownership, use and operation of each of the Properties. Borrower
shall maintain or, pursuant to the Operating Leases, cause
Operating Lessees to maintain, each of the Properties in good
condition and repair any damage or casualty within a reasonable
period of time after such damage or casualty occurs. Borrower
shall permit Lender and its agents, representatives and
employees, during normal business hours, upon reasonable prior
notice to Borrower, to inspect any of the Properties and conduct
such environmental and engineering studies as Lender may require,
provided such inspections and studies do not materially interfere
with the use and operation of the Properties.
SECTION 10.5 TAXES ON SECURITY. Borrower shall pay
-----------------
all taxes, charges, filing, registration and recording fees,
excises and levies payable with respect to the Note or the liens
created or secured by the Loan Documents, other than income,
franchise and doing business taxes imposed on Lender. If there
shall be enacted any law (a) deducting the Loan from the value of
any of the Properties for the purpose of taxation, (b) affecting
any Lien on the Properties, or (c) changing existing laws of
taxation of mortgages, deeds of trust, security deeds, or debts
secured by real property, or changing the manner of collecting
any such taxes, Borrower shall pay to Lender within three (3)
Business Days all taxes, costs and charges for which Lender is or
may be liable as a result thereof; however, if such payment would
be prohibited by law or would render the Loan usurious, then
instead of collecting such payment, Lender may declare all
amounts owing under the Loan Documents to be immediately due and
payable, including, in addition, a payment by Borrower of an
amount equal to the Yield Maintenance Premium that would be
required if a Defeasance Event had occurred.
SECTION 10.6 LEGAL EXISTENCE; NAME, ETC.. Borrower
---------------------------
and each SPC Party shall preserve and keep in full force and
effect its entity status, franchises, rights and privileges under
the laws of the state of its formation, and all qualifications,
licenses and permits applicable to the ownership, use and
operation of the Properties. Neither Borrower nor any general
partner or managing member of Borrower shall wind up, liquidate,
dissolve, reorganize, merge, or consolidate with or into, or
convey, sell, assign, transfer, Lease, or otherwise dispose of
all or substantially all of its assets, or acquire all or
substantially all of the assets of the business of any Person, or
permit any subsidiary or Affiliate of Borrower to do so.
Borrower shall not change its name, identity, or organizational
structure, or the location of its chief executive office or
principal place of business unless Borrower (a) shall have
obtained the prior written consent of Lender to such change,
which consent (except with respect to a proposed change of
Borrower's organizational structure) shall not be unreasonably
withheld, delayed or conditioned, and (b) shall have taken all
actions necessary or requested by Lender to file or amend any
financing statement or continuation statement to assure
perfection and continuation of perfection of security interests
under the Loan Documents.
SECTION 10.7 FURTHER ASSURANCES. Borrower shall
------------------
promptly (a) cure any defects in the execution and delivery of
the Loan Documents, and (b) execute and deliver, or cause to be
executed and delivered, all such other documents, agreements and
instruments as Lender may reasonably request to further evidence
and more fully describe the collateral for the Loan, to correct
any omissions in the Loan Documents, to perfect, protect or
preserve any liens created under any of the Loan Documents, or to
make any recordings, file any notices, or obtain any consents, as
may be necessary or appropriate in connection therewith.
Borrower grants Lender an irrevocable power of attorney coupled
with an interest for the purpose of exercising and perfecting, in
a reasonable manner, any and all rights and remedies available to
Lender under the Loan Documents, at law and in equity, pursuant
to this Section 10.7, if Borrower shall fail to do so within ten
(10) days after written request by Lender.
SECTION 10.8 ESTOPPEL CERTIFICATES. Borrower, within
---------------------
ten (10) Business Days after request, shall furnish to Lender a
written statement, duly acknowledged, setting forth the amount
due on the Loan, the terms of payment of the Loan, the date to
which interest has been paid, whether any offsets or defenses
exist against the Loan and, if any are alleged to exist, the
nature thereof in detail, and such other matters as Lender
reasonably may request.
SECTION 10.9 NOTICE OF CERTAIN EVENTS. Borrower shall
------------------------
promptly notify Lender of (a) any Potential Default or Event of
Default, together with a detailed statement of the steps being
taken to cure such Potential Default or Event of Default; (b) any
notice of default received by Borrower under other obligations
relating to any of the Properties or otherwise material to
Borrower's business; and (c) any threatened or pending legal,
judicial or regulatory proceedings, including any dispute between
Borrower and any governmental authority, affecting Borrower or
any of the Properties.
SECTION 10.10 INDEMNIFICATION. Borrower shall
---------------
protect, defend, indemnify and save harmless (collectively,
"INDEMNIFY") Lender its shareholders, directors, officers,
employees and agents from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs
and expenses (including without limitation reasonable attorneys'
fees and expenses) (collectively, the "CLAIMS"), imposed upon or
incurred by or asserted against Lender by reason of (a) ownership
of the Mortgages, the Properties or any interest therein or
receipt of any rents; (b) any accident, injury to or death of
persons or loss of or damage to property occurring in, on or
about any of the Properties or any part thereof or on the
adjoining sidewalks, curbs, adjacent property or adjacent parking
areas, streets or ways; (c) any use, nonuse or condition in, on
or about any of the Properties or any part thereof or on the
adjoining sidewalks, curbs, adjacent property or adjacent parking
areas, streets or ways; (d) performance of any labor or services
or the furnishing of any materials or other property in respect
of any of the Properties or any part thereof; and (e) the failure
of any Person to file timely with the Internal Revenue Service an
accurate Form 1099-B, Statement for Recipients of Proceeds from
Real Estate, Broker and Barter Exchange Transactions, which may
be required in connection with this Agreement, or to supply a
copy thereof in a timely fashion to the recipient of the proceeds
of the transaction in connection with which this Agreement is
made; provided that, notwithstanding the foregoing, Borrower
shall not be required to Indemnify Lender to the extent that such
Claims are caused by Lender's gross negligence or willful
misconduct. Any amounts payable to Lender by reason of the
application of this section shall become due and payable within
three (3) Business Days after Borrower receives written notice
that such amounts are due and payable and shall bear interest at
the Default Rate from the date loss or damage is sustained by
Lender until paid.
SECTION 10.11 PAYMENT FOR LABOR AND MATERIALS.
-------------------------------
Borrower will promptly pay when due all bills and costs for
labor, materials, and specifically fabricated materials incurred
in connection with any Individual Property and never permit to
exist beyond the due date thereof in respect of any Individual
Property or any part thereof any lien or security interest, even
though inferior to the liens and the security interest hereof,
and in any event never permit to be created or exist in respect
of any Individual Property or any part thereof any other or
additional lien or security interest other than the liens or
security interests hereof, except for the Permitted Encumbrances.
SECTION 10.12 ALTERATIONS. Borrower shall obtain
-----------
Lender's prior written consent, which consent shall not be
unreasonably conditioned, withheld or delayed to any alterations
to any Improvements on any Individual Property that may alter the
purposes or significantly detract from the value or significantly
impair the revenue-producing capability of the Individual
Property or adversely affect the ability of Borrower to comply
with the provisions hereof or have a material adverse effect on
Borrower's financial condition, the use, operation or value of
any Individual Property or the Net Operating Income with respect
to the Individual Property, other than (a) tenant improvement
work performed pursuant to the terms of any Lease executed on or
before the date hereof, (b) tenant improvement work performed
pursuant to the terms and provisions of a Lease and not adversely
affecting any structural component of any Improvements, any
utility or HVAC system contained in any Improvements or the
exterior of any building constituting a part of any Improvements,
or (c) alterations performed in connection with the restoration
of the Individual Property after the occurrence of a casualty in
accordance with the terms and provisions of this Agreement. If
the total unpaid amounts due and payable with respect to
alterations to the Improvements at one Individual Property (other
than such amounts to be paid or reimbursed by tenants under the
Leases) shall at any time exceed five percent (5%) of the
Release Amount for such Individual Property (the "THRESHOLD
AMOUNT"), Borrower shall promptly deliver to Lender as security
for the payment of such amounts and as additional security for
Borrower's obligations under the Loan Documents any of the
following: (1) cash, (2) U.S. Obligations, (3) other securities
having a rating acceptable to Lender and that the applicable
Rating Agencies have confirmed in writing will not, in and of
itself, result in a downgrade, withdrawal or qualification of the
initial, or, if higher, then current ratings assigned in
connection with any Securitization, or (4) a completion bond or
irrevocable letter of credit (payable on sight draft only) issued
by a financial institution having a rating by Standard & Poor's
Ratings Group of not less than A-1+ if the term of such bond or
letter of credit is no longer than three (3) months or, if such
term is in excess of three (3) months, issued by a financial
institution having a rating that is acceptable to Lender and that
the applicable Rating Agencies have confirmed in writing will
not, in and of itself, result in a downgrade, withdrawal or
qualification of the initial, or, if higher, then current ratings
assigned in connection with any Securitization. Such security
shall be in an amount equal to the excess of the total unpaid
amounts with respect to alterations to the Improvements on the
applicable Individual Property (other than such amounts to be
paid or reimbursed by tenants under the Leases) over the
Threshold Amount and may be reduced from time to time by the cost
estimated by Lender to terminate any of the alterations and
restore the applicable Individual Property to the extent
necessary to prevent any material adverse effect on the use,
operation or value of the applicable Individual Property or the
Net Operating Income with respect to the Individual Property.
SECTION 10.13 HANDICAPPED ACCESS.
------------------
(a) Borrower agrees that the Properties shall, in all
material respects, comply to the extent applicable with the
requirements of the Americans with Disabilities Act of 1990, the
Fair Housing Amendments Act of 1988, all state and local laws and
ordinances related to handicapped access and all rules,
regulations, and orders issued pursuant thereto including,
without limitation, the Americans with Disabilities Act
Accessibility Guidelines for Buildings and Facilities
(collectively, "ACCESS LAWS").
(b) Borrower agrees to give prompt notice to Lender of
the receipt by Borrower of any complaints related to violation of
any Access Laws and of the commencement of any proceedings or
investigations which relate to compliance with applicable Access
Laws.
SECTION 10.14 CERTAIN HOTEL/FRANCHISE COVENANTS.
---------------------------------
Borrower further covenants and agrees with Lender as follows:
(a) Subject to the provisions of Sections 11.12 and
11.13 hereof, Borrower shall cause the hotel located on the
Individual Property to be operated pursuant to each applicable
Operating Lease, Franchise Agreement and Management Agreement.
(b) Borrower shall:
(i) to the extent that Borrower has the
right or ability to do so pursuant to any document or
other agreement, not permit the termination, extension
or modification or entering into of any Franchise
Agreement, Operating Lease or Management Agreement
without Lender's prior written consent, which consent
shall not be unreasonably withheld or delayed;
(ii) notify Lender of any default under any
Franchise Agreement, Operating Lease or Management
Agreement of which it is aware within three (3)
Business Days after receiving notice of such default;
(iii) deliver to Lender a copy of each
financial statement, business plan, capital
expenditures plan, notice, report and estimate received
by it under any Franchise Agreement, Operating Lease or
Management Agreement within three (3) Business Days
after receiving such items; and
(iv) to the extent that Borrower has the
right or ability to do so pursuant to any document or
other agreement, enforce the performance and observance
of all of the covenants and agreements required to be
performed and/or observed by the Franchisor under each
Franchise Agreement, the Operating Lessee under each
Operating Lease and the Manager under each Management
Agreement within three (3) Business Days after becoming
aware of a violation of such covenants or agreements.
(c) Borrower shall not, without Lender's prior
consent, which consent shall not be unreasonably withheld,
conditioned or delayed, enter into transactions with any
Affiliate, including without limitation any arrangement providing
for the leasing or managing of the hotel on any Individual
Property, the rendering or receipt of services or the purchase or
sale of inventory, except any such transaction in the ordinary
course of business of Borrower if the monetary or business
consideration arising therefrom would be substantially as
advantageous to Borrower as the monetary or business
consideration that would obtain in a comparable transaction with
a person not an Affiliate of Borrower.
ARTICLE 11
EVENTS OF DEFAULT
-----------------
Each of the following shall constitute a default (each,
an "EVENT OF DEFAULT") under the Loan:
SECTION 11.1 PAYMENTS. Borrower's failure to pay any
--------
regularly scheduled installment of principal, interest or other
amount due under the Loan Documents within five (5) days of (and
including) the day it is due, or Borrower's failure to pay the
Loan at the Maturity Date, whether by acceleration or otherwise.
SECTION 11.2 INSURANCE. Borrower's failure to
---------
maintain insurance as required under Section 5.1 of this
Agreement, provided that Borrower's failure to maintain such
insurance is not solely the result of Lender's failure to make
funds available from the Tax Insurance Escrow Fund to pay
insurance premiums as may be required pursuant to Section 5.4.
SECTION 11.3 SINGLE PURPOSE ENTITY. If Borrower
---------------------
breaches any of its covenants contained in Section 8.28 hereof;
provided, however, that in the event of a breach of Section 8.28,
such breach shall not constitute an Event of Default in the event
that (i) such breach is immaterial and (ii) within thirty (30)
days of the request of Lender, Borrower delivers to Lender an
opinion of counsel, or a modification of the Insolvency Opinion,
to the effect that such breach shall not in any way impair,
negate or amend the opinions rendered in such Insolvency Opinion,
which opinion or modification and any counsel delivering such
opinion or modification shall be acceptable to Lender is its
reasonable discretion.
SECTION 11.4 INSOLVENCY OPINION. If any of the
------------------
assumptions contained in the insolvency opinion, or in any other
"non-consolidation" opinion delivered to Lender in connection
with the Loan, or in any other "non-consolidation" opinion
delivered subsequent to the closing of the Loan, is or shall
become untrue in any material respect.
SECTION 11.5 TAXES If any of the Taxes are not paid
-----
when the same are due and payable; provided, however, that
Borrower's compliance with the provisions of Section 5.4 hereof
relating to impounds for Taxes shall, with respect to payment of
such Taxes, be deemed compliance with this Section 11.5.
SECTION 11.6 SALE, ENCUMBRANCE, ETC. The sale,
------------------------
transfer, conveyance, pledge, mortgage or assignment of any part
or all of an Individual Property, or any interest therein, or of
any interest in Borrower, in violation of this Agreement or the
Mortgage.
SECTION 11.7 REPRESENTATIONS AND WARRANTIES. Any
------------------------------
representation or warranty made in any Loan Document proves to be
untrue in any material respect when made or deemed made;
provided, however, that any such untrue representation or
warranty shall not constitute an Event of Default in the event
that such untrue representation or warranty (i) is not material,
(ii) is susceptible of cure and (iii) is cured by Borrower within
thirty (30) days following written notice from Lender to Borrower
setting forth such untrue representation or warranty.
SECTION 11.8 OTHER ENCUMBRANCES. Any default while
------------------
continuing under any document or instrument, other than the Loan
Documents, evidencing or creating a Lien on an Individual
Property or any part thereof to the extent such default extends
beyond any applicable cure period set forth in such document or
instrument.
SECTION 11.9 INVOLUNTARY BANKRUPTCY OR OTHER
-------------------------------
PROCEEDING. Commencement of an involuntary case or other
- ----------
proceeding against Borrower or any Borrower Party (each, a
"Bankruptcy Party") which seeks liquidation, reorganization or
other relief with respect to it or its debts or other liabilities
under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeks the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it
or any of its property, and such involuntary case or other
proceeding shall remain undismissed or unstayed for a period of
60 days; or an order for relief against a Bankruptcy Party shall
be entered in any such case under the Federal Bankruptcy Code.
SECTION 11.10 VOLUNTARY PETITIONS, ETC. Commencement
------------------------
by a Bankruptcy Party of a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect
to itself or its debts or other liabilities under any bankruptcy,
insolvency or other similar law or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar
official for it or any of its property, or consent by a
Bankruptcy Party to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or
other proceeding commenced against it, or the making by a
Bankruptcy Party of a general assignment for the benefit of
creditors, or the failure by a Bankruptcy Party, or the admission
by a Bankruptcy Party in writing of its inability, to pay its
debts generally as they become due, or any action by a Bankruptcy
Party to authorize or effect any of the foregoing.
SECTION 11.11 COVENANTS. Borrower's failure to
---------
perform or observe any of its agreements and covenants contained
in this Agreement or in any of the other Loan Documents and not
specified above in Sections 11.1 to 11.10 or below in Sections
11.12 to 11.13, and the continuance of such failure for (i) ten
(10) days after notice by Lender to Borrower if such failure
involves the failure to make payments on a monetary obligation or
(ii) thirty (30) days after notice by Lender to Borrower if such
failure does not involve a failure to make payments on a monetary
obligation; however, subject to any shorter period for curing any
failure by Borrower as specified in any of the other Loan
Documents, Borrower shall have an additional sixty (60) days to
cure such failure if (a) such failure does not involve the
failure to make payments on a monetary obligation; (b) such
failure cannot reasonably be cured within thirty (30) days; and
(c) Borrower is diligently undertaking to cure such default.
SECTION 11.12 OPERATING LEASES. (a) If there is a
----------------
material default by Borrower under an Operating Lease beyond any
applicable notice and cure period which default, alone or
together with any other such defaults, has a material adverse
affect on the Properties as security for the Loan; provided that
a default alleged by an Operating Lessee shall not constitute an
Event of Default if Borrower is diligently and in good faith
contesting such alleged default based upon a good faith, bona-
fide dispute with respect thereto, pursuant to legal action or
arbitration permitted under such Operating Lease or agreed to by
such Operating Lessee; or (b) if an Operating Lease is amended,
modified or terminated in violation of Section 8.30(b) hereof.
SECTION 11.13 FRANCHISE AGREEMENTS AND MANAGEMENT
-----------------------------------
AGREEMENTS. (a) If there is (A) a material default by Borrower
- ----------
of any material provision of a Franchise Agreement or a
Management Agreement which, pursuant to the terms of the
applicable Operating Lease, is an obligation of Borrower or (B) a
material default by an Operating Lessee under a Franchise
Agreement or a Management Agreement (i) which is not cured by
Borrower or (ii) which Borrower is not enforcing its rights under
the applicable Operating Lease with respect to, in a prudent
business manner pursuant to Borrower's reasonable prudent
business judgment, and which event under (i) or (ii) alone or
together with other such defaults has a material adverse affect
on the Properties as security for the Loan; or (b) if a Franchise
Agreement or a Management Agreement is amended, modified,
terminated or entered into in violation of Sections 8.30(a) or
8.29 hereof, respectively.
ARTICLE 12
REMEDIES
--------
SECTION 12.1 REMEDIES - INSOLVENCY EVENTS. Upon the
----------------------------
occurrence of any Event of Default described in Section 11.9 or
11.10, all amounts due under the Loan Documents immediately shall
become due and payable, all without written notice and without
presentment, demand, protest, notice of protest or dishonor,
notice of intent to accelerate the maturity thereof, notice of
acceleration of the maturity thereof, or any other notice of
default of any kind, all of which are hereby expressly waived by
Borrower.
SECTION 12.2 REMEDIES - OTHER EVENTS.
-----------------------
(a) Except as set forth in Section 12.1 above, while
any Event of Default exists and is continuing, Lender may (i)
declare the entire Loan to be immediately due and payable without
presentment, demand, protest, notice of protest or dishonor,
notice of intent to accelerate the maturity thereof, notice of
acceleration of the maturity thereof, or other notice of default
of any kind, all of which are hereby expressly waived by
Borrower, and (ii) exercise all rights and remedies therefor
under the Loan Documents and at law or in equity.
(b) During the continuation of an Event of Default,
with respect to Borrower and the Properties, nothing contained
herein or in any other Loan Document shall be construed as
requiring Lender to resort to any Individual Property for the
satisfaction of any of the Debt in preference or priority to any
other Individual Property, and Lender may seek satisfaction out
of all of the Properties or any part thereof, in its absolute
discretion in respect of the Debt. In addition, during the
continuation of an Event of Default, Lender shall have the right
from time to time to partially foreclose the Mortgages in any
manner and for any amounts secured by the Mortgages then due and
payable as determined by Lender in its sole discretion including,
without limitation, the following circumstances: (i) in the
event Borrower defaults beyond any applicable grace period in the
payment of one or more scheduled payments of principal and
interest, Lender may foreclose one or more of the Mortgages to
recover such delinquent payments, or (ii) in the event Lender
elects to accelerate less than the entire outstanding principal
balance of the Loan, Lender may foreclose one or more of the
Mortgages to recover so much of the principal balance of the Loan
as Lender may accelerate and such other sums secured by one or
more of the Mortgages as Lender may elect. Notwithstanding one
or more partial foreclosures, the Properties shall remain subject
to the Mortgages to secure payment of sums secured by the
Mortgages and not previously recovered.
(c) During the continuation of an Event of Default or
with the prior written consent of Borrower, Lender shall have the
right from time to time to sever the Note and the other Loan
Documents into one or more separate notes, mortgages and other
security documents (the "SEVERED LOAN DOCUMENTS") in such
denominations as Lender shall determine in its sole discretion
for purposes of evidencing and enforcing its rights and remedies
provided hereunder. Borrower shall execute and deliver to Lender
from time to time, promptly after the request of Lender, a
severance agreement and such other documents as Lender shall
request in order to effect the severance described in the
preceding sentence, all in form and substance reasonably
satisfactory to Lender. Borrower hereby absolutely and
irrevocably appoints Lender as its true and lawful attorney,
coupled with an interest, in its name and stead to make and
execute all documents necessary or desirable to effect the
aforesaid severance, Borrower ratifying all that its said
attorney shall do by virtue thereof; provided, however, Lender
shall not make or execute any such documents under such power
until ten (10) days after notice has been given to Borrower by
Lender of Lender's intent to exercise its rights under such
power. Except as may be required in connection with a
securitization pursuant to Section 14.1 hereof, (i) Borrower
shall not be obligated to pay any costs or expenses incurred in
connection with the preparation, execution, recording or filing
of the Severed Loan Documents, and (ii) the Severed Loan
Documents shall not contain any representations, warranties or
covenants not contained in the Loan Documents and any such
representations and warranties contained in the Severed Loan
Documents will be given by Borrower only as of the Closing Date.
SECTION 12.3 LENDER'S RIGHT TO PERFORM THE
-----------------------------
OBLIGATIONS. If Borrower shall fail, refuse or neglect to make
- -----------
any payment or perform any act required from Borrower by the Loan
Documents, then while any Event of Default exists and is
continuing, and without notice to or demand upon Borrower and
without waiving or releasing any other right, remedy or recourse
Lender may have because of such Event of Default, Lender may (but
shall not be obligated to) make such payment or perform such act
for the account of and at the expense of Borrower, and shall have
the right to enter upon the applicable Individual Property for
such purpose and to take all such action thereon and with respect
to the applicable Individual Property as it may deem necessary or
appropriate. If Lender shall elect to pay any sum due with
reference to the applicable Individual Property, Lender may do so
in reliance on any bill, statement or assessment procured from
the appropriate governmental authority or other issuer thereof
without inquiring into the accuracy or validity thereof.
Similarly, in making any payments to protect the security
intended to be created by the Loan Documents, during the
continuation of an Event of Default, Lender shall not be bound to
inquire into the validity of any apparent or threatened adverse
title, lien, encumbrance, claim or charge before making an
advance for the purpose of preventing or removing the same.
Borrower shall indemnify Lender for all losses, expenses,
damages, claims and causes of action, including reasonable
attorneys' fees, incurred or accruing by reason of any acts
performed by Lender pursuant to the provisions of this
Section 12.3. All sums paid by Lender pursuant to this
Section 12.3, and all other sums expended by Lender to which it
shall be entitled to be indemnified, together with interest
thereon at the Default Rate from the date of such payment or
expenditure until paid, shall constitute additions to the Loan,
shall be secured by the Loan Documents and shall be paid by
Borrower to Lender upon demand.
SECTION 12.4 CROSS-DEFAULT; CROSS-COLLATERALIZATION;
--------------------------------------
WAIVER OF MARSHALLING OF ASSETS.
- -------------------------------
(a) Borrower acknowledges that Lender has made the
Loan to Borrower upon the security of its collective interest in
the Properties and in reliance upon the aggregate of the
Properties taken together being of greater value as collateral
security than the sum of the Properties taken separately.
Borrower agrees that the Mortgages are and will be cross-
collateralized and cross-defaulted with each other so that (i) an
Event of Default under any of the Mortgages shall constitute an
Event of Default under each of the other Mortgages which secure
the Note; (ii) an Event of Default under the Note or this Loan
Agreement shall constitute an Event of Default under each
Mortgage; and (iii) each Mortgage shall constitute security for
the Note as if a single blanket lien were placed on all of the
Properties as security for the Note.
(b) To the fullest extent permitted by law, Borrower,
for itself and its successors and assigns, waives all rights to a
marshalling of the assets of Borrower, Borrower's partners and
others with interests in Borrower, and of the Properties, or to a
sale in inverse order of alienation in the event of foreclosure
of all or any of the Mortgages, and agrees not to assert any
right under any laws pertaining to the marshalling of assets, the
sale in inverse order of alienation, homestead exemption, the
administration of estates of decedents, or any other matters
whatsoever to defeat, reduce or affect the right of Lender under
the Loan Documents to a sale of the Properties for the collection
of the Debt without any prior or different resort for collection
or of the right of Lender to the payment of the Debt out of the
net proceeds of the Properties in preference to every other
claimant whatsoever. In addition, Borrower, for itself and its
successors and assigns, waives in the event of foreclosure of any
or all of the Mortgages, any equitable right otherwise available
to Borrower which would require the separate sale of the
Properties or require Lender to exhaust its remedies against any
Individual Property or any combination of the Properties before
proceeding against any other Individual Property or combination
of Properties; and further in the event of such foreclosure
Borrower does hereby expressly consents to and authorizes, at the
option of Lender, the foreclosure and sale either separately or
together of any combination of the Properties.
ARTICLE 13
LIMITATIONS ON LIABILITY
------------------------
SECTION 13.1 LIMITATION ON LIABILITY. Except as
-----------------------
provided below, Borrower shall not be personally liable for
amounts due under the Loan Documents. Borrower shall be
personally liable to Lender for any deficiency, loss or damage
suffered by Lender because of: (a) Borrower's commission of a
criminal act, (b) the misapplication by Borrower or any Borrower
Party, during the continuation of an Event of Default, of any
funds derived from an Individual Property, including security
deposits, insurance proceeds and condemnation awards; (c) the
fraud or material misrepresentation by Borrower or any Borrower
Party now or hereafter made in or in connection with the Loan
Documents or the Loan including any statements or certificates
delivered under the Loan Documents; (d) Borrower's collection of
rents more than one month in advance or entering into or
modifying Leases, or receipt of monies by Borrower or any
Borrower Party in connection with the modification of any Leases,
in violation of this Agreement or any of the other Loan
Documents; (e) during the continuation of an Event of
Default, Borrower's failure to apply proceeds of rents or any
other payments in respect of the Leases and other income of an
Individual Property or any other collateral to the costs of
maintenance and operation of an Individual Property and to the
payment of taxes, lien claims, insurance premiums, Debt Service
and other amounts due under the Loan Documents; (f) Borrower's
interference with Lender's exercise of rights under the
Assignment of Leases and Rents; (g) Borrower's failure to
maintain insurance as required by this Agreement; (h) physical
waste to an Individual Property caused by the negligence or
willful misconduct of Borrower, its agents, employees, or
contractors; (i) Borrower's obligations with respect to
environmental matters under Article 6, within five (5) days
following demand by Lender, hereof and the Hazardous Materials
Indemnity Agreement; (j) Borrower's failure to pay for any loss,
liability or expense (including attorneys' fees) incurred by
Lender arising out of any claim or allegation made by Borrower,
its successors or assigns, or any creditor of Borrower, that this
Agreement or the transactions contemplated by the Loan Documents
establishes a joint venture, partnership or other similar
arrangement between Borrower and Lender; (k) any brokerage
commission or finder's fees claimed in connection with the
transactions contemplated by the Loan Documents or (l) Borrower's
indemnification of Lender set forth in Section 14.2 hereafter.
Notwithstanding anything to the contrary in this
Agreement, the Note or any of the Loan Documents, (i) Lender
shall not be deemed to have waived any right which Lender may
have under Section 506(a), 506(b), 1111(b) or any other
provisions of the U.S. Bankruptcy Code to file a claim for the
full amount of the Debt secured by the Mortgages or to require
that all collateral shall continue to secure all of the Debt
owing to Lender in accordance with the Loan Documents, and (ii)
the Debt shall be fully recourse to Borrower in the event that:
(A) there is a default under Section 11.10 hereof; (B) subject to
Section 8.28(d)(iii), Borrower fails to obtain Lender's prior
written consent to any subordinate financing or other voluntary
lien encumbering any Individual Property; or (C) Borrower fails
to obtain Lender's prior written consent to any assignment,
transfer, or conveyance of any Individual Property or any
interest therein as required by the Loan Documents.
SECTION 13.2 LIMITATION ON LIABILITY OF LENDER'S
-----------------------------------
OFFICERS, EMPLOYEES, ETC. Any obligation or liability whatsoever
- ------------------------
of Lender which may arise at any time under this Agreement or any
other Loan Document shall be satisfied, if at all, out of
Lender's interest in the Properties only. No such obligation or
liability shall be personally binding upon, nor shall resort for
the enforcement thereof be had to, the property of any of
Lender's shareholders, directors, officers, employees or agents,
regardless of whether such obligation or liability is in the
nature of contract, tort or otherwise.
ARTICLE 14
SECURITIZATION
SECTION 14.1 SECURITIZATION.
--------------
At the request of the holder of the Note and, to the
extent not already required to be provided by Borrower under this
Agreement, Borrower shall use reasonable efforts to satisfy the
market standards to which the holder of the Note customarily
adheres or which may be reasonably required in the marketplace or
by the Rating Agencies in connection with the sale of all or a
portion of the Note, the participation therein or one or more
successful securitizations of rated single or multi-class
securities (the "SECURITIES") secured by or evidencing ownership
interests in the Note and the Mortgages (such sale and/or
securitization, the "SECURITIZATION"), including, without
limitation, to:
(a) (i) provide such financial and other information
with respect to the Properties, Borrower, REIT, Operating
Partnership, each Operating Lessee and any Manager,
(ii) provide budgets relating to the Properties,
and
(iii) to perform or permit or cause to be
performed or permitted such site inspection, appraisals, market
studies, environmental reviews and reports (Phase I's and, if
appropriate, Phase II's), engineering reports and other due
diligence investigations of the Properties, as may be reasonably
requested by the holder of the Note or the Rating Agencies or as
may be necessary or appropriate in connection with the
Securitization (the "Securitization Information"), together, if
customary, with appropriate verification and/or consents of the
Securitization Information through letters of auditors or
opinions of counsel of independent attorneys acceptable to Lender
and the Rating Agencies;
(b) cause counsel to render opinions, which may be
relied upon by the holder of the Note, the Rating Agencies and
their respective counsel, agents and representatives, as to non-
consolidation, fraudulent conveyance, and true sale or any other
opinion customary in securitization transactions with respect to
the Properties and Borrower and its Affiliates, which counsel and
opinions shall be reasonably satisfactory to the holder of the
Note and the Rating Agencies;
(c) make such representations and warranties as of the
closing date of the Securitization with respect to the
Properties, Borrower, and the Loan Documents as are customarily
provided in securitization transactions and as may be reasonably
requested by the holder of the Note or the Rating Agencies and
consistent with the facts covered by such representations and
warranties as they exist on the date thereof, including the
representations and warranties made in the Loan Documents; and
(d) execute such amendments to the Loan Documents and
organizational documents, enter into a lockbox or similar
arrangement with respect to the Rents and establish and fund such
reserve funds (including, without limitation, reserve funds for
deferred maintenance and capital improvements) as may be
requested by the holder of the Note or the Rating Agencies or
otherwise to effect the Securitization; provided, however, that
Borrower shall not be required to modify or amend any Loan
Document if such modification or amendment would (i) change the
interest rate, the stated maturity or the amortization of
principal set forth in the Note, or (ii) modify or amend any
other material economic term of the Loan.
All reasonable third party costs and expenses incurred
by Lender in connection with Borrower's complying with requests
made under this Section 14.1 shall be paid by Borrower.
SECTION 14.2 SECURITIZATION INDEMNIFICATION.
------------------------------
(a) Borrower understands that certain of the
Securitization Information and the financial reports relating to
the Properties may be included in disclosure documents in
connection with the Securitization, including, without
limitation, a prospectus, prospectus supplement or private
placement memorandum (each, an "OFFERING DOCUMENT") and may also
be included in filings with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended
(the "SECURITIES ACT"), or the Securities and Exchange Act of
1934, as amended (the "EXCHANGE ACT"), or provided or made
available to investors or prospective investors in the
Securities, the Rating Agencies, and service providers relating
to the Securitization. In the event that the Offering Document
is required to be revised prior to the sale of all Securities,
Borrower will cooperate with the holder of the Note in updating
the Offering Document by providing all current information
necessary to keep the Offering Document accurate and complete in
all material respects.
(b) Borrower agrees to provide in connection with each
of (i) a preliminary and a private placement memorandum or (ii) a
preliminary and final prospectus or prospectus supplement, as
applicable, an indemnification certificate (A) certifying that
Borrower has carefully examined such memorandum or prospectus, as
applicable, and the sections and exhibits therein that describe
the Properties, the Loan, the Borrower and the Manager and such
sections and exhibits (and any other sections reasonably
requested), to the best of Borrower's knowledge, do not contain
any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made, in
the light of the circumstances under which they were made, not
misleading, (B) indemnifying Lender (and for purposes of this
Section 14.2, Lender hereunder shall include its officers and
directors), any Person that has filed or may file the
registration statement relating to a Securitization (the
"REGISTRATION STATEMENT"), each of its directors, each of its
officers who have signed the Registration Statement and each
person or entity who controls such Person within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange
Act, and Lender, each of its directors and each person who
controls Lender within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act (collectively,
the "UNDERWRITER GROUP") for any losses, claims, damages or
liabilities (the "LIABILITIES") to which Lender, or the
Underwriter Group may become subject insofar as the Liabilities
arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in such sections
or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated
in such sections or necessary in order to make the statements in
such sections or in light of the circumstances under which they
were made, not misleading and (C) agreeing to reimburse Lender
and the Underwriter Group for any legal or other expenses
reasonably incurred by Lender in connection with investigating or
defending the Liabilities; provided, however, that Borrower will
-------- -------
be liable in any such case under clauses (A), (B) or (C) above
only to the extent that any such loss claim, damage or liability
arises out of or is based upon any such untrue statement or
omission made therein in reliance upon and in conformity with
information furnished to Lender by or on behalf of Borrower in
connection with the preparation of the memorandum or prospectus
or in connection with the underwriting of the debt, including,
without limitation, financial statements of Borrower, operating
statements, rent rolls, environmental site assessment reports and
property condition reports with respect to the Properties. This
indemnity agreement will be in addition to any liability which
Borrower may otherwise have.
(c) In connection with filings under the Exchange Act,
Borrower agrees to indemnify (i) Lender, and the Underwriter
Group for Liabilities to which Lender, or the Underwriter Group
may become subject insofar as the Liabilities arise out of or are
based upon the omission or alleged omission to state in the
Securitization Information or financial reports relating to the
Properties a material fact required to be stated in the
Securitization Information or financial reports relating to the
Properties in order to make the statements in the Securitization
Information or financial reports relating to the Properties, in
light of the circumstances under which they were made not
misleading and (ii) reimburse Lender or the Underwriter Group for
any legal or other expenses reasonably incurred by Lender or the
Underwriter Group in connection with defending or investigating
the Liabilities; provided, however, Borrower shall not be
required to indemnify Lender of the Underwriting Group in
connection with any Liability arising from the gross negligence
or willful misconduct of Lender or the Underwriting Group.
(d) Promptly after receipt by an indemnified party
under this Section 14.2 of notice of the commencement of any
action, such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under this
Section 14.2, notify the indemnifying party in writing of the
commencement thereof, but the omission to so notify the
indemnifying party will not relieve the indemnifying party from
any liability which the indemnifying party may have to any
indemnified party hereunder except to the extent that failure to
notify causes prejudice to the indemnifying party. In the event
that any action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled, jointly with any other
indemnifying party, to participate therein and, to the extent
that it (or they) may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice
from such indemnified party, to assume the defense thereof with
counsel satisfactory to such indemnified party. After notice
from the indemnifying party to such indemnified party under this
Section 14.2 the indemnifying party shall be responsible for any
reasonable legal or other reasonable expenses subsequently
incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided,
--------
however, that Borrower shall not be required to indemnify Lender
- -------
or the Underwriting Group in connection with any Liability
arising from the gross negligence or willful misconduct of Lender
or the Underwriting Group; provided, further, that if the
-------- -------
defendants in any such action include both the indemnified party
and the indemnifying party and the indemnified party shall have
reasonably concluded that there are any legal defenses available
to it and/or other indemnified parties that are different from or
additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select
separate counsel to assert such legal defenses and to otherwise
participate in the defense of such action on behalf of such
indemnified party to parties. The indemnifying party shall not
be liable for the expenses of more than one separate counsel
unless an indemnified party shall have reasonably concluded that
there may be legal defenses available to it that are different
from or additional to those available to another indemnified
party.
(e) In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement
provided for in Section 14.2(b) or (c) is for any reason held to
be unenforceable by an indemnified party in respect of any
losses, claims, damages or liabilities (or action in respect
thereof) referred to therein which would otherwise be
indemnifiable under Section 14.2(b) or (c), the indemnifying
party shall contribute to the amount paid or payable by the
indemnified party as a result of such losses, claims, damages or
liabilities (or action in respect thereof); provided, however,
-------- -------
that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such
fraudulent misrepresentation. In determining the amount of
contribution to which the respective parties are entitled, the
following factors shall be considered: (i) Lender's and
Borrower's relative knowledge and access to information
concerning the matter with respect to which claim was asserted;
(ii) the opportunity to correct and prevent any statement or
omission; and (iii) any other equitable considerations
appropriate in the circumstances. Lender and Borrower hereby
agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita
allocation.
(f) The liabilities and obligations of both Borrower
and Lender under this Section 14.2 shall survive the termination
of this Agreement and the satisfaction and discharge of the Debt.
SECTION 14.3 SERVICER. At the option of Lender, the
--------
Loan may be serviced by a Servicer/Trustee ("SERVICER") selected
by Lender. Lender may delegate all or any portion of its
responsibilities under this Agreement and the other Loan
Documents to the Servicer pursuant to a servicing agreement
("SERVICING AGREEMENT") between Lender and Servicer. Borrower
shall have no obligation to pay any servicing fees to Servicer
pursuant to the Servicing Agreement.
ARTICLE 15
MISCELLANEOUS
-------------
SECTION 15.1 NOTICES. Any notice required or
-------
permitted to be given under this Agreement shall be in writing
and either shall be mailed by certified mail, postage prepaid,
return receipt requested, or sent by overnight air courier
service, or personally delivered to a representative of the
receiving party, or sent by telecopy (provided an identical
notice is also sent simultaneously by mail, overnight courier, or
personal delivery as otherwise provided in this Section 15.1).
All such communications shall be mailed, sent or delivered,
addressed to the party for whom it is intended at its address set
forth below.
If to Borrower: Winston Hotels, Inc.
2209 Century Drive
Suite 300
Raleigh, North Carolina 27612
Attention: Joseph V.
Green
Telecopy: (919) 510-
6016
With copies to: Winston Hotels, Inc.
c/o Brown & Bunch
4900 Falls of Neuse Road
Raleigh, North Carolina 27609
Attention: William W.
Bunch, III, Esq.
Telecopy: (919) 878-
8062
and
Hunton & Williams
1900 K Street, N.W.
Suite 1200
Washington, D.C. 20006-1109
Attention: Thomas F.
Kaufman, Esq.
Telecopy: (202) 778-
2210
If to Lender: General Electric Capital Corporation
209 West Jackson, 2nd Floor
Chicago, Illinois 60606
Attention: Nancy G.
Tramulota, Operating Agent
Telecopy: (203) 316-
7410
with a copy to: General Electric Capital
Corporation
292 Long Ridge Road
Stamford, Connecticut 06927
Attention: Paul Mundinger, Esq.
Telecopy: (203) 357-
6364
Any communication so addressed and mailed shall be deemed to be
given on the earliest of (a) when actually delivered, (b) on the
first Business Day after deposit with an overnight air courier
service, or (c) on the third Business Day after deposit in the
United States mail, postage prepaid, in each case to the address
of the intended addressee, and any communication so delivered in
person shall be deemed to be given when receipted for by, or
actually received by Lender or Borrower, as the case may be. If
given by telecopy, a notice shall be deemed given and received
when the telecopy is transmitted to the party's telecopy number
specified above confirmation of complete receipt is received by
the transmitting party during normal business hours or on the
next Business Day if not confirmed during normal business hours.
Either party may designate a change of address by written notice
to the other by giving at least ten (10) days prior written
notice of such change of address.
SECTION 15.2 AMENDMENTS AND WAIVERS. No amendment or
----------------------
waiver of any provision of the Loan Documents shall be effective
unless in writing and signed by the party against whom
enforcement is sought.
SECTION 15.3 LIMITATION ON INTEREST. It is the
----------------------
intention of the parties hereto to conform strictly to applicable
usury laws. Accordingly, all agreements between Borrower and
Lender with respect to the Loan are hereby expressly limited so
that in no event, whether by reason of acceleration of maturity
or otherwise, shall the amount paid or agreed to be paid to
Lender or charged by Lender for the use, forbearance or detention
of the money to be lent hereunder or otherwise, exceed the
maximum amount allowed by law. If the Loan would be usurious
under applicable law (including the laws of the state where each
Individual Property is located and the laws of the United States
of America), then, notwithstanding anything to the contrary in
the Loan Documents: (a) the aggregate of all consideration which
constitutes interest under applicable law that is contracted for,
taken, reserved, charged or received under the Loan Documents
shall under no circumstances exceed the maximum amount of
interest allowed by applicable law, and any excess shall be
credited on the Note by the holder thereof; and (b) if maturity
is accelerated by reason of an election by Lender, or in the
event of any prepayment, then any consideration which constitutes
interest may never include more than the maximum amount allowed
by applicable law. In such case, excess interest, if any,
provided for in the Loan Documents or otherwise, to the extent
permitted by applicable law, shall be amortized, prorated,
allocated and spread from the date of advance until payment in
full so that the actual rate of interest is uniform through the
term hereof. If such amortization, proration, allocation and
spreading is not permitted under applicable law, then such excess
interest shall be canceled automatically as of the date of such
acceleration or prepayment and, if theretofore paid, shall be
credited on the Note. The terms and provisions of this
Section 15.3 shall control and supersede every other provision of
the Loan Documents. The Loan Documents are contracts made under
and shall be construed in accordance with and governed by the
laws of the State of New York, except that if at any time the
laws of the United States of America permit Lender to contract
for, take, reserve, charge or receive a higher rate of interest
than is allowed by the laws of the State of New York (whether
such federal laws directly so provide or refer to the law of any
state), then such federal laws shall to such extent govern as to
the rate of interest which Lender may contract for, take,
reserve, charge or receive under the Loan Documents.
SECTION 15.4 INVALID PROVISIONS. If any provision of
------------------
any Loan Document is held to be illegal, invalid or
unenforceable, such provision shall be fully severable; the Loan
Documents shall be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part
thereof; the remaining provisions thereof shall remain in full
effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance therefrom; and in
lieu of such illegal, invalid or unenforceable provision there
shall be added automatically as a part of such Loan Document a
provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible to be legal, valid and
enforceable.
SECTION 15.5 REIMBURSEMENT OF EXPENSES. Borrower
-------------------------
shall pay all expenses incurred by Lender in connection with the
Loan, including fees and expenses of Lender's attorneys,
environmental, engineering and other consultants, and fees,
charges or taxes for the recording or filing of Loan Documents.
Borrower shall pay all reasonable, third-party expenses of Lender
in connection with the administration of the Loan, including
settlement of condemnation and casualty awards, and premiums for
title insurance and endorsements thereto. Borrower shall, within
three (3) Business Days after Lender's demand therefor, reimburse
Lender for all amounts expended, advanced or incurred by Lender
to enforce the rights of Lender under this Agreement or any other
Loan Document, or to defend or assert the rights and claims of
Lender under the Loan Documents or with respect to any Individual
Property (by litigation or other proceedings), which amounts will
include all court costs, attorneys' fees and expenses, fees of
auditors and accountants, and investigation expenses as may be
reasonably incurred by Lender in connection with any such matters
(whether or not litigation is instituted), together with interest
at the Default Rate on each such amount from the date of
disbursement until the date of reimbursement to Lender, all of
which shall constitute part of the Loan and shall be secured by
the Loan Documents. Borrower shall not be responsible for the
monthly servicing fee payable to the Servicer.
SECTION 15.6 APPROVALS; THIRD PARTIES; CONDITIONS.
------------------------------------
All approval rights retained or exercised by Lender with respect
to Leases, contracts, plans, studies and other matters are solely
to facilitate Lender's credit underwriting, and shall not be
deemed or construed as a determination that Lender has passed on
the adequacy thereof for any other purpose and may not be relied
upon by Borrower or any other Person. This Agreement is for the
sole and exclusive use of Lender and Borrower and may not be
enforced, nor relied upon, by any Person other than Lender and
Borrower. All conditions of the obligations of Lender hereunder,
including the obligation to make advances, are imposed solely and
exclusively for the benefit of Lender, its successors and
assigns, and no other Person shall have standing to require
satisfaction of such conditions or be entitled to assume that
Lender will refuse to make advances in the absence of strict
compliance with any or all of such conditions, and no other
Person shall, under any circumstances, be deemed to be a
beneficiary of such conditions, any and all of which may be
freely waived in whole or in part by Lender at any time in
Lender's sole discretion.
SECTION 15.7 LENDER NOT IN CONTROL; NO PARTNERSHIP.
-------------------------------------
None of the covenants or other provisions contained in this
Agreement shall, or shall be deemed to, give Lender the right or
power to exercise control over the affairs or management of
Borrower, the power of Lender being limited to the rights to
exercise the remedies referred to in the Loan Documents. The
relationship between Borrower and Lender is, and at all times
shall remain, solely that of debtor and creditor. No covenant or
provision of the Loan Documents is intended, nor shall it be
deemed or construed, to create a partnership, joint venture,
agency or common interest in profits or income between Lender and
Borrower or to create an equity in the Individual Property in
Lender. Lender neither undertakes nor assumes any responsibility
or duty to Borrower or to any other person with respect to the
Individual Property or the Loan, except as expressly provided in
the Loan Documents; and notwithstanding any other provision of
the Loan Documents: (a) Lender is not, and shall not be
construed as, a partner, joint venturer, alter ego, manager,
controlling person or other business associate or participant of
any kind of Borrower or its stockholders, members, or partners
and Lender does not intend to ever assume such status; (b) Lender
shall in no event be liable for any debts, expenses or losses
incurred or sustained by Borrower; and (c) Lender shall not be
deemed responsible for or a participant in any acts, omissions or
decisions of Borrower or its stockholders, members, or partners.
Lender and Borrower disclaim any intention to create any
partnership, joint venture, agency or common interest in profits
or income between Lender and Borrower, or to create an equity in
the Individual Property in Lender, or any sharing of liabilities,
losses, costs or expenses.
SECTION 15.8 TIME OF THE ESSENCE. Time is of the
-------------------
essence with respect to this Agreement and all of the other Loan
Documents.
SECTION 15.9 SUCCESSORS AND ASSIGNS. This Agreement
----------------------
shall be binding upon and inure to the benefit of Lender and
Borrower and their respective successors and assigns of Lender
and Borrower, provided that, except as otherwise specifically
provided in Section 10.1(b), neither Borrower nor any other
Borrower Party shall, without the prior written consent of
Lender, assign any rights, duties or obligations hereunder.
SECTION 15.10 RENEWAL, EXTENSION OR REARRANGEMENT.
-----------------------------------
All provisions of the Loan Documents shall apply with equal
effect to each and all promissory notes and amendments thereof
hereinafter executed which in whole or in part represent a
renewal, extension, increase or rearrangement of the Loan.
SECTION 15.11 WAIVERS. No course of dealing on the
-------
part of Lender, its officers, employees, consultants or agents,
nor any failure or delay by Lender with respect to exercising any
right, power or privilege of Lender under any of the Loan
Documents, shall operate as a waiver thereof.
SECTION 15.12 CUMULATIVE RIGHTS; JOINT AND SEVERAL
------------------------------------
LIABILITY. Rights and remedies of Lender under the Loan
- ---------
Documents shall be cumulative, and the exercise or partial
exercise of any such right or remedy shall not preclude the
exercise of any other right or remedy. If more than one person
or entity has executed this Agreement as "Borrower," the
obligations of all such persons or entities hereunder shall be
joint and several.
SECTION 15.13 SINGULAR AND PLURAL. Words used in this
-------------------
Agreement and the other Loan Documents in the singular, where the
context so permits, shall be deemed to include the plural and
vice versa. The definitions of words in the singular in this
Agreement and the other Loan Documents shall apply to such words
when used in the plural where the context so permits and vice
versa.
SECTION 15.14 PHRASES. When used in this Agreement
-------
and the other Loan Documents, the phrase "including" shall mean
"including, but not limited to," the phrase "satisfactory to
Lender" shall mean "in form and substance satisfactory to Lender
in all respects," the phrase "with Lender's consent" or "with
Lender's approval" shall mean such consent or approval at
Lender's discretion, and the phrase "acceptable to Lender" shall
mean "acceptable to Lender at Lender's sole discretion."
SECTION 15.15 EXHIBITS AND SCHEDULES. The exhibits
----------------------
and schedules attached to this Agreement are incorporated herein
and shall be considered a part of this Agreement for the purposes
stated herein.
SECTION 15.16 TITLES OF ARTICLES, SECTIONS AND
--------------------------------
SUBSECTIONS. All titles or headings to articles, sections,
- -----------
subsections or other divisions of this Agreement and the other
Loan Documents or the exhibits hereto and thereto are only for
the convenience of the parties and shall not be construed to have
any effect or meaning with respect to the other content of such
articles, sections, subsections or other divisions, such other
content being controlling as to the agreement between the parties
hereto.
SECTION 15.17 PROMOTIONAL MATERIAL. Borrower and
--------------------
Lender may issue press releases, advertisements and other
promotional materials in connection with their respective
promotional and marketing activities, and such materials may
describe the Loan in general terms or in detail. All references
to Lender or the REIT or the Operating Partnership contained in
any press release, advertisement or promotional material issued
by Lender or Borrower shall be approved in writing by Lender or
Borrower as appropriate in advance of issuance. The provisions
of this Section 15.17 shall not, however, apply to references or
descriptions in disclosure, presentations or promotional material
by Lender or any other Person made in connection with a
Securitization or any other sale or marketing of the Loan for
which no consent is required by Borrower or any other Person.
Lender shall have the right to review and approve all references
to Lender or Lender's Securitization in Borrower's Registration
Statement under the Securities Act and any of Borrower's
documents relating public or private offering by the REIT or
Operating Partnership, provided that any of Lender's review or
approval of the foregoing shall be for Lender's own purposes and
Lender shall have no liability with respect thereto.
SECTION 15.18 SURVIVAL. All of the indemnities
--------
hereunder (including environmental matters under Article 6), and
under the indemnification provisions of the other Loan Documents
shall survive the repayment in full of the Loan and the release
of the liens evidencing or securing the Loan, and shall survive
the transfer (by sale, foreclosure, conveyance in lieu of
foreclosure or otherwise) of any or all right, title and interest
in and to any Individual Property to any party, whether or not an
Affiliate of Borrower.
SECTION 15.19 WAIVER OF JURY TRIAL. BORROWER AND
--------------------
LENDER HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE
TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT TO TRIAL BY JURY
FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER
EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM,
COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH.
THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND
VOLUNTARILY BY BORROWER AND LENDER, AND IS INTENDED TO ENCOMPASS
INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT
TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER AND/OR
BORROWER ARE HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH
IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY
BORROWER.
SECTION 15.20 WAIVER OF PUNITIVE OR CONSEQUENTIAL
-----------------------------------
DAMAGES. Neither Lender nor Borrower shall be responsible or
- -------
liable to the other or to any other Person for any punitive,
exemplary or consequential damages which may be alleged as a
result of the Loan or the transaction contemplated hereby,
including any breach or other default by any party hereto.
SECTION 15.21 GOVERNING LAW.
-------------
(A) THE LOAN WAS MADE BY LENDER AND ACCEPTED BY
BORROWER IN THE STATE OF NEW YORK, AND THE PROCEEDS OF THE NOTE
DELIVERED PURSUANT HERETO WERE DISBURSED FROM THE STATE OF NEW
YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL
RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION
EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING
THE GENERALITY OF THE FOREGOING, MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS
ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE (WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS) AND ANY APPLICABLE LAW OF THE
UNITED STATES OF AMERICA, EXCEPT THAT AT ALL TIMES THE PROVISIONS
FOR THE CREATION, PERFECTION, AND ENFORCEMENT OF THE LIENS AND
SECURITY INTERESTS CREATED PURSUANT HERETO AND PURSUANT TO THE
OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED ACCORDING
TO THE LAW OF THE STATE IN WHICH THE APPLICABLE INDIVIDUAL
PROPERTY IS LOCATED, IT BEING UNDERSTOOD THAT, TO THE FULLEST
EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE LAW OF THE STATE
OF NEW YORK SHALL GOVERN THE CONSTRUCTION, VALIDITY AND
ENFORCEABILITY OF ALL LOAN DOCUMENTS AND ALL OF THE OBLIGATIONS
ARISING HEREUNDER OR THEREUNDER. TO THE FULLEST EXTENT PERMITTED
BY LAW, BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES
ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION
GOVERNS THIS AGREEMENT AND THE NOTE, AND THIS AGREEMENT AND THE
NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK PURSUANT TO SECTION 5-1401 OF THE
NEW YORK GENERAL OBLIGATIONS LAW.
(B) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST
LENDER OR BORROWER ARISING OUT OF OR RELATING TO THIS AGREEMENT
MAY AT LENDER'S OPTION BE INSTITUTED IN ANY FEDERAL OR STATE
COURT IN THE CITY OF NEW YORK, COUNTY OF NEW YORK, PURSUANT TO
SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW AND
BORROWER WAIVES ANY OBJECTIONS WHICH IT MAY NOW OR HEREAFTER HAVE
BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY SUCH SUIT,
ACTION OR PROCEEDING, AND BORROWER HEREBY IRREVOCABLY SUBMITS TO
THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR
PROCEEDING. BORROWER DOES HEREBY DESIGNATE AND APPOINT
CORPORATION SERVICE COMPANY
80 STATE STREET
ALBANY, NEW YORK 12207-2543
AS ITS AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON ITS BEHALF
SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH
SUIT, ACTION OR PROCEEDING IN ANY FEDERAL OR STATE COURT IN NEW
YORK, NEW YORK, AND AGREES THAT SERVICE OF PROCESS UPON SAID
AGENT AT SAID ADDRESS AND WRITTEN NOTICE OF SAID SERVICE MAILED
OR DELIVERED TO BORROWER IN THE MANNER PROVIDED HEREIN SHALL BE
DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON
BORROWER, IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE OF
NEW YORK. BORROWER (I) SHALL GIVE PROMPT NOTICE TO LENDER OF ANY
CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT
ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED
AGENT WITH AN OFFICE IN NEW YORK, NEW YORK (WHICH SUBSTITUTE
AGENT AND OFFICE SHALL BE DESIGNATED AS THE PERSON AND ADDRESS
FOR SERVICE OF PROCESS), AND (III) SHALL PROMPTLY DESIGNATE SUCH
A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO HAVE AN OFFICE IN
NEW YORK, NEW YORK OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR.
SECTION 15.22 ENTIRE AGREEMENT. This Agreement and
----------------
the other Loan Documents embody the entire agreement and
understanding between Lender and Borrower and supersede all prior
agreements and understandings between such parties relating to
the subject matter hereof and thereof. Accordingly, the Loan
Documents may not be contradicted by evidence of prior,
contemporaneous, or subsequent oral agreements of the parties.
There are no unwritten oral agreements between the parties.
SECTION 15.23 COUNTERPARTS. This Agreement may be
------------
executed in multiple counterparts, each of which shall constitute
an original, but all of which shall constitute one document.
SECTION 15.24 BROKERS AND FINANCIAL ADVISORS.
------------------------------
Borrower hereby represents that it has dealt with no financial
advisors, brokers, underwriters, placement agents, agents or
finders in connection with the transactions contemplated by this
Agreement. Borrower hereby agrees to indemnify, defend and hold
Lender harmless from and against any and all claims, liabilities,
costs and expenses of any kind (including Lender's attorneys'
fees and expenses) in any way relating to or arising from a claim
by any Person (including Broker) that such Person acted on behalf
of Borrower or Lender in connection with the transactions
contemplated herein. The provisions of this Section 15.24 shall
survive the expiration and termination of this Agreement and the
payment of the Debt.
SECTION 15.25 CONFLICTS. In the event of any conflict
---------
between the provisions of this Agreement and any of the other
Loan Documents, the provisions of this Agreement shall control.
SECTION 15.26 LENDER ESTOPPELS. Upon written request
----------------
of Borrower, not more frequently than twice in any calendar year,
Lender shall provide Borrower with a written statement certifying
(i) whether any monetary defaults currently exist under the Loan,
(ii) the date of the last monthly payment of principal and
interest under the Loan and (iii) the outstanding principal
amount of the Loan as of the date of such certification.
EXECUTED under seal as of the date first written above.
LENDER: CMF CAPITAL COMPANY, LLC,
a Delaware limited liability company
By:
---------------------------
Name:
Title:
BORROWER: WINSTON SPE LLC, a Virginia limited
liability company
By: Winston Manager Corporation,
a Virginia corporation,
its managing member
By: /s/ Joseph V. Green
----------------------------
Joseph V. Green
Vice President
JOINDER
-------
By executing this Joinder (the "JOINDER"), the
undersigned ("JOINDER PARTIES") jointly and severally guaranty
the performance by Borrower of all obligations and liabilities
for which Borrower is personally liable under Section 13.1 of
this Agreement. Subject to the preceding sentence, this Joinder
is a guaranty of full and complete payment and performance and
not of collectability.
1. WAIVERS. To the fullest extent permitted by
-------
applicable law, each Joinder Party waives all rights and defenses
of sureties, guarantors, accommodation parties and/or co-makers
and agrees that its obligations under this Joinder shall be
primary, absolute and unconditional, and that its obligations
under this Joinder shall be unaffected by any of such rights or
defenses, including:
(a) the unenforceability of any Loan Document against
Borrower and/or any guarantor or other Joinder Party;
(b) any release or other action or inaction taken by
Lender with respect to the collateral, the Loan, Borrower, any
guarantor and/or other Joinder Party, whether or not the same may
impair or destroy any subrogation rights of any Joinder Party, or
constitute a legal or equitable discharge of any surety or
indemnitor;
(c) the existence of any collateral or other security
for the Loan, and any requirement that Lender pursue any of such
collateral or other security, or pursue any remedies it may have
against Borrower, any guarantor and/or any other Joinder Party;
(d) any requirement that Lender provide notice to or
obtain a Joinder Party's consent to any modification, increase,
extension or other amendment of the Loan, including the
guaranteed obligations;
(e) any right of subrogation (until payment in full of
the Loan, including the guaranteed obligations, and the
expiration of any applicable preference period and statute of
limitations for fraudulent conveyance claims);
(f) Intentionally Omitted;
(g) any payment by Borrower to Lender if such payment
is held to be a preference or fraudulent conveyance under
bankruptcy laws or Lender is otherwise required to refund such
payment to Borrower or any other party; and
(h) any voluntary or involuntary bankruptcy,
receivership, insolvency, reorganization or similar proceeding
affecting Borrower or any of its assets.
2. AGREEMENTS. Each Joinder Party further
----------
represents, warrants and agrees that:
(a) The obligations under this Joinder are enforceable
against each such party and are not subject to any defenses,
offsets or counterclaims;
(b) The provisions of this Joinder are for the benefit
of Lender and its successors and assigns;
(c) Lender shall have the right to (i) renew, modify,
extend or accelerate the Loan, (ii) pursue some or all of its
remedies against Borrower, any guarantor or any Joinder Party,
(iii) add, release or substitute any collateral for the Loan or
party obligated thereunder, and (iv) release Borrower, any
guarantor or any Joinder Party from liability, all without notice
to or consent of any Joinder Party (or other Joinder Party) and
without affecting the obligations of any Joinder Party (or other
Joinder Party) hereunder;
(d) Each Joinder Party covenants and agrees to furnish
to Lender, within ninety (90) days after the end of each calendar
year of such Joinder Party, the financial statements and reports
required to be furnished for such party pursuant to Section
9.1(d) of this Agreement; and
(e) To the maximum extent permitted by law, each
Joinder Party hereby knowingly, voluntarily and intentionally
waives the right to a trial by jury in respect of any litigation
based hereon. This waiver is a material inducement to Lender to
enter into this Agreement.
This Joinder shall be governed by the laws of the State
of New York.
Executed under seal as of November__, 1998.
WINSTON HOTELS, INC.,
a North Carolina corporation
By:
--------------------------
Name:
Title:
WINN LIMITED PARTNERSHIP,
a North Carolina limited
partnership
By:Winston Hotels, Inc.,
a North Carolina
corporation,
its sole general partner
By:
--------------------------
Name:
Title:
SCHEDULE I
----------
RELEASE AMOUNTS
PROPERTY LOCATION RELEASE AMOUNT
- -------- -------- --------------
COMFORT SUITES ORLANDO, FLORIDA $ 5,175,000
COMFORT INN CHARLESTON, SOUTH CAROLINA 1,575,000
COURTYARD BY
MARRIOTT ANN ARBOR, MICHIGAN 6,300,000
COURTYARD BY
MARRIOTT WILMINGTON, NORTH CAROLINA 4,275,000
HAMPTON INN ELMSFORD, NEW YORK 7,625,000
HAMPTON INN RALEIGH, NORTH CAROLINA 5,300,000
HAMPTON INN PERMITER, GEORGIA 5,000,000
HAMPTON INN WEST SPRINGFIELD, 3,700,000
MASSACHUSETTS
HAMPTON INN CHARLOTTE, NORTH CAROLINA 4,575,000
HAMPTON INN &
SUITES DULUTH, GEORGIA (GWINETTE) 5,400,000
HOMEWOOD SUITES CARY, NORTH CAROLOINA 6,025,000
HOMEWOOD SUITES CLEARLAKE, TEXAS 3,450,000
QUALITY SUITES NORTH CHARLESTON, SOUTH 6,300,000
CAROLINA
RESIDENCE INN PHOENIX, ARIZONA 6,300,000
TOTALS/AVERAGES $ 71,000,000
SCHEDULE II
-----------
REQUIRED REPAIRS
Hampton Inn Building Area: 61,950 Square Feet
Charlotte, North Carolina Property Type: Limited Service Hotel
August 13, 1998 Total Guestrooms: 125
Property Age: 7 Years
Physical Condition Summary Action Immed. Cost
=================================================================
Substructure & Superstructure
- -----------------------------------------------------------------
Exterior Walls Moisture Analysis $ 2,800
- -----------------------------------------------------------------
Mechanical, Electrical & Plumbing Systems
- -----------------------------------------------------------------
Fire Protection and Life Safety Systems
- -----------------------------------------------------------------
Other Conditions
- -----------------------------------------------------------------
ADA Compliance Upgrades $ 4,700
- -----------------------------------------------------------------
TOTAL $ 7,500
=================================================================
Holdback Summary Today's $/Room $/Room/ w/Escalat Escalated
Dollars Year ion $/Room/Year
=================================================================
Immediate
Repairs Cost
Estimate $ 7,500 $ 60 N/A N/A N/A
Comfort Inn Building Area: 59,645 Square Feet
Charleston, South Property Type: Hi-Rise Hotel
Carolina Total Guestrooms: 128
July 31, 1998 Property Age: 11 Years
Physical Condition Summary Action Immed. Cost
=================================================================
Substructure & Superstructure
- -----------------------------------------------------------------
Roofing Replace and $ 2,500
Repair
- -----------------------------------------------------------------
Garage/Maintenance Building Replace door & $ 750
frame
- -----------------------------------------------------------------
Mechanical, Electrical & Plumbing Systems
- -----------------------------------------------------------------
Fire Protection and Life Safety Systems
- -----------------------------------------------------------------
Other Conditions
ADA Compliance Parking & showers $ 7,300
Year 2000 Building Readiness Additional Studies $ 4,500
- -----------------------------------------------------------------
TOTAL $15,050
=================================================================
Holdback Summary Today's $/Room $/Room/ w/Escalat Escalated
Dollars Year ion $/Room/Year
=================================================================
Immediate
Repairs Cost
Estimate $15,050 $118 N/A N/A N/A
Quality Suites Building Area: 108,000 Square Feet
North Charleston, South Property Type: Hi-Rise Hotel
Carolina Total Guestrooms: 168
August 18, 1998 Property Age: 10 Years
Physical Condition Summary Action Immed. Cost
=================================================================
Substructure & Superstructure
- -----------------------------------------------------------------
Mechanical, Electrical & Plumbing Systems
Tenant HVAC $10,000
- -----------------------------------------------------------------
Fire Protection and Life Safety Systems
- -----------------------------------------------------------------
Other Conditions
ADA Compliance See Report III, G.2 $ 3,540
- -----------------------------------------------------------------
TOTAL $13,540
=================================================================
Holdback Summary Today's $/Room $/Room/ w/Escalat Escalated
Dollars Year ion $/Room/Year
=================================================================
Immediate
Repairs Cost
Estimate $13,540 $ 81 N/A N/A N/A
Hampton Inn Building Area: 72,717 Square Feet
Raleigh, North Carolina Property Type: Limited Service Hotel
August 7, 1998 Total Guestrooms: 141
Property Age: 12 Years
Physical Condition Summary Action Immed. Cost
=================================================================
Substructure & Superstructure
Exterior Walls Patch, repair $ 2,800
- -----------------------------------------------------------------
Mechanical, Electrical & Plumbing Systems
- -----------------------------------------------------------------
Fire Protection and Life Safety Systems
- -----------------------------------------------------------------
Other Conditions
ADA Compliance Compliance $10,600
- -----------------------------------------------------------------
TOTAL $13,400
=================================================================
Holdback Summary Today's $/Room $/Room/ w/Escalat Escalated
Dollars Year ion $/Room/Year
=================================================================
Immediate
Repairs Cost
Estimate $13,400 $ 95 N/A N/A N/A
Hampton Inn Building Area: 48,000 Square Feet
West Springfield, Property Type: Convention Hotel
Massachusetts Total Guestrooms: 124
August 3, 1998 Property Age: 9 Years
Physical Condition Summary Action Immed. Cost
=================================================================
Substructure & Superstructure
Roofing $ 2,500
Exterior Walls $ 1,000
- -----------------------------------------------------------------
Mechanical, Electrical & Plumbing Systems
Building Plumbing and Water filtration $ 5,000
Domestic Hot system
Water
- -----------------------------------------------------------------
Fire Protection and Life Safety Systems
- -----------------------------------------------------------------
Other Conditions
ADA Compliance $ 5,150
- -----------------------------------------------------------------
TOTAL $13,650
=================================================================
Holdback Summary Today's $/Room $/Room/ w/Escalat Escalated
Dollars Year ion $/Room/Year
=================================================================
Immediate
Repairs Cost
Estimate $13,650 $110 N/A N/A N/A
Courtyard by Marriott Building Area: 71,518 Square Feet
Wilmington, North Property Type: Limited Service Hotel
Carolina Total Guestrooms: 128
August 5, 1998 Property Age: 2 Years
Physical Condition Summary Action Immed. Cost
=================================================================
Substructure & Superstructure
- -----------------------------------------------------------------
Mechanical, Electrical & Plumbing Systems
- -----------------------------------------------------------------
Fire Protection and Life Safety Systems
- -----------------------------------------------------------------
Other Conditions
ADA Compliance Van parking sign $ 25
- -----------------------------------------------------------------
TOTAL $ 25
=================================================================
Holdback Summary Today's $/Room $/Room/ w/Escalat Escalated
Dollars Year ion $/Room/Year
=================================================================
Immediate
Repairs Cost
Estimate $ 25 $ 0 N/A N/A N/A
Comfort Suites Building Area: 85,450 Square Feet
Orlando, Florida Property Type: Limited Service Hotel
August 4, 1998 Total Guestrooms: 214
Property Age: 8 Years
Physical Condition Summary Action Immed. Cost
=================================================================
Substructure & Superstructure
Exterior Walls Repair $ 2,800
Exterior and Interior Stairs Repair $ 8,800
- -----------------------------------------------------------------
Mechanical, Electrical & Plumbing Systems
- -----------------------------------------------------------------
Fire Protection and Life Safety Systems
- -----------------------------------------------------------------
Other Conditions
ADA Compliance Compliance $ 5,270
- -----------------------------------------------------------------
TOTAL $16,870
=================================================================
Holdback Summary Today's $/Room $/Room/ w/Escalat Escalated
Dollars Year ion $/Room/Year
=================================================================
Immediate
Repairs Cost
Estimate $16,870 $ 79 N/A N/A N/A
Homewood Suites Building Area: 117,899 Square Feet
Cary, North Carolina Property Type: Convention Hotel
August 5, 1998 Total Guestrooms: 120
Property Age: 4 Years
Physical Condition Summary Action Immed. Cost
=================================================================
Substructure & Superstructure
- -----------------------------------------------------------------
Mechanical, Electrical & Plumbing Systems
- -----------------------------------------------------------------
Fire Protection and Life Safety Systems
- -----------------------------------------------------------------
Other Conditions
ADA Compliance $ 700
- -----------------------------------------------------------------
TOTAL $ 700
=================================================================
Holdback Summary Today's $/Room $/Room/ w/Escalat Escalated
Dollars Year ion $/Room/Year
=================================================================
Immediate
Repairs Cost
Estimate $ 700 $ 6 N/A N/A N/A
Residence Inn Building Area: 100,800 Square Feet
Phoenix, Arizona Property Type: Limited Service Hotel
August 12, 1998 Total Guestrooms: 168
Property Age: 10 Years
Physical Condition Summary Action Immed. Cost
=================================================================
Substructure & Superstructure
- -----------------------------------------------------------------
Mechanical, Electrical & Plumbing Systems
- -----------------------------------------------------------------
Fire Protection and Life Safety Systems
Building & Tenant Systems Repair sprinkler $32,000
heads
- -----------------------------------------------------------------
Other Conditions
ADA Compliance See text $ 8,920
- -----------------------------------------------------------------
TOTAL $40,920
=================================================================
Holdback Summary Today's $/Room $/Room/ w/Escalat Escalated
Dollars Year ion $/Room/Year
=================================================================
Immediate
Repairs Cost
Estimate $40,920 $244 N/A N/A N/A
Courtyard by Marriott
Ann Arbor, Michigan
Physical Condition Summary Action Immed. Cost
=================================================================
Substructure & Superstructure
- -----------------------------------------------------------------
Mechanical, Electrical & Plumbing Systems
- -----------------------------------------------------------------
Fire Protection and Life Safety Systems
- -----------------------------------------------------------------
Other Conditions
ADA Compliance See text $ 600
- -----------------------------------------------------------------
TOTAL $ 600
=================================================================
SCHEDULE III
------------
INTENTIONALLY OMITTED
SCHEDULE IV
-----------
FRANCHISE AGREEMENTS
1. Franchise Agreement between Marriott International, Inc. and
Hotel II Inc., dated November 9, 1996 for Courtyard Marriott -
Wilmington, North Carolina as subsequently assinged to Capstar
Winston Company, L.L.C. on November 17, 1997.
2. License Agreement between Promus Hotels, L.L.C. and Capstar
Winston Company, L.L.C., dated November 17, 1997 for Hampton Inn
- Raleigh, North Carolina.
3. License Agreement between Promus Hotels, L.L.C. and Capstar
Winston Company, L.L.C., dated November 24, 1997 for Hampton Inn
- Charlotte, North Carolina.
4. License Agreement between Promus Hotels, L.L.C. and Capstar
Winston Company, L.L.C., dated November 17, 1997 for Homewood
Suites - Cary, North Carolina.
5. License Agreement between Promus Hotels, L.L.C. and Capstar
Winston Company, L.L.C., dated November 17, 1997 for Homewood
Suites - Clearlake, Texas.
6. Franchise Agreement between Marriott International, Inc. and
Capstar Winston Company, L.L.C., dated March 6, 1998 for
Residence Inn - Phoenix, Arizona.
7. Franchise Agreement between Choice Hotels International,
Inc. and Captstar Winston Company, L.L.C., dated November 26,
1997 for Comfort Suites - Orlando, Florida.
8. Franchise Agreement between Choice Hotels International,
Inc. and Captstar Winston Company, L.L.C., dated November 17,
1997 for Comfort Inn - Charleston, South Carolina.
9. Franchise Agreement between Choice Hotels International,
Inc. and Captstar Winston Company, L.L.C., dated November 17,
1997 for Quality Suites - Charleston, South Carolina.
10. Franchise Agreement between Marriott International, Inc. and
White Lodging Services Corporation, dated January 10, 1992 for
Courtyard Marriott - Ann Arbor, Michigan as subsequently assinged
to Capstar Winston Company, L.L.C. on November 17, 1997.
11. License Agreement between Promus Hotels, L.L.C. and Capstar
Winston Company, L.L.C., dated November 17, 1997 for Hampton Inn
- White Plains, New York.
12. License Agreement between Promus Hotels, L.L.C. and Capstar
Winston Company, L.L.C., dated November 17, 1997 for Hampton Inn
- Springfield, Massachussetts.
13. License Agreement between Promus Hotels, L.L.C. and Capstar
Winston Company, L.L.C., dated November 17, 1997 for Hampton Inn
- Perimiter, Georgia.
14. License Agreement between Promus Hotels, L.L.C. and Capstar
Winston Company, L.L.C., dated November 17, 1997 for Hampton Inn
- Gwinnett, Georgia.
SCHEDULE V
----------
OPERATING LEASES
1. Lease Agreement between WINN Limited Partnership, as Lessor,
and Winston Hospitality, Inc., as Lessee, for the Comfort Suites,
Orlando, Florida, dated May 1, 1997, as amended by First
Amendment dated November 17, 1997, as subsequently assigned to
Winston SPE LLC, as Lessor, and CapStar Winston Company, L.L.C.
as Lessee.
2. Lease Agreement between WINN Limited Partnership, as Lessor,
and Winston Hospitality, Inc., as Lessee, for the Homewood
Suites, Cary, North Carolina, dated July 9, 1996, as amended by
First Amendment dated November 17, 1997, as subsequently assigned
to Winston SPE LLC, as Lessor, and CapStar Winston Company,
L.L.C. as Lessee.
3. Lease Agreement between WINN Limited Partnership, as Lessor,
and Winston Hospitality, Inc., as Lessee, for the Homewood
Suites, ClearLake, Texas, dated September 13, 1996, as amended by
First Amendment dated November 17, 1997, as subsequently assigned
to Winston SPE LLC, as Lessor, and CapStar Winston Company,
L.L.C. as Lessee.
4. Lease Agreement between WINN Limited Partnership, as Lessor,
and Winston Hospitality, Inc., as Lessee, for the Courtyard by
Marriott, Wilmington, North Carolina, dated December 19, 1996, as
amended by First Amendment dated November 17, 1997, as
subsequently assigned to Winston SPE LLC, as Lessor, and CapStar
Winston Company, L.L.C. as Lessee.
5. Lease Agreement between WINN Limited Partnership, as Lessor,
and Winston Hospitality, Inc., as Lessee, for the Courtyard by
Marriott, Ann Arbor, Michigan, dated September 30, 1997, as
amended by First Amendment dated November 17, 1997, as
subsequently assigned to Winston SPE LLC, as Lessor, and CapStar
Winston Company, L.L.C. as Lessee.
6. Lease Agreement between WINN Limited Partnership, as Lessor,
and Winston Hospitality, Inc., as Lessee, for the Quality Suites
in Charleston, South Carolina, dated May 15, 1995, as amended by
First Amendment dated November 17, 1997, as subsequently assigned
to Winston SPE LLC, as Lessor, and CapStar Winston Company,
L.L.C. as Lessee.
7. Lease Agreement between WINN Limited Partnership, as Lessor,
and Winston Hospitality, Inc., as Lessee, for the Hampton Inn,
White Plains, New York, dated October 29, 1997, as amended by
First Amendment dated November 17, 1997, as subsequently assigned
to Winston SPE LLC, as Lessor, and CapStar Winston Company,
L.L.C. as Lessee.
8. Lease Agreement between WINN Limited Partnership, as Lessor,
and Winston Hospitality, Inc., as Lessee, for the Hampton Inn,
Raleigh, North Carolina, dated May 15, 1994, as amended by First
Amendment dated November 17, 1997, as subsequently assigned to
Winston SPE LLC, as Lessor, and CapStar Winston Company, L.L.C.
as Lessee.
9. Lease Agreement between WINN Limited Partnership, as Lessor,
and Winston Hospitality, Inc., as Lessee, for the Hampton Inn,
Perimeter, Georgia, dated July 19, 1996, as amended by First
Amendment dated November 17, 1997, as subsequently assigned to
Winston SPE LLC, as Lessor, and CapStar Winston Company, L.L.C.
as Lessee.
10. Lease Agreement between WINN Limited Partnership, as Lessor,
and Winston Hospitality, Inc., as Lessee, for the Hampton Inn,
West Springfield, Massachusetts, dated July 14, 1997, as amended
by First Amendment dated November 17, 1997, as subsequently
assigned to Winston SPE LLC, as Lessor, and CapStar Winston
Company, L.L.C. as Lessee.
11. Lease Agreement between WINN Limited Partnership, as Lessor,
and Winston Hospitality, Inc., as Lessee, for the Hampton Inn and
Suites, Gwinnett, Georgia, dated July 18, 1996, as amended by
First Amendment dated November 17, 1997, as subsequently assigned
to Winston SPE LLC, as Lessor, and CapStar Winston Company,
L.L.C. as Lessee.
12. Lease Agreement between WINN Limited Partnership, as Lessor,
and Winston Hospitality, Inc., as Lessee, for the Comfort Inn,
Charleston, South Carolina, dated May 15, 1995, as amended by
First Amendment dated November 17, 1997, as subsequently assigned
to Winston SPE LLC, as Lessor, and CapStar Winston Company,
L.L.C. as Lessee.
13. Lease Agreement between WINN Limited Partnership, as Lessor,
and Winston Hospitality, Inc., as Lessee, for the Hampton Inn,
Charlotte, North Carolina, dated June 2, 1994, as amended by
First Amendment dated November 24, 1997, as subsequently assigned
to Winston SPE LLC, as Lessor, and CapStar Winston Company,
L.L.C. as Lessee.
14. Lease Agreement between WINN Limited Partnership, as Lessor,
and Capstar Winston Company, L.L.C. for the Residence Inn,
Phoenix, Arizona, dated March 3, 1998.
SCHEDULE VI
-----------
FORM OF NONDISTURBANCE AGREEMENT
SCHEDULE VII
TENANT ESTOPPEL CERTIFICATE AND AGREEMENT
PREMISES (include street address, suite number, and square
footage):
- ------------------------------------------------("PREMISES")
LANDLORD:
---------------------------------------("LANDLORD")
LEASE DATED:
--------------------------------------- ("LEASE")
TENANT (include actual name and any assumed name):
- ----------------------------------------------------("TENANT")
TENANT'S NOTICE ADDRESS:
- --------------------------------------------------------------
DATE:
---------------------------------------------------------
For and in consideration of the sum of Ten Dollars and
other good and valuable consideration, the undersigned, Tenant,
hereby certifies to and agrees with CMF CAPITAL COMPANY, LLC, a
Delaware limited liability company that:
1. Tenant has accepted possession of the Premises pursuant to
the Lease. The Lease term commenced on
------------------.
The Lease terminates on and the Tenant has
-----------------
the following renewal/extension option(s)
-----------------.
The base year for operating expenses and real estate taxes,
as defined in the Lease, is
-------------------------------.
Monthly rent under the Lease is as follows (state basic rent and
indicate how additional rent, if any, is calculated):
-----------------------------------------------------------
2. All work to be performed for Tenant under the Lease has been
performed as required and has been accepted by the Tenant; and
any payments, free rent, or other payments, credits, allowances
or abatements required to be given by Landlord to the Tenant have
already been received by Tenant, except
----------------------------------------------------------------.
3. The Lease has not been assigned, modified, supplemented or
amended in any way except as set forth on Schedule A attached
hereto. The Lease constitutes the entire agreement between the
parties and there are no other agreements between Landlord and
Tenant concerning the Premises.
4. The Lease is valid and in full force and effect, and, to the
best of Tenant's knowledge, neither Landlord nor Tenant is in
default thereunder. Tenant has no defense, setoff or
counterclaim against Landlord arising out of the Lease or in any
way relating thereto, or arising out of any other transaction
between Tenant and Landlord, and no event has occurred and no
condition exists, which with the giving of notice or the passage
of time, or both, will constitute a default under the Lease.
5. No rent or other sum payable under the Lease has been paid
more than one month in advance.
6. The minimum monthly rent presently payable under the Lease
is
----------------.
7. Tenant acknowledges that Tenant has received notice that the
Lease will be assigned to CMF Capital Company, LLC, and Tenant
has received no notice of a prior assignment, hypothecation or
pledge of the Lease or the rents, income, deposits or profits
arising thereunder. Tenant understands that under the provisions
of the assignment, the Lease cannot be terminated (either
directly or by the exercise of any option which could lead to
termination) or modified in any of its terms, or consent be given
to the release of any party having liability thereon, without the
prior written consent of CMF Capital Company, LLC, that without
such consent, no rent may be collected or accepted more than one
month in advance and that the interest of the Landlord in the
Lease has been assigned to CMF Capital Company, LLC solely as
security for the purposes specified in the assignment and CMF
Capital Company, LLC assumes no duty, liability or obligations
whatever under the Lease or any extension or renewal thereof.
8. Tenant hereby acknowledges and agrees that if CMF Capital
Company, LLC shall succeed to the interest of Landlord under the
Lease, CMF Capital Company, LLC shall assume (only while owner of
and in possession or control of the building or which the
Premises are a part) and perform all of Landlord's obligations
under the Lease, but shall not be liable for any act or omission
of any prior landlord (including the present landlord), liable
for the return of any advance rental deposit, subject to any
offset or defense which Tenant may have against any such prior
landlord or bound by any rent or additional rent Tenant may have
paid for more than the current month to any such prior landlord
or bound by any assignment, surrender, termination, cancellation,
waiver, release, amendment or modification of the Lease made
without its express written consent.
9. Tenant shall give CMF Capital Company, LLC prompt written
notice of any default of Landlord under the Lease, if such
default entitles Tenant, under law or otherwise, to terminate the
Lease, reduce rent or credit or offset any amount against future
rents and shall give CMF Capital Company, LLC reasonable time
(but in no event less than 60 days after receipt of such notice)
to cure or commence curing such default prior to exercising (and
as a condition precedent to its right to exercise) any right
Tenant may have to terminate the Lease or to reduce rent or
credit or offset any amounts against the rent; provided, however,
that if such default cannot by its nature be cured within thirty
(30) days, then Lessee shall not terminate the Lease or exercise
any such right or remedy, provided the curing of such default is
commenced within such thirty (30) days and is diligently
prosecuted thereafter. Tenant shall give written notice to any
successor in interest of CMF Capital Company, LLC, any purchaser
at a foreclosure sale under the mortgage, any transferee who
acquired the property by deed in lieu of foreclosure or any
successor or assign thereof.
10. The Tenant's security deposit is $
-----------------------------.
Tenant shall not look to CMF Capital Company, LLC, as mortgagee,
mortgagee in possession, or successor in title to the Mortgaged
Property, in connection with the return of or accountability with
respect to any security deposit required by Landlord, unless said
sums have actually been received by CMF Capital Company, LLC as
security for Tenant's performance under the Lease.
11. If the interests of Landlord in and to the Premises are
owned by CMF Capital Company, LLC by reason of any deed-in-lieu
of foreclosure, judicial foreclosure, sale pursuant to any power
of sale or other proceedings brought by it or by any other
manner, including, but not limited to, CMF Capital Company, LLC's
exercise of its rights under any assignment of leases and rents,
and CMF Capital Company, LLC succeeds to the interest of Landlord
under the Lease, Tenant shall be bound to CMF Capital Company,
LLC under all of the terms, covenants and conditions of the Lease
for the balance of the term thereof remaining and any extension
thereof duly exercised by Tenant with the same force and effect
as if CMF Capital Company, LLC were the Landlord under the Lease;
and Tenant does hereby attorn to CMF Capital Company, LLC, as its
Landlord, said attornment to be effective and self-operative,
without the execution of any further instruments on the part of
any of the parties hereto, immediately upon CMF Capital Company,
LLC's succeeding to the interest of Landlord under the Lease;
provided, however, that Tenant shall be under no obligation to
pay rent to CMF Capital Company, LLC until Tenant receives
written notice from CMF Capital Company, LLC that CMF Capital
Company, LLC has succeeded to the interest of the Landlord under
the Lease or otherwise has the right to receive such rents. The
respective rights and obligations of Tenant and CMF Capital
Company, LLC upon such attornment, to the extent of the then
remaining balance of the term of the Lease, shall be and are the
same as now set forth therein, it being the intention of the
parties hereto for this purpose to incorporate the Lease in this
agreement by reference, with the same force and effect as if set
forth in full herein.
12. Tenant shall neither suffer nor itself manufacture, store,
handle, transport, dispose of, spill, leak, dump any toxic or
hazardous waste, waste product or substance (as they may be
defined in any federal or state statute, rule or regulation
pertaining to or governing such wastes, waste products or
substances) on the Premises at any time during the term, or
extended term, of the Lease.
13. The Tenant has no right or option to purchase all or any
part of the Premises or the building of which the Premises is a
part or to occupy any additional space at the related property.
14. The Tenant has not assigned the Lease or sublet all or any
portion of the Premises, the Tenant does not hold the Premises
under assignment or sublease, nor does anyone except Tenant and
its employees occupy the Premises except
-----------------------.
15. To the best of Tenant's knowledge, no actions, whether
voluntary or otherwise, are pending against the Tenant under the
bankruptcy laws of the United States or any state and there are
no claims or actions pending against the Tenant which if decided
against the Tenant would materially and adversely affect the
Tenant's financial condition or the Tenant's ability to perform
the tenant's obligations under the Lease;
16. Tenant acknowledges that Landlord has assigned to Lender its
right, title and interest in the Lease and to the rents due
thereunder, and that Landlord will collect such rents provided no
event of default has occurred under the Loan. Tenant agrees to
pay all rents and other amounts due under the Lease directly to
Lender upon receipt of written demand by Lender, and Landlord
hereby consents thereto. The assignment of the Lease to Lender,
or collection of rents by Lender pursuant to such assignment,
shall not obligate Lender to perform Landlord's obligations under
the Lease.
17. All notices and other communications from Tenant to CMF
Capital Company, LLC shall be in writing and shall be delivered
or mailed by registered mail, postage paid, return receipt
requested, addressed to CMF Capital Company, LLC at:
General Electric Capital Corporation
209 West Jackson, 2nd Floor
Chicago, Illinois 60606
Attention: Nancy G. Tramulota, Operating Agent
Telecopy: (203) 316-7410
or at such other address as , any successor, purchaser
or transferee shall furnish to Tenant in writing.
1. This Agreement shall inure to the benefit of and be binding
upon the parties hereto, their successors and assigns. This
Agreement may be executed in several counterparts, and all so
executed shall constitute one agreement, binding on all parties
hereto, notwithstanding that all parties are not signatories to
the original or the same counterpart.
2. This Estoppel Certificate and Agreement is being executed
and delivered by Tenant (a) for the benefit of CMF Capital
Company, LLC in connection with its loan to Landlord which is
secured or to be secured in part by an assignment to CMF Capital
Company, LLC of Landlord's interest in the Lease, and (b) with
the intent and understanding that the above statements will be
relied upon by GECC and constitute a binding agreement between
the parties.
TENANT:
------------------------------------------------
a
-----------------------------------------------
By:
------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
CMF Capital Company, CMF CAPITAL COMPANY, LLC
LLC: a Delaware limited liability company
By:
------------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
SCHEDULE A
----------
LIST OF AMENDMENTS TO LEASE
SCHEDULE VIII
-------------
SUBORDINATION, NON-DISTURBANCE,
AND ATTORNMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the
-----
day of , 19 , by and between CMF Capital Company,
--------------- --
LLC, a Delaware limited liability company ("MORTGAGEE"), and
, a
- -------------------------------------- --------------------
("LESSEE").
R E C I T A L S:
A. Mortgagee has made a loan in the amount of
$71,000,000 (the "LOAN") to Winston SPE LLC, a Virginia limited
liability company ("BORROWER"), secured by the Borrower's
interest in the real property described in EXHIBIT A attached
---------
hereto and incorporated herein by reference (said real property
and improvements being herein called the "Project"), such Loan
being secured by a [Mortgage/Deed of Trust/Deed to Secure Debt]
and Security Agreement dated 1998 (the
--------------
"MORTGAGE"), constituting a lien or encumbrance on the Project;
and
B. Lessee is the holder of a leasehold estate in and
to of of the Project, consisting of
------------ -----------
approximately usable square feet of space (the "DEMISED
-----
PREMISES"), under that Lease Agreement (the "LEASE") dated
, executed by Borrower, as Landlord (Borrower
- ---------------
being sometimes hereinafter called "LESSOR"), and Lessee, as
Tenant; and
C. Lessee and Mortgagee desire to confirm their
understandings with respect to the Lease and the Mortgage.
A G R E M E N T:
NOW, THEREFORE, in consideration of the foregoing and
the mutual covenants and agreements herein contained, Lessee and
Mortgagee agree and covenant as follows:
1. Non-Disturbance. Mortgagee agrees that it will
---------------
not disturb the possession of Lessee under the Lease upon any
judicial or non-judicial foreclosure of the Mortgage or upon
acquiring title to the Project by deed-in-lieu of foreclosure, or
otherwise, if the Lease is in full force and effect and Lessee is
not then in default under the Lease, and that Mortgagee will
accept the attornment of Lessee thereafter so long as Lessee is
not in default under the Lease.
2. Attornment. If the interests of Lessor in and to
----------
the Demised Premises are owned by Mortgagee by reason of any deed-
in-lieu of foreclosure, judicial foreclosure, sale pursuant to
any power of sale or other proceedings brought by it or by any
other manner, including, but not limited to, Mortgagee's exercise
of its rights under any assignment of leases and rents, and
Mortgagee succeeds to the interest of Lessor under the Lease,
Lessee shall be bound to Mortgagee under all of the terms,
covenants and conditions of the Lease for the balance of the term
thereof remaining and any extension thereof duly exercised by
Lessee with the same force and effect as if Mortgagee were the
Lessor under the Lease; and Lessee does hereby attorn to
Mortgagee, as its lessor, said attornment to be effective and
self-operative, without the execution of any further instruments
on the part of any of the parties hereto, immediately upon
Mortgagee's succeeding to the interest of Lessor under the Lease;
provided, however, that Lessee shall be under no obligation to
pay rent to Mortgagee until Lessee receives written notice from
Mortgagee that Mortgagee has succeeded to the interest of the
Lessor under the Lease or otherwise has the right to receive such
rents. The respective rights and obligations of Lessee and
Mortgagee upon such attornment, to the extent of the then
remaining balance of the term of the Lease, shall be and are the
same as now set forth therein, it being the intention of the
parties hereto for this purpose to incorporate the Lease in this
Agreement by reference, with the same force and effect as if set
forth in full herein.
3. Mortgagee's Obligations. If Mortgagee shall
------------------------
succeed to the interest of Lessor under the Lease, Mortgagee,
subject to the last sentence of this Paragraph 3, shall be bound
to Lessee under all of the terms, covenants and conditions of the
Lease; provided, however, that Mortgagee shall not be:
(a) Liable for any act or omission of any prior
lessor (including Lessor); or
(b) Subject to the offsets or defenses which
Lessee might have against any prior lessor (including
Lessor); or
(c) Bound by any rent or additional rent or
advance rent which Lessee might have paid for more than
the current month to any prior lessor (including
Lessor), and all such rent shall remain due and owing,
notwithstanding such advance payment; or
(d) Bound by any security or advance rental
deposit made by Lessee which is not delivered or paid
over to Mortgagee and with respect to which Lessee
shall look solely to Lessor for refund or
reimbursement;
(e) Bound by any termination, amendment or
modification of the Lease made without its consent and
written approval;
(f) Liable under any warranty of construction
contained in the Lease or any implied warranty of
construction; or
(g) Liable for the performance or completion of
any construction obligations under the Lease or for any
loan or contribution or rent concession towards
construction of the Demised Premises pursuant to the
Lease.
Neither CMF Capital Company, LLC nor any other party who from
time to time shall be included in the definition of Mortgagee
hereunder, shall have any liability or responsibility under or
pursuant to the terms of this Agreement after it ceases to own an
interest in the Project. Nothing in this Agreement shall be
construed to require Mortgagee to see to the application of the
proceeds of the Loan, and Lessee's agreements set forth herein
shall not be impaired on account of any modification of the
documents evidencing and securing the Loan. Lessee acknowledges
that Mortgagee is obligated only to Borrower to make the Loan
only upon the terms and subject to the conditions set forth in
the Loan Agreement between Mortgagee and Borrower pertaining to
the Loan. In no event shall Mortgagee or any purchaser of the
Project at foreclosure sale or any grantee of the Project named
in a deed-in-lieu of foreclosure, nor any heir, legal
representative, successor, or assignee of Mortgagee or any such
purchaser or grantee (collectively the Mortgagee, such purchaser,
grantee, heir, legal representative, successor or assignee, the
"Subsequent Landlord") have any personal liability for the
obligations of Lessor under the Lease and should the Subsequent
Landlord succeed to the interests of the Lessor under the Lease,
Tenant shall look only to the estate and property of any such
Subsequent Landlord in the Project for the satisfaction of
Tenant's remedies for the collection of a judgment (or other
judicial process) requiring the payment of money in the event of
any default by any Subsequent Landlord as landlord under the
Lease, and no other property or assets of any Subsequent Landlord
shall be subject to levy, execution or other enforcement
procedure for the satisfaction of Tenant's remedies under or with
respect to the Lease; provided, however, that the Lessee may
exercise any other right or remedy provided thereby or by law in
the event of any failure by Lessor to perform any such material
obligation.
4. Subordination. The Lease and all rights of Lessee
-------------
thereunder are subject and subordinate to the lien and the terms
of the Mortgage and to any deeds of trust, mortgages, ground
leases or other instruments of security which do now or may
hereafter cover the Project or any interest of Lessor therein
(collectively, the "Prior Encumbrances") and to any and all
advances made on the security thereof and to any and all
increases, renewals, modifications, consolidations, replacements
and extensions of the Mortgage or of any of the Prior
Encumbrances. This provision is acknowledged by Lessee to be
self-operative and no further instrument shall be required to
effect such subordination of the Lease. Lessee shall, however,
upon demand at any time or times execute, acknowledge and deliver
to Mortgagee any and all instruments and certificates that in
Mortgagee's judgment may be necessary or proper to confirm or
evidence such subordination. If Lessee shall fail or neglect to
execute, acknowledge and deliver any such instrument or
certificate, Mortgagee may, in addition to any other remedies
Mortgagee may have, as agent and attorney-in-fact of Lessee,
execute, acknowledge and deliver the same and Lessee hereby
irrevocably appoints Mortgagee as Lessee's agent and attorney-in-
fact for such purpose. However, notwithstanding the generality
of the foregoing provisions of this paragraph, Lessee agrees that
Mortgagee shall have the right at any time to subordinate the
Mortgage, and any such other mortgagee or ground lessor shall
have the right at any time to subordinate any such Prior
Encumbrances, to the Lease on such terms and subject to such
conditions as Mortgagee, or any such other mortgagee or ground
lessor, may deem appropriate in its discretion.
5. New Lease. Upon the written request of either
----------
Mortgagee or Lessee to the other given at the time of any
foreclosure, trustee's sale or conveyance in lieu thereof, the
parties agree to execute a lease of the Demised Premises upon the
same terms and conditions as the Lease between Lessor and Lessee,
which lease shall cover any unexpired term of the Lease existing
prior to such foreclosure, trustee's sale or conveyance in lieu
of foreclosure.
6. Notice. Lessee agrees to give written notice to
------
Mortgagee of any default by Lessor or Borrower under the Lease
not less than thirty (30) days prior to terminating the Lease or
exercising any other right or remedy thereunder or provided by
law. Lessee further agrees that it shall not terminate the Lease
or exercise any such right or remedy provided such default is
cured within such thirty (30) days; provided, however, that if
such default cannot by its nature be cured within thirty (30)
days, then Lessee shall not terminate the Lease or exercise any
such right or remedy, provided the curing of such default is
commenced within such thirty (30) days and is diligently
prosecuted thereafter. Such notices shall be delivered by
certified mail, return receipt requested to:
General Electric Capital Corporation
209 West Jackson, 2nd Floor
Chicago, Illinois 60606
Attention: Nancy G. Tramulota, Operating Agent
Telecopy: (203) 316-7410
7. Mortgagee. The term "Mortgagee" shall be deemed
---------
to include CMF Capital Company, LLC and any of its successors and
assigns, including anyone who shall have succeeded to Lessor's
interest in and to the Lease and the Project by, through or under
judicial foreclosure or sale under any power or other proceedings
brought pursuant to the Mortgage, or deed in lieu of such
foreclosure or proceedings, or otherwise.
8. Estoppel. Lessee hereby certifies, represents and
--------
warrants to Mortgagee that:
(a) That the Lease is a valid lease and in full
force and effect. That there is no existing default in
any of the terms and conditions thereof and no event
has occurred which, with the passing of time or giving
of notice or both, would constitute an event of
default;
(b) That the Lease has not be amended, modified,
supplemented, extended, renewed or assigned, and
represents the entire agreement of the parties;
(c) That, except as provided in the Lease, Lessee
is entitled to no rent concessions or abatements;
(d) That Lessee shall not pay rental under the
Lease for more than one (1) month in advance. Lessee
agrees that Lessee shall, upon written notice by
Mortgagee, pay to Mortgagee, when due, all rental under
the Lease;
(e) That all obligations and conditions under the
Lease to be performed to date have been satisfied, free
of defenses and set-offs; and
(f) That Lessee has not received written notice
of any claim, litigation or proceedings, pending or
threatened, against or relating to Lessee, or with
respect to the Demised Premises which would affect its
performance under the Lease. Lessee has not received
written notice of any violations of any federal, state,
county or municipal statutes, laws, codes, ordinances,
rules, regulations, orders, decrees or directives
relating to the use or condition of the Demised
Premises or Lessee's operations thereon.
9. Modification and Successors. This Agreement may
---------------------------
not be modified orally or in any manner other than by an
agreement, in writing, signed by the parties hereto and their
respective successors in interest. This Agreement shall inure to
the benefit of and be binding upon the parties hereto, their
successors and assigns.
10. Counterparts. This Agreement may be executed in
------------
several counterparts, and all so executed shall constitute one
agreement, binding on all parties hereto, notwithstanding that
all parties are not signatories to the original or the same
counterpart.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the day and year first above written.
MORTGAGEE: CMF CAPITAL COMPANY, LLC,
a Delaware limited liability company
By:
-------------------------------------
Name:
Title:
LESSEE:
---------------------------------------,
a
--------------------
By:
-------------------------------------
Name:
Title:
STATE OF
----------
COUNTY OF
----------
This instrument was acknowledged before me on this
day of , 19 , by ,
- ----- ----------------- -- ----------------------
of , a
- ------------------ -------------------------------
, on behalf of said corporation.
- ---------------------------
(SEAL)
Notary Public in and for
the State of
----------
---------------------------
Print name of notary
My Commission Expires:
-------------
STATE OF
----------
COUNTY OF
----------
This instrument was acknowledged before me on this
day of , 19 , by ,
- ----- ----------------- -- ----------------------
of , a
- -------------- --------------------------------
, on behalf of said .
- ----------- -----------
(SEAL)
Notary Public in and for
the State of
-----------
-----------------------------------
Print name of notary
My Commission Expires:
-------------
SCHEDULE IX
-----------
LITIGATION
None
SCHEDULE X
----------
MANAGER'S CONSENT AND SUBORDINATION
OF MANAGEMENT AGREEMENT
-----------------------
THIS MANAGER'S CONSENT AND SUBORDINATION OF MANAGEMENT
AGREEMENT (this "AGREEMENT"), dated as of ,
------------- ---
199 , made by , a (the
-- ----------------------- -------------
"MANAGER").
W I T N E S S E T H :
WHEREAS, _________________________________, a ________
[corporation/partnership] ("BORROWER"), has borrowed from CMF
Capital Company, a Delaware limited liability company ("LENDER")
the sum of $ , pursuant to that certain loan agreement
----------
dated as of the date hereof between Borrower and Lender (as the
same may hereafter be modified, amended, restated, renewed or
replaced, the "LOAN AGREEMENT").
WHEREAS, the loan is evidenced by that certain Note,
dated the date hereof given by Borrower to Lender (as the same
may hereafter be modified, amended, restated, renewed or
replaced, the "NOTE"), which Note is secured, in part, by a
Mortgage, Assignment of Leases and Rents, Security Agreement and
Fixture Filing, dated as of the date hereof (as the same may
hereafter be modified, amended, restated, renewed or replaced,
the "MORTGAGE"), made by Borrower to Lender. The Mortgage covers
Borrower's interest in the real property situated in
, as more particularly described therein (the
- ---------------
"PROPERTY").
NOW, THEREFORE, for good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, and
in order to induce Lender to accept the Mortgage and the other
Loan Documents, Manager hereby represents, warrants, covenants
and agrees for the benefit of Lender as follows:
1. DEFINITIONS. All capitalized terms not otherwise
-----------
defined herein shall have the meanings ascribed thereto in the
Loan Agreement.
2. MANAGER'S REPRESENTATIONS. Manager warrants and
-------------------------
represents to Lender, as of the date hereof, that the following
are true and correct:
(a) Manager has agreed to act as manager of the
Property pursuant to the Management Agreement, dated ,
----------
199 , between Borrower and Manager (the "MANAGEMENT AGREEMENT").
--
Attached hereto as Exhibit A is a true, correct and complete copy
---------
of the Management Agreement.
(b) The entire agreement between Manager and
Borrower for the management of the Property is evidenced by the
Management Agreement.
(c) The Management Agreement constitutes the
valid and binding agreement of Manager, enforceable in accordance
with its terms, and Manager has full authority under all state
and local laws and regulations, to perform all of its obligations
under the Management Agreement.
(d) Borrower is not in default in the performance
of any of its obligations under the Management Agreement and all
payments and fees required to be paid by Borrower to Manager
thereunder have been paid to the date hereof.
3. MANAGER'S AGREEMENTS. Notwithstanding the terms
--------------------
of the Management Agreement, Manager hereby consents to and
covenants and agrees as follows:
(a) No Termination of Management Agreement.
------------------------------------------
Manager shall not terminate the Management Agreement without
first obtaining Lender's written consent. Notwithstanding the
foregoing, Manager shall have the right to terminate the
Management Agreement for default by Borrower with respect to non-
payment of the management fee due thereunder or any costs of
operating the Property in accordance with the Management
Agreement by giving Lender sixty (60) days' prior written notice
of such termination. In the event Lender (or Borrower) shall
cure such non-payment default in the aforesaid sixty (60) day
period, then any termination notice related to such cause shall
be of no further force or effect.
(b) Subordination of Management Agreement to Lien
---------------------------------------------
of Mortgage. The Management Agreement and any and all liens,
- ------------
rights and interests (whether choate or inchoate and including,
without limitation, all mechanic's and materialmen's liens under
applicable law) owed, claimed or held, by Manager in and to the
Property, are and shall be in all respects subordinate and
inferior to the liens and security interests created or to be
created for the benefit of Lender, and securing the repayment of
the Note and the obligations under the Loan Agreement including,
without limitation, those created under the Mortgage covering,
among other things, the Property, and filed or to be filed of
record in the public records maintained for the recording of
mortgages in the jurisdiction where the Property is located, and
all renewals, extensions, increases, supplements, amendments,
modifications or replacements thereof.
(c) Lender's Right to Terminate. Upon the
------------------------------
occurrence and continuance of an Event of Default, Manager shall,
at the request of Lender, continue performance on behalf of
Lender of all of Manager's obligations under the terms of the
Management Agreement with respect to the Property, provided
Lender sends to Manager the notice set forth in paragraph 3(g)
hereof and performs or causes to be performed the obligations of
Borrower to Manager under the Management Agreement accruing or
arising from and after, and with respect to the period commencing
upon, the effective date of such notice. Upon, or at any time
after an Event of Default and continuance thereof, Lender shall
have the right to terminate the Management Agreement by giving
Manager thirty (30) days' prior written notice of such
termination, in which event Manager shall resign as manager of
the Property effective upon the end of such thirty (30) day
period and Lender shall neither be bound nor obligated to perform
the covenants and obligations of Borrower under the Management
Agreement. Without limiting Manager's rights against Borrower,
Manager agrees not to look to Lender for payment of any accrued
but unpaid management fees relating to the Property accruing
prior to the effective date of the notice set forth in paragraph
3(g) hereof or those which may occur prior to any notice of
termination if such notice is prior to the notice set forth in
paragraph 3(g) hereof.
(d) No Modification. Without the consent of
----------------
Lender, Manager shall not amend or modify the Management
Agreement in any material respect or terminate the Management
Agreement.
(e) Further Assurances. Manager further agrees
------------------
to (i) execute such affidavits and certificates as Lender shall
reasonably require to further evidence the agreements herein
contained, (ii) on request from Lender, furnish Lender with
copies of such information as Borrower is entitled to receive
under the Management Agreement, and (iii) cooperate with Lender's
representative in any inspection of all or any portion of the
Property. [Manager hereby acknowledges that some, or all,
permits, licenses and authorizations necessary for the use,
operation and maintenance of the Property (the "Permits") are
held by the Manager. By executing this Agreement, the Manager
(A) agrees that it is holding all such Permits by and for the
benefit of the Borrower and (B) hereby agrees that as security
for the repayment of the Debt by the Borrower in accordance with
the Loan Agreement, to the extent permitted by applicable law,
the Manager hereby grants to Lender a security interest in and to
the Permits. Moreover, the Manager hereby agrees that, upon an
Event of Default, it will assign the Permits to Lender if such
Permits are assignable or otherwise continue to hold such Permits
for the benefit of Lender until such time as Lender can obtain
such Permits in its own name or the name of a nominee.]
(f) Assignment of Leases and Rents. Manager
---------------------------------
acknowledges that, as further security for the Note, Borrower has
executed and delivered to Lender an Assignment of Leases and
Rents, dated as of the date hereof (the "ASSIGNMENT"), assigning
to Lender, among other things, all of Borrower's right, title and
interest in and to all of the leases now or hereafter affecting
the Property. Manager hereby agrees that upon receipt of written
notice from Lender that an Event of Default has occurred and is
continuing, Manager shall thereafter deliver to the Lender, for
application in accordance with the terms and conditions of the
Assignment, all income and proceeds relating to the Property then
being held by Manager, and all rents, security deposits (upon
compliance with any requirements of applicable law with respect
thereto) and other income and proceeds received from and after
the date thereof from any and all tenants or other parties
occupying or using any portion of the Property.
(g) No Joint Venture. Lender has no obligation
-----------------
to Manager with respect to the Loan Documents and Manager shall
not be a third party beneficiary with respect to any of Lender's
obligations to Borrower set forth in the Loan Documents. The
relationship of Lender to Borrower, is one of a creditor to a
debtor, and Lender is not a joint venturer or partner of
Borrower.
(h) Lender Not Obligated Under Management
-------------------------------------------
Agreement. Manager further agrees that nothing herein shall
- ---------
impose upon Lender any obligation for payment or performance in
favor of Manager, unless Lender notifies Manager in writing after
an Event of Default under the Mortgage, that (i) Lender has
elected to assert Borrower's rights under the Management
Agreement with respect to the Property and assumes its
obligations thereunder and (ii) Lender agrees to pay Manager the
sums due Manager with respect to the Property under the terms of
the Management Agreement from and after the effective date of
Lender's notice to Manager.
(i) Lender's Reliance on Representations.
------------------------------------------
Manager has executed this Agreement in order to induce Lender to
accept the Mortgage and the Loan Documents and with full
knowledge that Lender shall rely upon the representations,
warranties and agreements herein contained, and that but for this
instrument and the representations, warranties and agreements
therein contained, Lender would not take such actions.
(j) Governed by Loan Documents. Manager agrees
--------------------------
that until such time as the Debt shall be paid in full in
accordance with its terms and those of the Loan Documents,
Manager shall comply with its obligations under the Cash
Management Agreement and otherwise observe all of Borrower's
obligations under the Loan Documents with respect to the
operation, management and leasing of the Property,
notwithstanding anything contained in the Management Agreement to
the contrary. Manager confirms that it has received copies of
the Mortgage, the Cash Management Agreement and other Loan
Documents and is fully familiar with the terms thereof.
(k) Successors and Assigns; No Transfers.
------------------------------------------
Manager understands that Lender intends to assign this Agreement
and the Note, the Mortgage, the Assignment and the other Loan
Documents. Manager agrees that this Agreement and Manager's
obligations hereunder shall be binding upon Manager and its
successors and assigns and shall inure to the benefit of Lender
and its successors and assigns including, without limitation, any
parties to whom Lender's interest in the Note, the Loan Agreement
and the Mortgage are assigned. No sale, transfer or assignment
of any interest in the Manager shall be permitted without
Lender's consent.
(l) Additional Termination Rights of Lender.
-------------------------------------------
[Insert any other rights under the Loan Documents in which the
Lender may cause the termination of the Manager, i.e. manager
kick out clauses including Section 14.4 of the Loan Agreement.]
(m) Manager Not Entitled to Rents. Manager
---------------------------------
acknowledges and agrees that it is collecting and processing the
Rents solely as the agent for the Borrower and Manager has no
right to, or title in, the Rents. Notwithstanding anything to
the contrary in the Management Agreement, the Manager
acknowledges and agrees that the Rents are the sole property of
the Borrower, encumbered by the lien of the Mortgage and other
Loan Documents in favor of Lender. In any bankruptcy, insolvency
or similar proceeding the Manager, or any trustee acting on
behalf of the Manager, waives any claim to the Rents other than
as such Rents may be used to pay the fees and compensation of the
Manager pursuant to the terms and conditions of the Management
Agreement.
4. BORROWER CONSENT. Borrower has joined herein to
----------------
evidence its consent to the terms, covenants and conditions
contained in this Agreement.
5. COUNTERPARTS. This Agreement may be executed in
------------
one or more counterparts, each of which shall be deemed to
constitute an original, but all of which, when taken together,
shall constitute one and the same instrument.
6. NOTICES. Any notice required or permitted to be
-------
given under this Agreement shall be in writing and either shall
be mailed by certified mail, postage prepaid, return receipt
requested, or sent by overnight air courier service, or
personally delivered to a representative of the receiving party,
or sent by telecopy (provided an identical notice is also sent
simultaneously by mail, overnight courier, or personal delivery
as otherwise provided in this Section 6). All such
communications shall be mailed, sent or delivered, addressed to
the party for whom it is intended at its address set forth below.
If to Borrower:
----------------------------------------
----------------------------------------
Telecopy: ( ) -
--- --- ----------
If to Lender: CMF Capital Company, LLC
----------------------------------------
----------------------------------------
Attention:
------------------------------
CMBS Large Loan Program
Telecopy: ( ) -
--- --- ----------
Any communication so addressed and mailed shall be deemed to be
given on the earliest of (a) when actually delivered, (b) on the
first Business Day after deposit with an overnight air courier
service, or (c) on the third Business Day after deposit in the
United States mail, postage prepaid, in each case to the address
of the intended addressee, and any communication so delivered in
person shall be deemed to be given when receipted for by, or
actually received by Lender or Borrower, as the case may be. If
given by telecopy, a notice shall be deemed given and received
when the telecopy is transmitted to the party's telecopy number
specified above confirmation of complete receipt is received by
the transmitting party during normal business hours or on the
next Business Day if not confirmed during normal business hours.
Either party may designate a change of address by written notice
to the other by giving at least ten (10) days prior written
notice of such change of address.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their duly authorized
representatives, as of the day and year first above written.
MANAGER:
[ ]
-----------------------------
By
-----------------------------
Name:
Title:
BORROWER:
[ ]
-----------------------------
By
-----------------------------
Name:
Title:
EXHIBIT A
---------
MANAGEMENT AGREEMENT
SCHEDULE XI
-----------
MANAGEMENT AGREEMENTS
1. Amended and Restated Management Agreement between Winston
Hospitality, Inc. and Interstate Management & Investment Corp, as
Operator, dated November 11, 1996 for Comfort Inn - Charleston,
North Carolina.
2. Amended and Restated Management Agreement between Winston
Hospitality, Inc. and Interstate Management & Investment Corp, as
Operator, dated November 11, 1996 for Hampton Inn - Raleigh,
North Carolina.
3. Amended and Restated Management Agreement between Winston
Hospitality, Inc. and Interstate Management & Investment Corp, as
Operator, dated November 11, 1996 for Comfort Inn - Durham, North
Carolina.
4. Amended and Restated Management Agreement between Winston
Hospitality, Inc. and Interstate Management & Investment Corp, as
Operator, dated November 11, 1996 for Quality Inn - Charleston,
North Carolina.
SCHEDULE XII
------------
MARRIOTT FRANCHISE AGREEMENTS
1. Franchise Agreement between Marriott International, Inc. and
Hotel II Inc., dated November 9, 1996 for Courtyard Marriott -
Wilmington, North Carolina as subsequently assigned to Capstar
Winston Company, L.L.C. on November 17, 1997.
2. Franchise Agreement between Marriott International, Inc. and
Capstar Winston Company, L.L.C., dated March 6, 1998 for
Residence Inn - Phoenix, Arizona.
3. Franchise Agreement between Marriott International, Inc. and
White Lodging Services Corporation, dated January 10, 1992 for
Courtyard Marriott - Ann Arbor, Michigan as subsequently assigned
to Capstar Winston Company, L.L.C. on November 17, 1997.
SCHEDULE XIII
-------------
MARRIOTT OWNER AGREEMENTS
1. Courtyard by Marriott Owner Agreement among Marriott
International, Inc., Winston Hospitality, Inc. and WINN Limited
Partnership dated September 16, 1997 for Courtyard Marriott -
Wilmington, North Carolina, as subsequently assigned to CapStar
Winston Company, L.L.C. on November 17, 1997.
2. Residence Inn by Marriott Owner Agreement among Marriott
International, Inc., CapStar Winston Company, L.L.C. and WINN
Limited Partnership dated March , 1998 for Residence Inn -
---
Phoenix, Arizona.
3. Courtyard by Marriott Owner Agreement among Marriott
International, Inc., Winston Hospitality, Inc. and WINN Limited
Partnership dated September 30, 1997 for Courtyard Marriott - Ann
Arbor, Michigan, as subsequently assigned to CapStar Winston
Company, L.L.C. on November 17, 1997.
PROMISSORY NOTE
---------------
$71,000,000 November 3, 1998
For value received, WINSTON SPE LLC, a Virginia limited
liability company ("Borrower"), promises and agrees to pay to the
order of CMF CAPITAL COMPANY, LLC, a Delaware limited liability
company ("Lender"), in lawful money of the United States of
America, the principal sum of Seventy-One Million and No/100
Dollars ($71,000,000) or so much thereof as may be outstanding
under the Loan Agreement of even date herewith between Borrower
and Lender (as the same may be hereafter amended, modified,
restated, renewed or replaced, the "LOAN AGREEMENT"), with
interest on the unpaid principal sum owing thereunder at the rate
or rates or in the amounts computed in accordance with the Loan
Agreement, together with all other amounts due Lender under the
Loan Agreement, all payable in the manner and at the time or
times provided in the Loan Agreement. Capitalized terms used
herein, but not defined, shall have the meanings assigned to them
in the Loan Agreement.
If not sooner due and payable in accordance with the
Loan Agreement, Borrower shall pay to Lender all amounts due and
unpaid under the Loan Agreement on December 1, 2023, or on any
earlier Maturity Date as set forth in the Loan Agreement. Unless
otherwise specified in writing by Lender, all payments hereunder
shall be paid to Lender at its principal place of business at 227
West Monroe, Suite 4000, Chicago, Illinois 60606, or at such
place as the holder hereof may from time to time designate in
writing. Lender reserves the right to require any payment on
this Note, whether such payment is a regular installment,
prepayment or final payment, to be by wired federal funds or
other immediately available funds.
Borrower, co-makers, sureties, endorsers and
guarantors, and each of them, expressly waive demand and
presentment for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, notice of intent to accelerate the
maturity hereof, notice of the acceleration of the maturity
hereof, bringing of suit and diligence in taking any action to
collect amounts called for hereunder and in the handling of
securities at any time existing in connection herewith; subject
to Article 13 of the Loan Agreement, such parties are and shall
be jointly, severally, directly and primarily liable for the
payment of all sums owing and to be owing hereon, regardless of
any right, lien, interest or property at any and all times
existing as security for any amount called for hereunder;
provided, however, that the liability of the Joinder Party
hereunder shall be as set forth in the Joinder attached to the
Loan Agreement.
This Note evidences all advances made, interest due and
all amounts otherwise owed to Lender under the Loan Agreement.
This Note is executed in conjunction with the Loan Agreement and
is secured by the liens and security interests created under the
Loan Documents (including those arising under the Mortgages).
Reference is made to the Loan Agreement for provisions relating
to repayment of the indebtedness evidenced by this Note,
including mandatory repayment, acceleration following default,
late charges, default rate of interest, limitations on interest,
and restrictions on prepayment.
Borrower's liability hereunder is subject to the
limitation on liability provisions of Article 13 of the Loan
Agreement. This Note has been executed and delivered in and
shall be construed in accordance with and governed by the laws of
the State of New York and of the United States of America.
Documentary stamps in the amount of $43,575.00 have
been paid and affixed to the original Mortgage (to be recorded in
the Public Records of Orange County, Florida) of even date
herewith which secures, with other collateral, this Note.
[NO FURTHER TEXT ON THIS PAGE]
Executed under seal as of the date first written above.
WINSTON SPE LLC,
a Virginia limited liability
company
By: Winston Manager Corporation,
a Virginia corporation,
Witness: its managing member
By:
- ----------------------- --------------------------
Name: Joseph V. Green
Vice President
Pay to the order of , without
-----------------------------
recourse.
CMF CAPITAL COMPANY, LLC
a Delaware limited liability company
By:
-----------------------------------
Name:
Title:
